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William Byrnes (Texas A&M) tax & compliance articles

Archive for the ‘Taxation’ Category

3 Tax Facts for US Taxpayers Living Abroad or With Foreign Assets

Posted by William Byrnes on June 2, 2014


In Newswire 2014-52, IRS reminded US taxpayers living abroad of 3 Tax Facts concerning filing requirements.

1. Filing Requirements of a US taxpayer Living and / or Working in a Foreign Country?

The Internal Revenue Service reminds U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2013, that they may have a U.S. tax liability and a filing requirement in 2014.

The filing deadline for a tax return for a US taxpayer who lives or works outside the US (or serving in the military outside the U.S.) is Monday, June 16, 2014.  To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies. See U.S. Citizens and Resident Aliens Abroad for details.

2. Foreign Assets Reporting?

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to fill out and attach Schedule B to their tax return. Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Foreign Financial Assets.

Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

3. FBAR Reporting Also Required?

Separately, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2013 must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). This form replaces TD F 90-22.1, the FBAR form used in the past. It is due to the Treasury Department by June 30, 2014, must be filed electronically and is only available online through the BSA E-Filing System website. For details regarding the FBAR requirements, see Report of Foreign Bank and Financial Accounts (FBAR).

Any U.S. taxpayer here or abroad with tax questions can use the online IRS Tax Map and the International Tax Topic Index to get answers.

tax-facts-online_medium

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

For an indepth analysis of deductions for donations to U.S. charities (and the government’s policy encouraging or discouraging these donations), download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour”

Posted in Compliance, FATCA, Taxation | Tagged: , , , , | 1 Comment »

Can’t Pay Your Tax Debt? What is an Offer in Compromise?

Posted by William Byrnes on May 28, 2014


What is an Offer in Compromise?

An offer in compromise allows a taxpayer in certain situations to settle a tax debt for less than the full amount of that debt.  An offer in compromise may be a legitimate option when a taxpayer cannot pay a full tax liability, or paying the full tax liability will create a financial hardship.

The IRS considers the taxpayer’s following unique set of facts and circumstances:

  • Ability to pay;
  • Income;
  • Expenses; and
  • Asset equity.

The IRS states that it will generally approve an offer in compromise when the amount offered represents the most that the IRS thinks that it can expect to collect within a reasonable period of time.

Who is Eligible for an Offer in Compromise?

Before the IRS is able to consider an offer in compromise from a taxpayer, the taxpayer must first be current with all filing and payment requirements.  A taxpayer is not eligible if the taxpayer is in an open bankruptcy proceeding.  Use the Offer in Compromise Pre-Qualifier to confirm eligibility and to prepare a preliminary offer in compromise proposal.

How to Submit an Offer in Compromise?

Step-by-step instructions and all the forms for submitting an Offer in Compromise may be found in the Booklet Form 656-B (PDF).  The Offer in Compromise must include:

How to Select a payment option?

The initial payment will vary based on the offer and the payment option chosen with the offer:

  • Lump Sum Cash: Submit an initial payment of 20 % of the total offer amount with the application for Offer in Compromise.  Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments.
  • Periodic Payment: Submit the initial payment with the application. Continue to pay the remaining balance in monthly installments while the IRS considers the offer in compromise.  If accepted, continue to pay monthly until it is paid in full.

If a taxpayer meets the Low Income Certification guidelines, then the taxpayer does not need to send the application fee or the initial payment and will not need to make monthly installments during the evaluation of the offer in compromise.

What Happens During the Evaluation of the Offer in Compromise?

  • Non-refundable payments and fees will be applied to the tax liability, payments may be designated to a specific tax year and tax debt;
  • A Notice of Federal Tax Lien may be filed;
  • Other collection activities are temporarily suspended;
  • The legal assessment and collection period is extended;
  • Make all required payments associated with the offer;
  • Payments on an existing installment agreement may be temporarily suspended; and
  • The Offer in Compromise is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date.
If the offer is accepted If your offer is rejected
  • Meet all the Offer Terms listed in Section 8 of Form 656, including filing all required tax returns and making all payments;
  • Any refunds due within the calendar year in which your offer is accepted will be applied to the tax debt;
  • Federal tax liens are not released until the offer terms are satisfied; and
  • Certain offer information is available for public review at designated IRS offices.
  • A taxpayer may appeal a rejection within 30 days using Request for Appeal of Offer in Compromise, Form 13711 (PDF).

2014_tf_on_individuals_small_businesses-m_1For over 110 years, National Underwriter has provided fast, clear, and authoritative answers to financial advisors pressing questions, and it does so in the convenient, timesaving, Q&A format.  “Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Businessrisk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

For an indepth analysis of deductions for donations to U.S. charities (and the government’s policy encouraging or discouraging these donations), download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

Posted in Taxation | Tagged: | Leave a Comment »

9 Tax Facts about Amending a Tax Return

Posted by William Byrnes on May 21, 2014


The IRS in Tax Tip 2014-51 alerted taxpayers to their ability to amend a tax return after it has already been filed with the IRS.  By example, if a taxpayer discovers that a mistake was made on the return, such as a mis-statement of income or inadvertent inclusion or exclusion of a deduction, the taxpayer can correct the mistake by filing an amended tax return.

9 tax facts that a taxpayer should know about filing an amended tax return include:

1. Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct errors on a tax return.  But the amended return must be filed on paper.  Amended returns cannot be e-filed.

2. A taxpayer should file an amended tax return if there is an error claiming a filing status, income, deductions or credits on the original return.

3. However, a taxpayer normally will not need to file an amended return to correct simple math calculation errors on the return.  The IRS computers will find those math errors and automatically make those changes.  Such changes may effect the tax due or increase or decrease a refund.  Also, a taxpayer does not to file an amended return because of a forgotten tax form attachment, such as a W-2 or schedule. The IRS will normally later send a request for those to be sent separately.

4. A taxpayer normally has 3 years from the filing date of the original tax return to amend the tax return to claim a refund by filing Form 1040X . A taxpayer may file the amended return within two years from the date of paying the tax due, if that date is later than the filing date of the tax return.  Thus, generally the last day for most taxpayers to file a 2010 claim for a refund is April 15, 2014, unless a special exception applies.

5. If a taxpayer needs to amend more than one tax return, then a 1040X must be prepared for each year. Each 1040X form must be mailed in a separate envelope.  Note the tax year being amended on the top of Form 1040X.  Form 1040X’s instructions include the address where to mail the form.

6. If a taxpayer has other IRS forms or schedules that required changes, then attach them to the Form 1040X.

7. If a taxpayer is due an additional refund because of a potential amendment from the original return, then the taxpayer should wait to receive that first refund before filing Form 1040X to claim the additional refund.  Amended returns require as much as 12 weeks to process.

8. If a taxpayer ends up owing more tax, then file the Form 1040X and pay the tax as soon as possible. This will reduce any interest and penalties on that amount owing.

9. An amended tax return can be tracked three weeks after it is filed with the IRS tool: ‘Where’s My Amended Return?’ or by phone at 866-464-2050.  This tool can track the status of an amended return for the current year and up to three years back.  The ‘Where’s My Amended Return?’ tool requires a taxpayer identification number, normally the Social Security number, and the date of birth and zip code.

tax-facts-online_medium

Because of the constant changes to the tax law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. For over 110 years, National Underwriter has provided fast, clear, and authoritative answers to financial advisors pressing questions, and it does so in the convenient, timesaving, Q&A format.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

Posted in Taxation | Tagged: , , , | Leave a Comment »

6 Tax Facts for Making Required Estimated Tax Payments To Avoid Interests and Penalties

Posted by William Byrnes on May 19, 2014


In Tax Tip 2014-49, the IRS reminds taxpayers that tax must be paid throughout the year to avoid interest and penalties, that is, tax may not only be due on April 15 for some taxpayers. For the year 2014, tax may be due also on June 16, 2014, on Sept. 15 in 2014, on Jan. 15, 2015, and of course, also on Wednesday, April 15, 2015.

Who must make estimated tax payments?

Taxpayers that do not have taxes withheld from a paycheck, or who do not have enough tax withheld during the year, may need to make additional “estimated” tax payments during the year ‘to catch up’ if normal withholding was being applied.  This is especially true for self-employed taxpayers whose income is generally are not withheld upon.  A taxpayer filing as a sole proprietor, partner in a partnership, S corporation shareholder, and/or a self-employed individual, generally needs to make estimated tax payments during the year.  If a taxpayer had a tax liability for 2013, then normally the taxpayer will need to make estimated tax payments during 2014.

A corporation will generally need to make estimated tax payments if it expects to owe tax of $500 or more when it files its corporate tax return in 2015.

Why estimated tax payments?

Through estimated tax payments, government funds its activities throughout the year, keeps tabs on what is going on with the economy (are taxpayers earning more or less income than previous years) and also ensures tax payment compliance by limiting the amount of tax actually due April 15th for the previous years.  As infamous jurist and U.S. Supreme Court Justice Oliver Wendell Holmes is oft quoted: “Taxes are what we pay for civilized society…” (Compania General De Tabacos De Filipinas v. Collector of Internal Revenue, 275 U.S. 87, 100, dissenting; opinion (21 November 1927)).  Without estimated tax payments, many taxpayers on April 15 would find tax bills larger than the amount saved from which to pay them, be it that other personal spending priorities rise up during the year.

Tax penalty for not paying enough estimated tax?

If in 2014 a taxpayer does not pay enough estimated tax throughout the year, either through withholding or by making estimated tax payments, then a penalty for underpayment of estimated tax will be due on April 15, 2015.  Generally, most taxpayers will avoid this penalty if

EITHER owing less than $1,000 in tax after subtracting all tax withholdings by 3rd parties and after subtracting all tax credits the taxpayer claims for 2014,

OR if they paid at least 90% of the tax that turns out to be owed for 2014, or 100% of the tax shown on the return for 2013, whichever amount is smaller. 

6 tax tips for estimated taxes:

1. A Taxpayer must pay estimated taxes throughout 2014 if expecting to owe $1,000 or more when filing the federal tax return on April 15, 2015.  However, special rules apply to farmers and fishermen.

2. Estimate the amount of income expected to be received for the entire year 2014 to determine the amount of taxes that are estimated to be owed for 2014.  But also, take into account any tax deductions and credits that will be claimed.  Life changes during the year, such as a change in marital status or the birth of a child, can affect the estimated taxes owed.

3. Normally a taxpayer must make estimated tax payments four times a year. The 4 dates that apply to most people this year are April 15, 2014; June 16, 2014; and Sept. 15, 2014, then Jan. 15, 2015.

4. An estimated tax payment may be paid online or by telephone, by check or by money order, and even by credit or debit card.  If a taxpayer mails a tax payment to the IRS, then it is important to use a payment voucher that comes with Form 1040-ES, Estimated Tax for Individuals, that the tax payment may be credited correctly.  Remember that the IRS processes hundreds of millions of tax payments and forms each year!

5. Check out the electronic payment options.  The Electronic Filing Tax Payment System is a free and easy way to make payments electronically.

6. Use Form 1040-ES and its instructions to calculate estimated taxes.

tax-facts-online_medium

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Businessrisk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

For an indepth analysis of deductions for donations to U.S. charities (and the government’s policy encouraging or discouraging these donations), download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour”

Posted in Taxation | Tagged: , | 1 Comment »

Is Your Child Required to File a Tax Return?

Posted by William Byrnes on May 16, 2014


2014_tf_on_investments-mChildren are potential taxpayers too!  That is the message from the IRS in Tax Tip 2014-38.  A child may be required to a federal tax return, or if a child can not file his or her own return, then the parent or guardian is normally responsible for filing their tax return.

Here are 4 tax facts from the IRS that about a child’s investment income:

1. Investment income normally includes interest, dividends and capital gains. It also includes other unearned income, such as from a trust.

2. Special rules apply if a child’s total investment income is more than $2,000. The parent’s tax rate may apply to part of that income instead of the child’s (lower) tax rate.

3. If a child’s total interest and dividend income was less than $10,000 in 2013, the taxpayer may be able to include the income on the taxpayer’s tax return. If the taxpayer elects this choice, the child does not then file a return. See Form 8814, Parents’ Election to Report Child’s Interest and Dividends.

4. Children whose investment income was $10,000 or more in 2013 must file their own tax return. File Form 8615, Tax for Certain Children Who Have Investment Income, along with the child’s federal tax return.

Starting in 2013, a child whose tax is figured on Form 8615 may be subject to the Net Investment Income Tax. NIIT is a 3.8% tax on the lesser of either net investment income or the excess of the child’s modified adjusted gross income that is over a threshold amount. Use Form 8960, Net Investment Income Tax, to calculate this tax.

Posted in Taxation | Tagged: , , , | Leave a Comment »

How Will The Lifetime Learning Credit Help Pay My Higher Education Tuition?

Posted by William Byrnes on May 15, 2014


The IRS’ Tax Tip 2014-41 answers this question, in conjunction with its > online publication < .

The Lifetime Learning Credit is:

  • Limited to $2,000 per tax return, per year.
  • For all years of higher education, including classes for learning or improving job skills.
  • Limited to the amount of the tax due for that year.
  • For the cost of tuition and required fees, plus books, supplies and equipment.
  • The taxpayer’s school should provide a Form 1098-T, Tuition Statement, showing expenses for the year.
  • File Form 8863, Education Credits, to claim these credits on the tax return.
  • The credit is subject to income limits that could reduce the credit amount.
Maximum credit Up to $2,000 credit per return
Limit on modified adjusted gross income (MAGI) $127,000 if married filling jointly;
$63,000 if single, head of household, or qualifying widow(er)
Refundable or nonrefundable Nonrefundable—credit limited to the amount of tax you must pay on your taxable income
Number of years of postsecondary education Available for all years of postsecondary education and for courses to acquire or improve job skills
Number of tax years credit available Available for an unlimited number of years
Type of program required Student does not need to be pursuing a program leading to a degree or other recognized education credential
Number of courses Available for one or more courses
Felony drug conviction Felony drug convictions do not make the student ineligible
Qualified expenses Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment)
Payments for academic periods Payments made in 2014 for academic periods beginning in 2014 or beginning in the first 3 months of 2015

 

How does a tax credit work?

