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Posted by Admin Posted on Dec 07 2015

The IRS Releases Their Third Security Tip

Posted by Admin Posted on Dec 07 2015

The IRS has released the third in their series of Tax Tips related to safeguarding your identity. The Tax Tip follows below:

 

Issue Number:    IRS Security Awareness Tax Tip Number 3

Inside This Issue


Seven Steps for Making Identity Protection Part of Your Routine

The theft of your identity, especially personal information such as your name, Social Security number, address and children’s names, can be traumatic and frustrating. In this online era, it’s important to always be on guard.

The IRS has teamed up with state revenue departments and the tax industry to make sure you understand the dangers to your personal and financial data. Taxes. Security. Together. Working in partnership with you, we can make a difference.

Here are seven steps you can make part of your routine to protect your tax and financial information:

1. Read your credit card and banking statements carefully and often – watch for even the smallest charge that appears suspicious. (Neither your credit card nor bank – or the IRS – will send you emails asking for sensitive personal and financial information such as asking you to update your account.)

2. Review and respond to all notices and correspondence from the Internal Revenue Service. Warning signs of tax-related identity theft can include IRS notices about tax returns you did not file, income you did not receive or employers you’ve never heard of or where you’ve never worked.   3. Review each of your three credit reports at least once a year. Visitannualcreditreport.com to get your free reports.

4. Review your annual Social Security income statement for excessive income reported. You can sign up for an electronic account atwww.SSA.gov.  

5. Read your health insurance statements; look for claims you never filed or care you never received.

6. Shred any documents with personal and financial information. Never toss documents with your personally identifiable information, especially your social security number, in the trash.

7. If you receive any routine federal deposit such as Social Security Administrator or Department of Veterans Affairs benefits, you probably receive those deposits electronically. You can use the same direct deposit process for your federal and state tax refund. IRS direct deposit is safe and secure and places your tax refund directly into the financial account of your choice.

To learn additional steps you can take to protect your personal and financial data, visit Taxes. Security. Together. You also can read Publication 4524, Security Awareness for Taxpayers.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

Additional IRS Resources:

IRS YouTube Videos:

IRS Podcasts:

  • IRS Efforts on Identity Theft – English | Spanish 
  • IRS Identity Theft FAQ: First Steps for Victims – English | Spanish 
  • IRS Identity Theft FAQ: Going After The Bad Guys – English | Spanish 

New Scams and Tricks - IRS Tax Tips Advises Taxpayers on Safeguarding Their Information

Posted by Admin Posted on Aug 10 2015

The IRS have released a new set of tax tips that advise taxpayers on how to keep their information protected. The Tax Tips are as follows:

IRS Warns Taxpayers to Guard Against New Tricks by Scam Artists; Losses Top $20 Million

IR-2015-99, Aug. 6, 2015

 

WASHINGTON — Following the emergence of new variations of widespread tax scams, the Internal Revenue Service today issued another warning to taxpayers to remain on high alert and protect themselves against the ever-evolving array of deceitful tactics scammers use to trick people.

 

These schemes – which can occur over the phone, in e-mails or through letters with authentic looking letterhead – try to trick taxpayers into providing personal financial information or scare people into making a false tax payment that ends up with the criminal.

 

The Treasury Inspector General for Tax Administration (TIGTA) has received reports of roughly 600,000 contacts since October 2013. TIGTA is also aware of more than 4,000 victims who have collectively reported over $20 million in financial losses as a result of tax scams.

 

“We continue to see these aggressive tax scams across the country,” IRS Commissioner John Koskinen said.  “Scam artists specialize in being deceptive and fooling people. The IRS urges taxpayers to be extra cautious and think twice before answering suspicious phone calls, emails or letters.”

 

Scammers posing as IRS agents first targeted those they viewed as most vulnerable, such as older Americans, newly arrived immigrants and those whose first language is not English. These criminals have expanded their net and are now targeting virtually anyone.

 

In a new variation, scammers alter what appears on your telephone caller ID to make it seem like they are with the IRS or another agency such as the Department of Motor Vehicles. They use fake names, titles and badge numbers. They use online resources to get your name, address and other details about your life to make the call sound official. They even go as far as copying official IRS letterhead for use in email or regular mail.

 

Brazen scammers will even provide their victims with directions to the nearest bank or business where the victim can obtain a means of payment such as a debit card. And in another new variation of these scams, con artists may then provide an actual IRS address where the victim can mail a receipt for the payment – all in an attempt to make the scheme look official.

 

The most common theme with these tricks seems to be fear. Scammers try to scare people into reacting immediately without taking a moment to think through what is actually happening.

 

These scam artists often angrily threaten police arrest, deportation, license revocation or other similarly unpleasant things. They may also leave “urgent” callback requests, sometimes through “robo-calls,” via phone or email. The emails will often contain a fake IRS document with a telephone number or email address for your reply.

 

It is important to remember the official IRS website is IRS.gov. Taxpayers are urged not to be confused or misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov.  Taxpayers should never provide personal information, financial or otherwise, to suspicious websites or strangers calling out of the blue.

 

Below are five things scammers often do that the real IRS would never do:

 

The IRS will never:

  • Angrily demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.
  • Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Require you to use a specific payment method for your taxes, such as a prepaid debit card.
  • Ask for credit or debit card numbers over the phone.

 

Here’s what you should do if you think you’re the target of an IRS impersonation scam:

 

For more information on reporting tax scams, go to IRS.gov and type “scam” in the search box.

Going to Vegas this Summer? Here are some gambling rules the casino won't tell you..

Posted by Admin Posted on Aug 05 2013

Issue Number:    IRS Summertime Tax Tip 2013-09

Inside This Issue


Six Tips on Gambling Income and Losses

Whether you roll the dice, play cards or bet on the ponies, all your winnings are taxable. The IRS offers these six tax tips for the casual gambler.

1. Gambling income includes winnings from lotteries, raffles, horse races and casinos. It also includes cash and the fair market value of prizes you receive, such as cars and trips.

2. If you win, you may receive a Form W-2G, Certain Gambling Winnings, from the payer. The form reports the amount of your winnings to you and the IRS. The payer issues the form depending on the type of gambling, the amount of winnings, and other factors. You?ll also receive a Form W-2G if the payer withholds federal income tax from your winnings.

3. You must report all your gambling winnings as income on your federal income tax return. This is true even if you do not receive a Form W-2G.

4. If you?re a casual gambler, report your winnings on the ?Other Income? line of your Form 1040, U. S. Individual Income Tax Return.

5. You may deduct your gambling losses on Schedule A, Itemized Deductions. The deduction is limited to the amount of your winnings. You must report your winnings as income and claim your allowable losses separately. You cannot reduce your winnings by your losses and report the difference.

6. You must keep accurate records of your gambling activity. This includes items such as receipts, tickets or other documentation. You should also keep a diary or similar record of your activity. Your records should show your winnings separately from your losses.

To learn more about this topic, see Publication 525, Taxable and Nontaxable Income. Also, see Publication 529, Miscellaneous Deductions. Both are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).


Additional IRS Resources:

IRS YouTube Videos:

IRS Podcasts:

Have tuition expenses in 2012? The IRS may delay your refund!

Posted by Admin Posted on Jan 28 2013

The IRS has released new guidance this morning that certain education credits will prevent a taxpayer from filing their return before mid-February, potentially into March. 
Taxpayers who claim the American Opportunity and Lifetime Learning Credit will not be able to file their returns until Form 8863 is accepted, which the IRS expects to be mid-February. The tuition and fees deduction and student loan deductions are available at this time and are not expected to be affected.
The full guidance from the IRS follows:


Issue Number:    IR-2013-10

Inside This Issue


IRS To Accept Returns Claiming Education Credits by Mid-February

WASHINGTON - As preparations continue for the Jan. 30 opening of the 2013 filing season for most taxpayers, the Internal Revenue Service announced today that processing of tax returns claiming education credits will begin by the middle of February. 

