Friday, May 19, 2017

Filing Status MUST be agreed on!

Mrs. Moss filed a 2008 return as married filing separately on which she claimed a loss due to the Bernard Madoff fraud scheme, although she had no investments affected by the fraud. Peter Moss believed his wife was delusional, and although she had been hospitalized for mental illness in 2005 and 2006 and had been released from the hospital in 2006 under the condition that she live with him, he was not her conservator or guardian. In 2013, a Connecticut probate court appointed her daughters as conservators.
The IRS changed the filing status of Peter Moss's return to married filing separately and issued him a notice of deficiency. He petitioned the Tax Court to challenge the IRS's determination, asking the court to invalidate his wife's return and accept his joint return.
Issues: Generally, a joint return must be signed by both spouses. However, a joint return may be signed by only one spouse where the signing taxpayer acts as an authorized agent for the spouse or where there is sufficient evidence that the nonsigning spouse consented to filing jointly.
Sec. 6012(b)(2) provides that if a person is unable to make a return, a duly authorized agent, among others, may make a return on his or her behalf. Regs. Sec. 1.6012-1(a)(5) provides that a person may be unable to file due to disease or illness and sets forth filing provisions, which must be complied with by the agent even when representing a disabled spouse. Under these provisions, the return must be accompanied by either (1) Form 2848, Power of Attorney and Declaration of Representative, or other power of attorney authorizing the agent to represent the person in making, executing, or filing the return; (2) a signed statement containing specified information and confirming that the incapacitated spouse consents to the signing of the return; or (3) a request by the taxpayer for a determination by the IRS that good cause exists for permitting the agent to submit the return.
Peter Moss contended that his wife was unable to file a return due to her mental illness and that the Tax Court should accept the original return he filed showing married-filing-jointly status.
Holding: The Tax Court held that Peter Moss was not entitled to married-filing-jointly status, as he failed to show that his wife was unable to file a return. It found that her hospital commitments for mental illness, his assertion of her mental illness, and the conservatorship order issued in 2013 did not establish that Mrs. Moss was incapable of filing her own 2008 return.
The court further found that even if it concluded that Mrs. Moss was unable to file a return, Peter Moss was not her agent, as he had no power of attorney or Form 2848 to attach to the return and did not file a statement confirming that Mrs. Moss consented to the signing of the return. The court ruled that although the couple had a long history of filing jointly, the evidence showed that she intended not to file a 2008 joint return.
Since Peter Moss had to file married filing separately, he could not claim an exemption for his wife. The court did allow him to apply the full overpayment of tax from the couple's 2007 joint return to his return.
Thanks to Mark Aquillo, CPA for pulling this info together.

Wednesday, May 17, 2017

Trump's tax plan would eliminate the home mortgage interest deduction for many!