A tax credit reduces the amount of income tax a taxpayer may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. The lifetime learning credit is a nonrefundable credit. This means that it can reduce tax owed to zero, but if the credit is more than the tax owing then the excess will not be refunded.

Effect of the Amount of Your Income on the Amount of Your Credit

The amount of the lifetime learning credit is phased out (gradually reduced) if MAGI is between $53,000 and $63,000 ($107,000 and $127,000 if you file a joint return). For 2013, by example, a taxpayer cannot claim a lifetime learning credit if MAGI is $63,000 or more ($127,000 or more if a joint tax return).
   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on the federal income tax return.  MAGI is the AGI on line 38 of the 1040 form, modified by adding back any:

  1. Foreign earned income exclusion,
  2. Foreign housing exclusion,
  3. Foreign housing deduction,
  4. Exclusion of income by bona fide residents of American Samoa, and
  5. Exclusion of income by bona fide residents of Puerto Rico.

For an indepth analysis of deductions for donations to U.S. charities (and the government’s policy encouraging or discouraging these donations), download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

Posted in Taxation | Tagged: , | Leave a Comment »

7 Tax Facts on Deducting Charitable Contributions to a Charity

Posted by William Byrnes on May 9, 2014


2014_tf_on_individuals_small_businesses-m_1In its Tax Tip 2014-39, the IRS disclosed that a taxpayer looking for a tax deduction may donate to a charity and create a ‘win-win’ situation.  The IRS stated that it is good for the charity and good for the taxpayer.  (subscribe by email on the left menu to these daily tax articles)

7 tax tips to know about deducting gifts to charity

1. A taxpayer must donate to a qualified charity if the taxpayer wants to deduct the gift.  Importantly, a taxpayer can not deduct gifts to individuals, political organizations or candidates.  Search the >online IRS database< for the charity.  If it is on the list, then it is qualified.

2. In order for a taxpayer to deduct contributions, the taxpayer must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with the federal tax return.

3. If a taxpayer receives a benefit in return for the contribution, the deduction will be limited.  A taxpayer can only deduct the amount of the gift that is more than the value of what the taxpayer received in return.  Examples of such benefits include merchandise, meals, tickets to an event or other goods and services in exchange for a donation.

4. If a taxpayer donates property instead of cash, the deduction is usually that item’s fair market value. Fair market value is generally the price the taxpayer would receive if the taxpayer sold the property on the open market.  A taxpayer must file Form 8283, Noncash Charitable Contributions, if the deduction for all noncash gifts is more than $500 for the year.

5. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to >vehicle donations<.

6. A taxpayer must keep records to prove the amount of the contributions made during the year. The kind of records that must be kept depends on the amount and type of the donation. For example, a taxpayer must keep a written record of any cash donation, regardless of the amount, in order to claim a deduction.  It can be a cancelled check, a letter from the organization, or a bank or payroll statement.  It should include the name of the charity, the date and the amount donated. A cell phone bill meets this requirement for text donations if it shows this same information.

7. To claim a deduction for donated cash or property of $250 or more, a taxpayer must have a written statement from the organization. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the gift.

For an indepth analysis of deductions for donations to U.S. charities (and the government’s policy encouraging or discouraging these donations), download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

If you are interested in discussing applying for the Master or Doctoral degree in the areas of financial planning or taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

 

Posted in Taxation | Tagged: , , , , , | 1 Comment »

Do I Owe an Obama Care “Individual Shared Responsibility Payment” with my next tax return?

Posted by William Byrnes on April 30, 2014


The IRS, in its Health Care Tax Tip 2014-04, addressed the question of whether a taxpayer owes an Obama Care Tax Penalty (or “Fee” or as it is formally known an “Individual Shared Responsibility Payment”) to be paid with the 2014 tax return filed by April 15, 2015.  What ever it is referred to, being a penalty, a fee, or a payment, it is mandatory and was fairly imposed by Congress, with a supra majority Senate vote.  

So … the question is: Do I owe it?  And if so, how much do I owe? 

The short answer is that for any month in 2014 that a taxpayer or any of a taxpayer’s dependents do n0t maintain health care coverage and do not qualify for an exemption from having health care coverage, then the taxpayer will owe an “individual shared responsibility payment” with your 2014 tax return filed in 2015 (exemption is the same as exception, and in tax it is said that there is always an exception to a rule, and an exception to the exception).  

What is the “less than three-month gap” exemption / exception?

The exception is if a taxpayer went without health care coverage for less than three consecutive months during the year, then the taxpayer may qualify for the short coverage gap exemption and will not have to make a payment for those months. However, if a taxpayer has more than one short coverage gap during a year, the short coverage gap exemption only applies to the first.  So by example, the taxpayer has health care coverage January 1, 2014 until February 28, and May 1 until August 30, and then again from November 15 through December 31, 2014.  The first health care coverage gap that falls within the exception is March 1 until April 30 because it is less than three consecutive months.  The second gap in coverage is also less than three consecutive months, being September 1 through November 15 – but the exception has already been used for the year so it does not fall within it.

How much does a taxpayer owe?

If a taxpayer (or any dependents) do not maintain health care coverage and do not qualify for an exemption, then the taxpayer must make an individual shared responsibility payment with the 2014 tax return.  In general, this health care coverage penalty is either a percentage of the taxpayer’s income or a flat dollar amount, whichever is greater.  High income taxpayers will pay a higher penalty.  A taxpayer will owe 1/12th of this penalty for each month of the taxpayer or taxpayer’s dependents gap in coverage.  The annual payment amount for 2014 is the greater of:

  • one percent (1%) of the household income that is above the tax return threshold for the taxpayer’s filing status, such as Married Filing Jointly or single, or
  • a family’s flat dollar amount, which is $95 per adult and $47.50 per child, limited to a maximum of $285.

This individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace in 2014.  The taxpayer will pay the due amount with the 2014 federal income tax return filed in 2015.  For example, a single adult under age 65 with household income less than $19,650 (but more than $10,150) would pay the $95 flat rate.  However, a single adult under age 65 with household income greater than $19,650 would pay an annual payment based on the one percent rate.  

Why greater than $19,650?  The filing threshold for a single adult in 2014 is 10,150, subtract that from $19,650, leaving a base amount of $9, 500.  Multiply 1% to that base amount and the penalty is $95, the same as the flat rate.

So, from the beginning of this year (January 1, 2014) a taxpayer and the family must either have “qualifying” health insurance coverage throughout the year, qualify for an exemption from coverage, or make the above payment when filing the 2014 federal income tax return in 2015.

What qualifies as “qualifying health insurance coverage”?

Qualifying coverage includes coverage provided by an employer, health insurance purchased in the Health Insurance Marketplace, most government-sponsored coverage, and coverage purchased directly from an insurance company.  However, qualifying coverage does not include coverage that may provide limited benefits, such as coverage only for vision care or dental care, workers’ compensation, or coverage that only covers a specific disease or condition.

What are the exemptions to obtaining or maintaining required health care coverage?

A taxpayer may be exempt from the requirement to maintain qualified coverage if:

  • Have no affordable coverage options because the minimum amount a taxpayer must pay for the annual premiums is more than eight percent (8%) of household income,
  • Have a gap in coverage for less than three consecutive months (see abo0ve), or
  • Qualify for an exemption for one of several other reasons, including having a hardship that prevents the taxpayer from obtaining coverage, or belonging to a group explicitly exempt from the requirement.
  • A special hardship exemption applies to taxpayers who purchase their insurance through the Marketplace during the initial enrollment period for 2014 but due to the enrollment process have a coverage gap at the beginning of 2014.

tax-facts-online_medium

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

 

If you are interested in discussing the Master or Doctorate degree in the areas of financial services or international taxation, please contact me https://profwilliambyrnes.com/online-tax-degree/

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IRS Reports 131 Million Tax Returns Filed but Many Amended Returns Expected

Posted by William Byrnes on April 29, 2014


The IRS reported in its 2014-56 NewsWire that 131 million tax returns were filed by the deadline of April 15 for the tax year of 2013.  88% of these tax returns were e-filed of which 35% (almost 46 million returns) were filed by taxpayers from home computers.

But the IRS disclosed that it expects nearly 5 million of these taxpayers to file amendments to their returns by filing Form 1040X during 2014.  Generally, for a credit or refund, taxpayers must file Form 1040X within 3 years, including extensions, after the date they filed their original return or within 2 years after the date they paid the tax, whichever is later. For most people, this means that returns for tax-year 2011 or later can still be amended.

Thus far, the IRS has released 94,809,000 refunds averaging $2,686 each.  In all, the IRS has had to return almost $255 billion to taxpayers in the form of refunds of access tax withholdings.

Same Sex Couples Amending Returns

The IRS alerted same-sex couples to consider filing amended returns for past years.  A same sex couple, legally married in a state or foreign country that recognizes their marriage, is now considered married for tax purposes. This is true regardless of whether or not the couple lives in a jurisdiction that recognizes same-sex marriage.

For returns originally filed before Sept. 16, 2013, legally married same sex couples have the option of filing amended return to change their filing status to married filing separately or married filing jointly. But they are not required to change their filing status on a prior return, even if they amend that return for another reason. In either case, their amended return must be consistent with the filing status they have chosen.

If a taxpayer still owes tax for the year 2013, then read https://profwilliambyrnes.com/2014/04/15/4-tax-tips-if-you-cant-pay-the-full-amount-of-taxes-on-time/

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6 Tax Facts for Self-Employed Taxpayers

Posted by William Byrnes on April 23, 2014


In Tax Tip 2014-34, the IRS provided 6 tax tips for self employed taxpayers.

  1. Self-employment income includes income received for part-time work.  This is in addition to income from a regular job.
  2. A self employed taxpayer must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040.
  3. A self employed taxpayer may have to pay self-employment tax as well as income tax if a profit was earned.  Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to calculate whether any self employment tax is due.
  4. A self employed taxpayer may need to make estimated tax payments. Taxpayers typically make these payments on income that is not subject to withholding.  A taxpayer may be charged a penalty if not paying enough estimated taxes throughout the entire year.
  5. A self employed taxpayer can deduct some expenses paid to run your trade or business. A self employed taxpayer can deduct most business expenses in full, but some must be ’capitalized.’  Capitalization means that the deduction will be limited to just a portion of the expense each year over a period of years.  By example, only the first $5,000 of the “start-up” expenses for a new business of the taxpayer is potentially deductible, and not until the year in which the active trade or business begins.  All other start up expenses must be amortized over a 180-month period, beginning with the month the business starts.  Thus, start up expenses in general are only deductible over this 180 month period, and not in the year actually incurred.
  6. A self employed taxpayer can deduct business expenses only if the expenses are both ordinary and necessary.  An ordinary expense is one that is common and accepted in an industry.  A necessary expense is one that is helpful and proper for the trade or business.

tax-facts-online_medium

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

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Court Approves New Planning Techniques for Investment Income Tax Trap for Trusts

Posted by William Byrnes on April 22, 2014


The Tax Court recently handed down a decision that could prove to be just the break that trusts participating in business activities need to escape liability for the new 3.8 percent tax on investment-type income (the NIIT) enacted with the ACA / ObamaCare.

Many trusts with business-related income are finally feeling the sting of the tax, which applied to all trust investment income for trusts with income in excess of a low $11,950 in 2013 ($12,150 for 2014).* The decision paves the way for new planning techniques in 2014 and beyond …

Read about the new planning techniques for the new investment tax: https://www.lifehealthpro.com/2014/04/21/court-untangles-investment-income-tax-trap-for-tru

Also see previous planning analysis at https://profwilliambyrnes.com/2014/01/02/irs-gives-high-income-taxpayers-a-break-on-new-3-8-tax/

See also: 10 things to know about how investments are taxed

* Estates and trusts are subject to the Net Investment Income Tax if they have undistributed Net Investment Income and also have adjusted gross income over the dollar amount at which the highest tax bracket for an estate or trust begins for such taxable year under section 1(e) (for tax year 2013, this threshold amount is $11,950). For 2014, the threshold amount is $12,150.

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Posted in Retirement Planning, Taxation, Wealth Management | Tagged: , , , , , | Leave a Comment »

What are Five Tax Credits That May Reduce Your Taxes?

Posted by William Byrnes on April 16, 2014


In Tax Tip 2014-33, the IRS revealed five tax credits that may reduce a taxpayers taxes.  Some tax credits are refundable regardless of whether the taxpayer owes any tax for the year, the IRS pointed out.

1. The Earned Income Tax Credit is a refundable credit for taxpayers who work but do not earn a lot of money.  For 2013, the EITC may have increased the tax refund by as much as $6,044.  

2. The Child and Dependent Care Credit can help a taxpayer offset the cost of daycare or day camp for children under age 13, and even the costs paid to care for a disabled spouse or dependent.

3. The Child Tax Credit can reduce a taxpayer’s taxes by as much as $1,000 for each qualified child claimed on the tax return.

4. The Saver’s Credit helps workers save for retirement. For 2013, a taxpayer may have qualified if income was $59,000 or less and the taxpayer contributed to an IRA or a retirement plan at work.