Taxpayers using Form 8863, Education Credits, can begin filing their tax returns after the IRS updates its processing systems. Form 8863 is used to claim two higher education credits -- the American Opportunity Tax Credit and the Lifetime Learning Credit.

The IRS emphasized that the delayed start will have no impact on taxpayers claiming other education-related tax benefits, such as the tuition and fees deduction and the student loan interest deduction. People otherwise able to file and claiming these benefits can start filing Jan. 30.

As it does every year, the IRS reviews and tests its systems in advance of the opening of the tax season to protect taxpayers from processing errors and refund delays. The IRS discovered during testing that programming modifications are needed to accurately process Forms 8863.  Filers who are otherwise able to file but use the Form 8863 will be able to file by mid-February. No action needs to be taken by the taxpayer or their tax professional.  Typically through the mid-February period, about 3 million tax returns include Form 8863, less than a quarter of those filed during the year.

The IRS remains on track to open the tax season on Jan. 30 for most taxpayers. The Jan. 30 opening includes people claiming the student loan interest deduction on the Form 1040 series or the higher education tuition or fees on Form 8917, Tuition and Fees Deduction. Forms that will be able to be filed later are listed on IRS.gov.

Updated information will be posted on IRS.gov.


IRS Delays Filing Season

Posted by Admin Posted on Jan 11 2013
We've just received guidance from the IRS that the start of the filing season for 2013 has been delayed to January 30th. Due to the recent tax law changes, the IRS will not accept any returns filed before January 30th.

Full release follows:

Issue Number:    Special Edition Tax Tip 2013-01

Inside This Issue


IRS Plans Jan. 30 Tax Season Opening For 1040 Filers

Following the January tax law changes made by Congress under the American Taxpayer Relief Act (ATRA), the Internal Revenue Service announced today it plans to open the 2013 filing season and begin processing individual income tax returns on Jan. 30.

The IRS will begin accepting tax returns on that date after updating forms and completing programming and testing of its processing systems. This will reflect the bulk of the late tax law changes enacted Jan. 2. The announcement means that the vast majority of tax filers -- more than 120 million households -- should be able to start filing tax returns starting Jan 30.

The IRS estimates that remaining households will be able to start filing in late February or into March because of the need for more extensive form and processing systems changes. This group includes people claiming residential energy credits, depreciation of property or general business credits. Most of those in this group file more complex tax returns and typically file closer to the April 15 deadline or obtain an extension.

?We have worked hard to open tax season as soon as possible,? IRS Acting Commissioner Steven T. Miller said. ?This date ensures we have the time we need to update and test our processing systems.?

The IRS will not process paper tax returns before the anticipated Jan. 30 opening date. There is no advantage to filing on paper before the opening date, and taxpayers will receive their tax refunds much faster by using e-file with direct deposit.

?The best option for taxpayers is to file electronically,? Miller said.

The opening of the filing season follows passage by Congress of an extensive set of tax changes in ATRA on Jan. 1, 2013, with many affecting tax returns for 2012. ‬While the IRS worked to anticipate the late tax law changes as much as possible, the final law required that the IRS update forms and instructions as well as make critical processing system adjustments before it can begin accepting tax returns.

The IRS originally planned to open electronic filing this year on Jan. 22; more than 80 percent of taxpayers filed electronically last year.

Who Can File Starting Jan. 30?

The IRS anticipates that the vast majority of all taxpayers can file starting Jan. 30, regardless of whether they file electronically or on paper. The IRS will be able to accept tax returns affected by the late Alternative Minimum Tax (AMT) patch as well as the three major ?extender? provisions for people claiming the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction.

Who Can?t File Until Later?

There are several forms affected by the late legislation that require more extensive programming and testing of IRS systems. The IRS hopes to begin accepting tax returns including these tax forms between late February and into March; a specific date will be announced in the near future.

The key forms that require more extensive programming changes include Form 5695 (Residential Energy Credits), Form 4562 (Depreciation and Amortization) and Form 3800 (General Business Credit). A full listing of the forms that won?t be accepted until later is available on IRS.gov.

As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure as smooth a tax season as possible under the circumstances.

Updated information will be posted on IRS.gov.

Selling your home? You'll need to know these things before you close the deal

Posted by Admin Posted on Aug 06 2012
Issue Number:    IRS Summertime Tax Tip 2012-14

Inside This Issue


Ten Tax Tips for Individuals Selling Their Home

The Internal Revenue Service has some important information for those who have sold or are about to sell their home. If you have a gain from the sale of your main home, you may be able to exclude all or part of that gain from your income.

Here are 10 tips from the IRS to keep in mind when selling your home.

1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.

2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).

3. You are not eligible for the full exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.

4. If you can exclude all of the gain, you do not need to report the sale of your home on your tax return.

5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.

6. You cannot deduct a loss from the sale of your main home.

7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude. Most tax software can also help with 
this calculation.

8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.

9. Special rules may apply when you sell a home for which you received the first-time homebuyer credit. See Publication 523, Selling Your Home, for details.

10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive mail from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

For more information about selling your home, see IRS Publication 523, Selling Your Home. This publication is available at IRS.gov or by calling 800-TAX-FORM 
(800-829-3676).

Links:

YouTube Videos:

Podcasts:

Starting a new business? The IRS needs you to know a few things first.

Posted by Admin Posted on July 30 2012

Issue Number:    IRS Summertime Tax Tip 2012-11

Inside This Issue


IRS Can Help When Starting a Small Business

If you are opening a new business this summer, the IRS has some basic federal tax information to help you get started.

Here are some things to consider when starting a business:

  • Type of Business One of the first decisions you need to make is what type of business you are going to establish. The most common types of businesses are sole proprietorship, partnership, corporation, S corporation, and Limited Liability Company. The type of business you establish determines which tax forms you will need to file.
  • Types of Taxes The type of business you operate also determines what types of taxes you will pay and how you will pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
  • Employer Identification Number A business typically needs to get an Employer Identification Number to use as an identifier for tax purposes. Check IRS.gov to find out whether you will need this number, and, if so, you can apply for an EIN online.
  • Recordkeeping Good records will help you keep track of deductible expenses, prepare your tax returns and support items that you report on your tax returns. Good records will also help you monitor the progress of your business and prepare your financial statements. You may choose any recordkeeping system that clearly shows your income and expenses.
  • Tax Year  Every business taxpayer must figure taxable income on an annual basis called a tax year. Your tax year can be either a calendar year or a fiscal year.
  • Accounting Method  Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.

Visit the IRS.gov website and click on the ?Businesses? tab for more information and resources, including a special section on starting a business. Publication 583, Starting a Business and Keeping Records, can also help new business owners understand their federal tax responsibilities. The publication is also available on IRS.gov or by calling 800-TAX-FORM (800-829-3676). 

Keep the Child and Dependent Care Tax Credit in Mind for Summer Planning

Posted by Admin Posted on July 06 2012

Issue Number:    IRS Summertime Tax Tip 2012-01

Inside This Issue


Keep the Child and Dependent Care Tax Credit in Mind for Summer Planning

During the summer many parents may be planning the time between school years for their children while they work or look for work. The IRS wants to remind taxpayers that are considering their summer agenda to keep in mind a tax credit that can help them offset some day camp expenses.

The Child and Dependent Care Tax Credit is available for expenses incurred during the summer and throughout the rest of the year. Here are six facts the IRS wants taxpayers to know about the credit:

1. Children must be under age 13 in order to qualify.

2. Taxpayers may qualify for the credit, whether the childcare provider is a sitter at home or a daycare facility outside the home.

3. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

4. The credit can be up to 35 percent of qualifying expenses, depending on income.

5. Expenses for overnight camps or summer school/tutoring do not qualify.

6. Save receipts and paperwork as a reminder when filing your 2012 tax return. Remember to note the Employee Identification Number (EIN) of the camp as well as its location and the dates attended.

