IRS Form 941 is a tax form that businesses file quarterly. It is how businesses report income taxes as well as payroll taxes, Social Security, and Medicare taxes that the business withheld from employee paychecks over the previous tax year. Filing deadlines are the last day of January, April, July, and October of any given year.

On the form, you have to account for the following: 

• Wages paid by the company
• Tips that employees reported to the company
• Federal income tax the company withheld from employees’ paychecks
• Employer and employee shares of Social Security and Medicare taxes
• Additional Medicare tax that was withheld from employee paychecks
• Current quarter adjustments to Social Security and Medicare taxes for various items, such as fractions of cents, sick pay, tips, and group-term life insurance
• Qualified small-business tax credit for increasing your company’s research activities

Form 941 tells you how much money you should have remitted or will need to remit to the government to cover your payroll tax responsibilities for the quarter. You may be exempt from filing Form 941 if, for example, you’re a seasonal business that hasn’t had to hire anyone, a business that hires only farm workers, or a company that hires only household employees like maids or nannies.

And there’s one more proviso: If you’re almost certain that you’ll pay $4,000 or less in wages in the coming calendar year, you may choose to submit IRS Form 944 instead, which is designed for very small businesses that report and pay withheld income and payroll taxes once per year instead of quarterly. You’ll need to contact the IRS to get permission before you start using Form 944.

Know your filing details

Should the due date when filing Form 941 fall on a weekend or a holiday, file the form by the next business day. If you’re submitting a payment with your  return, make that clear. Also, identify which quarter you are filing for. If you’ve paid your employment tax deposits in full and on time for the entire quarter being covered by the return, then you have an additional 10 days to file.

Filing Form 941 through the federal e-File system is the fastest way to do so. You can make employment tax deposits electronically and use the Electronic Federal Tax Payment System, or EFTPS, for income tax payments.

Deposit employment taxes monthly or semiweekly. You can do so easily because the IRS has a pay-as-you-go system. It’s a good idea to not wait to pay until you file Form 941. However, you can make your payment along with Form 941 if your total tax for the current quarter is less than $2,500 or if you’re a monthly depositor who owes a small balance of no more than $100 or 2% of the total tax due. It depends on whichever value is greater. If you’ve paid the complete amount, your balance due, as declared on line 14 of Form 941, will be $0.
Some states will ask you to file a state form like Form 941 when reporting income withholdings and employer taxes at the state level. Filing federal and state forms on time avoids penalties, like a 5% to 10% fee on deposits that are more than 16 days late. You will likely accrue interest as well. Filing Form 941 late can lead to a penalty of 5% per month or per partial month, up to a fee of 25% at the most.

For more details on compliance and your particular tax situation, contact your BiggsKofford tax expert.

FAFSA Changes shocked girl

(Department of Education, Published August 2016)

There are two exciting changes coming to the Free Application for Federal Student Aid(FAFSA®) process this year.

1. The 2017–18 FAFSA will be available earlier.

You can file your 2017–18 FAFSA as early as Oct. 1, 2016, rather than beginning on Jan. 1, 2017. The earlier submission date will be a permanent change, enabling you to complete and submit a FAFSA as early as October 1 every year.

2. You’ll use earlier income and tax information.

Beginning with the 2017–18 FAFSA, you’ll be required to report income and tax info from an earlier tax year. For example, on the 2017–18 FAFSA, you—and your parent(s), as appropriate—will report your 2015 income and tax info, rather than your 2016 income and tax info.

We understand that some families’ income may have changed significantly since the 2015 tax year. If this is the case for you, you must complete the FAFSA with the info it asks for (2015). Then, after filing your FAFSA, contact the financial aid office at your school to explain your situation. The school has the ability to assess your situation and make adjustments to your FAFSA.

The following table provides a summary of key dates as we transition to using the early FAFSA submission timeframe and earlier tax information.

When a Student Is Attending College (School Year) When a Student Can Submit a FAFSA Which Year’s Income Tax Information Is Required
July 1, 2015–June 30, 2016 January 1, 2015–June 30, 2016 2014
July 1, 2016–June 30, 2017 January 1, 2016–June 30, 2017 2015
July 1, 2017–June 30, 2018 October 1, 2016–June 30, 2018 2015
July 1, 2018–June 30, 2019 October 1, 2017–June 30, 2019 2016

We know you probably have some questions. Here are some we’ve been hearing from students:

How will the changes benefit me?

You might find that the FAFSA process is easier than you expected.

  • From now on, the FAFSA will ask for older income and tax information that you will already have. This change means you won’t have to use estimates anymore, or log in later to update your FAFSA after you file taxes!
  • Because you’ll already have done your 2015 taxes by the time you fill out your 2017–18 FAFSA, you may be able to use the IRS Data Retrieval Tool (IRS DRT) to automatically import your tax information into your FAFSA.
  • Having the FAFSA available three months earlier will give you more time to meet most deadlines (although some will be early, so fill out the FAFSA right away just in case) and to explore and understand your financial aid options.

Since the 2017–18 FAFSA asks for the same tax and income information as the 2016–17 FAFSA, will my 2016–17 FAFSA info automatically be carried over into my 2017–18 renewal FAFSA?

No. Too much could have changed since you filed your last FAFSA, and there’s no way to predict what might be different, so you’ll need to enter the information again. However, keep in mind that many people are eligible to use the IRS Data Retrieval Tool to automatically import their 2015 tax information into the FAFSA, making the process of reporting tax info quick and easy.

Do I have to update my 2017–18 FAFSA with my 2016 tax information after I file my 2016 taxes?