5. The American Opportunity Tax Credit can offset college costs. The credit is available for four years of post-secondary education. It’s worth up to $2,500 per eligible student enrolled at least half time for at least one academic period.

tax-facts-online_medium

 

 “Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.”

The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

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6 Tax Facts About Filing The Tax Return Today (April 15) and What To Do If You Can’t Pay the Full Amount of Taxes

Posted by William Byrnes on April 15, 2014


The IRS Tax Tip 2014-53 provided a series of Tax Facts of what to do if a taxpayer cannot pay the full amount of taxes owed, which I have supplemented with a couple Tax Facts from the U.S. Post Office.

1. File the Tax Return on Time to Avoid Late Filing Penalty.  File on time to avoid a late filing penalty.  By mailing or electronically filing the tax return with the postmark before or on Wednesday April 15, a taxpayer will avoid the late-filing penalty, normally 5% per month based on the unpaid balance, that applies to returns filed after the deadline.

2. Can’t File the Tax Return Today? Then File an Extension until October 15!  A taxpayer can use IRS Free File to e-file Form 4868 (PDF) Application For Automatic Extension of Time To File U.S. Individual Tax Return. The extension request must be filed by midnight on April 15.  E-filed extension request will receive an IRS receipt.  A taxpayer may still mail the request for an extension Form 4868, as long at the postmark is before or on April 15.

3. Mail must be Postmarked before or on April 15!  Gone are the days that the post office accepts a 11.59 pm tax return and tax extension letter, postmarking it by midnight April 15.  Thus, the taxpayer must drop off at the post office or post office approved provider before the last pick up time of April 15 to ensure a postmark of April 15.  See https://tools.usps.com/go/POLocatorAction!input.action for the closest post office or post service drop off approved provider within a zip code.

4. Pay as Much of the Tax Due as Possible to Avoid Interest and Late Payment Penalties. In addition, any payment made with an extension request will reduce or eliminate interest and late-payment penalties that apply to payments made after April 15.  The interest rate is currently 3% per year, compounded daily, and the late-payment penalty is normally 0.5 % per month.  Pay as much as possible to reduce interest charges and a late payment penalty.

5. Use a Credit Card to Pay the Tax. The interest and fees charged by a bank or credit card company may be less than IRS interest and penalties. See credit card options

6. Use the Online Payment Agreement tool.  Ask for a payment plan before the IRS sends a bill.  The best way is to use the Online Payment Agreement tool.  File Form 9465, Installment Agreement Request, with the tax return.

tax-facts-online_medium

Because of the constant changes to the tax law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. For over 110 years, National Underwriter has provided fast, clear, and authoritative answers to financial advisors pressing questions, and it does so in the convenient, timesaving, Q&A format.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

Posted in Taxation | Tagged: , , , , , | 1 Comment »

Only 2 days left to file a tax return? 5 tax tips for request an extension until October 15

Posted by William Byrnes on April 13, 2014


In Tax Tip 2014-52, the IRS provided the elements of possible relief for taxpayers that now realize – only 2 days left to file a tax return.  File an extension to file the tax return instead, allowing the taxpayer 6 months breathing room until October 15, 2014, to file the return.

What a Taxpayer Should Know to Request More Time to File a Tax Return!

A taxpayer can electronically file Form 4868 (PDF), Application For Automatic Extension of Time To File U.S. Individual Tax Return; and (2) pay all or part of your estimated income tax due using a credit or debit card or by using the Electronic Federal Tax Payment System (EFTPS).  However, a taxpayer can still file a paper Form 4868 by mail.  Filing this form gives taxpayers until Oct. 15 to file a return. To get the extension, taxpayers must estimate their tax liability on this form and should also pay any amount due.

By properly filing this form, a taxpayer will avoid the late-filing penalty, normally 5% per month based on the unpaid balance, that applies to returns filed after the deadline.  In addition, any payment made with an extension request will reduce or eliminate interest and late-payment penalties that apply to payments made after April 15.  The interest rate is currently 3% per year, compounded daily, and the late-payment penalty is normally 0.5 % per month.

5 tax tips for filing an extension

1. A taxpayer should file on time even if unable to pay the tax due.  If a taxpayer completes a tax return but can not pay the taxes owed, do not request an extension.  Instead, the taxpayer should file the tax return on time and pay as much as possible to reduce the amount owed.  At least the taxpayer will avoid the hefty late filing penalty, which is much higher than the penalty for not paying all of the taxes owed on time.

2. Use IRS Free File to request an extension.  A taxpayer can use IRS Free File to e-file Form 4868 (PDF) Application For Automatic Extension of Time To File U.S. Individual Tax Return. The extension request must be filed by midnight on April 15.  E-filed extension request will receive an IRS receipt.

3. Mail Form 4868.  A taxpayer may still mail the request for an extension Form 4868.  The envelope must be postmarked at the post office by April 15.  The safest way to guarantee such a postmark is to bring the envelope to the post office counter during office hours.

4. Extra time to file is not extra time to pay.  An extension to file will allow six additional months to file a tax return, until Oct. 15.  However, it does not provide extra time to pay the tax due by April 15.  Thus, a taxpayer must estimate and pay the tax owed by or on April 15.  Any amount not paid by April 15 will be charged interest. Moreover, the IRS may levy a penalty for not paying the tax on time.

5. Payment Options Moreover, a taxpayer can use payment options.  Apply for a payment plan using the Online Payment Agreement tool.  Or a taxpayer can file Form 9465, Installment Agreement Request, with a tax return. If a taxpayer is unable to make payments because of a financial hardship, the IRS will work on a payment plan with the taxpayer.

2014_tf_on_individuals_small_businesses-m_1For over 110 years, National Underwriter has provided fast, clear, and authoritative answers to financial advisors pressing questions, and it does so in the convenient, timesaving, Q&A format.  “Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

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Tax Tips for U.S. Taxpayers with Foreign Income in 2013

Posted by William Byrnes on April 12, 2014


If a taxpayer is a U.S. citizen or resident, then the taxpayer must report income from all sources within and outside of the U.S.  The rules for filing income tax returns are generally the same whether the taxpayer is living in the U.S. or abroad. Here are seven tips from the IRS from Tax Tips 2014-43 that U.S. taxpayers with foreign income should know:

1. Report Worldwide Income.  By law, U.S. citizens and resident aliens must report their worldwide income. This includes income from foreign trusts, and foreign bank and securities accounts.

2. File Required Tax Forms.  The taxpayer may need to file Schedule B, Interest and Ordinary Dividends, with the U.S. tax return.  The taxpayer may also need to file Form 8938, Statement of Specified Foreign Financial Assets. In some cases, the taxpayer may need to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts..

3. Consider the Automatic Extension.  If a taxpayer is living abroad and can’t file a tax return by the April 15 deadline, then the taxpayer may qualify for an automatic two-month filing extension. The taxpayer then will have until June 16, 2014 to file a U.S. income tax return. This extension also applies to those serving in the military outside the U.S. The taxpayer must attach a statement to the tax return to explain why the taxpayer qualifies for the extension.

4. Review the Foreign Earned Income Exclusion.  If a taxpayer lives and work abroad, then the taxpayer may be able to claim the foreign earned income exclusion. If the taxpayer qualifies, then the taxpayer will not pay tax on up to $97,600 of wages and other foreign earned income in 2013. See Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, for more details.

5. Don’t Overlook Credits and Deductions.  A taxpayer may be able to take avtax credit or a deduction for income taxes paid to a foreign country. These benefits can reduce the amount of taxes that the taxpayer must pay if both countries tax the same income.

You can get more on this topic in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

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8 Things to be Aware of for Deducting Medical and Dental Expenses for 2013 !

Posted by William Byrnes on April 11, 2014


IRS Tax Tip 2014-21 points out that if a taxpayer intends to claim a deduction for medical expenses, there are new rules that apply that may affect these deductions for 2013.  The IRS listed eight things that a taxpayer should be aware of about the medical and dental expense deduction:

1. AGI threshold increase.  Starting in 2013, the amount of allowable medical expenses must exceed 10% of adjusted gross income (AGI) to be able to claim this deduction. The threshold was 7.5% of AGI in prior years.

2. Temporary exception for age 65.  The AGI threshold is still 7.5% of AGI if the taxpayer or spouse is age 65 or older.  This exception will apply through Dec. 31, 2016.

3. Must itemize.  To claim medical and dental expenses the taxpayer must itemize deductions on the federal tax return.  Thus, if a taxpayer claims the standard deduction, then no deduction for medical expenses.

4. Paid in 2013. You can include only the expenses you paid in 2013. If you paid by check, the day you mailed or delivered the check is usually considered the date of payment.

5. Costs to include.  A taxpayer can include most medical or dental costs that paid for that taxpayer, the spouse and the dependents.  Some exceptions and special rules apply. Any costs reimbursed by insurance or other sources don’t qualify for a deduction.

6. Expenses that qualify.  The costs of diagnosing, treating, easing or preventing disease. The cost of insurance premiums for medical care, as does the cost of some long-term care insurance.  The cost of prescription drugs and insulin also qualify.  For more examples of costs you can deduct, see IRS Publication 502, Medical and Dental Expenses.

7. Travel costs count.  A taxpayer may be able to claim the cost of travel for medical care. This includes costs such as public transportation, ambulance service, tolls and parking fees.  For the use of a car, it may be possible to deduct either the actual costs or the standard mileage rate for medical travel. The rate is 24 cents per mile for 2013.

8. No double benefit.  A taxpayer can’t claim a tax deduction for medical and dental expenses paid with funds from a Health Savings Accounts or Flexible Spending Arrangements. Amounts paid with funds from those plans are usually tax-free – the salary used to fund these accounts is usually not included in taxable income.

For more than half a century, Tax Facts has been an essential resource designed to meet the real-world tax-guidance needs of professionals in both the insurance and investment industries.

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

tax-facts-online_mediumThe company also points out that the expert authors—Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.

The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.  Use coupon code Tax15 and Save 15%!

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Foreign Housing Allowance for United States Government Employees – Taxable or Non-taxable?

Posted by William Byrnes on April 10, 2014


EDN PhotoThe gross income of United States citizens and resident aliens is taxable on a worldwide basis.  In most cases, compensation for personal services such as employer payments for housing expenses is fully taxable as an employee fringe benefit unless specifically excluded from taxation.  But there are exceptions to the taxation of housing allowances such as the special rules for members of the clergy or Peace Corps volunteers.

Qualified individuals may either exclude or deduct foreign housing expenses if they have incurred housing expenses while living and working aboard. Foreign housing allowances paid to United States Government employees are treated as reimbursements for actual housing expenses and, therefore, not subject to taxation.

Link to Edward Nieto’s full analysis in his article Foreign Housing Allowance for United States Government Employees – Taxable or Non-taxable? on AdvisorFYI

Edward Nieto is a U.S. Government civilian working in Germany as a business advisor.  He has over 25 years of combined military, government, and defense industry experience.  He has also worked as a VITA tax advisor in support of military and government personnel overseas.  He may be contacted at edn2000@outlook.com

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Must a taxpayer report the value of his/her employer-sponsored health insurance coverage included on the W2?

Posted by William Byrnes on April 10, 2014


In its Health Care Tax Tip 2014-09, the IRS answered the question:  Must a taxpayer report on the income tax return (form 1040) the value of his/her employer-sponsored health insurance coverage?  The employer has included the cost of the employer-sponsored health insurance coverage on an employee’s W-2, Wage and Tax Statement.  What must a taxpayer do with this information?

The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan. Reporting the cost of health care coverage on the Form W-2 does not mean that the coverage is taxable. The value of the employer’s excludable contribution to health coverage continues to be excludable from an employee’s income, and it is not taxable. This reporting is for informational purposes only and will provide employees useful and comparable consumer information on the cost of their health care coverage.

Employers that provide “applicable employer-sponsored coverage” under a group health plan are subject to the reporting requirement. This includes businesses, tax-exempt organizations, and federal, state and local government entities (except with respect to plans maintained primarily for members of the military and their families). However, federally recognized Indian tribal governments are not subject to this requirement.  See Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage

Here is what the IRS stated about the amount shown on the W-2 “employer-sponsored health insurance coverage”.

  • The health care law requires certain employers to report the cost of coverage under an employer-sponsored group health plan.
  • The amount of employer-sponsored health insurance coverage appears in Box 12 of the W-2, and has the code letters “DD” next to it.
  • Reporting the cost of health care coverage on the Form W-2 does not mean that the coverage is taxable or that it needs to be reported on the tax return.
  • The amount in Box 12 is only for government information collection only, and shows the payments made by the taxpayer and the employer and is not included in the amount shown in Box 1, which is the amount of taxable earnings.

Reporting on the Form W-2

The value of the health care coverage will be reported in Box 12 of the Form W-2, with Code DD to identify the amount. There is no reporting on the Form W-3 of the total of these amounts for all the employer’s employees.

In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee. See the chart, below, and the questions and answers for more information.

An employer is not required to issue a Form W-2 solely to report the value of the health care coverage for retirees or other employees or former employees to whom the employer would not otherwise provide a Form W-2.