U.S. Treasury Secretary Steven Mnuchin has taken pains to stress that the Trump administration isn’t out to kill Americans’ beloved mortgage-interest tax deduction—but a side effect of the plan could turn it into a perk for only the wealthy.
President Donald Trump has proposed rewriting the tax code to raise the standard federal deduction to a level where about 25 million homeowners would no longer take advantage of the century-old break. A married couple would need a home-loan balance of about $608,000—almost triple the mortgage on a median-priced U.S. home—before using it would make sense, according to a new analysis by property-data provider Trulia. That would be up from about $322,000 today.
Without the incentives, along with a proposed end to local property-tax deductions, home sales may be hurt in cities where prices are rising quickly and buyers are stretching to afford their purchases, from Denver and Portland, Oregon, to Boston and Washington. Reduced demand would weigh on values, causing price declines nationwide, according to the National Association of Realtors, which opposes the change.
Homes in an aerial photograph taken above New Jersey
Homes in an aerial photograph taken above New JerseyCraig Warga/Bloomberg
The proposal “is a backdoor way of rendering the mortgage interest deduction close to worthless,” said Mark Zandi, chief economist for Moody’s Analytics Inc.
Americans filing their taxes can either subtract a fixed amount from their incomes, called the standard deduction, or itemize write-offs, including mortgage interest as well as state and local taxes. The administration wants to raise the standard allowance—to $24,000 from $12,700 for a married couple filing jointly—and allow deductions for only home loans and charitable donations, greatly reducing the chances that itemizing would pay off for average taxpayers.
‘Apple Pie’
A White House spokeswoman, Natalie Strom, said average families would be better off under the proposal. Low- and middle-income households would effectively get a tax cut, “putting more disposable income in their pockets for them to invest in a home, purchase a car, save for their children’s college—any other expense,” she said in an email.
Trump’s plan, outlined last month in a one-page proposal with few details and no provisions for how it might be paid for, amounts to a wish list. House Republicans came up with their own plan last June, which includes several controversial measures that have gotten a cool reception from the Senate as well as the White House.
Mnuchin called the mortgage break, which will cost the government an estimated $63.6 billion this year, “kind of like apple pie” and reiterated that Trump’s tax reforms wouldn’t touch it.
“Owning a home is something that’s been part of the American dream, and we want to keep it that way,” he said on May 1 at the Milken Institute Global Conference in Beverly Hills, California.
Fewer Itemizers
While Trump may not technically change the deduction, he would probably eliminate its usefulness for all but the most wealthy homeowners, said Joseph Rosenberg, a senior research associate for the nonpartisan Tax Policy Center.
The share of households that itemize would plunge to about 5 percent from about 30 percent now, according to a National Association of Realtors estimate. About 8 million families would itemize under Trump’s plan, a reduction of about 25 million.
The administration is “selling it as a sort of simplification,” said Rosenberg, noting that Americans who switch to the standard write-off wouldn’t pay more in taxes. “In some respects, they are embracing the fact that there would be fewer people who itemize and take these deductions.”
Taxpayers, however, would lose an incentive to take on mortgage debt, and buyers in expensive markets who are stretching to afford fast-rising home prices may start to re-evaluate how much they’re willing to spend. In Denver and Portland, Oregon, for example, potential buyers for about half the listings would no longer be able to justify itemizing because of mortgage interest alone, according to a Trulia analysis. The share is about double the national average of 22 percent in areas including Dallas, Seattle, Boston, Washington and Sacramento, California.
The impact of the switch would be greatest for middle-income renters who are thinking about making the jump to homeownership, according to Ralph McLaughlin, Trulia’s chief economist.
Price Declines
Prices may fall 10 percent on average nationwide, taking into account the lack of deduction for state and local property taxes, according to a preliminary estimate prepared by a consultant for the National Association of Realtors. Zandi of Moody’s said the proposed deduction changes would reduce prices by about 4 percent nationally, including the property-tax impact, with bigger decreases in pricier parts of the country.
If the government’s tax policy no longer favors homeownership, some renters may decide buying isn’t worth the hassle or expense. While buying a house for $517,000 is now cheaper than renting in all 100 markets measured by Trulia, that calculation would change under the Trump plan in 12 areas, including New York City; Portland, Oregon; and Madison, Wisconsin.
Reducing incentives to buy could benefit large publicly traded landlords, including Equity Residential and Avalon Bay Communities Inc., and single-family rental companies such as Blackstone Group LP’s Invitation Homes Inc. and Colony Starwood Homes, whose co-chairman, Tom Barrack, was a key Trump supporter.
Economists’ View
Economists have long been critical of the mortgage-interest deduction because it disproportionately benefits people with more-expensive properties, including many who would have purchased even without the break. It also inflates home prices because buyers often overestimate their tax savings when they’re budgeting for a purchase, said Dennis Ventry, a professor at University of California, Davis, School of Law who has studied the program’s history.
Trump’s plan might end up boosting homeownership rates over time because a drop in prices would improve affordability and the standard deduction would give buyers more money to spend on a house, Ventry said.
The real estate industry is lining up against the proposal, including the powerful National Association of Realtors, which spent $10.2 million lobbying Congress in the first quarter, more than any other organization except the U.S. Chamber of Commerce, according to the Center for Responsive Politics. William E. Brown, the association’s president, said his group isn’t just fighting for its members.
“If values fall, it’s not just going to impact people who just bought houses, but all current homeowners,” Brown said.
Fighting Back
Trump’s plan also targets tax deductions for state and local taxes paid—a provision that would especially hurt homeowners in states where property taxes are high. Coldwell Banker Realtor Kevin Cascone, who’s based in Westfield, New Jersey, took to Facebook on May 3 to persuade his followers to fight back by contacting their legislators: “NEW JERSEY HOMEOWNERS! This should concern you deeply,” Cascone wrote. “Regardless of your politics, the terms of this policy could SIGNIFICANTLY affect your wallets come tax season next year.”
“One of the big reasons for homeownership is the ability to deduct property taxes,” Cascone said. “If that’s eliminated, what’s the difference between renting and buying?”
Thanks to Joe Light and Phasant Gophal for pulling much of this information together!

Tuesday, May 16, 2017

Debt extinguished before it's maturity

Governmental Accounting Standards Board has issued guidance for state and local governments to use when they extinguish debt before it matures.
GASB’s Statement No. 86, Certain Debt Extinguishment Issues, provides guidance on accounting for transactions in which cash and other monetary assets that have been acquired with only a government body’s existing resources are put in an irrevocable trust only for the purpose of extinguishing debt.
The current GASB standards already offer guidance on how to account for and report when cash and other monetary assets that have been acquired with the proceeds of refunding bonds are placed in a trust for the future repayment of outstanding debt. However, GASB decided that more guidance was needed when only the existing resources (in other words, other than bond proceeds) are used to acquire cash and other monetary assets placed in a trust for the future repayment of outstanding debt.