No. The 2017–18 FAFSA asks for 2015 tax info, and only 2015. Beginning October 1, you can fully submit the FAFSA in one sitting using your 2015 tax info. No updating necessary. (Hooray!)

But what if my family’s financial situation has changed since our 2015 taxes were filed? Can we report our 2016 tax information instead?

No. You must report your 2015 tax info on the 2017–18 FAFSA. You do not have the option to report your 2016 tax info. If your family has experienced a loss of income since the 2015 tax year, talk to the financial aid office at your school. They have the ability to assess your situation and make adjustments.

Note: The FAFSA asks for marital status as of the day you fill it out. So if you’re married now but weren’t in 2015 (and therefore didn’t file taxes as married), you’ll need to add your spouse’s income to your FAFSA.

Similarly, if you filed your 2015 taxes as married but you’re no longer married when you fill out the FAFSA, you’ll need to subtract your spouse’s income.

Since I’m required to report my 2015 tax information, do I also answer all the other questions on the FAFSA using information from 2015?

No. Here’s a guide for which year’s info you should use to answer the different types of questions on the FAFSA.

Will FAFSA deadlines be earlier since the application is launching earlier?

We expect that most state and school deadlines will remain approximately the same as in 2016–17. However, several states that offer first come, first served financial aid will change their deadlines from “as soon as possible after January 1” to “as soon as possible after October 1.” So, as always, it’s important that you check your state and school deadlines so that you don’t miss out on any aid. State deadlines are on; school deadlines are on schools’ websites.

Can I fill out the FAFSA before I submit my college applications?

Yes, you can fill out the FAFSA even before you’ve submitted your college applications. Add every school you’re considering to your FAFSA, even if you haven’t applied or been accepted yet. Even if you’re on the fence about applying to a particular school, add it. It will hold your place in line for financial aid in case you end up applying for admission at that school. You can always remove schools later if you decide not to apply (but you don’t have to).

Will I receive aid offers earlier if I apply earlier?

Not necessarily; some schools will make offers earlier while others won’t. If you’re applying to multiple schools or thinking of transferring to another school, you might want to look at the College Scorecard to compare costs at different schools while you wait for your aid offers to arrive. Note: You should be aware that the maximum Federal Pell Grant for 2017–18 might not be known until early 2017, so keep in mind that even if you do receive an aid offer early, it could change due to various factors.

Where can I get more information about—and help with—the FAFSA?

Visit; and remember, as you fill out your FAFSA, you can refer to help text for every question and (during certain times of day) chat online with a customer service representative.

Have questions about the new FAFSA deadline? Call us at 719-579-9090. We are here to help!

(Journal of Accountancy, By Sally P. Schreiber; Published September 2016)

The IRS notified tax practitioners and taxpayers who use many IRS e-services that it is strengthening the authentication process for identifying users and that the new, more stringent procedures will require existing users to re-register (Oct. 24 is the target date for the start of re-registration).

Any current e-account holder is affected, which the IRS said includes:

  • Electronic return originators;
  • Return transmitters;
  • Large business taxpayers required to e-file;
  • Software developers;
  • Health care law insurance provider fee/branded prescription drug filers;
  • Health care law information return transmitters/issuers;
  • Reporting agents;
  • Not-for-profit (Volunteer Income Tax Assistance (VITA), Tax Counseling for the Elderly (TCE), and Low Income Taxpayer Clinic (LITC)) users;
  • States that use Transcript Delivery Service; and
  • Income Verification Express Service (IVES) participants.

E-services account holders who use only the taxpayer identification number (TIN) matching program will also need to validate their identity but will have a streamlined process because they do not exchange sensitive data. (TIN matching allows payers reporting payments on Forms 1099 to check the payee’s TIN with the IRS before filing.)

Current users who return to their accounts on or after Oct. 24 will be required to update their account information through the IRS’s “Secure Access” process, which includes proving the user’s identity, verification using financial records, and mobile phone verification. Secure Access employs a two-factor authentication process, under which returning users, once they have successfully registered, must provide their credentials (username and password) and the security code sent to their mobile phone by text. These are the same procedures that already apply to the Get Transcript process and the identity protection personal identification number (IP PIN) process for identity theft victims.

This two-factor authentication process is intended to prevent cybercriminals from accessing the accounts when they obtain usernames and passwords through phishing.

Users who have already registered through Get Transcript will not have to re-register for these other services, but they will have to change their password when they return to the website. They should be aware that they will have the same username for their personal accounts, such as a Get Transcript account, as they do for e-services. To help users with the new authentication process, the IRS is hiring additional staff to assist at the e-Help Desk.

Angela_Lindblad 4x5BiggsKofford, P.C., announces the promotion of Angela Lindblad, CPA, to Manager, in the firm’s tax department.  Lindblad joined the firm in January 2012.

Lindblad is a graduate from the University of Colorado Colorado Springs, where she earned her Bachelor of Science degree in Accounting. Lindblad earned her CPA certificate in January of 2015. In addition to accounting, Lindblad enjoys spending time with her family, hiking and reading.

“Angie demonstrates the firm values of personalized service,” said Deborah Helton, Director at BiggsKofford. “It is great to have employees like her contribute to our firm’s growth.”

Founded in 1982, Colorado Springs-based BiggsKofford currently employs more than 25 people. BiggsKofford offers integrated business solutions, including tax, accounting, merger and acquisitions consulting, business valuation and litigation support. BiggsKofford has expanded its services to meet the changing needs of over 500 business owners and entrepreneurs in Colorado’s Front Range.

