Did you ever think a trade bill would impact you or your business? If not, think again. Congress passed two trade bills in July with important tax changes affecting both individuals and businesses. These changes include increased information return penalties, enhanced requirements to claim education credits, and limits to the child tax credit.
This bill will impact businesses by increasing the penalties to taxpayers who fail to file correct information returns (Form 1099) or don’t provide a payee with a correct copy, which can be substantial in the case of multiple non-filed forms. The penalty increased from $100 to $250 per non-filed form, with the maximum annual penalty increasing from $1.5 million to $3 million. If the filing was corrected within 30 days, the filer was subject to a $30 penalty; it’s now $50. If the IRS considers the non-reporting to be intentional, the penalty jumps from $250 to $500 per form. These new penalties apply to filings after 2015.
The Trade Preferences Extension Act will also require individuals to have a copy of their tuition statement (Form 1098-T) in order to claim an education credit or a tuition and fees deduction on their return. This means that if you’re eligible for one of these credits or deductions, you’ll need to wait until you receive a copy of the 1098-T before filing your 2015 tax return. Your refund may be delayed in the process.
As a U.S. citizen or resident living abroad, you may be eligible to exclude certain foreign earned income and foreign housing costs from your U.S. taxable income. Under the Trade Preferences Extension Act, individuals who elect to exclude income or housing costs won’t be able to claim the refundable portion of the child tax credit for the tax year.
If you feel you may be impacted by these changes, please contact us to discuss your tax planning needs.