The new GASB statement also includes guidance on prepaid insurance on debt that is extinguished and notes to the financial statements for defeased debt.When debt is defeased in substance, GASB noted, the debt and the cash and other monetary assets put in trust are not reported in the financial statements anymore. State and local governments are required, though, to disclose information in the notes to the financial statements about debt that has been defeased in substance.
The new requirements take effect for reporting periods beginning after June 15, 2017, although GASB is encouraging them to be applied earlier.

Tuesday, May 02, 2017

Opportunity Tax Credit can help!

Small Business Week Reminder: Work Opportunity Tax Credit can Help Employers Hiring New Workers; Key Certification Requirement Applies
WASHINGTON –The Internal Revenue Service today reminded employers planning to hire new workers that there’s a valuable tax credit available to those who hire long-term unemployment recipients and others certified by their state workforce agency. During National Small Business Week—April 30 to May 6—the IRS is highlighting tax benefits and resources designed to help new and existing small businesses.
The Work Opportunity Tax Credit (WOTC) is a long-standing income tax benefit that encourages employers to hire designated categories of workers who face significant barriers to employment. The credit, usually claimed on Form 5884, is generally based on wages paid to eligible workers during the first two years of employment.
To qualify for the credit, an employer must first request certification by filing IRS Form 8850 with the state workforce agency within 28 days after the eligible worker begins work. Other requirements and further details can be found in the instructions to Form 8850.
There are now 10 categories of WOTC-eligible workers. The newest category, added effective Jan. 1, 2016, is for long-term unemployment recipients who had been unemployed for a period of at least 27 weeks and received state or federal unemployment benefits during part or all of that time. The other categories include certain veterans and recipients of various kinds of public assistance, among others.
The 10 categories are:
  • Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients
  • Unemployed veterans, including disabled veterans
  • Ex-felons
  • Designated community residents living in Empowerment Zones or Rural Renewal Counties
  • Vocational rehabilitation referrals
  • Summer youth employees living in Empowerment Zones
  • Food stamp (SNAP) recipients
  • Supplemental Security Income (SSI) recipients
  • Long-term family assistance recipients
  • Qualified long-term unemployment recipients.
Eligible businesses claim the WOTC on their income tax return. The credit is first figured on Form 5884 and then becomes a part of the general business credit claimed on Form 3800.
Though the credit is not available to tax-exempt organizations for most categories of new hires, a special rule allows them to get the WOTC for hiring qualified veterans. These organizations claim the credit on Form 5884-C. Visit the WOTC page on IRS.gov for more information.

Monday, April 10, 2017

Need an extension?

Need an Extension of Time to File Taxes?
This year’s tax-filing deadline is April 18. Taxpayers needing more time to file their taxes can get an automatic six-month extension from the IRS.
Below are five things to know about filing an extension:
  1. Use IRS Free File to file an extension. IRS Free File allows taxpayers to prepare and e-file their taxes for free. It can also be used to e-file a free extension to file request. Midnight April 18 is the deadline for receipt of an e-filed extension request. Free File is accessible for tax return preparation and e-filing through Oct. 17. It is only available through IRS.gov.
  2. Use Form 4868. Fill out a request for an extension using Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. The deadline for mailing the form to the IRS is April 18. Form 4868 is available on IRS.gov/forms.
  3. More time to file is not more time to pay. Requesting an extension to file provides taxpayers an additional six months (until Oct. 16) to prepare and file taxes. However, it does not provide additional time to pay taxes owed. Taxpayers should estimate and pay any owed taxes by April 18 to avoid a potential late-filing penalty. To avoid penalties and interest, pay the full amount owed by the original due date.
  4. Use electronic payment options to get an automatic extension. An extension of time to file will automatically process when taxpayers pay all or part of their taxes electronically by April 18. There is no need to file a paper or electronic Form 4868 when making a payment with IRS Direct Pay, the Electronic Federal Tax Payment System (EFTPS) or by debit or credit card.  Select “Form 4868” as the payment type. Keep the confirmation as proof of payment.|
  5. The IRS can help. The IRS offers payment options for taxpayers who can’t pay all the tax they owe. In most cases, they can apply for an installment agreement with the Online Payment Agreement application on IRS.gov. They may also file Form 9465, Installment Agreement Request. If a taxpayer can’t make payments because of financial hardship, the IRS will work with them.
Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.  

Wednesday, March 01, 2017

What is my tax bracket? Or how to find yours.. Or just see chart below!