For more information check out IRS Publication 503, Child and Dependent Care Expenses. This publication is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

IRS Publication 503, Child and Dependent Care Expenses


IRS Bulletin - Guidance on Tax Treatment of Tips Versus Service Charges

Posted by Admin Posted on July 05 2012

Internal Revenue Bulletin:  2012-26 

June 25, 2012 

Rev. Rul. 2012-18


Tips included for both employee and employer taxes. This ruling provides guidance for employers and employees in a question and answer format regarding taxes imposed on tips under the Federal Insurance Contributions Act (FICA), including information on the difference between tips and service charges, the reporting of the employer share of FICA under section 3121(q) of the Code, and the section 45B credit. See related Announcement 2012-25, published elsewhere in this Bulletin. Rev. Rul. 95-7 modified and superseded.

The purpose of this revenue ruling is to clarify and update guidelines first presented in Rev. Rul. 95-7, 1995-1 C.B. 185, concerning the taxes imposed on tips under the Federal Insurance Contributions Act (FICA) and the notice and demand under section 3121(q) of the Internal Revenue Code (Code).

Sections 3101 and 3111 of the Code impose FICA taxes on employees and employers, respectively, equal to a percentage of the wages received by an individual with respect to employment. FICA taxes consist of two separate taxes, the Old Age, Survivors, and Disability Insurance (social security) tax and the Hospital Insurance (Medicare) tax. The amount of wages subject to social security tax is limited by an annual contribution and benefit base; however, all wages are subject to Medicare tax.

Section 3121(a) of the Code defines ?wages? for FICA tax purposes as all remuneration for employment, with certain exceptions. Section 3121(a)(12)(A) excludes from the definition of wages tips paid in any medium other than cash; section 3121(a)(12)(B) excludes cash tips received by an employee in any calendar month in the course of the employee?s employment by an employer unless the amount of the cash tips is $20 or more.

Employer FICA Obligations. Under section 3121(q) of the Code, tips received by an employee in the course of the employee?s employment are considered remuneration for that employment and are deemed to have been paid by the employer for purposes of the employer share of FICA taxes imposed by sections 3111(a) and (b), that is, social security tax and Medicare tax, respectively. The remuneration is deemed to be paid when a written statement including the tips is furnished to the employer by the employee pursuant to section 6053(a), discussed below.

Section 3111 of the Code requires the employer to pay social security tax on the amount of cash tips received by the employee up to and including the contribution and benefit base as determined under section 3121(a)(1) and to pay Medicare tax on the total amount of cash tips received by the employee. However, if the employee either did not furnish the statement pursuant to section 6053(a) or if the statement furnished was inaccurate or incomplete, in determining the employer?s liability in connection with the taxes imposed by section 3111 with respect to the tips, section 3121(q) provides that the remuneration is deemed, for purposes of subtitle F (Procedure and Administration), to be paid on the date on which notice and demand for the taxes is made to the employer by the Internal Revenue Service (Service).

Employee FICA Obligations. Under section 3121(q) of the Code, for purposes of the employee share of FICA taxes imposed by sections 3101(a) and (b), tips that are properly reported to the employer pursuant to section 6053(a) are deemed to be paid at the time a written statement is furnished to the employer pursuant to section 6053(a). Unreported tips received by the employee are deemed to be paid to the employee when actually received by the employee.

Section 6053(a) of the Code requires every employee who, in the course of the employee?s employment by an employer, receives in any calendar month tips that are wages (as defined in section 3121(a) for FICA tax purposes or section 3401(a) for income tax withholding purposes) to report all those tips in one or more written statements furnished to the employer on or before the 10th day of the following month. The employee is to furnish the statements in the form and manner prescribed by the Service. See § 31.6053-1(b) of the Employment Tax Regulations.

Credit for Employer Share of FICA Taxes Paid. Section 45B(a) of the Code provides that, for purposes of the general business credit under section 38, the credit for employer social security and Medicare taxes paid on certain employee tips is an amount equal to the ?excess employer social security tax? paid or incurred by the employer. The term ?excess employer social security tax? means any tax paid by an employer under section 3111 (both social security tax and Medicare tax) on its employees? tip income without regard to whether the employees reported the tips to the employer pursuant to section 6053(a). Consequently, the section 45B credit is available with respect to unreported tips in an amount equal to the ?excess employer social security tax? paid or incurred by the employer. No credit, however, is allowed to the extent tips are used to meet the federal minimum wage rate. For purposes of this limitation, the federal minimum wage rate is the rate that was in effect on January 1, 2007. The credit is available with respect to FICA taxes paid on tips received from customers in connection with the providing, delivering, or serving of food or beverages for consumption, if it is customary for customers to tip the employees.

QUESTIONS AND ANSWERS

IN GENERAL

Q1. Is the characterization of a payment as a ?tip? by the employer determinative for FICA tax purposes under section 3121 of the Code?

A1. No. The employer?s characterization of a payment as a ?tip? is not determinative. For example, an employer may characterize a payment as a tip, when in fact the payment is a service charge. The criteria of Rev. Rul. 59-252, 1959-2 C.B. 215, should be applied to determine whether a payment made in the course of employment is a tip or non-tip wages under section 3121 of the Code. The revenue ruling provides that the absence of any of the following factors creates a doubt as to whether a payment is a tip and indicates that the payment may be a service charge: (1) the payment must be made free from compulsion; (2) the customer must have the unrestricted right to determine the amount; (3) the payment should not be the subject of negotiation or dictated by employer policy; and (4) generally, the customer has the right to determine who receives the payment. All of the surrounding facts and circumstances must be considered. For example, Rev. Rul. 59-252 holds that the payment of a fixed charge imposed by a banquet hall that is distributed to the employees who render services (e.g., waiter, busser, and bartender) is a service charge and not a tip. Thus, to the extent any portion of a service charge paid by a customer is distributed to an employee it is wages for FICA tax purposes.

The application of the factors is illustrated by the following two common examples:

Example A: Restaurant W?s menu specifies that an 18% charge will be added to all bills for parties of 6 or more customers. Customer D?s bill for food and beverages for her party of 8 includes an amount on the ?tip line? equal to 18% of the price for food and beverages and the total includes this amount. Restaurant W distributes this amount to the waitresses and bussers. Under these circumstances, Customer D did not have the unrestricted right to determine the amount of the payment because it was dictated by employer policy. Customer D did not make the payment free from compulsion. The 18% charge is not a tip within the meaning of section 3121 of the Code. The amount included on the tip line is a service charge dictated by Restaurant W.

Example B: Restaurant X includes sample calculations of tip amounts beneath the signature line on its charge receipts for food and beverages provided to customers. The actual tip line is left blank. Customer G?s charge receipt shows sample tip calculations of 15%, 18% and 20% of the price of food and beverages. Customer G inserts the amount calculated at 15% on the tip line and adds this amount to the price of food and beverages to compute the total. Under these circumstances, Customer G was free to enter any amount on the tip line or leave it blank; thus, Customer G entered the 15% amount free from compulsion. Customer G and Restaurant X did not negotiate the amount nor did Restaurant X dictate the amount. Customer G generally determined who would get the amount. The amount Customer G entered on the tip line is a tip within the meaning of section 3121 of the Code.

Q2. What tips must be reported to the employer?

A2. All cash tips received by an employee are wages for FICA tax purposes and, therefore, must be reported to the employer unless the cash tips received by the employee during a single calendar month while working for the employer total less than $20. If an employee works for more than one employer during a month and receives less than $20 in tips while working for each employer, no tips are required to be reported to any of the employers. Cash tips include tips received from customers, charged tips (e.g., credit and debit card charges) distributed to the employee by his or her employer, and tips received from other employees under any tip-sharing arrangement. Thus, both directly and indirectly tipped employees must report tips received to their employer. Non-cash tips (i.e., tips received by an employee in any other medium than cash, such as passes, tickets, or other goods or commodities) from customers are not wages for FICA tax purposes and are not reported to the employer. All cash tips and non-cash tips are includable in an employee?s gross income and subject to federal income taxes.