Media, contact Jenn Watton at (719) 579-9090 for more information.

(Journal of Accountancy By: Sally P. Schreiber; Published March 1, 2016)

Payroll and human resources departments should beware of an email phishing scheme in which cybercriminals pose as company executives (including CEOs) and ask for confidential employee information, such as Forms W-2, Wage and Tax Statement, and employees’ Social Security numbers, address, date of birth, and salary, the IRS warned on Tuesday. Once this information has been stolen, it can be used to commit a number of crimes, including filing fraudulent tax returns to obtain refunds.

“This is a new twist on an old scheme using the cover of the tax season and W-2 filings to try tricking people into sharing personal data. Now the criminals are focusing their schemes on company payroll departments,” IRS Commissioner John Koskinen said in a prepared statement. The fraudulent emails use what is called “spoofing,” which makes it appear the messages are from company executives, and often contain the name of the company’s CEO. Payroll departments are warned not to respond to these emails without being sure of who they are sending this information to.

The IRS says its Criminal Investigation division is reviewing several cases in which this latest variation on phishing has tricked people into supplying confidential employee information to cybercriminals.

The IRS recently reported detecting a 400% surge in email phishing schemes and malware attacks this tax season. It reminded taxpayers to be vigilant in protecting their personal information. Phishing schemes recently made the IRS’s annual “dirty dozen” list of top tax scams (see prior coverage here).

If you have questions about any of these scams, BiggsKofford is here to help. Call us at 719-579-9090 or send us an email to

(Journal of Accountancy By: Paul Bonner; Published February 26, 2016)

Another 390,000 taxpayer accounts have been identified as potentially accessed by thieves that hacked into the IRS’s “Get Transcript” online application, the IRS said Friday, bringing the total number of accounts affected to approximately 724,000.

The breach was discovered last May, when the IRS initially identified possible unauthorized access of about 114,000 taxpayer accounts. Then, last August, the IRS revised that figure to 334,000. The application on the IRS website, launched in January 2014, was intended to allow taxpayers to more easily obtain records of their prior tax filings. It has remained suspended since the data breach was first discovered.

Friday’s revelation of the additional accounts potentially breached was the result of a nine-month investigation by the Treasury Inspector General for Tax Administration. In addition, the investigation revealed hackers had targeted another 295,000 taxpayer transcripts but failed to gain access to them.

As in the previous discoveries, the IRS said it will notify taxpayers whose accounts may have been accessed, allowing them to request identity protection personal identification numbers for more secure tax filings, offering free credit report fraud monitoring for a year, and more closely scrutinizing returns with those Social Security numbers.

The latest revelation also comes just days after the IRS also revealed that it had discovered and stopped an attempted attack on its e-filing personal identification number (PIN) system in January. No personal taxpayer data were compromised in that attempted breach, the IRS said.

We hope this information is helpful. If you would like more details about the hacks, please do not hesitate to call Greg Gandy or Michael McDevitt at 719-579-9090.

(Journal of Accountancy By: Sally P. Schreiber; Published February 17, 2016)

Every year, the IRS releases a list of what it calls the worst tax scams of the year. Beginning Feb. 1 and ending on Feb. 17, the IRS issued a news release each day highlighting a scam. These “dirty dozen” scams can be encountered at any time of year, but the IRS reports that they peak during tax season.

1. Identity theft

According to the IRS, the No. 1 scam this year is tax-related identity theft, which the IRS defines as when someone uses a taxpayer’s stolen Social Security number to file a tax return claiming a fraudulent refund (IR-2016-12). Although the IRS has introduced more effective screening and detection systems that are designed to detect identity theft before it issues a refund, the Service admitted that it is still a major problem. To fight the problem more effectively, over the past year, the IRS has participated in a Security Summit initiative in partnership with states and the tax-preparation industry to try to improve security for taxpayers. The participants share information of fraudulent schemes that have been detected this filing season to provide increased protection. More than 20 data elements are used, unknown to taxpayers, to verify tax return information.

In addition, the IRS urged taxpayers to protect their own information so it is harder for thieves to breach the IRS’s security systems. These efforts at taxpayer education include the Taxes. Security. Together. campaign to help taxpayers avoid the data breaches that make it easier for them to become victims.

2. Phone scams

The second scam this year is phone scams, in which criminals call, impersonating the IRS (IR-2016-14). Many times, they disguise the number they are calling from so it appears to be the IRS or another agency calling, and they may threaten arrest, deportation, or license revocation. The scammers sometimes use IRS titles and fake badge numbers to appear legitimate and use the victim’s name, address, and other personal information, which makes the call sound official.

To protect themselves, the IRS says, taxpayers should be aware the IRS will never call to demand immediate payment, call about taxes owed without first having mailed a bill, call to demand payment without the opportunity to question or appeal, require use of a specific payment method, such as a prepaid debit card or wire transfer, ask for credit or debit card numbers over the phone, or threaten to bring in local police or other law enforcement to arrest a taxpayer for not paying.

3. Phishing

Another scam that continues to appear high on the list is “phishing,” in which taxpayers get unsolicited emails seeking financial or personal information. A taxpayer who receives a suspicious email should send it to “The IRS won’t send you an email about a bill or refund out of the blue,” said IRS Commissioner John Koskinen (IR-2016-15). Scam emails can also infect a computer with malware without the taxpayer’s knowing it, often enabling the criminals to access sensitive files or track keyboard strokes, exposing login information.