When looking at the big picture, you should compute your effective tax rate, which is simply your total tax liability divided by your taxable income. In Louie's example, while his marginal tax bracket is 25%, his effective tax bracket is between 14% and 15% ($5,856.25 divided by $40,000 equals 0.146). The effective rate tells Louie that most of his income is being taxed at the lower 10% and 15% brackets, and only a small portion is being taxed at the next (25%) bracket.
So, to summarize Louie's tax situation:
  • Louie's marginal tax rate: 25%.
  • Louie's effective tax rate: 14.6%.
  • Most of his dollars were taxed at the lower 10% and 15% tax rates.
  • His remaining dollars were taxed at 25%.
How to find yours
Determining your marginal and effective tax brackets is not too difficult. If you're looking for your marginal bracket, simply turn to your 2013 return (or your 2012 return if you haven't done your 2013 taxes yet). Find the number located on line 43 if you filed Form 1040, line 27 if you filed Form 1040A, or line 6 if you filed Form 1040EZ.
Next, see where that number falls in the 2013 IRS tax tables. Make sure you read the table that corresponds to your filing status. (In other words, don't use the "married" tables to find your marginal tax bracket if you're single.) That's how you'll find your marginal tax bracket. You'll also see at what rate your next dollar of income will be taxed, and you'll find out how close you might be to hitting the next bracket.
If you're looking for your effective tax rate, it's almost as simple. Grab your 2013 tax return and make the following computations:
  • If you filed Form 1040, divide the amount on line 61 by the amount on line 43.
  • If you filed Form 1040A, divide the amount on line 35 by the amount on line 27.
  • If you filed Form 1040EZ, divide the amount on line 10 by the amount on line 6.
Once you do that division, you'll arrive at your effective tax rate, which will give you a good idea of where most of your income is being taxed.

The Tax Table


The federal income tax table reports marginal tax rates on taxable income. Federal taxes are not average tax rates. Every income level, even if it is within a one dollar difference, is taxed at a different average rate. The table below shows the marginal tax rates for 2010 income.

Marginal Tax Rate
Filing as Single
Filing as Married Filing Jointly or Qualified Widow(er)
Filing as Married Filing Separately
Filing as Head of Household
10%
$0 to $8,375
$0 to $16,750
$0 to $8,375
$0 to $11,950
15%
$8,376 to $34,000
$16,751 to $68,000
$8,376 to $34,000
$11,951 to $45,550
25%
$34,001 to $82,400
$68,001 to $137,300
$34,001 to $68,650
$45,551 to $117,650
28%
$82,401 to $171,850
$137,301 to $209,250
$68,651 to $104,625
$117,651 to $190,550
33%
$171,851 to $373,650
$209,251 to $373,650
$104,626 to $186,825
$190,551 to $373,650
35%
$373,651 and higher
$373,651 and higher
$186,826 and higher
$373,651 and higher

Remember that you're using historical data (your 2013 tax return) to arrive at your marginal and effective brackets. If your income, deductions, and credits will remain similar in 2014, your brackets will also probably remain similar. But if you expect a large increase or decrease in your income for 2014, you might want to recheck your bracket by using the information at your disposal, along with the 2014 tax rate schedules, which you'll find on page 7 of this IRS form (link opens a PDF).

Thursday, February 16, 2017

How to report taxes for a single "partner" of an LLC

Single Member Limited Liability Companies

An LLC is an entity created by state statute. Depending on elections made by the LLC and the number of members, the IRS will treat an LLC either as a corporation, partnership, or as part of the owner's tax return (a "disregarded entity"). Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation. And an LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes), unless it files Form 8832 and affirmatively elects to be treated as a corporation.

Owner of Single-Member LLC

If a single-member LLC does not elect to be treated as a corporation, the LLC is a "disregarded entity," and the LLC's activities should be reflected on its owner's federal tax return. If the owner is an individual, the activities of the LLC will generally be reflected on:
An individual owner of a single-member LLC that operates a trade or business is subject to the tax on net earnings from self employment in the same manner as a sole proprietorship.
If the single-member LLC is owned by a corporation or partnership, the LLC should be reflected on its owner's federal tax return as a division of the corporation or partnership.

Taxpayer Identification Number

For federal income tax purposes, a single-member LLC classified as a disregarded entity generally must use the owner's social security number (SSN) or EIN for all information returns and reporting related to income tax. For example, if a disregarded entity LLC that is owned by an individual is required to provide a Form W-9, Request for Taxpayer Identification Number and Certification, the W-9 should provide the owner’s SSN or EIN, not the LLC’s EIN.
However, for certain Employment Tax and Excise Tax requirements discussed below, the EIN of the LLC must be used instead. Therefore, an LLC will need an EIN if it has any employees or if it will be required to file any of the excise tax forms listed below. Thus, most new single-member LLCs classified as disregarded entities will need to obtain an EIN. An LLC applies for an EIN by filing Form SS-4, Application for Employer Identification Number. See Form SS-4 for information on applying for an EIN.
A single-member LLC that is a disregarded entity that does not have employees and does not have an excise tax liability does not need an EIN. It should use the name and TIN of the single member owner for federal tax purposes. However, if a single-member LLC, whose taxable income and loss will be reported by the single member owner, nevertheless needs an EIN to open a bank account or if state tax law requires the single-member LLC to have a federal EIN, then the LLC can apply for and obtain an EIN.