Q3. How are tips reported by the employee to the employer?

A3. The employee must give the employer a written statement (or statements) of cash tips by the 10th day of the month after the month in which the tips are received. Form 4070, Employee?s Report of Tips to Employer, is available for this purpose and may be found in Publication 1244,Employee?s Daily Record of Tips and Report to Employer. The statement may be furnished on paper or transmitted electronically. See § 31.6053-1(b) of the regulations.

Q4. How are FICA taxes paid on tips which are reported to the employer by the employee?

A4. The employer withholds the employee share of FICA taxes on the reported tips from the wages of the employee (other than tips) or from other funds made available by the employee for this purpose. See section 3102(c) of the Code and §§ 31.3102-3 and 31.3402(k)-1(c) of the regulations. The employer pays both employer and employee shares of FICA taxes in the same manner as the taxes on the employee?s non-tip wages and includes the reported tips on the employee?s Form W-2, Wage and Tax Statement. The employer makes a current period adjustment on Form 941,Employer?s QUARTERLY Federal Tax Return, to reflect any uncollected employee FICA taxes on reported tips. The employer reports any uncollected employee FICA taxes on the employee?s Form W-2, Wage and Tax Statement. The employee must report these amounts as additional tax on the employee?s Form 1040, U.S. Individual Income Tax Return (or other applicable return in the Form 1040 series).

EMPLOYEE

Q5. If an employee fails to report tips to his or her employer, is the employee liable for the employee share of FICA taxes on those unreported tips?

A5. Yes. The employee is liable for the employee share of FICA taxes on the unreported tips. The employee pays his or her share of FICA taxes by completing Form 4137, Social Security and Medicare Tax on Unreported Tip Income, and filing it with Form 1040 (or other applicable return in the Form 1040 series) for the year in which the tips are actually received by the employee.

Q6. Which year?s social security and Medicare rates and social security contribution and benefit base apply to compute the employee?s FICA tax liability on unreported tips?

A6. The social security and Medicare rates and the social security contribution and benefit base applicable to the calendar year in which the tips were actually received apply to compute the employee?s FICA tax liability. Form 4137 includes the applicable social security and Medicare rates and social security contribution and benefit base. The employer is not liable to withhold and pay the employee share of FICA taxes on the unreported tips.

Q7. Are employees who fail to report tips to their employers subject to a penalty?

A7. Yes. Under section 6652(b) of the Code, an employee who fails to report tips required to be reported to an employer is subject to a penalty equal to 50 percent of the employee share of FICA taxes on those tips, unless the employee can provide a satisfactory explanation showing that the failure was due to reasonable cause and not due to willful neglect. The explanation must be made in the form of a written statement setting forth all the facts alleged as a reasonable cause. This statement can be attached to the employee?s Form 1040 (See Form 4137). If the statement is submitted in response to a notice regarding a proposed penalty assessment, the statement must contain a declaration that it is made under the penalties of perjury.

EMPLOYER

Q8. If an employee fails to report tips to his or her employer, is the employer liable for the employee and employer shares of FICA taxes on those unreported tips?

A8. If an employee fails to report tips to his or her employer, the employer is not liable for the employer share of FICA taxes on the unreported tips until notice and demand for the taxes is made to the employer by the Service. The employer is not liable to withhold and pay the employee share of FICA taxes on the unreported tips.

Q9. How is notice and demand made under section 3121(q) of the Code?

A9. There is no specific form or procedure prescribed for a Section 3121(q) Notice and Demand. Notice and demand is made by the Service when it advises the employer in writing of the amount of tips received by an employee (or employees) who failed to report or underreported tips to the employer. Although no specific form is prescribed, a document will constitute a Section 3121(q) Notice and Demand if it (1) includes the words ?notice and demand? and ?section 3121(q),? (2) states the amount of tips received by the employee (or employees), and (3) states the period to which the tips relate. However, a document including such information will not constitute a Section 3121(q) Notice and Demand if it states that it is not a notice and demand.

Q10. How does an employer that files Form 941 report the section 3121(q) FICA tax liability after notice and demand is made?

A10. The employer reports the amount of the section 3121(q) FICA tax liability as a current period liability for FICA taxes on the employer?s Form 941 for the calendar quarter in which notice and demand is made. Employers should consult the Instructions for Form 941 to determine the correct line entry on Form 941. The employer must also include the amount of the section 3121(q) FICA tax liability on the appropriate line of the record of federal tax liability (Part 2 of Form 941 for a monthly depositor or Schedule B (Form 941) for a semi-weekly depositor) corresponding to the date of the Section 3121(q) Notice and Demand.

Q11. Which year?s social security and Medicare rates and social security contribution and benefit base apply to compute the employer?s FICA tax liability on unreported tips?

A11. The social security and Medicare rates and the social security contribution and benefit base applicable to the calendar year in which the tips were actually received apply to compute the employer?s FICA tax liability. The Service will compute the employer?s liability, and include a calculation worksheet with the Section 3121(q) Notice and Demand.

Q12. If the Service determines that an employer?s employees have unreported tips and issues a Section 3121(q) Notice and Demand to the employer, what is the period of limitations for the Service to assess the employer share of FICA taxes?

A12. Generally, the period of limitations for assessment under section 6501 of the Code is 3 years after the due date of the return or the date the return was filed, whichever is later. However, section 6501(b)(2) provides that employment tax returns reporting FICA taxes for any period ending with or within a calendar year filed before April 15 of the succeeding calendar year are deemed filed on April 15 of such succeeding calendar year.

As a general rule, the Service must assess the employer FICA taxes on the unreported tips within 3 years after April 15 of the calendar year following the year in which the Section 3121(q) Notice and Demand is made. For example, if the notice and demand is dated December 31, 2012, the liability is required to be reported on Form 941 for the fourth quarter of 2012, due on January 31, 2013. If the employer timely files Form 941, the period of limitations for assessment ends on April 15, 2016.

However, if the employer did not file its Form 941 for the fourth quarter of 2012 before April 15 of the succeeding calendar year (April 15, 2013) and instead filed on May 10, 2013, the Service must assess the employer FICA taxes by May 10, 2016, the date 3 years after the date the return was filed.

If the employer files a false or fraudulent Form 941 for the quarter in which the liability is required to be reported or fails to file Form 941 for that quarter, the Service can assess the additional employer FICA taxes on the unreported tips at any time.

These assessment periods apply whether or not the employer accurately reports the liability on Form 941 as required by Q&A 10 above.

Q13. Is the employer liable for interest on the employer?s FICA tax liability for unreported tips?

A13. Generally, no. If the employer pays the tax on or before the due date of the Form 941 for the quarter during which notice and demand is made, the employer is not liable for interest. If the employer does not pay the tax by the due date of the return, interest will accrue on the underpayment from the due date of the return.

Q14. Is the employer required to deposit FICA taxes due on the unreported tips shown on the Section 3121(q) Notice and Demand?

A14. Yes. The employer must make deposits pursuant to section 6302 of the Code and § 31.6302-1 of the regulations. For purposes of applying the deposit rules, the amount of employer FICA taxes shown on the Section 3121(q) Notice and Demand, is treated as employment taxes accumulated by the employer on the date the Section 3121(q) Notice and Demand is made, which is the date printed on the notice and demand document. The Service generally intends to notify an employer at least 30 calendar days in advance of the issuance of a Section 3121(q) Notice and Demand.

Q15. Is the section 45B credit, with respect to the tips reported on the Section 3121(q) Notice and Demand, available to the employer in the year the notice and demand is made or the year in which the unreported tips were received by the employee?