Form W-2 Reporting of Employer-Sponsored Health Coverage

Coverage Type

Form W-2, Box 12, Code DD

Report

Do Not Report

Optional

Major medical

X

Dental or vision plan not integrated into another medical or health plan

X

Dental or vision plan which gives the choice of declining or electing and paying an additional premium

X

Health Flexible Spending Arrangement (FSA) funded solely by salary-reduction amounts

X

Health FSA value for the plan year in excess of employee’s cafeteria plan salary reductions for all qualified benefits

X

Health Reimbursement Arrangement (HRA) contributions

X

Health Savings Arrangement (HSA) contributions (employer or employee)

X

Archer Medical Savings Account (Archer MSA) contributions (employer or employee)

X

Hospital indemnity or specified illness (insured or self-funded), paid on after-tax basis

X

Hospital indemnity or specified illness (insured or self-funded), paid through salary reduction (pre-tax) or by employer

X

Employee Assistance Plan (EAP) providing applicable employer-sponsored healthcare coverage

Required if employer charges a COBRA premium

Optional if employer does not charge a COBRA premium

On-site medical clinics providing applicable employer-sponsored healthcare coverage

Required if employer charges a COBRA premium

Optional if employer does not charge a COBRA premium

Wellness programs providing applicable employer-sponsored healthcare coverage

Required if employer charges a COBRA premium

Optional if employer does not charge a COBRA premium

Multi-employer plans

X

Domestic partner coverage included in gross income

X

Governmental plans providing coverage primarily for members of the military and their families

X

Federally recognized Indian tribal government plans and plans of tribally charted corporations wholly owned by a federally recognized Indian tribal government

X

Self-funded plans not subject to Federal COBRA

X

Accident or disability income

X

Long-term care

X

Liability insurance

X

Supplemental liability insurance

X

Workers’ compensation

X

Automobile medical payment insurance

X

Credit-only insurance

X

Excess reimbursement to highly compensated individual, included in gross income

X

Payment/reimbursement of health insurance premiums for 2% shareholder-employee, included in gross income

X

Other Situations

Report

Do Not Report

Optional

Employers required to file fewer than 250 Forms W-2 for the preceding calendar year (determined without application of any entity aggregation rules for related employers)

X

Forms W-2 furnished to employees who terminate before the end of a calendar year and request, in writing, a Form W-2 before the end of that year

X

Forms W-2 provided by third-party sick-pay provider to employees of other employers

X

The chart was created at the suggestion of and in collaboration with the IRS’ Information Reporting Program Advisory Committee (IRPAC). IRPAC’s members are representatives of industries responsible for providing information returns, such as Form W-2, to the IRS. IRPAC works with IRS to improve the information reporting process.

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Energy-Efficient Home Improvements Can Lower Your Taxes

Posted by William Byrnes on April 10, 2014


The IRS reported in Tax Tip 2014-47 that a taxpayer may be able to reduce taxes if making certain energy-efficient home improvements last year.

Key Tax Facts about home energy tax credits:

2014_tf_on_individuals_small_businesses-m_1Residential Energy Efficient Property Credit

  • This tax credit is 30 percent (30%) of the cost of alternative energy equipment installed on or in the home.
  • Qualified equipment includes solar hot water heaters, solar electric equipment and wind turbines.
  • There is no dollar limit on the credit for most types of property. If the credit is more than the tax owed for the year, then the  unused portion of this credit can be carried forward to next year’s tax return.
  • The home must be in the U.S BUT it does not have to be the main home.
  • This credit is available through 2016.

Non-Business Energy Property Credit no longer offered after 2013 tax return

  • This credit is worth 10 percent (10%) of the cost of certain qualified energy-saving items added to the main home last year. This includes items such as insulation, windows, doors and roofs.
  • Taxpayer may also be able to claim the credit for the actual cost of certain property. This may include items such as water heaters and heating and air conditioning systems. Each type of property has a different dollar limit.
  • This credit has a maximum lifetime limit of $500, but only $200 of this limit may be for windows.
  • Main home must be located in the U.S. to qualify for the credit.
  • Obtain a written certification from the manufacturer that their product qualifies for this tax credit. They usually post it on their website or include it with the product’s packaging. Taxpayer’s may rely on such certificate to claim the credit.
  • This credit expired at the end of 2013. You may still claim the credit on your 2013 tax return if you didn’t reach the lifetime limit in prior years.

Use Form 5695, Residential Energy Credits, to claim these credits.

For more than half a century, Tax Facts has been an essential resource designed to meet the real-world tax-guidance needs of professionals in both the insurance and investment industries.  Use coupon code: TAX15 and save 15%!

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4 Tax Facts for Trading Services With Other Persons Taxable?

Posted by William Byrnes on April 9, 2014


The IRS published Tax Tip 2014-26: Four Things You Should Know About “Barter”

“Bartering” is the trading of one product or service for another. Often there is no exchange of cash. Small businesses sometimes barter to get products or services they need.  For example, a plumber might trade plumbing work with a dentist for dental services. 

If a taxpayer trade services with another person, “bartering”, then the value of the products or the services received by the taxpayer is taxable income.

Here are four facts that the IRS has alerted taxpayers to about bartering:

1. Barter exchanges.  A barter exchange is an organized marketplace where members barter products or services. Some exchanges operate out of an office and others over the Internet. All barter exchanges are required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. The exchange must give a copy of the form to its members who barter and file a copy with the IRS.

2. Bartering income.  Barter and trade dollars are the same as real dollars for tax purposes and must be reported on a tax return. Both parties must report as income the fair market value of the product or service each received.

3. Tax implications.  Bartering is taxable in the year it occurs. The tax rules may vary based on the type of bartering that takes place. Barterers may owe income taxes, self-employment taxes, employment taxes or excise taxes on their bartering income.

4. Reporting rules.  How you report bartering on a tax return varies. If the taxpayer has a trade or business, then normally the taxpayer reports it on Form 1040,Schedule C, Profit or Loss from Business.

For more information, see the Bartering Tax Center.

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10 Tax Facts: Do You Qualify for the Child and Dependent Care Tax Credit To Reduce Your Taxes?

Posted by William Byrnes on April 6, 2014


In Tax Tip 2014-37, the IRS provides ten tax tips for taxpayers that pay for the care of their child or other dependent while they’re at work.  The Child and Dependent Care Credit can reduce that cost of that child care.

10 tax facts from the IRS about this important tax credit

1. A taxpayer may qualify for the credit if the taxpayer paid someone to care for a child, dependent or spouse last year.

2. The care a taxpayer paid for must have been necessary so the taxpayer could work or look for work.  This also applies to the spouse if married and filing jointly.

3. The care must have been for ‘qualifying persons.’ A qualifying person can be a taxpayer’s child under age 13.  Qualifying persons may also be a spouse or dependent who is physically or mentally incapable of self-care. T hey must also have lived with the taxpayer for more than half the year.

4.  The taxpayer and the spouse if file jointly, must have earned income, such as wages from a job.  Special rules apply to a spouse who is a student or disabled.

5. The payments for care can not go to a spouse, the parent of your qualifying person or to someone claimed as a dependent on the taxpayer’s return. Care payments also can not go to a child under the age of 19, even if the child is not claimed as a dependent.

6. The credit is worth up to 35 percent of the qualifying costs for care, depending on a taxpayer’s income. The limit is $3,000 of the total cost for the care of one qualifying person. If the taxpayer pays for the care of two or more qualifying persons, the taxpayer can claim up to $6,000 of the costs.

7. If a taxpayer’s employer provides dependent care benefits, special rules apply.

8. A taxpayer must include the Social Security number of each qualifying person to claim the credit.

9. A taxpayer must include the name, address and identifying number of each care provider to claim the credit.  This is usually the Social Security number of an individual or the Employer Identification Number of a business.

10. To claim the credit, attach Form 2441 to the tax return.

tax-facts-online_medium

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.  Use coupon code TAX15 and save 15%!

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2013 Home Office Deduction Easier To Calculate

Posted by William Byrnes on April 5, 2014


In Tax Tip 2014-36, the IRS alerted taxpayers about the new, simple calculation for the Home Office deduction.

If a taxpayer works from home, then it may be possible for the taxpayer to claim the home office deduction.  However, in years past this home office deduction has been rather complicated to calculate.

Starting this year (and applying to the 2013 tax return die in just 10 days), the IRS has provided a simpler option to calculate the deduction for business use of your home. The new option will save taxpayers time because it simplifies how to calculate and claim the deduction.  It also makes it easier for a taxpayer to keep records.  However, this new option for simplified method of calculation does NOT change the rules for who may claim the home office deduction.

6 tax facts about the home office deduction

1. Generally, in order to claim a deduction for a home office, a taxpayer must use a part of your home exclusively and regularly for business purposes. Also, the part of your home used for business must be:

  • the principal place of business, or
  • a place where the taxpayer meets clients or customers in the normal course of business, or
  • a separate structure not attached to the home. Examples might include a studio, garage or barn.

What clearly does NOT qualify for a home office deduction?  By example, a taxpayer sets up a computer in her bedroom on a dresser that she uses for personal emails and for keeping her business records.  In the dresser drawers are pens, paperclips, some receipts, as well as hair clips and some pieces of jewelry.  The IRS isn’t going to allow a home office deduction based on that computer on that dresser.

2. If a taxpayer uses the actual expense method, the home office deduction includes certain costs that the taxpayer paid for your home. For example, if the taxpayer rents a home, part of the rent paid could qualify for the home office deduction.  If the taxpayer own a home, part of the mortgage interest, taxes and utilities paid could correspondingly qualify. The amount of the deduction usually depends on the percentage of the home used for business.

3. Beginning with 2013 tax returns, the taxpayer may be able to use the simplified option to claim the home office deduction instead of claiming actual expenses. Under this method, the taxpayer multiplies the allowable square footage of the office area by a prescribed rate of $5.  The maximum footage allowed by the IRS is 300 square feet. The deduction maximum limit using this method is thus $1,500 per year.

4. If the taxpayer’s gross income from the business use of your home is less than the expenses, the deduction for some expenses may be limited.

5. If the taxpayer is self-employed and chooses the actual expense method, then the taxpayer should use Form 8829, Expenses for Business Use of Your Home, to calculate the amount of the home office deduction.  The taxpayer claims the deduction on Schedule C, Profit or Loss From Business, whether using the simplified or actual expense method.

6. If the taxpayer is an employee, then additional rules apply to claim the deduction. For example, in addition to the above tests, the business use must also be for the employer’s convenience.  By example: a “work from home” arrangement.

tax-facts-online_medium

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

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Employers Face Stiff Obama Care Excise Taxes (aka Penalties)

Posted by William Byrnes on April 4, 2014


The Affordable Health Care Act (ACA) (“Obama Care”) may lead to stiff excise taxes for midsize and larger employers that misclassify employees as independent contractors (see §4980H Shared responsibility for employers regarding health coverage).  The term “applicable large employer” means, with respect to a calendar year, an employer who employed an average of at least 50 full-time employees on business days during the preceding calendar year.  The term “full-time employee” means, with respect to any month, an employee who is employed on average at least 30 hours of service per week.  However, employers with less than a 100 employees have a transition period until 2016 for the application of §4980H.

Employers that misclassify employees as independent contractors already face potential tax liability and tax penalties for each misclassified employee.  In addition to these current potential liabilities and penalties for misclassification, employers will now face excise tax assessments under the ACA.   This new excise tax is $2,000 per employee not covered by a qualifying employer medical plan.  However, to encourage compliance with the ACA, if less than 95% of the employees of an employer are covered by a qualified medical employer plan, then a stiffer penalty of $2,000 for every employee of the company may be imposed, albeit with an exemption of the excise tax applying to the first 30 employees.

By example, an employer has 50 workers of which the employer has classified 80% (40) as employees and the remaining 20% (10) as independent contractors.  The employer provides a medical insurance plan for the 40 employees that qualifies for purposes of the ACA.  The §4980H issue is moot, meaning it does not need to be considered, because the employer does not reach the minimum 50 employee threshold.  But now the problem …

The IRS audits the employer and determines that the employer has misclassified the 10 independent contractors, and re-classifies them as employees.  The employer has employment tax issues, and penalties to contend with, regarding the 10 employees.  But also, §4980H now applies because the employer has reached 50 employees.  Worse yet, the employer has not covered 95% of its employees with qualified medical coverage.  Instead of 40 employees covered out of 40 covered for 100% coverage, after audit the employer is determined to have only covered 80% of employees (40 out of 50), missing the minimum 95% threshold.   Thus, the excise tax does not apply to just the 10 employees but instead applies to all employees, with an allowance for the first 30.  How much excise tax will be owed then?  50 employees, subtracting the allowance for the first 30, leaves 20 employees multiplied by the excise  tax of $2,000, thus $40,000 for the year (on top of normal employment taxes and penalties for the 10 misclassified employees).

Classification of a worker as either an “employee” or an “independent contractor” is based on the common law standard of an examination of the facts and circumstances of the relationship between the employer and the worker to assess whether the employer has the right to direct and control the performance of services.  Substantial case law has developed from disputes between employers and the IRS, and between workers, who may want to be classified as independent contractors to better leverage tax deductions, and the IRS.

tax-facts-online_medium

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

Posted in Compliance, Taxation | Tagged: , , , , , , | Leave a Comment »

Ten Tax Facts about Capital Gains and Losses

Posted by William Byrnes on April 4, 2014


In Tax Tip 2014-27, the IRS discussed capital gains and losses.  The IRS stated that when a taxpayer sells a ’capital asset,’ the sale usually results in a capital gain or loss. A ‘capital asset’ includes most property owned and used for personal or investment purposes.

10 tax facts about capital gains and losses:

1. Capital assets include property such as a home or a car. They also include investment property such as stocks and bonds.

2. A capital gain or loss is the difference between the “basis” and the amount earned upon the sale of the asset.  The basis is usually what the taxpayer paid for the asset.

3. A taxpayer must include all capital gains in income.  Beginning in 2013, a taxpayer may be subject to the Obama Care “Net Investment Income Tax”.  The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates, and trusts that have income above statutory threshold amounts.

