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Tuesday January 16, 2018

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Free File Now Available

Twelve national tax software firms have joined the IRS Free File Program. On www.irs.gov the "Free File Now Open" link takes taxpayers to the Free File page. People with 2016 adjusted gross income (AGI) of $64,000 or less may use Free File.

If you have income greater than $64,000, you may still use the Free File Fillable Forms. These are the IRS electronic version of the paper tax forms.

IRS Commissioner Koskinen encouraged taxpayers to use the Free File program. He stated, "You do not have to be an expert on taxes. Free File software can help walk you through the steps and help you get it right. For fourteen years, this partnership between the IRS and the Free File Alliance has helped taxpayers prepare and file their federal taxes for free."

The Executive Director of the Free File Alliance is Tim Hugo. He commented, "We are proud to once again offer the industry's most innovative and secure tax software at no cost to 70% of American taxpayers. Tax time can be stressful, but Free File makes step-by-step help accessible to everyone making $64,000 or less."

The twelve companies in the Free File Alliance offer the federal and, in some cases, state tax returns. Some companies have no fee for state returns and others charge a fee. If you are a resident of Alaska, Florida, South Dakota, Texas, Washington or Wyoming, there is no state income tax and therefore no filing is required.

Taxpayers may go to www.irs.gov and select the Free File link. The page is available in either English or Spanish. After reading the explanation, you may click on the link to www.irs.gov/FreeFile and use the Free File software.

The Free File tax software includes the full range of IRS Forms 1040, 1040A or 1040EZ. On the Free File page, select the "Below $64,000" link and view the page with the twelve types of software. You also may choose to use the Free File Software Look Up Tool. If you enter basic information on the secure site, it will help you select one of the programs. The secure site uses encryption for data sent from your computer to the IRS computer.

Active duty military may use any of the twelve software programs if their income is $64,000 or less. Other taxpayers should view the requirements, which are different for each software program.

Free File may also help you with your health care coverage. Taxpayers must either have qualifying Affordable Care Act coverage, claim an exemption or make a Shared Responsibility Payment.

The Free File Alliance works with the IRS Security Summit to make appropriate use of secure websites, encryption for information transferred over the internet and other methods to protect the security of taxpayers.

Ryan and Brady Promote Tax Reform

As the new administration moves into the White House, Speaker of the House Paul Ryan (R-WI) affirmed the plan to reform taxes by broadening the base and lowering the rates.

In a national media town hall, he stated, "Number one, we are going to get those tax rates down, but number two, with all these other countries, almost all our competitors do is they have a tax system where they border-adjust their taxes. When they make something to sell overseas into America, they take the tax off of it and then it comes into America and its tax free. If we make something we tax it and send it to those countries and as it goes into their country they tax it." Ryan claimed that it is time to "level the playing field" with a border adjustable tax.

Chairman of the House Ways and Means Committee Kevin Brady (R-TX) published an article with the title "To Compete and Win Worldwide We Must End the Made in America Export Tax."

In the article, Brady noted that America's "major international competitors in Europe, Asia and even here in North America with Canada and Mexico" all use a "border-adjustable" tax. He suggested, "It is time for our nation to do the same by ending the 'Made in America' export tax. That is exactly what House Republicans are proposing as part of our bold plan for pro-growth tax reform."

Editor's Note: President Trump recently stated that the border adjustable tax was very "complicated." Speaker Ryan and Chairman Brady are continuing their vocal support of this tax. It appears that the tax bill planned for markup by the House Ways and Means Committee in March or April will include this tax. The House continues to hope to complete action on a comprehensive tax reform bill before mid-year. With the structure and rules of the Senate, action could take place mid-year or in the fall of 2017.

Mnuchin Supports Revenue-Neutral Tax Reform

At a January 19 Senate Finance Committee confirmation hearing for Treasury Secretary Nominee Steven Mnuchin, the primary topic was tax reform. Mnuchin has a background in private business, banking and hedge fund management. He also headed the Trump campaign finance and tax group.

Mnuchin indicated his primary goals are to "unleash that power to generate jobs and create abundance for Americans of all backgrounds. We will work diligently to limit regulations, lower taxes on hardworking Americans and small businesses, and get the engine of economic growth firing on all cylinders once again." Mnuchin also indicated that he will focus on cyber security for the IRS and the Department of Treasury.

Senate Finance Committee Orrin Hatch (R-UT) pointed out that the Treasury Secretary "will be tasked with advancing policies that will improve our nation's economic and fiscal outlook." In addition to the significant changes in tax reform, Hatch expressed a hope that Mnuchin would assist in "the advancement of pro-growth trade policies."

The Ranking Member of the Senate Finance Committee is Sen. Ron Wyden (D-OR). He expressed great concern over inequality of the tax system. Wyden stated, "The person who leads the Treasury Department has influence over Americans' paychecks and mortgages, the caliber of job opportunities they face, the safety and stability of the financial system that holds and invests their hard-earned dollars, and much more. They have the power to help reduce decades of yawning inequality that have hollowed out the middle class, dimmed the hopes of younger generations and left millions buried in debt."

Editor's Note: Mnuchin is still waiting for votes by the Senate Finance Committee and the full Senate before he can be confirmed. It is significant that Ryan, Brady and Mnuchin all are supporting revenue-neutral tax reform. They will be helped by the use of dynamic scoring by the Joint Committee on Taxation (JCT). It still will be a challenge when there is an actual bill scored by JCT. They will have to reduce or eliminate substantial deductions in order to lower rates and still be revenue neutral. Charities are rallying to a call by the Charitable Giving Coalition to protect the charitable deduction. The Coalition is sponsoring a Washington DC fly-in on February 16. There is information on the fly-in on the Association of Fundraising Professionals website at www.afpnet.org.

Applicable Federal Rate of 2.6% for February -- Rev. Rul. 2017-4; 2017-6 IRB 1 (19 Jan 2017)

The IRS has announced the Applicable Federal Rate (AFR) for February of 2017. The AFR under Section 7520 for the month of February will be 2.6%. The rates for January of 2.4% or December of 1.8% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2017, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.

Published January 20, 2017
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