A15. The section 45B credit is applied to the taxable year that the ?excess social security tax? amount is paid or incurred. The section 45B(b)(1) definition of ?excess social security tax? is limited to tips that ?are deemed to have been paid by the employer to the employee pursuant to section 3121(q).? Under this definition of ?excess social security tax,? such tax cannot be paid or incurred prior to the time that the tip amounts are deemed to have been paid under section 3121(q), which occurs on the date on which notice and demand for the employer share of FICA taxes is made to the employer. Therefore, the section 45B credit is available to the employer in the year the Section 3121(q) Notice and Demand is made and not the year in which the unreported tips were received by the employee. The credit is claimed on Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips.

EFFECT ON OTHER REVENUE RULING(S)

Rev. Rul. 95-7 is modified and superseded.

DRAFTING INFORMATION

The principal author of this revenue ruling is Linda L. Conway-Hataloski of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt & Government Entities). For further information regarding this revenue ruling, contact Linda L. Conway-Hataloski at 202-622-0047 (not a toll-free call).


- www.irs.gov

http://www.irs.gov/irb/2012-26_IRB/ar07.html 

National Taxpayer Advocate Identifies Challenges and Issues for Upcoming Year in Mid-Year Report to Congress

Posted by Admin Posted on June 29 2012

Issue Number:    IR-2012-66

Inside This Issue


National Taxpayer Advocate Identifies Challenges and Issues for Upcoming Year in Mid-Year Report to Congress

WASHINGTON ? National Taxpayer Advocate Nina E. Olson today released a report to Congress that identifies the priority issues the Taxpayer Advocate Service (TAS) will focus on during the upcoming fiscal year.  The report expresses particular concern about the taxpayer impact of expired and expiring tax provisions, the rise in tax fraud and tax-related identity theft, and attempts to limit the National Taxpayer Advocate?s formal input on issues that affect taxpayer rights and taxpayer burden via ?Taxpayer Assistance Orders? and ?Taxpayer Advocate Directives.?

Impact of Changes in Tax Law on Taxpayers and the IRS.  ?The continual enactment of significant tax law and extender provisions late in the year has led to IRS delays in handling millions of taxpayers? returns and caused many taxpayers to underclaim benefits because they did not know what the law was,? Olson wrote.  ?Because of the magnitude of these challenges and the uncertainty about such a large number of important provisions, the 2013 filing season is already at risk.  The 2013 filing season is likely to pose problems for many (if not most) taxpayers and the IRS if Congress does not address the many provisions that have already expired or soon will.?

Expired Tax Provisions.  Among tax provisions that expired at the end of 2011 are the following:

  • The so-called ?AMT patch.?  As result, an estimated 27 million more taxpayers are subject to the Alternative Minimum Tax this year.
  • The deduction for state and local taxes.  About 11 million taxpayers claimed this deduction last year.
  • The deduction for mortgage insurance premiums.  About four million taxpayers recently claimed this deduction.
  • A provision allowing persons over age 70-1/2 to make tax-free withdrawals from their Individual Retirement Accounts (IRAs) to make charitable contributions.

Congress is likely to extend many of these and other expired provisions retroactive to January 1, 2012, but neither taxpayers nor the IRS know for certain what will happen and therefore cannot make plans.  For example, a homebuyer trying to decide whether to utilize a loan package that includes mortgage insurance now lacks important information.  So does a pensioner trying to decide whether to tap his IRA to make a charitable donation.

Expiring Tax Provisions.  In addition to the provisions that expired at the end of 2011, an even larger number of provisions are set to expire at the end of 2012, including the Bush-era cuts in marginal tax rates, reduced tax rates on dividends and long-term capital gains, various marriage penalty relief provisions, certain components of the child tax credit, the earned income tax credit, and the adoption credit, and the moratoria on the phase-outs of itemized deductions and personal exemptions.

?An aura of uncertainty prevails as the IRS and taxpayers wait for word about what will be the law governing us this year and for the near future,? Olson wrote.  ?This uncertainty affects the IRS?s ability to smoothly administer the filing season and taxpayers? ability to make plans.?

Impact of Tax Fraud and Tax-Related Identity Theft.  Tax fraud and tax-related identity theft, although distinct problems, often overlap and present similar challenges for taxpayers and the IRS.  Both problems are growing.  In FY 2011, the IRS?s Electronic Fraud Detection System (EFDS) identified more than one million returns as potentially fraudulent, a 72 percent increase from the previous year.  The IRS blocked nearly one million additional refund claims using other means.  While not all fraudulent returns involve identity theft, many do.  The IRS recently reported an inventory of more than 450,000 identity theft cases.

Tax Fraud.  The report notes that the IRS?s automated fraud-detection filters are inherently imperfect.  Among the roughly two million refund claims the IRS held, tens of thousands were legitimate.  ?As the IRS develops [its] filters,? the report says, ?it must also create procedures that would allow honest taxpayers with legitimate refund claims to receive their money without unnecessary delay.?

Where the IRS seeks to verify suspect wage and withholding information, its procedures until recently required it to make a final determination within 11 weeks or release the claimed refund.  Because of the combination of more cases and budget limitations, the IRS is now placing ?hard freezes? on cases it cannot handle within that time, meaning that claimed refunds must be manually released or will not be paid.  The report expresses concern that the IRS has little incentive to prioritize a case once a hard freeze has been imposed, resulting in harm to honest taxpayers whose returns inadvertently tripped a filter.

Identity Theft.  Resource constraints also are limiting the IRS?s ability to assist victims of tax-related identity theft.  Tax-related identity theft typically arises when an identity thief uses the Social Security number of another person to file a false tax return with the intent of obtaining an improper refund.  Identity theft can impose a significant burden on its victims, whose legitimate refund claims are blocked and who often must spend months or longer trying to convince the IRS that they are, in fact, victims and then working with the IRS to untangle their account problems. 

Balancing Speedy Refunds, Fraud Prevention, and Victim Assistance.  The report notes the IRS faces competing pressures to issue refunds quickly and investigate suspicious claims.  Last year, the IRS processed about 145 million returns, including some 109 million claims for refund.  The average refund paid was nearly $3,000.  Many families depend on these funds and need them quickly, sometimes to pay rent or high winter heating bills.  At the same time, the IRS needs time to investigate the more than two million potentially fraudulent claims it identifies.

The IRS now notifies certain affected taxpayers by letter when it has a problem processing their returns and instructs them to call the new Taxpayer Protection Unit (TPU) to provide more information.  However, this unit has been unable to answer about two out of every three calls it has received from taxpayers so far this year.  At times during the filing season, it was answering only about one out of every nine calls it received ? and those who managed to get through waited an average of over an hour to speak with an employee.

?While Congress and taxpayers rightfully demand that the IRS stop payment on fraudulent refund claims, Congress and taxpayers also rightfully demand that the IRS pay refunds out to legitimate taxpayers immediately,? Olson wrote.  Tax fraud and identity theft will continue to be key areas of focus for TAS during the upcoming fiscal year.

Taxpayer Assistance Orders (TAOs) and Taxpayer Advocate Directives (TADs).  The report also raises concerns about the level of attention the IRS has given recently to TAOs and TADs.  To ensure that the concerns of the National Taxpayer Advocate and Taxpayer Advocate Service are adequately addressed, Congress gave the Advocate the authority to issue TAOs to the IRS ordering it to take an action or refrain from taking an action in taxpayer cases.  The Advocate has also been given parallel administrative authority to issue TADs to the IRS, directing it to take action on systemic issues to ?protect taxpayer rights, prevent undue burden, ensure equitable treatment, or provide an essential service to taxpayers.?  Over the past year, the report says, the IRS has ignored and sought to limit the Advocate?s authority to issue TADs.