4. Return preparer fraud

Return preparer fraud involves “dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers” (IR-2016-16). The IRS warned taxpayers to be wary of “unscrupulous preparers who prey on unsuspecting taxpayers with outlandish promises of overly large refunds,” which is why the IRS says this scam makes it onto the list every year.

“Choose your tax return preparer carefully because you entrust them with your private financial information that needs to be protected,” Koskinen said. The IRS provides a number of tips for taxpayers to choose competent preparers, including checking what the preparer’s credentials are, making sure the preparer will be available after filing season, and ensuring that the taxpayer’s refund is deposited into the taxpayer’s account, not the preparer’s. The IRS recommends avoiding preparers who base their fees on a percentage of the refund or promise larger refunds than other preparers.

5. Hiding money or income offshore

Hiding money or income offshore, which is a major focus of IRS enforcement efforts, is the next tax scam the IRS addressed (IR-2016-17). “Our continued enforcement actions should discourage anyone from trying to illegally hide money and income offshore,” Koskinen said. As the IRS explained, there are legitimate reasons that taxpayers have foreign accounts, but these accounts trigger reporting requirements. The IRS offers a number of programs, including the Offshore Voluntary Disclosure Program, for taxpayers to come into compliance with these requirements. The IRS noted that the heightened reporting required under the Foreign Account Tax Compliance Act, which went into effect in 2015, makes it even harder for taxpayers to conceal assets overseas.

6. Inflated refund claims

Another scam that is closely related to return preparer fraud is inflated refund claims, in which unscrupulous preparers set up shop to lure unsuspecting taxpayers (IR-2016-18). “Be wary of tax preparers that tout outlandish refunds based on federal benefits or tax credits you’ve never heard of or weren’t eligible to claim in the past,” Koskinen said.

Inflated refund claims often involve claims for tax credits that taxpayers are not entitled to, such as education credits, the earned income tax credit (EITC), or the American opportunity tax credit. The IRS reminds taxpayers that they are responsible for what is on their return, even if someone else prepares it, and they can be assessed penalties and interest as well as additional tax.

7. Fake charities

Next on the list is fake charities. Taxpayers are cautioned to check the Exempt Organizations Select Check on the IRS’s website to determine whether a charity is bona fide and qualifies for deductible contributions (IR-2016-20). Legitimate charities should be willing to give donors their employer identification numbers, which can then be used to check whether the charities are qualified on the IRS website. Fake charities often use names similar to well-known organizations and may set up fake websites. They also can be used for identity theft purposes. When large-scale natural disasters occur, these fraudulent organizations tend to increase, the IRS reports, and it warns that taxpayers should not make any contributions without checking first.

8. Falsely padding deductions

No. 8 on the list is falsely padding deductions (IR-2016-21), which consists of deceitfully inflating deductions or expenses on the return to pay less tax or receive a bigger refund. This item is new to the dirty dozen list this year. The IRS warns taxpayers that they should “think twice” before overstating their charitable contribution expenses or padding their business expenses, as well as avoid claiming credits they are not entitled to, such as the EITC and the child tax credit. Taxpayers who do this may be subject to substantial penalties and may, in some cases, face criminal prosecution.

9. Excessive claims for business credits

The next item on the list, excessive claims for business credits, expands on last year’s “excessive claims for fuel credits” (IR-2016-22). This scam involves two specific false claims for credits: fraudulent claims for refunds of fuel excise tax and bogus claims for the research tax credit. The IRS says that its refund fraud filters are stopping a number of fraudulent fuel excise tax refunds this year.

10. Falsifying income to claim tax credits

Tenth on the list is falsifying income to claim tax credits (IR-2016-23). This usually involves falsely claiming higher earned income to qualify for the EITC, which is a refundable credit. Unscrupulous preparers often do this to get taxpayers larger refunds than they are entitled to. Even when taxpayers are unaware of these false claims, they are, as the IRS reminds again, responsible for what is on their tax return. They can be subject to significant penalties, interest, and possibly prosecution.

11. Abusive tax shelters

No. 11 is participating in abusive tax shelters (IR-2016-25). Abusive tax shelters are defined as schemes using multiple flowthrough entities to evade taxes. They often use limited liability companies, limited liability partnerships, international business companies, foreign financial accounts, offshore credit or debit cards, and multilayer transactions to conceal who owns the income or assets.

The IRS also mentions the misuse of trusts and captive insurance companies among the types of transactions taxpayers should avoid. As in some of the other scams, the IRS warns that participating in these transactions can result in significant penalties and interest and “possible criminal prosecution.” According to Koskinen, “These schemes can end up costing taxpayers more in back taxes, penalties, and interest than they saved in the first place.”

12. Frivolous tax arguments

The final “scam” is frivolous tax arguments, which the IRS warns taxpayers not to be talked into (IR-2016-27). Announcing the release today of the 2016 version of its webpage, “The Truth About Frivolous Tax Arguments,” the IRS explained how the courts and the IRS have treated these arguments, which involve claims such as that the only employees subject to income tax are employees of the federal government or that only foreign income is taxable. “Taxpayers should avoid unscrupulous promoters of false tax-avoidance arguments because taxpayers end up paying what they owe plus potential penalties and interest mandated by law,” Koskinen said. The IRS reminded taxpayers that they would automatically be subject to the $5,000 penalty for frivolous tax positions.

If you have any questions regarding this, please to not hesitate to contact Greg Gandy or Mike McDevitt at (719) 579-9090.