Employment Tax and Certain Excise Tax Requirements

In August, 2007, final regulations (T.D. 9356) (PDF) were issued requiring disregarded LLCs to be treated as the taxpayer for certain excise taxes accruing on or after January 1, 2008 and employment taxes accruing on or after January 1, 2009. Single-member disregarded LLCs will continue to be disregarded for other federal tax purposes.
A single-member LLC that is classified as a disregarded entity for income tax purposes is treated as a separate entity for purposes of employment tax and certain excise taxes. For wages paid after January 1, 2009, the single-member LLC is required to use its name and employer identification number (EIN) for reporting and payment of employment taxes. A single-member LLC is also required to use its name and EIN to register for excise tax activities on Form 637; pay and report excise taxes reported on Forms 720, 730, 2290, and 11-C; and claim any refunds, credits and payments on Form 8849. See the employment and excise tax returns for more information.

Joint Ownership of LLC by Spouse in Community Property States

Rev. Proc. 2002-69 addressed the issue of classification for an entity that is solely owned by husband and wife as community property under laws of a state, a foreign country or possession of the United States.
If there is a qualified entity owned by a husband and wife as community property owners, and they treat the entity as a:
  • Disregarded entity for federal tax purposes, the Internal Revenue Service will accept the position that the entity is disregarded for federal tax purposes.
  • Partnership for federal tax purposes, the Internal Revenue Service will accept the position that the entity is partnership for federal tax purposes.
A change in the reporting position will be treated for federal tax purposes as a conversion of the entity.
A business entity is a qualified entity if
  1. The business entity is wholly owned by a husband and wife as community property under the laws of a state, a foreign country, or possession of the United States;
  2. No person other than one or both spouses would be considered an owner for federal tax purposes; and
  3. The business entity is not treated as a corporation under IRC §310.7701-2.
Note: If an LLC is owned by husband and wife in a non-community property state, the LLC should file as a partnership. LLCs owned by a husband and wife are not eligible to be "qualified joint ventures" (which can elect not be treated as partnerships) because they are state law entities. For more information see Election for Husband and Wife Unincorporated Businesses.

Wednesday, February 08, 2017

Non Profits and Charititable organizations BEWARE!

Even though the Internal Revenue Service approves 94 percent of the applications it receives from charities for tax-exempt status filed through the simplified Form 1023-EZ, approximately a quarter of them do not meet the IRS’s own requirements.
IRS building sign
A recent report by the National Taxpayer Advocate pointed out that Treasury Department regulations generally require 501(c)(3) organizations to pass an “organizational test” by including acceptable purpose and dissolution clauses in their organizing documents. However, according to the IRS’s pre-determination reviews of some Form 1023-EZ applicants, 25 percent don’t qualify for tax-exempt status because they don’t meet this test.
A 2015 study by the Taxpayer Advocate Service of a sample of approved Form 1023-EZ applicants in 20 states that make articles of incorporation viewable online at no cost found that 37 percent of them don’t meet the organizational test. A similar study last year by the Taxpayer Advocate Service indicated that 26 percent of the approved organizations didn’t meet the organizational test. In the 2016 study, 4 percent of the approved organizations consisted of two limited liability companies; two churches; seven schools, colleges, or universities or supporting organizations; and one private operating foundation. However, the Taxpayer Advocate noted that such organizations are not eligible to file the Form 1023-EZ.
Laura Kalick, tax director in BDO’s Nonprofit and Education practice, agreed there are some significant documentation shortcomings in the Form 1023-EZ since the narrative description of activities, articles of incorporation and bylines are not required to be submitted.
“In essence they have to meet the purposes test and have a dissolution clause, but they aren’t required to submit those articles and bylaws to the IRS with the form,” she said. “They just have to say, ‘Yes, we are OK and we’re not going to have any private inurement.’ The IRS doesn’t have to see a narrative or the financial information at this point.”
That type of information can be burdensome to provide for a small charity, she acknowledged, and it would be a considerable burden for the IRS to have to check all of that information. To be able to file the streamlined form, a charity can’t have received more than $50,000 in each of the past three years, nor expect that gross receipts will exceed $50,000 per year for the next three years, or have total assets of over $250,000. From July 1, 2014 through June 24, 2016, the IRS received nearly 88,000 of the forms.
The National Taxpayer Advocate recommended the IRS require Form 1023-EZ applicants to submit their organizing documents, unless they are already available online at no cost, along with summary financial information. It said the IRS should make a determination only after it considers the narrative statements along with the additional information. The IRS agreed to revise Form 1023-EZ to require a narrative statement of applicants’ activities, but the Taxpayer Advocate said more information is still needed.
“The Taxpayer Advocate had recommended that the organizations submit their organizing documents and summary financial information and a narrative statement, but to date this has not been something that the IRS has been requiring,” said Kalick. “What the IRS appears to be doing instead is taking a sampling of organizations and looking at those organizations to see if they are in fact in compliance.”
As imperfect as it is, the Form 1023-EZ helps reduce the workload of the overburdened IRS.
“It’s sort of a balancing act,” said Kalick. “It’s easier for them to do the post-submission review and less costly and more effective than for every organization to have to fill in the full-blown Form 1023. They certainly listened to the Taxpayer Advocate, but they have decided this is the better way to go to make it much more streamlined. In fact, to encourage more use of the Form 1023EZ, they reduced the user fee from $400 to $275 as of July 1, 2016.”
The IRS anticipates the reduction of the user fee will contribute to an increase in the adoption rate. Once a charity has been approved for tax-exempt status, it then has to file a Form 990 or the more streamlined 990-N or 990-EZ. The IRS recently added interactive features to the 990-EZ with question marks that provide additional information when filling it out online (see Form 990-EZ for nonprofits updated).
“Both the 990 and the 990-EZ provide so much information that if the organization grows to the size to require the more extensive form, then the IRS and the public are getting more information about the organization,” said Kalick. “That being said, just because you fill out a full-blown Form 1023 and the IRS approves it doesn’t mean that we’re getting all the information. What happens if you fill out the application for exemption and then you do something different than what you said you were going to do on your application? There are just so many exempt organizations out there that it’s impossible to police everything. We’re a nation of voluntary compliance and we have to accept a very high level of faith on everybody’s part.”
The Form 1023-EZ does not include a number of key organizational and operational tests for weighing an organization’s right to claim tax-exempt status. “In essence they ask whether you have the appropriate provisions in your articles of incorporation, but because you’re not actually submitting those articles of incorporation and bylaws then they can’t do a cross-check,” said Kalick. “A 501(c)(3) has to be organized for charitable, educational, scientific or religious purposes, and have no private inurement, no substantial lobbying, and no political activity. The assets have to be dedicated in perpetuity to charitable purposes, so in essence you have to say that upon dissolution the residual assets will go to another 501(c)(3) organization.”
Kalick agrees with the National Taxpayer Advocate’s recommendations about providing more information. “The Taxpayer Advocate report said it would really not be very difficult to have the articles of incorporation provided as part of the application and also that there should be some narrative and some basic financial information,” said Kalick. “I think that makes sense. Filling out the full-blown form is really difficult, but I really like the idea of putting in a narrative because a good number of organizations just have very broad general charitable purposes. They will say the organization is organized exclusively for charitable and educational purposes, and then they have the dissolution clause, but the narrative really tells what the organization is going to do. What one person thinks is charitable might not be charitable in the eyes of the IRS.”