IRS Has Yet to Comply with Proposed and Final TAD Designed to Assist Victims of Preparer Fraud.  In June 2011, the National Taxpayer Advocate issued a proposed TAD to the head of an IRS operating division directing him to issue guidance and implement a procedure for adjusting the accounts of taxpayers who have been victimized by fraudulent return preparers.  The official did not comply, prompting the Advocate to issue a final TAD on the same issue in January 2012.  The operating division still has not issued comprehensive guidance or implemented procedures to assist taxpayer victims of preparer fraud.

TAD to Improve Audit Process Challenged.  In January 2012, the National Taxpayer Advocate issued a TAD to address problems taxpayers were facing in connection with the correspondence examination process as described in a TAS study, including problems caused by obsolete regulations.  The IRS challenged the National Taxpayer Advocate?s authority to issue a TAD to the Chief Counsel or to interpret the law.  Interpreted broadly, this conclusion would severely limit the National Taxpayer Advocate?s authority to issue TADs generally.  ?Because nearly everything the IRS does is governed by law, it is very difficult for a TAD to address problems that taxpayers are facing without making a recommendation as to how the law should be interpreted,? the report says.  ?For example, if a TAD seeks to prevent the IRS from infringing taxpayer rights, which are embodied in law, the IRS may decline to respond to the TAD on the basis that it interprets law.  The IRS?s position significantly reduces the utility of these directives and undermines the purpose for which they were created.?

TAOs and TADs Are Important Tools to Elevate Taxpayer Rights Issues to the IRS Leadership.  TAS generally uses TAOs and TADs as part of a strategic approach to issues that arise in multiple TAS cases, are the focus of projects and teams, and for which TAS has repeatedly sought solutions from the IRS, the report says.  The report points out that the IRS Commissioner and Deputy Commissioner may overturn any TAO or TAD, which in practice means that TAOs and TADs are primarily vehicles the National Taxpayer Advocate may use to raise priority concerns to the IRS leadership.

?The purpose of TAOs and TADs is to ensure that issues that may impinge on taxpayer rights or impose excessive taxpayer burden are elevated for consideration to the highest levels of the IRS leadership in a formal way that requires a written response, so that the issues and competing considerations are made transparent to Congress and other stakeholders,? Olson wrote.  ?For that reason, it is utterly mystifying to me why the IRS would seek to squelch the authority of the National Taxpayer Advocate to raise taxpayer rights and taxpayer burden issues to the senior IRS leadership in this way, and we certainly will not accede to attempts to constrain our advocacy efforts of behalf of our nation?s taxpayers.?

Other Areas of Focus.  Additional areas on which the National Taxpayer Advocate intends to focus in the coming year include:

  • The IRS?s increasing use of automated examination and other tax adjustment procedures, which limit opportunities for taxpayers to interact directly with an IRS employee and often do not provide the taxpayer rights protections traditionally associated with audits.
  • The impact of the IRS?s crackdown on persons with offshore accounts, which often subjects individuals who were not engaged in tax evasion to draconian penalties, and the related issue of modifying the terms of the Offshore Voluntary Disclosure Program so that individuals who made honest mistakes can correct them without fear of excessive penalties.
  • Collaborating with the IRS to improve taxpayer service options for international taxpayers to help alleviate their compliance challenges.
  • Examining the application and taxpayer impact of the IRS?s new ?fresh start? initiative, which is designed to allow financially struggling taxpayers to remain in or come into compliance based on their ability to pay.
  • Improving coordination with the IRS and other government agencies to protect taxpayer rights and minimize taxpayer burden.  In recent years, the Taxpayer Advocate Service has been asked to assist taxpayers who had been clients of several tax-resolution or tax-preparation firms that were sued by government entities, including the Law Firm of Roni L. Deutch, Mo? Money Taxes, and Taxmasters; taxpayers who received disaster-related assistance overpayments from the Federal Emergency Management Agency; and taxpayers who received payments from the U.S. Department of Agriculture in settlement of discrimination claims.

* * * * * * *

Avoid Year-End Time Crunch by Drafting Commissions Agreements Now - An article by our friend Olivia Goodkin

Posted by Admin Posted on June 20 2012

Olivia Goodkin is a friend of ours at Greenberg Glusken, a law firm in Los Angeles that covers a wide spectrum of legal issues and area, including employment law.
She recently sent over a link to one of her articles regarding commission payments to employees and some changes to the legal requirements for doing so.
We strongly urge that our clients who pay their employees on a commission basis familiarize themselves with the article and the changes in law.
Here is an excerpt of the beginning of her article, with a link to the full text:


"Beginning January 1, 2013, all companies that pay commissions to employees providing services in California must have written contracts detailing how commissions are computed and paid.  This potentially burdensome law was passed at the end of last year, and so far has received little attention.  We urge employers to prepare now to comply with this law, to avoid a time crunch at the end of the year.

The specifics of the new law

Under the new law: (1) All employees paid at least in part by commissions must be provided with a written contract that includes an explanation of how the commissions are calculated and when they are paid; and (2) A copy of the signed contract must be given to the employee and the employer must keep a signed acknowledgement of receipt of the contract. "

- Provided by Olivia Goodkin

Full Article

2011 Mid-Year Update Regarding Bush-Era Tax Cuts

Posted by Admin Posted on June 04 2012
We've been monitoring the expiration of several Bush-Era cuts and whether or not Congress will extend them since many credits expired at the end of 2011. The following is a report from our friends at CCH regarding the status of a few of the most important issues, followed by a list of specific deductions and credits that have expired and are on the fence for renewal, provided by Sharon Kreider and Karen Brosi of Western CPE.

Mid-year brings no resolution to fate of Bush-era tax cuts, extenders and more


Hopes for a pre-election resolution to the fate of the Bush-era tax cuts, extenders and other tax incentives are quickly fading as summer approaches. This year is increasingly looking like a replay of 2010, the last time the Bush-era tax cuts were facing imminent expiration. The White House, the Democratic-controlled Senate and the GOP-controlled House all have different opinions on the fate of these tax incentives and negotiations, which have been few and far between, and have quickly bogged down. One solution, which is being talked about more and more, is a temporary extension of the tax cuts. While this would punt the issue to the next Congress, it does little to ease taxpayers' concerns about tax planning in a climate of constant uncertainty.

Bush-era tax cuts

Unless extended, the tax cuts in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) (as extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010) will sunset after December 31, 2012. The list of expiring tax incentives is long and includes reduced individual income tax rates and capital gains/dividends tax rates; the $1,000 child tax credit; enhancements to the earned income tax credit (EIC); and much more.

On May 15, House Speaker John Boehner, R-Ohio, said that the House will vote before the November elections on legislation to extend the Bush-era tax cuts. Boehner gave no timetable for a vote. It is unclear at this time if the GOP plans to vote on making the Bush-era tax cuts permanent or merely to extend them one or two more years. Also unclear is whether or not any extension would be offset with revenue raisers elsewhere. Even if the House votes on the tax cuts, there is no guarantee the Senate will take them up.

Complicating matters is the federal budget deficit. After months of partisan wrangling last year, Congress passed the Budget Control Act of 2011 (BCA). The BCA imposes mandatory, across-the-board spending cuts through sequestration. The BCA's spending cuts are scheduled to take effect in 2013. The GOP wants to repeal the BCA and on May 10, the House approved legislation to effectively do that. The GOP bill has no chance of passage in the Democratic-controlled Senate. So the BCA remains, for now, law.

Few Capitol Hill observers expect Congress to take any meaningful action on the Bush-era tax cuts before the November elections. This leaves the fate of the Bush-era tax cuts to the lame duck Congress. Depending on the outcome of the November elections, the lame duck Congress could do nothing and allow the Bush-era tax cuts to expire, make the tax cuts permanent, or--and this appears to be the most likely scenario--extend the tax cuts for one year. Either way, the uncertainty complicates tax planning for 2012 and beyond.