4. A taxpayer can deduct capital losses on the sale of investment property (such as an apartment building) but can not deduct losses on the sale of personal-use property (such as the family home).

5. Capital gains and losses are either long-term or short-term, depending on how long the property is owned.  If a taxpayer owns the property for more than one year, the gain or loss is long-term.  If owned one year or less, the gain or loss is short-term.

6. If long-term gains are more than long-term losses, the difference between the two is a “net long-term capital gain”.  If net long-term capital gain is more than net short-term capital loss, then the taxpayer has a ‘net capital gain.’

7. The tax rates that apply to net capital gains will usually depend on a taxpayer’s income.  For lower-income individuals, the rate may be zero percent on some or all of their net capital gains.  In 2013, the maximum net capital gain tax rate increased from 15 to 20 percent. A 25 or 28 percent tax rate can also apply to special types of net capital gains.

8. If capital losses are more than capital gains, the taxpayer can deduct the difference as a loss on the tax return. This loss is limited to $3,000 per year, or $1,500 if filing married but separate returns.

9. If total net capital loss is more than the deduction limit above, the losses above the allowable deduction can be carried over to next year’s tax return.  The carried over losses will be treated as if they happened next year.

10. File Form 8949, Sales and Other Dispositions of Capital Assets, with the federal tax return to report your gains and losses.   Also file Schedule D, Capital Gains and Losses with the federal tax return.

2014_tf_on_investments-m2014 Tax Facts on Investments provides clear, concise answers to often complex tax questions concerning investments.  Pertinent planning points are provided throughout.

Organized in a convenient Q&A format to speed you to the information you need, 2014 Tax Facts on Investments delivers the latest guidance on:

  • Mutual Funds, Unit Trusts, REITs
  • Incentive Stock Options
  • Options & Futures
  • Real Estate
  • Stocks, Bonds
  • Oil & Gas
  • Precious Metals & Collectibles
  • And much more!

Key updates for 2014:

  • Important federal income and estate tax developments impacting investments, including changes from the American Taxpayer Relief Act of 2012
  • Expanded coverage of Reverse Mortgages
  • Expanded coverage of Real Estate Investment Trusts (REITs)
  • More than 30 new Planning Points, written by practitioners for practitioners, in the following areas:
    • Limitations on Loss Deductions
    • Charitable Gifts
    • Reverse Mortgages
    • Deduction of Interest and Expenses
    • REITs

Plus, you’re kept up-to-date with online supplements for critical developments.  Written and reviewed by practicing professionals who are subject matter experts in their respective topics, Tax Facts is the practical resource you can rely on.

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Six Tax Tips When Deciding to Itemize or Take the Standard Deduction

Posted by William Byrnes on April 1, 2014


2014_tf_on_individuals_small_businesses-m_1The IRS published Tax Tip 2014-29 with 6 helpful tips for deciding whether to itemize deductions or to rely upon the standard deduction.  The IRS stated that a taxpayer should calculate the available deduction using both methods and then choose the deduction method that produces the greater deduction (thus lower amount of tax).

1. Figure the itemized deductions.  Add up deductible expenses paid during the year. These may include expenses such as:

  • Home mortgage interest
  • State and local income taxes or sales taxes (but not both)
  • Real estate and personal property taxes
  • Gifts to charities
  • Casualty or theft losses
  • Unreimbursed medical expenses
  • Unreimbursed employee business expenses

2. Know the standard deduction.  If a taxpayer does not itemize, the basic standard deduction for 2013 depends on your filing status:

  • Single $6,100
  • Married Filing Jointly $12,200
  • Head of Household $8,950
  • Married Filing Separately $6,100
  • Qualifying Widow(er) $12,200

The standard deduction is higher for persons when 65 or older or blind.

3. Check the exceptions.  Some taxpayers do not qualify for the standard deduction and therefore should itemize.  This includes married couples who file separate returns and one spouse itemizes.

4. Use the IRS’s ITA tool: Interactive Tax Assistant tool to help determine your standard deduction.

5. File the right forms.  To itemize deductions, use Form 1040 and Schedule A, Itemized Deductions. Standard deduction is on Forms 1040, 1040A or 1040EZ.

6. File Electronically.  Some taxpayers are eligible for free, brand-name software to prepare and e-file the tax return. IRS Free File will do the work for you.

tax-facts-online_medium

For more than half a century, Tax Facts has been an essential resource designed to meet the real-world tax-guidance needs of professionals in both the insurance and investment industries.  For over 110 years, National Underwriter has been the first in line with the targeted tax, insurance, and financial planning information you need to make critical business decisions.

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

 

Posted in Taxation, Uncategorized | Tagged: , , , | Leave a Comment »

Today is the deadline to sign up for health care (or face penalties)

Posted by William Byrnes on March 31, 2014


In Health Care Tax Tip 2014-11 the IRS reminds taxpayers that today, March 31, is the deadline to sign up for health care for 2014 – or face penalties.

Below are five tips about the Obama Care (ACA) health care law that the IRS wants taxpayers to consider.

• Currently Insured – No Change: If a taxpayer is already insured, do not need to do anything more than continue that insurance.

• Uninsured – Enroll by Today – March 31: The open enrollment period to purchase health care coverage through the Health Insurance Marketplace for 2014 runs through March 31, 2014. When a taxpayer chooses health insurance through the marketplace, the taxpayer may be able to receive advance payments of the premium tax credit that will immediately help lower the monthly premium.

• Premium Tax Credit To Lower the Monthly Premium: If a taxpayer chooses insurance through the Marketplace, the taxpayer may be eligible to claim the premium tax credit. The taxpayer may elect to have advance payments of the tax credit sent directly to the insurance company during 2014 so that the monthly premium the taxpayer must pay is lower, or the taxpayer can wait to claim the credit when filing the tax return in 2015.  If a taxpayer chooses to have advance payments sent to the insurance company, then the taxpayer must reconcile the payments on the 2014 tax return, which will be filed in 2015.

• Change in Circumstances: If a taxpayer receives advance payments of the premium tax credit to help pay for the insurance coverage, then the taxpayer must report “life changes”, such as income, marital status or family size changes, to the Marketplace. Reporting changes will help to make sure the taxpayer has the right coverage and is getting the proper amount of advance payments of the premium tax credit.

• Individual Shared Responsibility Payment: Starting January 2014, taxpayers and the family must have health care coverage or have an exemption from coverage.  Most people already have qualifying health care coverage.  These individuals will not need to do anything more than maintain that coverage throughout 2014.  If a taxpayer can afford coverage but decides not to buy it and remain uninsured throughout the year, that taxpayer may have to make an “individual shared responsibility payment” (a.k.a. the ACA penalty) when filing a 2014 tax return in 2015.

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Small Business Health Care Tax Credit

Posted by William Byrnes on March 30, 2014


2013_tf_insurance_emp_benefits_combo_covers-m_2In the IRS’ Health Care Tax Tip (HCTT-2014-08), it revealed that the “Small Business Health Care Tax Credit” helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees.

A small employer is eligible for the credit if it has fewer than 25 employees who work full-time, or a combination of full-time and part-time. For example, two half-time employees equal one employee for purposes of the credit.

For 2013, the average annual wages of employees must be less than $50,000, and the employer must pay a uniform percentage for all employees that is equal to at least 50% of the premium cost of the insurance coverage.

The maximum credit is 35 percent of premiums paid for small business employers and 25 percent of premiums paid for small tax-exempt employers such as charities.

If no tax is owed during the year, then the tax credit may be carried back or forward to other tax years.

For small tax-exempt employers, the credit is refundable, so even if no taxable income is due, the credit may be refunded so long as it does not exceed the income tax withholding and Medicare tax liability.

Authoritative and easy-to-use, 2014 Tax Facts on Insurance & Employee Benefits shows you how the tax law and regulations are relevant to your insurance, employee benefits, and financial planning practices.  Often complex tax law and regulations are explained in clear, understandable language.  Pertinent planning points are provided throughout.

Organized in a convenient Q&A format to speed you to the information you need, 2014 Tax Facts on Insurance & Employee Benefits delivers the latest guidance on:

  • Estate & Gift Tax Planning
  • Roth IRAs
  • HSAs
  • Capital Gains, Qualifying Dividends
  • Non-qualified Deferred Compensation Under IRC Section 409A
  • And much more!

Key updates for 2014:

  • Important federal income and estate tax developments impacting insurance and employee benefits including changes from the American Taxpayer Relief Act of 2012
  • Concise updated explanation and highlights of the Patient Protection and Affordable Care Act (PPACA)
  • Expanded coverage of Annuities
  • New section on Structured Settlements
  • New section on International Tax
  • More than thirty new Planning Points, written by practitioners for practitioners, in the following areas:
    • Life Insurance
    • Health Insurance
    • Estate and Gift Tax
    • Deferred Compensation
    • Individual Retirement Plans

Plus, you’re kept up-to-date with online supplements for critical developments.  Written and reviewed by practicing professionals who are subject matter experts in their respective topics, Tax Facts is the practical resource you can rely on.

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Simplified Option for Claiming Home Office Deduction Now Available – May Deduct up to $1,500!

Posted by William Byrnes on March 29, 2014


2014_tf_on_individuals_small_businesses-m_1The IRS reported in Newswire (IR-2014-24) that people with home-based businesses that this year for the first time they can choose a new simplified option for claiming the deduction for business use of a home.

In tax year 2011, the most recent year for which figures are available, some 3.3 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction) totaling nearly $10 billion.  The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and record keeping burden on small businesses by an estimated 1.6 million hours annually.

The new option is available starting with the 2013 return taxpayers are filing now.  Normally, home-based businesses are required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.  Instead, taxpayers claiming the optional deduction need only complete a short worksheet in the tax instructions and enter the result on their return.  Self-employed individuals claim the home office deduction on Schedule C Line 30, farmers claim it on Schedule F  Line 32 and eligible employees claim it on Schedule A Line 21.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees, are still fully deductible.  Long-standing restrictions on the home office deduction, such as the requirement that a home office be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

IRS YouTube Video:
Simplified Home Office Deduction: English / Spanish / ASL

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Preventing Tax Preparer Fraud: IRS Initiatives and the Loving case

Posted by William Byrnes on March 28, 2014


by Dawna E. Snipes

Why the Increase in Tax Preparer Fraud?

Tax preparer fraud has become more paramount with taxpayers choosing to have their federal tax returns prepared by paid return providers.  When unadvised and vulnerable taxpayers choose unqualified and unscrupulous preparers, they potentially face IRS penalties for filing false returns.

26 U.S.C. §7701(a)(3) defines a tax return preparer as “any person who prepares tax returns for others for compensation.”[1]  The Internal Revenue Service (IRS) has estimated that approximately 60 percent of taxpayers use paid tax preparers to file their taxes.  However, between 2012 and 2013, the IRS successfully obtained permanent injunctions against over 30 preparers operating throughout the country.  Some reasons for the increase in tax preparer fraud are (1) lack of federal regulations, (2) an arduous tax code, and (3) overly-burdened enforcement agencies.

Read the full article at http://www.advisorfyi.com/2014/01/preventing-tax-preparer-fraud-irs-initiatives-and-the-loving-case/

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IRS Reminds Individuals of Health Care Choices for 2014

Posted by William Byrnes on March 28, 2014


In Issue Number HC-TT- 2014-01, the IRS released reminders for Individuals about the 2014 Health Care Choices.  In 3 days, on March 31, the Heath Care Market Exchange enrollment period will close.

Starting in 2014, each person must choose to either have basic health insurance coverage (known as minimum essential coverage) for everyone in the family for each month or go without health care coverage for some or all of the year.

If a person don’t maintain health insurance coverage, then that person will need to either seek an exemption or pay a penalty (called an “individual shared responsibility payment”) with the 2014 income tax return filed in 2015. 

What Qualifies as Health Insurance to Avoid the Penalty?

Qualifying coverage includes:

  • health insurance coverage provided by your employer (including COBRA and retiree coverage),
  • health insurance coverage purchase through a health care exchange Marketplace,
  • Medicare, Medicaid or other government-sponsored health coverage including programs for veterans, or
  • coverage you buy directly from an insurance company.

Qualifying coverage does not include certain coverage that may provide limited benefits, such as coverage only for vision care or dental care, workers’ compensation, or coverage only for a specific disease or condition. 

Premium Tax Credit May Help Pay for Health Insurance

If purchasing health insurance coverage through the Marketplace, the person may be eligible for financial assistance including the premium tax credit, which will help lower the out-of-pocket cost of your monthly insurance premiums (see yesterday’s blog article).

Exemptions

If a person chooses to go without coverage or experiences a gap in coverage, the person may still qualify for an exemption based upon (1) not having access to affordable coverage, (2) the gap is less than three consecutive months without coverage, or (3) qualifying for one of several other exemptions.  A special hardship exemption applies to individuals who purchase their insurance through the Marketplace during the initial enrollment period but due to the enrollment process have a coverage gap at the beginning of 2014.

Penalty for Not Having Health Insurance

If a person (or any of dependents) do not maintain coverage and do not qualify for an exemption, then the person will owe a penalty, called a “individual shared responsibility payment”, paid when filing the tax return in 2015.  In general, the payment amount is either a percentage of household income or a flat dollar amount, whichever is greater.

The person will owe 1/12th of the annual payment for each month you (or your dependents) do not have coverage and are not exempt. The annual payment amount for 2014 is the greater of:

  • 1 percent of household income that is above the tax return filing threshold for the filing status, such as Married Filing Jointly or single, or
  • A family’s flat dollar amount, which is $95 per adult and $47.50 per child, limited to a maximum of $285.

The penalty is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace in 2014.