Monday, February 06, 2017

Early Withdrawals from Retirement can be costly.

Early Withdrawals from Retirement Plans
Many people find it necessary to take out money early from their IRA or retirement plan. Doing so, however, can trigger an additional tax on top of income tax taxpayers may have to pay. Here are a few key points to know about taking an early distribution:
  1. Early Withdrawals. An early withdrawal normally is taking cash out of a retirement plan before the taxpayer is 59½ years old.
  2. Additional Tax. If a taxpayer took an early withdrawal from a plan last year, they must report it to the IRS. They may have to pay income tax on the amount taken out. If it was an early withdrawal, they may have to pay an additional 10 percent tax.
  3. Nontaxable Withdrawals. The additional 10 percent tax does not apply to nontaxable withdrawals. These include withdrawals of contributions that taxpayers paid tax on before they put them into the plan. A rollover is a form of nontaxable withdrawal. A rollover occurs when people take cash or other assets from one plan and put the money in another plan. They normally have 60 days to complete a rollover to make it tax-free.
  4. Check Exceptions. There are many exceptions to the additional 10 percent tax. Some of the rules for retirement plans are different from the rules for IRAs.
  5. File Form 5329. If someone took an early withdrawal last year, they may have to file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their federal tax return. Form 5329 has more details.
  6. Use IRS e-file. Early withdrawal rules can be complex. IRS e-file is the easiest and most accurate way to file a tax return. The tax software that taxpayers use to e-file will pick the right tax forms, do the math and help get the tax benefits they are due. Seven out of 10 taxpayers qualify to use IRS Free File tax software. Free File is only available through the IRS website at IRS.gov/freefile.
More information on this topic is available on IRS.gov.
Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Wednesday, January 18, 2017

Hardship exemption from Obamacare tax

Notice 2017-14 provides that the hardship exemption from the individual shared responsibility payment under § 5000A, described by the Department of Health and Human Services, for an individual who is not enrolled in health insurance coverage that qualifies for the health coverage tax credit (HCTC) allowed by § 35 for one more months between July 2016 and December 2016, but who would have been eligible for the HCTC under § 35 if enrolled, may be claimed on a Federal income tax return without obtaining a hardship exemption certification from the Marketplace.

Wednesday, January 04, 2017

Florida's Minimum wage increases!