Small businesses

Lawmakers are also dueling over competing small business tax bills. The House has approved the GOP-sponsored Small Business Tax Cut Act. The GOP bill would, among other provisions, provide a deduction for 20 percent of qualified domestic business income of the taxpayer for the tax year, subject to limitations. In the Senate, the Democrats' small business bill would give a 10 percent income tax credit to small employers that increase wages or create jobs in 2012 and extend 100 percent bonus depreciation through 2012 (which had expired at the end of 2011). If the Senate approves the Democratic bill, the two chambers could iron-out the differences in the bills in conference.

Tax extenders

Since January, supporters of the tax extenders have tried several times, all unsuccessfully, to attach the extenders to other bills. Some of the extenders were initially attached to the Middle Class Tax Relief and Job Creation Act of 2012, which extended the employee-side payroll tax cut for all of calendar year 2012, but were subsequently dropped. Supporters also tried to include many of the extenders, especially energy-related tax incentives, to the Senate's highway funding bill: the Moving Ahead for Progress in the 21st Century (MAP-21) Act. At the last minute, the extenders were removed from the Senate bill.

A drag on the extenders is their estimated cost to the federal budget. According to the Congressional Research Service, renewing all of the extenders for 2012 would cost $35 billion. This is one reason why supporters have tried to move only some of the extenders. There have also been calls in Congress to let some of the extenders expire permanently; but every extender has its supporter.

Federal estate tax

Another big question mark hovers over the federal estate tax. Unless Congress acts, the federal estate tax is schedule to revert to its pre-EGTRRA levels (a top tax rate of 55 percent with a $1 million exclusion). In 2010, the White House and the GOP agreed on a top tax rate of 35 percent with a $5 million exclusion (indexed for inflation) for decedents dying in 2011 and 2012 (special rules applied to decedents dying in 2010). The GOP has proposed to eliminate the estate tax entirely or, if not abolished, to retain the 35/$5 million amounts for decedents dying after 2012; the White House has proposed to reduce the exclusion amount to $3.5 million.


Many 2011 Tax Benefits Are No Longer
Available for 2012 Returns

 
The news is all about a looming ?taxageddon? at year end when a lame duck Congress must address expired and expiring tax provisions.  No one knows what will happen to the 2013 tax rates or what other Bush tax provisions will be extended.  Regardless of this uncertainty, there is a fairly lengthy list of tax provisions that expired at the end of 2011. At the moment, here is what you can work with for 2012 tax projections: 
  • Recovery period for some assets. Qualified leasehold improvement, qualified restaurant property and qualified retail improvements recovery period drops back to 39 years from 15 years.
  • Section 179 expensing. §179 reduced from $500,000 to $139,000 effective for 2012 taxable years
  • Bonus depreciation. Bonus depreciation reduced from 100% to 50% for purchases on or after Jan 1, 2012.
  • Work opportunity credit. WOTC expired Dec. 31, 2011 except for employers who hire qualified veterans.
  • Basis reporting. Form 1099B to include basis for mutual fund shares purchased in 2012 or later.
  • AMT. Patch expired at the end of 2011.  28 million additional taxpayers due to pay AMT without a 2012 patch.
  • Estate tax exemption. Estate tax exemption increases to $5,120,000.  Annual gift exclusion remains at $13,000.
  • Adoption credit. §137 drops credit from $13,360 in 2011 to $12,650 in 2012. 
  • Employer provided transit passes. Fringe benefit allowance for transit passes drops from $230 to $125 in 2012. Parity with parking allowances dropped.
  • R and D credit. Expired Dec. 31, 2011.
  • Expensing of environmental remediation costs. Expired Dec. 31, 2011.
  • Enhanced charitable deductions for food inventory and book inventory. Expired Dec. 31, 2011.
  • Lower shareholder basis adjustments for charitable contributions by S corporation. Expired Dec. 31, 2011.
  • Reduced S corporation recognition for built in gains tax. Expired Dec. 31, 2011.
  • Exclusion of 100% of gain on sale of §1202 small business stock. Expired Dec. 31, 2011.
  • Election for itemizers to deduct sales tax in lieu of income tax. Expired Dec. 31, 2011.
  • Tuition deduction. Expired Dec. 31, 2011.
  • Mortgage insurance premiums. Expired Dec. 31, 2011.
  • $250 teacher deduction. Expired Dec. 31, 2011.
  • Nonbusiness energy property credit. Expired Dec. 31, 2011. 
  • IRA transfer to charity. Expired Dec. 31, 2011.
 
©2012 Sharon Kreider & Karen Brosi

IRS Tax Tip 2012-26

Posted by Admin Posted on Feb 08 2012
Are you a Social Security beneficiary? Ever wonder why your Social Security is taxable sometimes and nontaxable other times? The IRS tries to help you figure it out in the following Tax Tip.

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Seven Tips to Help You Determine if Your Social Security Benefits are Taxable 

Many people may not realize the Social Security benefits they received in 2011 may be taxable. All Social Security recipients should receive a Form SSA-1099 from the Social Security Administration which shows the total amount of their benefits. You can use this information to help you determine if your benefits are taxable. Here are seven tips from the IRS to help you:

1. How much ? if any ? of your Social Security benefits are taxable depends on your total income and marital status.

2. Generally, if Social Security benefits were your only income for 2011, your benefits are not taxable and you probably do not need to file a federal income tax return.

3. If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status (see below).

4. Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet. Your tax software program will also figure this for you.

5. You can do the following quick computation to determine whether some of your benefits may be taxable:

  • First, add one-half of the total Social Security benefits you received to all your other income, including any tax-exempt interest and other exclusions from income.
  • Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.

6. The 2011 base amounts are:

  • $32,000 for married couples filing jointly.
  • $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouse at any time during the year.
  • $0 for married persons filing separately who lived together during the year.

7. For additional information on the taxability of Social Security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. You can get a copy of Publication 915 at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).


IRS Tax Tips 2012-1

Posted by Admin Posted on Jan 26 2012
The IRS has released some information in relation to small businesses via their Tax Tips Service. The entry follows below:

***

Issue Number:  2012-1

Inside This Issue



  1.  Payroll tax cut temporarily extended into 2012

Recent legislation temporarily extends the two percentage point payroll tax cut for employees through Feb. 29.

IR-2011-124 has more information.



  2.  Contacting the IRS for information and assistance

The hours of service for most IRS toll-free telephone lines is 7 a.m. to 7 p.m. local time. 

Related link:



  3.  2012 standard mileage rate

The standard mileage rate for business stays at 55.5 cents per mile (unchanged from the July 1 mid-year adjustment).

IR-2011-116 has more information.



  4.  More guidance on reporting employer health care coverage on Forms W-2

IRS Notice 2012-09 provides additional guidance regarding the requirement that certain employers report the value of employer-sponsored health care coverage on the employees? Forms W-2. The notice restates and amends the interim guidance in Notice 2011-28. 

Notice 2012-09 provides interim guidance that generally is applicable beginning with 2012 Forms W-2 (forms required for the calendar year 2012 that employers are generally required to give employees by the end of January 2013). More information about the provision is on the ACA pages of IRS.gov.



  5.  Recent IRS announcements
  • IR-2012-1 IRS Kicks Off 2012 Tax Season with Deadline Extended to April 17
  • Tax Tip 2012-01 IRS Offers Top 10 Tax-Time Tips

IRS Tax Tip 2012-07

Posted by Admin Posted on Jan 17 2012

Ever needed to know more about dependents and exemptions? The IRS has released some Tax Tips to help you understand what a dependent is and how exemptions work. Check it out below.

***

Six Important Facts about Dependents and Exemptions

Even though each individual tax return is different, some tax rules affect every person who may have to file a federal income tax return. These rules include dependents and exemptions. The IRS has six important facts about dependents and exemptions that will help you file your 2011 tax return.

1. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,700 on your 2011 tax return.

2. Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you?re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.

3. Exemptions for dependents. You generally can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the Social Security number of any dependent for whom you claim an exemption.

4. If someone else claims you as a dependent, you may still be required to file your own tax return. Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income, your marital status and any special taxes you owe.