For more than half a century, Tax Facts has been an essential resource designed to meet the real-world tax-guidance needs of professionals in both the insurance and investment industries.

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

tax-facts-online_mediumThe company also points out that the expert authors—Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.

The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

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The Obama Care “Premium Tax Credit” – 4 days left to take advantage

Posted by William Byrnes on March 27, 2014


On February 25, the IRS released Health Care Tax Tip 2014-03 reminding taxpayers that time is running out – only 4 days left – to enroll for health insurance coverage through the Health Insurance Marketplace.

However, the premium tax credit can help make purchasing health insurance coverage more affordable for people with moderate incomes. To be eligible for the premium tax credit, a tax filer must satisfy three rules:  

1.  Sign up for health insurance coverage through the Health Insurance Marketplace.  The open enrollment period to purchase health insurance coverage for 2014 through the Health Insurance Marketplace ENDS in 4 days on March 31, 2014!

2. Household income between one and four times the federal poverty line.  For a family of four for tax year 2014, that means income from $23,550 to $94,200.

3. Not eligible for other medical coverage, such as Medicare, Medicaid, or sufficiently generous employer-sponsored coverage.

If a  Marketplace determines the taxpayer is likely to qualify for the tax credit at the time of signup on the Health Insurance Marketplace, then the taxpayer has two choices:

1. Choose to have some or all of the estimated credit paid in advance directly to the medical insurance company to lower the pay out-of-pocket for the monthly premiums during 2014, or

2. Wait to receive the premium tax credit when the 2014 tax return is filed in 2015.  Waiting to receive the premium tax credit will either increase the tax refund or lower the balance due to the IRS.

For taxpayers choosing to receive the premium tax credit in advance, changes to income or family size will affect the credit eligible to receive.  If the credit on the 2014 tax return (filed in 2015) does not match the amount received in advance, the taxpayer will have to repay any excess advance payment, or you may get a larger refund if you are entitled to more. It is important to tell your Marketplace about changes in your income or family size as they happen during 2014 because these changes will affect the amount of your credit.

For more than half a century, Tax Facts has been an essential resource designed to meet the real-world tax-guidance needs of professionals in both the insurance and investment industries.

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

tax-facts-online_mediumThe company also points out that the expert authors—Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.

The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

Posted in Taxation | Tagged: , , , , | 3 Comments »

Four Tax Facts about the Health Care Law for Individuals

Posted by William Byrnes on March 26, 2014


In Health Care Tax Tip 2014-06, the IRS alerted taxpayers to four basic tax tips about the new health care law.  The IRS stated that health insurance choices made now may affect the income tax return filed next year (2015).

1. Most people already have qualified health insurance coverage and will not need to do anything more than maintain qualified coverage throughout 2014.

2. If a taxpayer does not have health insurance through a job or a government plan, the taxpayer may be able to buy it through the Health Insurance Marketplace.  The open enrollment period to purchase health insurance coverage for 2014 through the Health Insurance Marketplace ENDS in 5 days on March 31, 2014!

3. If a taxpayer buy health insurance through the Marketplace, the taxpayer may be eligible for an advance premium tax credit to lower your out-of-pocket monthly premiums. (Tomorrow’s blog article will provide information about this advance premium tax credit.)

4. The 2014 tax return to be filed in 2015 will have a new tax question:  did you have insurance coverage or did you qualify for an exemption?  If not, the taxpayer may owe a shared responsibility payment.

What should you do now?

If a taxpayer or the family does not have health insurance, then talk to the employer about the employer’s health coverage offered, or visit the Marketplace online.

Find out more about the health care law and the Marketplace at www.HealthCare.gov.

Find out more about the premium tax credit and the shared responsibility payment at www.IRS.gov/aca.

For more than half a century, Tax Facts has been an essential resource designed to meet the real-world tax-guidance needs of professionals in both the insurance and investment industries.

tax-facts-online_medium

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

The company also points out that the expert authors—Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.

The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

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EU to Adopt New Expanded Savings Directive

Posted by William Byrnes on March 25, 2014


EU Council Announces March 2014 Adoption of Expanded EU Savings Directive

On Saturday, March 22, 2014 the EU Council’s General Secretariat announced that it will adopt major amendments to the EU Directive on taxation of savings income at its next March 2014 meeting.  The amendments will address the current loopholes, such as application to trusts, to foundations, and to investment income that is comparable to interest income.

Brief Background on EU Savings Directive

The liberalization of capital markets and the free movement of capital within the EU borders revealed how important it was to establish cooperation with a view to preventing, in the direct taxation area, fraud and evasion linked to cross-border financial investments. The problem with taxpayers moving their investments to Member States which did not impose taxation at source while the taxpayers simultaneously under-reported to their respective State of residence (or not reporting at all) the income earned. The EU Savings Directive was adopted to address this situation, coming into effect in 2005.

The mechanism of the Directive works by imposing an obligation to any paying agent in an EU Member State which makes a payment to an individual resident in the other Member State which is the beneficial owner of the income, to report that payment of interest to the competent tax authorities of the Member State in which the paying agent is established. The competent tax authorities of that (source) State in turn transfer the information collected to the competent tax authority of the residence of the beneficial owner. Based on the information received it is possible for the State of residence of the beneficial owner to verify if the amount is declared for tax purposes and to tax the corresponding income.

Loopholes Reported in 2008

In his 2004 Report on the Regulatory, Competitive, Economic and Socio-Economic Impact of the European Union Code of Conduct on Business Taxation and Tax Savings Directive to the United Kingdom Foreign and Commonwealth Office and the Overseas Territories of The Virgin Islands (British), Turks & Caicos Islands, Anguilla and Montserrat, Professor William Byrnes undertook an in-depth analysis of the EU Savings Directive identifying several loopholes that would require later amendments for it to achieve its objectives.

The Savings Directive loopholes include:

• Territorial scope: It is limited to intra-community situations in which a paying agent from one Member State pays to an individual resident in another Member State. It does not apply to payments from outside the EU, i.e. when the paying agent is located in a third (non-EU) State or to payments to beneficial owners who reside in third States.

• Personal scope: it does not apply to persons other than individuals, in particular payments made to legal entities. This limitation provides individuals with opportunities to circumvent the Savings Directive by using an interposed legal person or arrangement.

• Material scope: it does not cover other forms of savings like insurance products, pensions, some tailored investment funds, return on derivative contracts, structured products, etc.

These and other loopholes have been formally reported by the European Commission since 2008. The main findings of a report produced by the Commission identified as a major problem lack of “consistent treatment of other comparable situations”.[1] Pursuing this aim of consistency requires that interest payments obtained by an individual through intermediate vehicles are consistently put on an equal footing with interest payments directly received by the individual. This consistency of coverage is required not only to ensure the effectiveness of the Directive, but also compliance with the rules of the internal market and fair competition between comparable financial products and structures.

A proposal was submitted to the Council which aimed at extending the scope of the Directive.[2] 

European Council Announces Amended Savings Directive Adoption in March 2014

On March 22, 2014 the European Council reported in a press release[3] that (emphasis added):

The European Council welcomes the Commission’s report on the state of play of negotiations on savings taxation with European third countries (Switzerland, Liechtenstein, Monaco, Andorra and San Marino) and calls on those countries to commit fully to implementing the new single global standard for automatic exchange of information, developed by the OECD and endorsed by the G20, and to the early adopters initiative.

The European Council calls on the Commission to carry forth the negotiations with those countries swiftly with a view to concluding them by the end of the year, and invites the Commission to report on the state of play at its December meeting. If sufficient progress is not made, the Commission’s report should explore possible options to ensure compliance with the new global standard.

In the light of this, the Council will adopt the Directive on taxation of savings income at its next March 2014 meeting.

The European Council invites the Council to ensure that, with the adoption of the Directive on Administrative Cooperation by the end of 2014, EU law is fully aligned with the new global standard.

What About the Withholding Exception for Austria and Luxembourg?

While most Member States adopted the exchange of information regime provided in the 2005 Savings Directive, three Member States with a tradition of bank secrecy—Belgium, Luxembourg and Austria—preferred to adopt, during a transitional period, a withholding tax regime. They were authorized to adopt a withholding tax (now 35%) on interest income that is paid to individual savers resident in other EU Member States. In the meantime Belgium decided to discontinue applying the transitional withholding tax as of 1 January 2010 and exchange information instead.

Therefore, only Luxembourg and Austria are currently entitled to levy a withholding tax. Luxembourg has notified the EU Commission that from next year, January 1, 2015 it will discontinue applying the transitional withholding tax and thus begin automatically exchanging information for applicable accounts from that date.

Thus, only Austria has expressed that it will maintain the withholding tax option. Austria’s finance minister is quoted in April 2013 stating: “All this data exchange will not put one red cent in my tax coffers, …. I want to have the money, not a data cemetery.”[4]  However, in light of the Council’s press release on Saturday, this position has probably changed.

The Austria’s Chancellor had also indicated that Austria may begin automatic exchange regarding the interest from savings accounts beginning 2014.[5] Although this statement is different from the Luxembourg commitment towards automatic exchange of information, it would not be surprising that Austria will soon also endorse this automatic exchange standard within the scope of applying the Savings Directive, in light of FATCA, GATCA, and the Council’s press release.

book coverPractical Compliance Aspects of Exchange of Information, FATCA and GATCA

For in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA), see Lexis Guide to FATCA Compliance, 2nd Edition just published!

William H. Byrnes, author of six Lexis international tax titles, has achieved authoritative prominence with more than 20 books, 100 book chapters and supplements, and 1,000 media articles.  In 2008 he was appointed Associate Dean at Thomas Jefferson School of Law, previously obtaining Professor of Law with Tenure at St. Thomas University.   William Byrnes was a Senior Manager, then Associate Director of international tax for Coopers and Lybrand, and consulted for clients involved with Africa, Europe, Asia, the Indian sub-continent, and the Caribbean.   He has been commissioned by a number of governments on tax policy.

[1] See Commission Staff Working Document, “Refining the present coverage of Council Directive 2003/48/EC on taxation of income from savings”, SEC (2008), p. 559.

[2] See “Proposal for a Council Directive amending Council Directive 2003/48/EC on taxation of savings income in the form of interest payments”, COM (2008) 727 final, of November 13, 2008.

[3] Conclusions, European Council, Brussels, Euco 7/1/14, 21 March 2014.

[4]“All this data exchange will not put one red cent in my tax coffers,” finance minister Maria Fekter said on 13 April. “I want to have the money, not a data cemetery.”  Stamatoukou, Eleni, “EU Savings Directive to be modified”, New Europe Online, (April 15, 2013) Available at http://www.neurope.eu/article/eu-savings-directive-be-modified.

[5] Austria’s position regarding the extension of the EU Savings Directive requires that such extension be also imposed through international agreements with San Marino, Switzerland, Lichtenstein, Andorra, and Monaco.  However, it is unclear if Austria has since backtracked and made these five agreements a pre-condition for its own automatic information exchange on savings income for depository accounts.  See Bodoni, Stephanie, EU Push For Savings-Tax Deal Fought By Luxembourg, Austria, Bloomberg (Nov 14, 2013).  Available at http://www.bloomberg.com/news/2013-11-14/eu-set-to-fail-to-meet-savings-tax-goal-on-luxembourg-opposition.html.

 

Posted in FATCA, OECD, Taxation, Uncategorized | Tagged: , , , , | 2 Comments »

What do I need to know about the Health Care Law for my 2013 Tax Return?

Posted by William Byrnes on March 23, 2014


The IRS stated in Health Care Tax Tip 2014-10 that for most taxpayers, the Affordable Care Act has no effect on the 2013 federal income tax return. For example, for the 2013 tax return a taxpayer does not yet report health care coverage under the individual shared responsibility provision or claim the premium tax credit.  Reporting of these items start with the filing of the 2014 tax return (which will only happen between late January and April 15, 2015).

However, the IRS alerted that some taxpayers people will be affected by a few provisions, including two new medical taxes and a reduction in the ability to take a deduction for medical expenses incurred during 2013.  See (1) increases in the itemized medical deduction threshold, (2) additional Medicare tax and (3) net investment income tax.

The IRS reminded taxpayers that the employer’s reporting of a taxpayer’s value of health care coverage is not taxable (the new box 12 employer health care reporting requirement, identified by Code DD on an employee’s Form W-2) . 

Information available about other tax provisions in the health care law: More information is available regarding the following tax provisions: Premium Rebate for Medical Loss RatioHealth Flexible Spending Arrangements, and Health Saving Accounts.

tax-facts-online_medium

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

 

Posted in Taxation | Tagged: , , | Leave a Comment »

Almost half of tax returns still due in remaining 25 days to file!

Posted by William Byrnes on March 21, 2014


The IRS announced in Newswire 2014-32 that almost half of the tax returns expected to be filed for the year 2013 had yet to be filed by March 14, 2014. How many returns will be filed in this last 25 day period?  About 70 million tax returns of the total expected 149 million returns of 2013! If half of these outstanding tax returns are filed with the assistance of a tax preparer, that’s 35 million potential clients in the past 25 days of the tax season! Not a bad profession to be in!

Over the next 25 days this blog will contain many articles for small business owners on taking certain deductions and obtaining various tax credits that allow a small business owner or entrepreneur to minimize the tax imposed on the trade or business and thus maximize the business’ after-tax return.

The IRS reminds small business owners and entrepreneurs of three tax facts that may impact the outstanding 2013 return.

Tax Fact 1: Optional safe harbor method to determine the business use of a home deduction.  Also known as the simplified option for claiming the home office deduction, beginning in 2013, taxpayers can use the optional safe harbor method to determine the deduction for the business use of a home.