(Journal of Accountancy By: Sally P. Schreiber; Published February 10, 2016)

The IRS revealed on Tuesday that it discovered and stopped an automated cyberattack on its e-filing personal identification number (PIN) system last month. According to the IRS, the cybercriminals used information stolen “elsewhere outside the IRS” to generate e-file PINs for stolen Social Security numbers (SSNs). E-file PINs are used by some taxpayers to electronically file their tax returns.

Although no personal taxpayer data were compromised or disclosed by the breach, the IRS noted that the cybercriminals succeeded in using 101,000 SSNs to access e-file PINs (out of 464,000 attempts).

The IRS is notifying the affected taxpayers and placing tax return identity theft markers on their accounts. It is also continuing to closely monitor the Electronic Filing PIN application against further breaches.

The IRS also said it is working with other agencies and the Treasury Inspector General for Tax Administration to assess the problem and has shared information with Security Summit state and industry partners. It said the breach was not related to last week’s e-filing shutdown.

The news follows closely on last summer’s announcement that a breach of the IRS Get Transcript system resulted in the theft of some 334,000 taxpayers’ tax data (see prior coverage here).

If you have any questions regarding the IRS hack, please contact us at 719-579-9090. If you have been notified that your identity has been breached, please read here.

Renting out residential property can be a great investment considering real estate market trends and favorable tax rules. Being able to take advantage of many tax deductions, which are not available for other types of investments, could make it even more lucrative.  However, it can be stressful, challenging and involves additional financial obligations. Furthermore, there are a lot of tax rules that must be followed in order to report rental activity properly, and there are many deductions that can be overlooked.

So, what can you deduct?

Most know about deducting mortgage interest, insurance, property taxes, repairs and maintenance, association fees, utilities and so forth, but there is much more to be taken into account.

Get Expert Rental Property Tax Advice


Besides mortgage interest, a landlord can deduct interest paid on other business related expenses, such as business loans taken to improve a rental property, car loan payments (but only the part used for business purposes), and the interest paid on credit cards used solely for business purposes.

Claim your home office

Sometimes we do not think about rental property as a regular business, but it is. If you have a room specifically dedicated for rental activities, you can deduct a portion of house expenses against rental income. A portion of deductible expenses can be calculated either by multiplying business percentage (the office’s square footage divided by the square footage of the entire house) by actual total expenses or using a standard rate allowed by the IRS: $5 per square foot with a maximum of 300 square feet.

Track your mileage and travel expenses

If you use personal vehicle for such rental activities as buying supplies, picking up rent or showing the property to potential renters, a portion of vehicle expenses is deductible. You can either deduct actual expenses based on business use percentage or apply standard mileage rate to total business miles driven during the year (there are some limitations on using standard mileage rate).

If you travel overnight for your rental activity, you can deduct airfare, hotel bills and meals. Remember to keep detailed and accurate records and supporting documentation to substantiate both automobile and travel expenses.

Improvement vs. Repairs

Beware that the IRS makes a distinction between improvement and repairs. Repairs and maintenance expenses are considered work that is necessary to keep your property “in good working condition” and can be fully deducted in the year they are incurred. On the other hand, improvements to the rental property should be capitalized and depreciated over its useful life. However, depreciation of the cost of residential building can be a nice benefit sheltering some of your cash flow from taxes. Generally, for something to be considered depreciable, it has to make your property either bigger, add significant value to a property or increase its useful life.

To maximize repair deduction, you can try to fix and restore, if possible, instead of replacing. A replacement is almost always an improvement for tax deduction purposes. For example, if the roof is damaged, do not replace the whole roof, repair or replace only the damaged part. Repairs are usually much cheaper than replacements, however, consider the fact that sometimes it makes more economic sense to replace and you may be able to charge more rent for a unit with new appliances, carpets, etc.

Passive Loss Rules

Generally, owning rental property is considered a passive activity. In short, it means that losses incurred are limited against other types of income. Passive losses in excess of passive income are suspended until you either have more passive income or you sell the property that produced the losses. This means that rental property loss deductions can be postponed, sometimes for many years. There are certain exceptions to this rule. First, if you are considered a real estate professional, rental real estate activities are not considered passive. Second, if you are considered actively involved in your rental activity, you can deduct up to $25,000 in passive rental losses if you make under $100,000.

Self-Employment Tax and High Income Medicare Surtax

More good news; rental income is not subject to self-employment tax, which applies to most other unincorporated profit-making ventures. However, according to a provision in the health care legislation, rental income and gain from the sale of investment real estate can be subject to new 3.8% Medicare surtax on net investment income.

When you sell

When you sell a property you have owned for more than one year, the profit is generally treated as a long-term capital gain. As such, it will be taxed at favorable rates. However, part of the gain—an amount equal to the cumulative depreciation deductions claimed for the property—may be subject to recapture rules and higher tax rates. Remember that you may also owe state income tax on real estate gains.

You also have the option of selling appreciated real estate on the installment plan. Then, your taxable gain can be spread over several years. Further, suspended passive losses can be used to shelter gains from selling appreciated properties.

On the other hand, it is important to remember that rental property appreciation is not taxed until you actually sell. Good properties can generate the kind of tax-deferred growth that investors dream about. Finally, so-called “like-kind exchanges,” also known as “Section 1031 exchanges,” allow real estate owners to unload appreciated properties while deferring the federal income tax. In short, you exchange the property you want to dispose of for another property. If you adhere to the like-kind exchange rules, you are allowed to defer paying taxes until you sell the replacement property.

As you can see, tax rules for landlords can be very favorable, even though they can become somewhat complicated depending on an individual situation.