5. If you are a dependent, you may not claim an exemption. If someone else ? such as your parent ? claims you as a dependent, you may not claim your personal exemption on your own tax return.

6. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.

For more information on exemptions, dependents and whether you or your dependent needs to file a tax return, see IRS Publication 501. The publication is available at www.irs.gov or can be ordered by calling 800-TAX-FORM (800-829-3676). You can also use the Interactive Tax Assistant at www.irs.gov to determine who you can claim as a dependent and how much you can deduct for each exemption you claim. The ITA tool is a tax law resource on the IRS website that takes you through a series of questions and provides you with responses to tax law questions.

IRS Tax Tips 2012-08

Posted by Admin Posted on Jan 17 2012

Another IRS Tax Tip about protecting yourself against scams, this time focusing on Cyber Crimes.

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Don't be Scammed by Cyber Criminals

The Internal Revenue Service receives thousands of reports each year from taxpayers who receive suspicious emails, phone calls, faxes or notices claiming to be from the IRS. Many of these scams fraudulently use the IRS name or logo as a lure to make the communication appear more authentic and enticing. The goal of these scams - known as phishing - is to trick you into revealing your personal and financial information. The scammers can then use your information - like your Social Security number, bank account or credit card numbers - to commit identity theft or steal your money.

Here are five things the IRS wants you to know about phishing scams.

1. The IRS never asks for detailed personal and financial information like PIN numbers, passwords or similar secret access information for credit card, bank or other financial accounts.

2. The IRS does not initiate contact with taxpayers by email to request personal or financial information. If you receive an e-mail from someone claiming to be the IRS or directing you to an IRS site:

- Do not reply to the message.

- Do not open any attachments. Attachments may contain malicious code that will infect your computer.
     
- Do not click on any links. If you clicked on links in a suspicious e-mail or phishing website and entered confidential information, visit the IRS website and enter the search term 'identity theft' for more information and resources to help.

3. The address of the official IRS website is www.irs.gov. Do not be confused or misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on the suspicious site and report it to the IRS.

4. If you receive a phone call, fax or letter in the mail from an individual claiming to be from the IRS but you suspect they are not an IRS employee, contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Report any bogus correspondence.  You can forward a suspicious email to phishing@irs.gov.

5. You can help shut down these schemes and prevent others from being victimized. Details on how to report specific types of scams and what to do if you've been victimized are available at www.irs.gov. Click on "phishing" on the home page.

IRS Tax Tips Special Edition 2012-12

Posted by Admin Posted on Jan 17 2012

The IRS Tax Tips Service has updated us with information about how taxpayers can protect themselves against identity theft.

We HIGHLY recommend you read this entry!

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Top Tips Every Taxpayer Should Know about Identity Theft

Identity theft often starts outside of the tax administration system when someone's personal information is unfortunately stolen or lost. Identity thieves may then use a taxpayer's identity to fraudulently file a tax return and claim a refund. In other cases, the identity thief uses the taxpayer's personal information in order to get a job. The legitimate taxpayer may be unaware that anything has happened until they file their return later in the filing season and it is discovered that two returns have been filed using the same Social Security number.

Here are the top 13 things the IRS wants you to know about identity theft so you can avoid becoming the victim of an identity thief.

1. The IRS does not initiate contact with taxpayers by email to request personal or financial information. The IRS does not send emails stating you are being electronically audited or that you are getting a refund.

2. If you receive a scam e-mail claiming to be from the IRS, forward it to the IRS at phishing@irs.gov.

3. Identity thieves get your personal information by many different means, including:

   * Stealing your wallet or purse
   * Posing as someone who needs information about you through a phone call or
      e-mail
   * Looking through your trash for personal information
   * Accessing information you provide to an unsecured Internet site.

4. If you discover a website that claims to be the IRS but does not begin with 'www.irs.gov,' forward that link to the IRS at phishing@irs.gov.

5. To learn how to identify a secure website, visit the Federal Trade Commission at www.onguardonline.gov/tools/recognize-secure-site-using-ssl.aspx.

6. If your Social Security number is stolen, another individual may use it to get a job.  That person's employer may report income earned by them to the IRS using your Social Security number, thus making it appear that you did not report all of your income on your tax return.  When this occurs, you should contact the IRS to show that the income is not yours.  Your record will be updated to reflect only your information.  You will also be asked to submit substantiating documentation to authenticate yourself. That information will be used to minimize this occurrence in future years.

7. Your identity may have been stolen if a letter from the IRS indicates more than one tax return was filed for you or the letter states you received wages from an employer you don't know.  If you receive such a letter from the IRS, leading you to believe your identity has been stolen, respond immediately to the name, address or phone number on the IRS notice.

8. If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost wallet, questionable credit card activity, or credit report, you need to provide the IRS with proof of your identity.  You should submit a copy of your valid government-issued identification - such as a Social Security card, driver's license, or passport - along with a copy of a police report and/or a completed IRS Form 14039, Identity Theft Affidavit, which should be faxed to the IRS at 978-684-4542.  Please be sure to write clearly.  As an option, you can also contact the IRS Identity Protection Specialized Unit, toll-free at 800-908-4490.  You should also follow FTC guidance for reporting identity theft at www.ftc.gov/idtheft.

9. Show your Social Security card to your employer when you start a job or to your financial institution for tax reporting purposes.  Do not routinely carry your card or other documents that display your Social Security number.

10. For more information about identity theft - including information about how to report identity theft, phishing and related fraudulent activity - visit the IRS Identity Theft and Your Tax Records Page, which you can find by searching "Identity Theft" on the IRS.gov home page.

11. IRS impersonation schemes flourish during tax season and can take the form of e-mail, phone websites, even tweets.  Scammers may also use a phone or fax to reach their victims.  If you receive a paper letter or notice via mail claiming to be the IRS but you suspect it is a scam, contact the IRS at http://www.irs.gov/contact/index.html to determine if it is a legitimate IRS notice or letter.  If it is a legitimate IRS notice or letter, reply if needed.  If the caller or party that sent the paper letter is not legitimate, contact the Treasury Inspector General for Tax Administration at 1-800-366-4484.  You may also fax the notice/letter you received, plus any related or supporting information, to TIGTA.  Note that this is not a toll-free FAX number 1-202-927-7018.

12. While preparing your tax return for electronic filing, make sure to use a strong password to protect the data file.  Once your return has been e-filed, burn the file to a CD or flash drive and remove the personal information from your hard drive.  Store the CD or flash drive in a safe place, such as a lock box or safe.  If working with an accountant, you should ask them what measures they take to protect your information.

13. If you have information about the identity thief that impacted your personal information negatively, file an online complaint with the Internet Crime Complaint Center (IC3) at www.ic3.gov. The IC3 gives victims of cyber crime a convenient and easy-to-use reporting mechanism that alerts authorities of suspected criminal or civil violations. IC3 sends every complaint to one or more law enforcement or regulatory agencies that have jurisdiction over the matter.

IRS Tax Tips and Our Website

Posted by Admin Posted on Jan 09 2012
As Enrolled Agents, part of our job is making sure that you, the taxpayer, are aware and take advantage of IRS rules and regulations that benefit you and help you to make the informed decisions about your tax preparation. 

The IRS themselves have a service that sends out tax tips that are designed with those same goals in mind. 

Since redesigning the site, we've decided to create a special blog category that makes access to these tips easier for you. Be on the lookout for blog entries with the "IRS Tax Tips" tag in the near future!

Welcome Back!

Posted by Admin Posted on Dec 30 2011
Welcome back to our relaunched, revamped, and re-improved website! We hope that you find that FKAOnline has grown from it's simple roots to a much more powerful resource for all of your financial questions.

Take a look around and feel free to leave us comments and feedback!

Welcome to Our Blog!

Posted by Admin Posted on Nov 30 2011
This is the home of our new blog. Check back often for updates!