If a taxpayer works from home, then it may be possible for the taxpayer to claim the home office deduction.  However, in years past this home office deduction has been rather complicated to calculate.

1. Generally, in order to claim a deduction for a home office, a taxpayer must use a part of your home exclusively and regularly for business purposes. Also, the part of your home used for business must be:

  • the principal place of business, or
  • a place where the taxpayer meets clients or customers in the normal course of business, or
  • a separate structure not attached to the home. Examples might include a studio, garage or barn.

What clearly does NOT qualify for a home office deduction?  By example, a taxpayer sets up a computer in her bedroom on a dresser that she uses for personal emails and for keeping her business records.  In the dresser drawers are pens, paperclips, some receipts, as well as hair clips and some pieces of jewelry.  The IRS isn’t going to allow a home office deduction based on that computer on that dresser.

The taxpayer may be able to use the simplified option to claim the home office deduction instead of claiming actual expenses. Under this method, the taxpayer multiplies the allowable square footage of the office area by a prescribed rate of $5.  The maximum footage allowed by the IRS is 300 square feet. The deduction maximum limit using this method is thus $1,500 per year.

If the taxpayer is self-employed and chooses the actual expense method, then the taxpayer should use Form 8829Expenses for Business Use of Your Home, to calculate the amount of the home office deduction.  The taxpayer claims the deduction on Schedule CProfit or Loss From Business, whether using the simplified or actual expense method.

If the taxpayer is an employee, then additional rules apply to claim the deduction. For example, in addition to the above tests, the business use must also be for the employer’s convenience.  By example: a “work from home” arrangement.

Tax Fact 2: Standard mileage rate. Beginning in 2013, the standard mileage rate for the cost of operating a car, van, pickup, or panel truck for each mile of business use is 56.5 cents per mile.

Tax Fact 3: Additional Medicare Tax. Beginning in 2013, a 0.9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than:

  • $125,000 if married filing separately,
  • $250,000 if married filing jointly, or
  • $200,000 if single, head of household, or qualifying widow(er) with dependent child.

Medicare wages and self-employment income are combined to determine if a taxpayer’s income exceeds the threshold. RRTA compensation should be separately compared to the threshold.

tax-facts-online_medium

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

Posted in Taxation | Tagged: , , , , , | Leave a Comment »

The IRS Will Pay You to Save Retirement Money !

Posted by William Byrnes on March 18, 2014


2013_tf_insurance_emp_benefits_combo_covers-m_2The IRS reported in Tax Tip 2014-28 that it will pay some taxpayers to save for retirement!

If a taxpayer contributes to a retirement plan, like a 401(k) or an IRA, then the taxpayer may be eligible for the “Saver’s Credit”. The Saver’s Credit can help save for retirement and reduce this year’s tax owed.  5 facts about this credit:

1. The Saver’s Credit is the short name for the Retirement Savings Contribution Credit. It can be worth up to $2,000 for married couples filing a joint return. The credit is worth up to $1,000 for single taxpayers.

2. Eligibility depends on a taxpayer’s filing status and the amount of yearly income.  2013 tax return eligibility for the credit depends on:

  • Married filing separately or a single taxpayer with income up to $29,500
  • Head of household with income up to $44,250
  • Married filing jointly with income up to $59,000

3. Other special rules that apply to the credit include:

  • Must be at least 18 years of age.
  • Can’t be a full-time student in 2013.
  • Can’t be claimed as a dependent on another person’s tax return.

4. The taxpayer must have contributed to a 401(k) plan or similar workplace plan by the end of the year to claim this credit. However, a taxpayer can contribute to an IRA by the due date of a tax return (April 15, 2014) and still have that contribution count for 2013.

5. File Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit. Tax software includes this form for e-file.

The Saver’s Credit is in addition to other tax savings for setting aside money for retirement.  For example, a taxpayer may be able to deduct contributions to a traditional IRA.

Authoritative and easy-to-use, 2014 Tax Facts on Insurance & Employee Benefits shows you how the tax law and regulations are relevant to your insurance, employee benefits, and financial planning practices.  Often complex tax law and regulations are explained in clear, understandable language.  Pertinent planning points are provided throughout.

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Three Tax Tips about Obama Care

Posted by William Byrnes on March 12, 2014


Here are three tips about how the law may affect you:

The IRS published tax tip HC-TT- 2014-05 alerting taxpayers that Obama Care has provisions that may affect personal income taxes. How Obama Care affects a taxpayer depends on employment status, whether the taxpayer participates in a tax favored health plan, and the taxpayer’s age.

1. Employment Status

  • If a taxpayer is employed then the employer may report the value of the health insurance provided on the W-2 in Box 12 with a Code “DD”.  However, this amount is not taxable.
  • If a taxpayer is self-employed, then the taxpayer may deduct the cost of health insurance premiums, within limits.

2. Tax Favored Health Plans

  • If a taxpayer has a health flexible spending arrangement (FSA) at work, money added to it normally reduces taxable income.
  • If a taxpayer has a health savings account (HSA) at work, money the employer adds to it, within limits, is not taxable.
  • Money added to an HSA usually counts as a deduction.
  • Money used from an HSA for “qualified medical expenses” is not taxable income; however, withdrawals for other purposes are taxable and can even be subject to an additional tax.
  • If a taxpayer has a health reimbursement arrangement (HRA) at work, money received from it is generally not taxable.

3. Age

If a taxpayer is age 65 or older, the threshold for itemized medical deductions remains at 7.5 percent of Adjusted Gross Income (AGI) until 2017; for others the threshold increased to 10 percent of AGI in 2013.  AGI is shown on Form 1040 tax form.

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IRS Offers Obama Care Tax Tips for 2013 and 2014

Posted by William Byrnes on March 11, 2014


The IRS has set up a webpage >Health Care Tax Tips< to help people understand what they need to know for the 2013 federal individual income tax returns they are filing by April 15th, as well as for future tax returns. This includes information on the new Premium Tax Credit and making health care coverage choices.

Because many of the new Obama Care tax rules only went into effect on Jan. 1, 2014, most of these Obama Care changes do not affect the 2013 tax return.

What do I need to know for my 2013 tax return?

Considerations for 2014 tax year?

  • Open Enrollment for the Health Insurance Marketplace: The open enrollment period to purchase health care coverage through the Health Insurance Marketplace for 2014 began Oct. 1, 2013 and runs through March 31, 2014. When you get health insurance through the marketplace, you may be able to get advance payments of the premium tax credit that will immediately help lower your monthly premium. Learn more at HealthCare.gov.
  • Premium Tax Credit: If you get insurance through the Marketplace, you may be eligible to claim the premium tax credit. You can elect to have advance payments of the tax credit sent directly to your insurer during 2014, or wait to claim the credit when you file your tax return in 2015. If you choose to have advance payments sent to your insurer, you will have to reconcile the payments on your 2014 tax return, which will be filed in 2015. If you’re already receiving advance payments of the credit, you need do nothing at this time unless you have a change in circumstance. Learn More.
  • Change in Circumstances: If you’re receiving advance payments of the premium tax credit to help pay for your insurance coverage, you should report life changes, such as income, marital status or family size changes, to your marketplace. Reporting changes will help to make sure you are getting the proper amount of advance payments.
  • Individual Shared Responsibility Payment: Starting January 2014, you and your family must have health care coverage, have an exemption from coverage, or make a payment when you file your 2014 tax return in 2015. Most people already have qualifying health care coverage and will not need to do anything more than maintain that coverage throughout 2014. Learn More.

The Health Care Tax Tips available at >IRS ACA website< include:

  • IRS Reminds Individuals of Health Care Choices for 2014 ─ Find out what you need to know about how health care choices you make for 2014 may affect your taxes.
  • The Health Insurance Marketplace – Learn about Your Health Insurance Coverage Options – Find out about getting health care coverage through the Health Insurance Marketplace.
  • The Premium Tax Credit ─ Learn the basics of the Premium Tax Credit, including who might be eligible and how to get the credit.
  • The Individual Shared Responsibility Payment – An Overview ─ Provides information about types of qualifying coverage, exemptions from having coverage, and making a payment if you do not have qualifying coverage or an exemption.
  • Three Timely Tips about Taxes and the Health Care Law ─  Provides tips that help with filing the 2013 tax return, including information about employment status, tax favored health plans and itemized deductions.
  • Four Tax Facts about the Health Care Law for Individuals ─Offers basic tips to help people determine if the Affordable Care Act affects them and their families, and where to find more information.
  • Changes in Circumstances can Affect your Premium Tax Credit ─ Learn the importance of reporting any changes in circumstances that involve family size or income when advance payments of the Premium Tax Credit are involved.

For more than half a century, Tax Facts has been an essential resource designed to meet the real-world tax-guidance needs of professionals in both the insurance and investment industries.

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

tax-facts-online_mediumThe company also points out that the expert authors—Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.

The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

Posted in Taxation | Tagged: , , , , | 1 Comment »

Income Higher Than $51,900? Does Alternative Minimum Tax (AMT) Apply to You?

Posted by William Byrnes on March 10, 2014


The IRS’ Tax Tip 2014-10

The IRS published a recent tax tip for the 2014 tax filing season to remind taxpayers about the possibility that even if no tax is owed under regular tax rules, under the special calculation rules of the alternative minimum tax system, tax may be owed anyway.  Excerpted below:

The AMT attempts to ensure that some individuals who claim certain tax benefits pay a minimum amount of tax.

1. You may have to pay the tax if your taxable income, plus certain adjustments, is more than the AMT exemption amount for your filing status. If your income is below this amount, you usually will not owe AMT.

2. The 2013 AMT exemption amounts for each filing status are:

• Single and Head of Household = $51,900

• Married Filing Joint and Qualifying Widow(er) = $80,800

• Married Filing Separate = $40,400

3. The rules for AMT are more complex than the rules for regular income tax. The best way to make it easy on yourself is to use IRS e-file to prepare and file your tax return. E-file tax software will figure AMT for you if you owe it.

4. If you file a paper return, use the AMT Assistant tool on IRS.gov to find out if you may need to pay the tax.

5. If you owe AMT, you usually must file Form 6251, Alternative Minimum Tax – Individuals. Some taxpayers who owe AMT can file Form 1040A and use the AMT Worksheet in the instructions.

Additional IRS Resources:

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IRS Small Business Tax Center ….

Posted by William Byrnes on March 7, 2014


IRS Tax Tip 2014-09 posted February a couple weeks ago and I excerpt relevant portions for the small business community, many actively engaging with their tax preparers for tax season.

The Center includes these resources:

  • You can apply for an Employer Identification Number, get a form or learn about employment taxes.
  • IRS Video Portal.  Watch helpful videos and webinars on many topics. Find out about filing and paying business taxes or about how the IRS audit process works. Under the ‘Businesses’ tab, look for the ’Small Biz Workshop.’ Watch it when you want to learn the basics about small business taxes.
  • Online Tools and Educational Products.  The list of Small Business products includes the Tax Calendar for Small Businesses and Self-Employed. Install the IRS CalendarConnector tool and access important tax dates and tips right from your smart phone or computer, even when you’re offline.
  • Small Business Events.  Find out about free IRS small business workshops and other events planned in your state.

Go to the Small Business and Self-Employed Tax Center and use the A-Z index to find whatever you need.

For more than half a century, Tax Facts has been an essential resource designed to meet the real-world tax-guidance needs of professionals in both the insurance and investment industries.  For over 110 years, National Underwriter has been the first in line with the targeted tax, insurance, and financial planning information you need to make critical business decisions.

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

tax-facts-online_medium

The company also points out that the expert authors—Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.

“The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

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Taxable and Nontaxable Income

Posted by William Byrnes on March 5, 2014


The IRS published another tax tip (2014-12) to assist tax filers this tax season addressing when income is taxable, and when it is not.

With individual tax returns due at the post office within 6 weeks, the IRS is stepping up efforts to help guide taxpayers with basic income tax questions and filing requirements.  Excerpted below, in its Tax Tip, the IRS states:

Taxable income includes money you receive, such as wages and tips. It can also include noncash income from property or services. For example, both parties in a barter exchange must include the fair market value of goods or services received as income on their tax return.

Some types of income are not taxable except under certain conditions, including:

  • Life insurance proceeds paid to you are usually not taxable. But if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.
  • Income from a qualified scholarship is normally not taxable. This means that amounts you use for certain costs, such as tuition and required books, are not taxable. However, amounts you use for room and board are taxable.
  • If you got a state or local income tax refund, the amount may be taxable. You should have received a 2013 Form 1099-G from the agency that made the payment to you. If you didn’t get it by mail, the agency may have provided the form electronically. Contact them to find out how to get the form. Report any taxable refund you got even if you did not receive Form 1099-G.

Here are some types of income that are usually not taxable:

  • Gifts and inheritances
  • Child support payments
  • Welfare benefits
  • Damage awards for physical injury or sickness
  • Cash rebates from a dealer or manufacturer for an item you buy
  • Reimbursements for qualified adoption expenses

For more on this topic see Publication 525, Taxable and Nontaxable Income.

IRS YouTube Videos:

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The Child Tax Credit May Cut Your Tax

Posted by William Byrnes on March 4, 2014


IRS Tax Tip 2014-18 reminds taxpayers whom have a child or children under 17, then the Child Tax Credit may save money at tax time.  Key facts the IRS wants taxpayers to know about the Child Tax Credit:

• Amount.  The non-refundable Child Tax Credit may help cut the federal income tax by up to $1,000 for each qualifying child claimed on a tax return.

