accounting firm, portland, oregon

Do You Need to Renew Your ITIN?

The IRS has announced that more than 2 million Individual Taxpayer Identification Numbers (ITINs) are set to expire at the end of 2018. An ITIN is a nine-digit number issued by the IRS to individuals who are required for U.S. federal tax purposes to have a U.S. taxpayer identification number but who do not have and are not eligible to get a Social Security number (SSN).

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accountants, isler northwest, portland

Tax Reform Eases the Alternative Minimum Tax – But It’s Still There

Although Congress has been promising to repeal the alternative minimum tax (AMT), they failed to do that when they passed tax reform in 2017. Instead, they lessened the effects of the AMT by increasing AMT exemptions (an amount of income exempt from AMT taxation) and raising the income thresholds for when the exemptions are phased out. These two steps and some other changes covered below lessen your chances of being hit by the AMT, but it is still there, so it is wise to be aware of how the AMT is determined and the things that might trigger it.

There are two ways to determine your tax: the regular way, which most everyone is familiar with, and the alternative method. Your tax will be the higher of the two.

So, what is the alternative tax and why might you get hit with it? Well, many, many years ago, Congress, in an effort to curb tax shelters and tax preferences of wealthy taxpayers, created an alternative method for computing tax that disallows certain deductions and adds preference income and called it the AMT. Although originally intended to apply to the wealthy, years of inflation caused more than just wealthy taxpayers to be caught up in the tax.

What Triggers the AMT? The list of tax deductions and preferences not allowed when computing the AMT is substantial and, at times, complicated. However, the typical taxpayer does not encounter most of them. In the past, the seven following items routinely caused taxpayers to be hit by the AMT. As you will note, tax reform has lessened or eliminated the impact of some of these.

  1. Medical Deductions – For many years, medical deductions were allowed to the extent they exceeded 7.5% of a taxpayer’s income for regular tax purposes and 10% for the AMT computation. The 2.5% difference was one of the items that added to the AMT tax. (For 2013 through 2016, the percentage for taxpayers under age 65 was 10% for both regular tax and AMT, and they had no AMT adjustment.) For 2017 and 2018, tax reform made the medical limit 7.5% for both regular and AMT purposes. After 2018, the percentage of income that reduces medical expenses will be 10% for both regular tax and AMT. Therefore medical expenses also will not impact the AMT in 2019 and later years.
  2. Deduction for Taxes Paid – When itemizing deductions on a federal return, a taxpayer is allowed to deduct a variety of state and local taxes, including real property, personal property, and state income or sales tax. But, for AMT purposes, none of these taxes is deductible, thus creating an AMT adjustment. However, tax reform imposed a $10,000 limit on state and local tax deductions, lessening the difference in the regular tax and AMT adjustment, especially for higher income taxpayers and those living in states with high taxes. However, when combined with other triggering items, the state and local taxes deducted for regular tax can still create an AMT.
  3. Home Mortgage Interest – For both the regular tax and AMT computations, interest paid on a debt to acquire or substantially improve a main home or second home is deductible as long as the $1 million debt limit ($750,000 for loans incurred after 2017) isn’t exceeded. Prior to 2018, for regular tax purposes, the interest on up to $100,000 of equity debt on first and second homes was also deductible, creating a difference between the regular tax and AMT deduction, as equity debt interest is not allowed for AMT purposes. Additionally, interest on debt to acquire a motor home or boat that is used as a taxpayer’s home or second home is deductible for regular tax purposes but not for AMT purposes.

Starting in 2018, tax reform no longer allows homeowners to deduct the interest on equity debt, which eliminates another difference between what is deductible for regular tax and the AMT and reduces the chances of being saddled with the AMT.