Contact BiggsKofford to Learn What Deductions are Beneficial to You

Unfortunately, the tax credit for buying a hybrid car is gone. However, if you are ready to switch to a plug-in hybrid or electric car, you might be eligible for up to $7,500 in Federal and $6,000 in Colorado tax credits. This combination can reduce the cost of such models; however, there are several things to keep in mind.

Both credits can be confusing to understand, have recently changed and are very different in terms of the types of vehicles that qualify for the credit and other requirements. We will focus on qualified plug-in hybrids and electric cars only.

Not all electric vehicles and plug-ins qualify.

In order to qualify for the Federal credit, the vehicle must be a qualified vehicle (a buyer can generally rely on the manufacturer’s representation that the vehicle is eligible), comply with the legal definition of a motor vehicle as per the Clean Air Act, title II and have gross vehicle weight of less than 14,000 pounds. Moreover, the federal credit begins to phase out for a manufacturer’s vehicles when at least 200,000 qualifying vehicles have been sold for use in the United States. Be sure to check IRS website for qualified vehicles, credit amount and quarterly sales by manufacturer:

In order to qualify for the Colorado credit, the vehicle must meet multiple criteria as well, including gross vehicle weight rating of 8,500 pounds or less, Colorado title and registration, maximum speed, etc. Be sure the vehicle meets all the criteria and check a list of makes and models that the department has already evaluated for credit eligibility: While Colorado does not cap the number of credits it awards, the credit is set to expire on January 1, 2022.

Credit amount varies.

The Federal credit depends on the size of the battery in the car. To qualify a vehicle must have a battery pack with a capacity of at least 4 kilowatt hours (kWh) and be capable of being recharged from external. Provided it meets all the other qualifications, the federal government allows a credit of $2,500, plus $417 for a vehicle that has a battery with at least 5 kWh of capacity, and then an additional $417 for each additional kWh up to $7,500.

The Colorado credit is calculated based upon the vehicle’s manufacturer’s suggested retail price or the cost of the used vehicle or the leased value of the vehicle and battery capacity or the conversion cost and an applicable percentage.

Use it or lose it?

The Federal incentive is a nonrefundable credit. While it reduces your tax liability dollar-for-dollar, it cannot reduce your tax balance beyond zero. No refunds or carry forwards are allowed. The Colorado credit is more generous and if the credit exceeds the tax due, it will be refunded.

Should you buy it new?

For the Federal credit, the vehicles must be acquired for use or lease to others and not for resale. Additionally, the original use of the vehicle must begin with you and the vehicle must be used predominantly in the United States. Therefore, you must buy a new vehicle and if you lease a vehicle, you cannot claim the credit. Do not forget that you must place the vehicle in service during the tax year to claim the credit.

On the other hand, the vehicle does not have to be new to qualify for the Colorado credit; leased vehicles may qualify as well. Used vehicles are eligible if they have never been registered in Colorado before.

As one can see, there are a lot of moving pieces. Further, special rules may apply to vehicles bought for business use, alternative fuel vehicle, etc. If you have questions regarding Federal and Colorado tax credits for plug-in hybrids and electric cars, we can run your numbers to estimate the benefit you might receive. Call us at 719-579-9090 or send us an email to

The Internal Revenue Service (IRS) has announced that the due date for providing the following 2015 forms have been extended from February 1, 2016 to March 31, 2016:

  • 2015 Form 1095-B – Health Coverage
  • 2015 Form 1095-C – Employer Provided Health Insurance Offer and Coverage

Also, the IRS has announced that the due date for the following forms are extended from Feb. 29, 2016, to May 31, 2016, if not filing electronically, and from March 31, 2016, to June 30, 2016, if filing electronically:

  • 2015 Form 1094-B – Transmittal of Health Coverage Information Returns,
  • 2015 Form 1095-B –Health Coverage
  • 2015 Form 1094-C – Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns
  • 2015 Form 1095-C –Employer-Provided Health Insurance Offer and Coverage

If you have any questions regarding this, please to not hesitate to contact Greg Gandy or Mike McDevitt at (719) 579-9090, and we will be happy to serve you.

Many people today are not tethered to a job location, so they can choose where to live. Those in this category range from retiring Baby Boomers, ready to relocate, to new graduates about to enter the work force. Others who can pick their place of residence include certain self-employed individuals and people who are employed but able to work remotely, thanks to today’s technology.

If you can choose where to live, you might weigh many factors, from desirable weather to the proximity of family and friends. A low cost of living, especially when it comes to housing, also can play a role. Another key living cost will be the level of taxation you’d face in a given state.

Income taxes

When you think of taxes, income tax might be your primary concern. Some states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming) have no personal income tax, whereas New Hampshire and Tennessee tax only certain amounts of investment income. At the other end of the spectrum, many counties, cities, and school districts across the nation impose an income tax, in addition to state tax. For example, it’s common for New York City residents to be in a combined (city and state) income tax bracket of over 10%.

That said, you should look closely at an area’s complete income tax situation before crossing it off your list. Some states offer attractive tax benefits to retirees, including full or partial tax exemptions for Social Security benefits, pensions, and distributions from tax-favored retirement accounts such as IRAs. Thanks to federal legislation, people who relocate to a different state won’t owe tax to their old state on retirement plan distributions. Seniors might owe little tax, even in a supposedly high-tax state, if they have scant earned income or taxable investment income.

In addition, the state or local income tax you pay might be deductible for federal income tax purposes, reducing the effective tax rate.