Florida’s Minimum Wage Increases

January 1, 2017
Many Florida workers will see a modest boost in their wages starting today as the state’s minimum wage rises a nickel to $8.10 an hour.
It is the first minimum wage increase since January 2015, when the hourly rate rose by 12 cents to $8.05. There was no increase in 2016.
Under a state constitutional amendment approved by voters in 2004, the wage is adjusted annually by the state Department of Economic Opportunity based on a consumer price index.
Tipped workers will earn at least $5.08 an hour.

Tuesday, December 27, 2016

W-2, how the IRS is trying to strengthen protection of these documents

IRS, Partners Move to Strengthen Anti-Fraud Effort with Form W-2 Verification Code
When you get your Form W-2 in early 2017, you may notice a new entry – a 16-digit verification code. This is part of an effort conducted by the Internal Revenue Service to protect taxpayers and strengthen anti-fraud efforts.

The expanded use of the W-2 Verification Code is a way to validate the wage and tax withholding information on the tax form. For taxpayers, taking a moment to add this code when filling out their taxes helps the IRS authenticate the information. This in turn helps protect against identity theft and unnecessary refund delays.

For 2017, the IRS and its partners in the payroll service provider industry will place the code on 50 million Forms W-2. This is up from two million forms in 2016.

The IRS, state tax agencies and the nation’s tax industry – partners in combating identity theft – ask for your help in their efforts. Working in partnership with you, we can make a difference.

That’s why we launched a public awareness campaign that we call Taxes. Security. Together. We’ve also launched a series of security awareness tips that can help protect you from cybercriminals.

One area where we need your help is with the W-2 Verification Code. If your W-2 contains the code, please enter it when prompted if using software to prepare your return. Or, please make sure your tax preparer enters it.

If the code is not included, your tax return will still be accepted. However, initial results indicate the verification code shows promise in reducing tax fraud. It helps IRS processing systems authenticate the real taxpayer. Identity thieves sometimes file false Forms W-2 to support their fraudulent tax returns.

This initiative will affect only those Forms W-2 prepared by payroll service providers. The verification code’s location on the form will vary. Enter the code on electronically filed returns only. Most software providers will prompt you to enter the code.

Tuesday, December 13, 2016

Standard Mileage rates for 2017

2017 Standard Mileage Rates for Business, Medical and Moving Announced   
WASHINGTON — The Internal Revenue Service today issued the 2017 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
  • 53.5 cents per mile for business miles driven, down from 54 cents for 2016
  • 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016
  • 14 cents per mile driven in service of charitable organizations
The business mileage rate decreased half a cent per mile and the medical and moving expense rates each dropped 2 cents per mile from 2016. The charitable rate is set by statute and remains unchanged.   The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.
These and other requirements are described in Rev. Proc. 2010-51Notice 2016-79, posted today on IRS.gov, contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

Friday, December 09, 2016

Tax Season

2017 Tax Filing Season Begins Jan. 23 for Nation’s Taxpayers, Tax Returns due April 18

IRS YouTube Video April 18 is When Your Taxes are Due in 2017 | English

                                                             

WASHINGTON ― The Internal Revenue Service announced today that the nation’s tax season will begin Monday, Jan. 23, 2017 and reminded taxpayers claiming certain tax credits to expect a longer wait for refunds.

The IRS will begin accepting electronic tax returns that day, with more than 153 million individual tax returns expected to be filed in 2017. The IRS again expects more than four out of five tax returns will be prepared electronically using tax return preparation software.

Many software companies and tax professionals will be accepting tax returns before Jan. 23 and then will submit the returns when IRS systems open. The IRS will begin processing paper tax returns at the same time. There is no advantage to filing tax returns on paper in early January instead of waiting for the IRS to begin accepting e-filed returns.

The IRS reminds taxpayers that a new law requires the IRS to hold refunds claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until Feb. 15. In addition, the IRS wants taxpayers to be aware it will take several days for these refunds to be released and processed through financial institutions. Factoring in weekends and the President’s Day holiday, the IRS cautions that many affected taxpayers may not have actual access to their refunds until the week of Feb. 27.

“For this tax season, it’s more important than ever for taxpayers to plan ahead,” IRS Commissioner John Koskinen said. “People should make sure they have their year-end tax statements in hand, and we encourage people to file as they normally would, including those claiming the credits affected by the refund delay. Even with these significant changes, IRS employees and the entire tax community will be working hard to make this a smooth filing season for taxpayers.”

The IRS also reminds taxpayers that they should keep copies of their prior-year tax returns for at least three years. Taxpayers who are changing tax software products this filing season will need their adjusted gross income from their 2015 tax return in order to file electronically. The Electronic Filing Pin is no longer an option. Taxpayers can visit IRS.Gov/GetReady for more tips on preparing to file their 2016 tax return.