  1. Miscellaneous Itemized Deductions – The category of miscellaneous deductions, which includes employee business expenses and investment expenses, is not deductible for AMT purposes. For certain taxpayers with deductible employee business expenses or high investment advisor fees, this has created a significant AMT. Here again, tax reform has eliminated these same miscellaneous deductions for regular tax beginning in 2018, thus eliminating another difference between the AMT and the regular tax computation.
  2. Personal Exemptions – Through 2017, a deduction for personal exemptions was allowed for regular tax but not for the AMT, creating a difference in the computation and adding to the chance of being subject to the AMT. As of 2018, exemptions are no longer allowed for regular tax, which eliminates yet another difference.
  3. Standard Deduction – For regular tax purposes, a taxpayer can choose to itemize their deductions or use the standard deduction. However, for the AMT, only itemized deductions are allowed. Tax reform substantially increased the standard deduction used to figure regular tax, and this can increase chances of being affected by the AMT. There is a strategy that can be used to mitigate the AMT for taxpayers who would normally use the standard deduction, which is forcing itemized deductions even if they total an amount that is less than the standard deduction amount. Even the smallest of charitable deductions will benefit at a minimum of 26% (the lowest bracket for the AMT). This strategy is tricky and best left to a tax professional to figure out.
  4. 7. Exercising Incentive Stock Options and Holding the Stock – Many employers offer stock options to their employees. One type of option is called a qualified or incentive stock option. The taxpayer does not recognize income when the options are exercised and becomes qualified for long-term capital gain treatment upon sale of the stock acquired from the option if the stock is held more than a year after the option was exercised and two years after the option was granted. However, for AMT purposes, the difference between the option price and the exercise price is AMT income in the year the option is exercised, which frequently triggers an AMT tax when large blocks of stock are exercised. Tax reform did not change this provision.

Although your chances of being snagged by the AMT have significantly diminished, there is still a possibility you can be affected by it, especially if you have investment or business interests that are subject to AMT adjustments not encountered by the average taxpayer (and not discussed in this article). The AMT is an extremely complicated area of tax law that requires careful planning to minimize its effects. Please contact this office for further assistance.


Isler Northwest LLC is a firm of certified public accountants and business advisors based in Portland, Oregon. Our local, regional, and global resources, our expertise, and our emphasis on innovative solutions and continuity create value for our clients. Our service goals at Isler Northwest is to earn our clients trust as their primary business and financial advisors.

Isler Northwest

(503) 224-5321

1300 SW 5th Avenue
Suite 2900
Portland, Oregon 97201

133,000 Injured Veterans Entitled to Tax Refunds

133,000 Injured Veterans Entitled to Tax Refunds

As a result of the 2016 Combat-Injured Veterans Tax Fairness Act, more than 133,000 injured veterans may qualify for a federal tax refund. The minimum refund is estimated at $1,750, meaning the government will be paying out an estimated minimum of $228 million.

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Offer in Compromise

Offer in Compromise

Offer in Compromise FAQs

We’re all responsible for paying our fair share of taxes each year. But what happens when the amount that you owe is simply out of reach? What happens if you failed to make payments in a timely manner and your financial circumstances have shifted to the point where your cumulative debt is beyond your ability to pay? In the face of this untenable position, your best option for paying the IRS may be what is known as an Offer in Compromise.

The Goal of the Offer in Compromise

The Offer in Compromise, or OIC, was created to accomplish two goals: it allows American taxpayers who are unable to pay the full amount of their tax debt a way to negotiate a payment that is in keeping with their ability to pay, while at the same time providing the IRS with the ability to collect at least a portion of the amount that is owed to them. The process is neither simple nor fast: it generally takes at least one to two years for both sides to come to an agreement on an amount to be paid.

Even so, it has certain advantages for both sides.

An Offer in Compromise generally allows for resolution to be accomplished outside of court, with the agreed-to payment reflective of income and assets rather than the actual amount of debt that has accrued. Though it may seem a loss for the IRS, the agency ends up recovering more as a result of settling than they are likely to through a strong-arm collection process.

Understanding the Available Offer in Compromise Options

Taxpayers interested in pursuing an Offer in Compromise generally have three different options available to them under federal law. They are to suggest that they do not actually owe the tax debt that they are being charged with; to indicate that there simply are not enough assets or income to make a payment on the debt that has accrued; or to pursue a compromise based on either exceptional circumstances or economic hardship. This last option falls under the category of “effective tax administration,” and is notable because the taxpayer makes no argument as to either their ability to pay or whether they, in fact, owe the named amount.

Applying for an Offer in Compromise

The OIC process is both time-consuming and complicated. Applications require specific forms as well as extensive documentation, and all must be accurately prepared in keeping with IRS regulations. When mistakes are made or forms are incomplete the applications are quickly returned without the benefit of a review. To minimize both delay and frustration, it is strongly suggested that taxpayers looking to avail themselves of an OIC employ tax professionals for both the preparation of their paperwork and the negotiation of its terms.