Example: Walt and Vicki Taylor are in the 25% federal tax bracket. This year, they pay 8% of their $100,000 taxable income in state and local income tax, taking an $8,000 itemized deduction for those outlays. By reducing their federal taxable income by $8,000, the Taylors save $2,000 in tax (the $8,000 deduction times their 25% federal tax rate), reducing their net state and local tax cost from $8,000 to $6,000, or 6% of their income.

That’s a simplified example, as the actual calculation can be complicated. If the Taylors wind up owing the alternative minimum tax (AMT), they’ll get no deduction for their state and local income tax payments, so their actual cost would be 8%. The same is true if the Taylors take the standard deduction, so they don’t deduct their state and local taxes. Our office can help you determine the true income tax rates of a given area.

Other taxes

Although income taxes are certainly noticeable, you shouldn’t focus solely on them. In most states and cities, you’ll owe other types of taxes, which you should include in your comparison.

Previously, an example showed the Taylors owing $8,000 in state and local income tax. If the Taylors are homeowners, they could pay $10,000 or more in property tax, in some areas. Moving to a state with little or no income tax might not be a good choice if the area where you plan to buy a home charges extremely high property tax. Indeed, steep property taxes that increase in the future could make a retirement home unaffordable, forcing you to sell. As is the case with income tax, you should calculate the net cost of property tax payments, after any likely federal tax deduction.

Sales taxes also should be considered. Altogether, comparing taxes from one residential location to another can be complicated. Again, our office can help you estimate your tax burden in an area you’re considering for a new home. Just keep in mind that taxes are only part of the cost of living at a particular address, and the total cost of living is merely one aspect to consider when deciding where to live.

The IRS has announced the official mileage rates for 2016.   The IRS mileage rates for 2016 for the use of a vehicle are:

  • 54 Cents per mile for business use down from 5 cents in 2015.
  • 19 cents per mile for medical reasons or moving purposes down from 23 cents in 2015.
  • 14 cents per mile for charitable purposes which is the same rate as in 2015.

We hope this information is helpful. If you would like more details about these changes or any other aspect of the new law, please do not hesitate to call Greg Gandy or Michael McDevitt at our office at 719-579-9090.

Pension Subtraction

While warmer weather or more sunshine may be a big factor in picking a place to retire, considering state taxes on retirement benefits and other financial factors are significant steps in making such a major decision. Tax treatment of retirement benefits varies widely from state to state. For example, some states exempt all pension or Social Security income, others provide only partial exemption or credits and some tax all retirement income.

Colorado is one of the states that allows a pension/annuity subtraction for taxpayers who are at least 55 years of age and beneficiaries of any age who are receiving a pension or annuity because of the death of the person who earned the pension.

Amount of Subtraction

Qualified taxpayers who are under age 65 can subtract up to $20,000 of the taxable pension income. And taxpayers who are 65 years of age or older can subtract up to $24,000 of the taxable pension income.

If each spouse receives income from a pension or annuity, then each spouse must qualify by age to claim the pension subtraction for their own pension or annuity. Each spouse’s subtraction is computed separately and no part of one spouse’s subtraction may be claimed by the other. However, when a married couple receives Social Security benefits and they file a joint income tax return, Colorado law requires that they prorate the benefits between them.


Learn More About Pension Subtraction from our Experts

Qualifying Income

To qualify for the subtraction, a payment must be:

  • pension or annuity income that is not considered a premature distribution, and
  • reported on the federal return as taxable IRA distributions, pension and annuities, or Social Security benefits , or reported as a lump sum distribution on the Colorado Form 104.

This includes the following:

  • a retirement benefit;
  • a lump sum distribution from a pension or profit sharing plan to the extent such distribution qualifies for the federal tax averaging computation;
  • a distribution from an individual retirement arrangement or a self-employed retirement account;
  • amounts received from a privately purchased annuity;
  • Social Security benefits.

It is important to remember that premature distributions, regardless of the source, do not qualify for the subtraction. And only the portion of the taxable pension or annuity income that is included in federal taxable income qualifies for the subtraction.

Special rules may apply to 457 plan benefits, disability retirement, nonqualified deferred compensation, PERA and DPS benefits, IRA rollovers and trusts/estates. If you have questions regarding Colorado pension subtraction, BiggsKofford, your Colorado Springs CPA Firm, is here to help.

For more information call BiggsKofford at 719-579-9090 or send us an email at

Few people pay exactly the correct amount of income tax during the year. When you filed your return for 2014, you probably discovered that you paid too little (and owed more tax) or paid too much (and could request a refund). Typically, refunds are due to employees who have too much tax withheld from their paychecks.

Example 1: Arlene King is paid twice a month. From each paycheck, her employer withholds $1,000 for federal income tax, so Arlene’s tax payments for 2014 were $24,000. When Arlene filed her 2014 tax return, she learned that her tax obligation for last year was $21,000. Thus, Arlene could request a $3,000 tax refund.

Does over-withholding and getting a refund in this manner make sense financially? That depends on a taxpayer’s situation.

Positive features

The advantage of getting a tax refund is, well, who wouldn’t want to receive a large check from the federal government? Moreover, federal income tax refunds aren’t taxable. (A state or local tax refund may increase the tax you’ll owe.)

Thus, Arlene could decide to use her $3,000 refund check to invest or to pay down debt or to make a special purchase. In effect, her $3,000 of excess tax withholding becomes a form of forced saving, which she can utilize every year when the check comes in.

Now for the negatives

On the other hand, having too much money withheld for income tax has been likened to making an interest-free loan to the IRS. It’s your money—you earned it—so why wait for months to get your hands on it? This strategy can be especially unappealing if your over-withholding results from a major change in your life.