April 18 Filing Deadline
The filing deadline to submit 2016 tax returns is Tuesday, April 18, 2017, rather than the traditional April 15 date. In 2017, April 15 falls on a Saturday, and this would usually move the filing deadline to the following Monday – April 17. However, Emancipation Day – a legal holiday in the District of Columbia – will be observed on that Monday, which pushes the nation’s filing deadline to Tuesday, April 18, 2017. Under the tax law, legal holidays in the District of Columbia affect the filing deadline across the nation.


“The opening of filing season reflects months and months of work by IRS employees,” Koskinen said. “This year, we had a number of important legislative changes to program into our systems, including the EITC refund date, as well as dealing with resource limitations. Our systems require extensive programming and testing beforehand to ensure we’re ready to accept and process more than 150 million returns.”

The IRS also has been working with the tax industry and state revenue departments as part of the Security Summit initiative to continue strengthening processing systems to protect taxpayers from identity theft and refund fraud. A number of new provisions are being added in 2017 to expand progress made during the past year.

Refunds in 2017
Choosing e-file and direct deposit for refunds remains the fastest and safest way to file an accurate income tax return and receive a refund.

The IRS still anticipates issuing more than nine out of 10 refunds in less than 21 days, but there are some important factors to keep in mind for taxpayers.
Beginning in 2017, a new law requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit or the Additional Child Tax Credit until mid-February. Under the change required by Congress in the Protecting Americans from Tax Hikes (PATH) Act, the IRS must hold the entire refund — even the portion not associated with the EITC and ACTC — until at least Feb. 15. This change helps ensure that taxpayers get the refund they are owed by giving the IRS more time to help detect and prevent fraud.
As in past years, the IRS will begin accepting and processing tax returns once the filing season begins. All taxpayers should file as usual, and tax return preparers should also submit returns as they normally do – including returns claiming EITC and ACTC.

The IRS will begin releasing EITC and ACTC refunds starting Feb. 15. However, the IRS cautions taxpayers that these refunds likely won’t arrive in bank accounts or on debit cards until the week of Feb. 27 (assuming there are no processing issues with the tax return and the taxpayer chose direct deposit). This additional period is due to several factors, including banking and financial systems needing time to process deposits.
After refunds leave the IRS, it takes additional time for them to be processed and for financial institutions to accept and deposit the refunds to bank accounts and products. The IRS reminds taxpayers many financial institutions do not process payments on weekends or holidays, which can affect when refunds reach taxpayers. For EITC and ACTC filers, the three-day holiday weekend involving President’s Day may affect their refund timing.

Where's My Refund? ‎on IRS.gov and the IRS2Go phone app will be updated with projected deposit dates for early EITC and ACTC refund filers a few days after Feb. 15. Taxpayers will not see a refund date on Where's My Refund? ‎or through their software packages until then. The IRS, tax preparers and tax software will not have additional information on refund dates, so Where’s My Refund? remains the best way to check the status of a refund.

Help for Taxpayers

The IRS reminds taxpayers they have a variety of options to get help filing and preparing their tax return on IRS.gov. Taxpayers can also, if eligible, locate help from a community volunteer. Go to IRS.gov and click on the Filing tab for more information.

Seventy percent of the nation’s taxpayers are eligible for IRS Free File. Commercial partners of the IRS offer free brand-name software to about 100 million individuals and families with incomes of $64,000 or less.

Online fillable forms provides electronic versions of IRS paper forms to all taxpayers regardless of income that can be prepared and filed by people comfortable with completing their own returns.

Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) offer free tax help to people who qualify. Go to irs.gov and enter “free tax prep” in the search box to learn more and find a nearby VITA or TCE site, or download the IRS2Go smartphone app to find a free tax prep provider.

The IRS also reminds taxpayers that a trusted tax professional can provide helpful information and advice about the ever-changing tax code. Tips for choosing a return preparer and details about national tax professional groups are available on IRS.gov.

Renewal Reminder for Individual Taxpayer Identification Numbers (ITINS) ITINs are used by people who have tax-filing or payment obligations under U.S. law but are not eligible for a Social Security number. Under a recent change in law, any ITIN not used on a tax return at least once in the past three years will expire on Jan. 1, 2017. In addition, any ITIN with middle digits of either 78 or 79 (9NN-78-NNNN or 9NN-79-NNNN) will also expire on that date.

This means that anyone with an expiring ITIN and a need to file a tax return in the upcoming filing season should file a renewal application in the next few weeks to avoid lengthy refund and processing delays. Failure to renew early could result in refund delays and denial of some tax benefits until the ITIN is renewed.

An ITIN renewal application filed now will be processed before one submitted at the height of tax season from mid-January to February. Currently, a complete and accurate renewal application can be processed in as little as seven weeks. But this timeframe is expected to expand to as much as 11 weeks during tax season, which runs from mid-January through April.

Several common errors are currently slowing down or holding up ITIN renewal applications. The mistakes generally center on missing information, and/or insufficient supporting documentation. ITIN renewal applicants should be sure to use the latest version of Form W-7, revised September 2016. The most current version of the form, along with its instructions, are posted on IRS.gov.