Not Every OIC Application is Approved

It is also important to remember that an application for an OIC by no means guarantees the desired outcome. Submitting the specifics of your situation to a qualified tax professional will provide you with the ability to have your case reviewed by an expert who understands the process and the IRS criteria for approval, and who will be able to give you a reasoned perspective on the viability of your request.

Working with a professional will also provide you with reasonable expectations regarding the amount of time that the process will take and what your chances are of having your initial offer accepted. The program generally takes about two years from start to finish, and it is common for the IRS to make a counteroffer when the agency believes it will be able to collect more than the amount proffered by the applicant.

In evaluating your case, the Internal Revenue Service will likely pay less attention to the actual amount that is owed than the amount that the taxpayer is able to pay. This determination will be made on the basis of numerous factors, including income, assets, previous earnings capacity and anticipation of your earnings capacity in the future. Living expenses will also be taken into consideration.

The good news is that from the time that an application is sent in and while an IRS evaluation is taking place, most collection efforts are frozen. This generally provides tremendous relief from stress for taxpayers who have fallen behind in their payments and who feel unable to submit the amount that they owe.

If you have found yourself in this situation, contact us today to discuss your options. An experienced and knowledgeable tax expert will help you to understand, anticipate, and prepare for all aspects of the Offer in Compromise process, and will act as your advocate during sensitive negotiations.


Isler Northwest LLC is a firm of certified public accountants and business advisors based in Portland, Oregon. Our local, regional, and global resources, our expertise, and our emphasis on innovative solutions and continuity create value for our clients. Our service goals at Isler Northwest is to earn our clients trust as their primary business and financial advisors.

Isler Northwest

(503) 224-5321

1300 SW 5th Avenue
Suite 2900
Portland, Oregon 97201

IRS Clergy Tax Changes

Clergy Tax Benefits Under Fire

Section 107 of the Internal Revenue Code provides that a minister of the gospel’s gross income doesn’t include the rental value of a home (parsonage) provided; if the home itself isn’t provided, a rental allowance paid as part of compensation for ministerial services is excludable. The benefit is generally referred to as a parsonage allowance. Thus, a minister can exclude the fair rental value (FRV) of the parsonage from income under IRC Sec. 107(1), or the rental allowance under Sec. 107(2), for income tax purposes. The Sec. 107(2) rental allowance is excludable only to the extent that it is for expenses such as rent, mortgage payments, utilities, repairs, etc., used in providing the minister’s main home, and only up to the amount of the FRV of the home.

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Big Changes to the Kiddie Tax

Big Changes to the Kiddie Tax

Years ago, to prevent parents from transferring their investment accounts into their children’s name to avoid taxes, Congress created what is referred to as the kiddie tax. This counteracted the strategy of taking income from the parents’ higher tax bracket and shifting it to their children’s lower tax bracket.

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Taxpayers Find Gift Tax Reporting Confusing

Taxpayers Find Gift Tax Reporting Confusing

Gift taxes were created to prevent wealthy taxpayers from transferring their estates to their beneficiaries via gifts and thus avoid estate taxes when they pass away. But that does not mean only wealthy taxpayers need to be concerned with the gift tax provisions as, under many circumstances, even lower-income taxpayers may find they are liable for filing a gift tax return.

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A Mid-Year Tax Checkup May Be Appropriate

A Mid-Year Tax Checkup May Be Appropriate

Taxes are similar to vehicles, in that they sometimes need a check-up to make sure they are performing as expected. That is especially true for 2018, with all of the changes brought about by tax reform.

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Moving Deductions are Kaput

Moving Deductions are Kaput

Prior to the passage of tax reform, individuals who moved as the result of a job change or job relocation could deduct their unreimbursed moving expenses if the driving distance from their home to the new job location was at least 50 miles more than the driving distance from home to the old job location. There was also a requirement that the individual work in the new location for a specified minimum period of time after the move.

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Is Inheritance Taxable?

Is an Inheritance Taxable?

A frequent question is whether inheritances are taxable. This is a frequently misunderstood question related to taxation and can be complicated. When someone passes away, all of their assets will be subject to inheritance taxation, and whatever is left over after paying the inheritance tax passes to the decedent’s beneficiaries.

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