Example 2: In early 2014, Bianca and Craig Carter bought a house, using a large mortgage for the purchase. Bianca left her job to stay home with their young child. Thus, the Carters had lower income and higher deductions than in 2013, resulting in a smaller tax bill.

However, Craig did not adjust his tax withholding at work. Thus, he paid more tax than necessary throughout the year. It’s true that the Carters got back the overpayment with a 2015 tax refund, but they went through 2014 with less cash flow than required, forcing them to struggle to cover the costs of a new home and a growing family.

Winning the numbers game

If you feel that you need the disciplined forced savings of over-withholding, then relying on an annual tax refund may make sense. Conversely, if you prefer to get your money as you earn it, you can reduce the amount withheld by filling out IRS Form W-4, Employee’s Withholding Allowance Certificate, and submitting it to your employer. Our office can help you fill out Form W-4 so you get the right amount withheld, avoiding either a large refund or a large tax obligation with next year’s tax return.

Trusted Advice – Adapting Allowances

  • On IRS Form W-4, employees can claim a number of personal allowances.
  • The more allowances you claim, the lower your withholding and the more income you’ll receive with each paycheck.
  • Two income couples can calculate the total number of allowances to which they’re entitled.
  • For such couples, withholding usually will be most accurate when all allowances are claimed on the Form W-4 for the higher earning spouse.
  • The lower earning spouse then can claim zero allowances on his or her Form W-4.

Many grandparents would like to help their grandchildren with the steep costs of higher education. That’s often a laudable goal, but some methods of providing this assistance might be more effective than other tactics.

Grand gifts

The simplest tactic is to give money to youngsters before or during their college years. In 2015, the annual gift tax exclusion was $14,000 per recipient.

Example 1: Cora Smith has three grandchildren. She can give each of them $14,000 this year for their college funds. Cora’s husband, Rob, can make identical gifts to each of their grandchildren. Such gifts will have no adverse tax consequences. (Larger gifts may reduce this couple’s gift tax exemption and, ultimately, their estate tax exemption.)

In addition to all of these $14,000 gifts, the Smiths can pay the college tuition for any of their grandchildren. No matter how large these outlays might be, Cora and Rob will not owe any tax or suffer any reduction in their transfer tax breaks.

Axing aid

Such grandparent gifts may have their disadvantages, though. They could result in reduced financial aid.

Example 2: Over the years, Rob and Cora have made gifts to their grandson Doug. Counting investment buildup, Doug has $50,000 worth of assets when he fills out the Free Application for Federal Student Aid (FAFSA) for his first year of college. The FAFSA assesses Doug’s assets by 20%, when calculating the expected family contribution (EFC), so the $50,000 could reduce his financial aid by $10,000: the 20% assessment times $50,000 of Doug’s assets. Tuition payments by Rob and Cora for Doug’s schooling could result in even larger aid cutbacks.

For some grandparents, this won’t be a major concern. The student’s immediate family might have such extensive assets and such substantial income that need-based financial aid won’t be possible. However, today’s college costs are so high that aid might be available, even to well-off families. The possible impact on financial aid should be discussed with the student’s parents.

In addition, it should be considered that assets given to grandchildren will come under the youngsters’ control once they come of age, usually on or before age 21. Grandparents need to be comfortable with the idea that money in a grandchild’s account may or may not be used for education or other worthwhile purposes.

Grandparents to parents

Instead of making gifts directly to grandchildren, grandparents can give assets to their own children who are the student’s parents. This plan will have less impact on financial aid.

Example 3: Assume that Cora and Rob have made gifts to their daughter Elly, Doug’s mother, rather than making gifts directly to Doug. Such gifts have increased Elly’s assets by $50,000. A parent’s assets are assessed at no more than 5.64%, on the FAFSA, so the additional assets held in Elly’s name would reduce possible aid by $2,820: 5.64% of $50,000.

Therefore, giving money to the student’s parent would be better than giving money to the student, if financial aid is a concern, and, assuming the parents are more financially prudent, less chance exists of the transferred assets being squandered.

Focusing on 529 plans

If concerns about the security and intent of the gifted funds still exist, they may be addressed by contributing to a 529 college savings plan, instead. Such plans have many advantages.

Example 4: Cora Smith creates three 529 accounts, naming a different grandchild as the beneficiary for each one. Now Cora has control over how the money will be invested and how it will be spent. Any investment earnings will be tax-free and distributions also will be untaxed if the money is used for the beneficiary’s college bills. Cora can even reclaim the funds in the 529 if she needs money, paying tax and (with some exceptions) a 10% penalty on any earnings.

What’s more, a 529 account owned by a grandparent won’t be reported on the grandchild’s FAFSA, so it will not have any initial impact on financial aid. It’s true that eventual distributions from a grandparent’s 529 will be reported on a subsequent FAFSA and will substantially reduce financial aid. That won’t be a concern for families who are not receiving need-based aid. If the student is receiving aid, distributions from the grandparent’s 529 plan can be postponed until the last FAFSA has been filed.

Example 5: Doug Franklin will start college in the 2015-2016 school year, so he files his first FAFSA in January 2015. Doug receives some need-based aid, so his grandmother Cora lets the 529 account continue to grow, untaxed. Doug files a new FAFSA every year until January 2018, when he submits the form for his senior year. Subsequently, Cora can tap the 529 account to pay Doug’s remaining college bills. Doug won’t be filing any more FAFSAs for financial aid, so Cora’s 529 distributions won’t be reported. The bottom line is that grandparents have many tactics they can consider if they wish to give grandchildren a financial assist on the path towards a college degree.

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