• Qualifications.  A child must pass seven tests to qualify for this credit:

1. Age test. The child was under age 17 at the end of 2013.

2. Relationship test. The child is a son, daughter, stepchild, foster child, brother, sister, stepbrother, or stepsister. A child can also be a descendant of any of these persons. For example, a grandchild, niece or nephew will meet this test. Adopted children also qualify. An adopted child includes a child lawfully placed with a taxpayer for legal adoption.

3. Support test. The child did not provide more than half of his or her own support for 2013.

4. Dependent test. Claim the child as a dependent on your 2013 federal income tax return.

5. Joint return test. A married child can not file a joint return with their spouse.

6. Citizenship test. The child must be a U.S. citizen, U.S. national or U.S. resident alien.

7. Residence test. In most cases, the child must have lived with the taxpayer for more than half of 2013.

• Limitations. Taxpayer’s filing status and income may reduce or eliminate the credit.

• Additional Child Tax Credit.  If the taxpayer receives less than the full Child Tax Credit, may still qualify for the refundable Additional Child Tax Credit. This means taxpayer may receive a refund even if no tax is owed.

• Schedule 8812.  A taxpayer may need to file Schedule 8812, Child Tax Credit, with the tax return. A taxpayer claiming the Additional Child Tax Credit must complete and attach Schedule 8812.

• Interactive Tax Assistant Tool.  Use the ITA tool to determine whether it is possible to claim the Child Tax Credit.

For more than half a century, Tax Facts has been an essential resource designed to meet the real-world tax-guidance needs of professionals in both the insurance and investment industries.

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

The company also points out that the expert authors—Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.

tax-facts-online_medium

The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

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Eight Tax Savers for Parents

Posted by William Byrnes on March 3, 2014


IRS Tax Tip 2014-11

The IRS published eight tax benefits parents should look out for when filing their federal tax returns this year, excerpted below.

1. Dependents.  In most cases, you can claim your child as a dependent. This applies even if your child was born anytime in 2013. For more details, see Publication 501, Exemptions, Standard Deduction and Filing Information.

2. Child Tax Credit.  You may be able to claim the Child Tax Credit for each of your qualifying children under the age of 17 at the end of 2013. The maximum credit is $1,000 per child. If you get less than the full amount of the credit, you may be eligible for the Additional Child Tax Credit. For more about both credits, see the instructions for Schedule 8812, Child Tax Credit, and Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit.  You may be able to claim this credit if you paid someone to care for one or more qualifying persons. Your dependent child or children under age 13 are among those who are qualified. You must have paid for care so you could work or look for work. For more, see Publication 503, Child and Dependent Care Expenses.

4. Earned Income Tax Credit.  If you worked but earned less than $51,567 last year, you may qualify for EITC. If you have three qualifying children, you may get up to $6,044 as EITC when you file and claim it on your tax return. Use the EITC Assistant tool at IRS.gov to find out if you qualify or see Publication 596, Earned Income Tax Credit.

5. Adoption Credit.  You may be able to claim a tax credit for certain expenses you paid to adopt a child. For details, see the instructions for Form 8839, Qualified Adoption Expenses.

6. Higher education credits.  If you paid for higher education for yourself or an immediate family member, you may qualify for either of two education tax credits. Both the American Opportunity Credit and the Lifetime Learning Credit may reduce the amount of tax you owe. If the American Opportunity Credit is more than the tax you owe, you could be eligible for a refund of up to $1,000. See Publication 970, Tax Benefits for Education.

7. Student loan interest.  You may be able to deduct interest you paid on a qualified student loan, even if you don’t itemize deductions on your tax return. For more information, see Publication 970.

8. Self-employed health insurance deduction.  If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid to cover your child under the Affordable Care Act. It applies to children under age 27 at the end of the year, even if not your dependent. See Notice 2010-38 for information.

IRS YouTube Videos:

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Seven Facts about Dependents and Exemptions

Posted by William Byrnes on March 2, 2014


The IRS Tax Tip 2014-22 released this past week included a synopsis of the tax rules for rules for exemptions  and dependents – these generally affecting every taxpayer who files a federal income tax return.  

Seven facts about these rules:

1. Exemptions cut income.  There are two types of exemptions: personal exemptions and exemptions for dependents. A taxpayer can usually deduct $3,900 for each exemption claimed on the 2013 tax return.

2. Personal exemptions.  A taxpayer can usually claim an exemption for him or herself.   If married and filing a joint return, the taxpayers can also claim another exemption for the spouse.   Filing a joint return and claiming two exemptions will lead to a $7,800 deduction from the couple’s reported income.

However, if a taxpayer files a separate return, then he / she can claim an exemption for the spouse only if your spouse had no gross income, is not filing a return, and was not the dependent of another taxpayer.

3. Exemptions for dependents.  A taxpayer can usually claim an exemption for each of his/her dependents.  A dependent is either the taxpayer’s child or a relative that meets certain tests.  The taxpayer can claim a spouse as a dependent.  The taxpayer must list the Social Security number of each dependent claimed.

4. Some people don’t qualify.  A taxpayer generally may not claim married persons as dependents if they file a joint return with their spouse. There are some exceptions to this rule.

5. Dependents may have to file.  People that are claimed as a dependent may have to file their own federal tax return. This depends on many things, including the amount of their income, their marital status and if they owe certain taxes.

6. No exemption on dependent’s return.  If a person is claimed as a dependent, then that person can’t claim a personal exemption on his or her own tax return.  This is true even if the taxpayer chooses not to actually claim that person as a dependent on the tax return.  The rule applies because the taxpayer has the right to claim that person as a dependent.

7. Exemption phase-out.  The $3,900 per exemption is subject to income limits (high income earners). This rule may reduce or eliminate the amount depending on a taxpayer’s income.

tax-facts-online_medium 

The company also points out that the expert authors—Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.

The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

Posted in Taxation | Tagged: , , , | Leave a Comment »

“Dirty Dozen” Tax Scams for 2014

Posted by William Byrnes on February 19, 2014


The Internal Revenue Service today in its NewsWire (IR-2014-16) released its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.  The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.

The following are the Dirty Dozen tax scams for 2014:

Identity Theft

Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. Identity theft occurs when someone uses your personal information, such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes. In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.

The agency’s work on identity theft and refund fraud continues to grow, touching nearly every part of the organization. For the 2014 filing season, the IRS has expanded these efforts to better protect taxpayers and help victims.

The IRS has a special section on IRS.gov dedicated to identity theft issues, including YouTube videos, tips for taxpayers and an assistance guide. For victims, the information includes how to contact the IRS Identity Protection Specialized Unit. For other taxpayers, there are tips on how taxpayers can protect themselves against identity theft.

Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. Taxpayers can call the IRS Identity Protection Specialized Unit at 800-908-4490. More information can be found on the special identity protection page.

Pervasive Telephone Scams

The IRS has seen a recent increase in local phone scams across the country, with callers pretending to be from the IRS in hopes of stealing money or identities from victims.

These phone scams include many variations, ranging from instances from where callers say the victims owe money or are entitled to a huge refund. Some calls can threaten arrest and threaten a driver’s license revocation. Sometimes these calls are paired with follow-up calls from people saying they are from the local police department or the state motor vehicle department.

Characteristics of these scams can include:

  • Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
  • Scammers may be able to recite the last four digits of a victim’s Social Security Number.
  • Scammers “spoof” or imitate the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
  • Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
  • Victims hear background noise of other calls being conducted to mimic a call site.

After threatening victims with jail time or a driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

In another variation, one sophisticated phone scam has targeted taxpayers, including recent immigrants, throughout the country. Victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.

If you get a phone call from someone claiming to be from the IRS, here’s what you should do: If you know you owe taxes or you think you might owe taxes, call the IRS at 1.800.829.1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.

If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 1.800.366.4484.

If you’ve been targeted by these scams, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov.  Please add “IRS Telephone Scam” to the comments of your complaint.

Phishing

Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

It is important to keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information online that can help you protect yourself from email scams.

False Promises of “Free Money” from Inflated Refunds

Scam artists routinely pose as tax preparers during tax time, luring victims in by promising large federal tax refunds or refunds that people never dreamed they were due in the first place.

Scam artists use flyers, advertisements, phony store fronts and even word of mouth to throw out a wide net for victims. They may even spread the word through community groups or churches where trust is high. Scammers prey on people who do not have a filing requirement, such as low-income individuals or the elderly. They also prey on non-English speakers, who may or may not have a filing requirement.

Scammers build false hope by duping people into making claims for fictitious rebates, benefits or tax credits. They charge good money for very bad advice. Or worse, they file a false return in a person’s name and that person never knows that a refund was paid.

Scam artists also victimize people with a filing requirement and due a refund by promising inflated refunds based on fictitious Social Security benefits and false claims for education credits, the Earned Income Tax Credit (EITC), or the American Opportunity Tax Credit, among others.

The IRS sometimes hears about scams from victims complaining about losing their federal benefits, such as Social Security benefits, certain veteran’s benefits or low-income housing benefits. The loss of benefits was the result of false claims being filed with the IRS that provided false income amounts.

While honest tax preparers provide their customers a copy of the tax return they’ve prepared, victims of scam frequently are not given a copy of what was filed. Victims also report that the fraudulent refund is deposited into the scammer’s bank account. The scammers deduct a large “fee” before cutting a check to the victim, a practice not used by legitimate tax preparers.

The IRS reminds all taxpayers that they are legally responsible for what’s on their returns even if it was prepared by someone else. Taxpayers who buy into such schemes can end up being penalized for filing false claims or receiving fraudulent refunds.

Taxpayers should take care when choosing an individual or firm to prepare their taxes. Honest return preparers generally: ask for proof of income and eligibility for credits and deductions; sign returns as the preparer; enter their IRS Preparer Tax Identification Number (PTIN); provide the taxpayer a copy of the return.

Beware: Intentional mistakes of this kind can result in a $5,000 penalty.

Return Preparer Fraud

About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. But, some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft.

It is important to choose carefully when hiring an individual or firm to prepare your return. This year, the IRS wants to remind all taxpayers that they should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs).

The IRS also has a web page to assist taxpayers. For tips about choosing a preparer,  details on preparer qualifications and information on how and when to make a complaint, visit www.irs.gov/chooseataxpro.

Remember: Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. Make sure the preparer you hire is up to the task.

IRS.gov has general information on reporting tax fraud. More specifically, you report abusive tax preparers to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 and fill it out or order by mail at 800-TAX FORM (800-829-3676). The form includes a return address.

Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities and then using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore is increasingly more difficult.

At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The IRS works on a wide range of international tax issues with DOJ to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

The IRS has collected billions of dollars in back taxes, interest and penalties so far from people who participated in offshore voluntary disclosure programs since 2009. It is in the best long-term interest of taxpayers to come forward, catch up on their filing requirements and pay their fair share.

Impersonation of Charitable Organizations

Another long-standing type of abuse or fraud is scams that occur in the wake of significant natural disasters.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds.

They may attempt to get personal financial information or Social Security numbers that can be used to steal the victims’ identities or financial resources. Bogus websites may solicit funds for disaster victims. The IRS cautions both victims of natural disasters and people wishing to make charitable donations to avoid scam artists by following these tips:

  • To help disaster victims, donate to recognized charities.
  • Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.
  • Don’t give out personal financial information, such as Social Security numbers or credit card and bank account numbers and passwords, to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money.
  • Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

Call the IRS toll-free disaster assistance telephone number (1-866-562-5227) if you are a disaster victim with specific questions about tax relief or disaster related tax issues.

False Income, Expenses or Exemptions

Another scam involves inflating or including income on a tax return that was never earned, either as wages or as self-employment income in order to maximize refundable credits. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions. This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.

Additionally, some taxpayers are filing excessive claims for the fuel tax credit. Farmers and other taxpayers who use fuel for off-highway business purposes may be eligible for the fuel tax credit. But other individuals have claimed the tax credit although they were not eligible. Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.

Frivolous Arguments

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes.

Those who promote or adopt frivolous positions risk a variety of penalties.  For example, taxpayers could be responsible for an accuracy-related penalty, a civil fraud penalty, an erroneous refund claim penalty, or a failure to file penalty.  The Tax Court may also impose a penalty against taxpayers who make frivolous arguments in court.

Taxpayers who rely on frivolous arguments and schemes may also face criminal prosecution for attempting to evade or defeat tax. Similarly, taxpayers may be convicted of a felony for willfully making and signing under penalties of perjury any return, statement, or other document that the person does not believe to be true and correct as to every material matter.  Persons who promote frivolous arguments and those who assist taxpayers in claiming tax benefits based on frivolous arguments may be prosecuted for a criminal felony.

Falsely Claiming Zero Wages or Using False Form 1099

Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.

Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any variations of this scheme. Filing this type of return may result in a $5,000 penalty.

Some people also attempt fraud using false Form 1099 refund claims. In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS. In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return.

Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

Abusive Tax Structures

Abusive tax schemes have evolved from simple structuring of abusive domestic and foreign trust arrangements into sophisticated strategies that take advantage of the financial secrecy laws of some foreign jurisdictions and the availability of credit/debit cards issued from offshore financial institutions.

IRS Criminal Investigation (CI) has developed a nationally coordinated program to combat these abusive tax schemes. CI’s primary focus is on the identification and investigation of the tax scheme promoters as well as those who play a substantial or integral role in facilitating, aiding, assisting, or furthering the abusive tax scheme (e.g., accountants, lawyers).  Secondarily, but equally important, is the investigation of investors who knowingly participate in abusive tax schemes.

What is an abusive scheme? The Abusive Tax Schemes program encompasses violations of the Internal Revenue Code (IRC) and related statutes where multiple flow-through entities are used as an integral part of the taxpayer’s scheme to evade taxes.  These schemes are characterized by the use of Limited Liability Companies (LLCs), Limited Liability Partnerships (LLPs), International Business Companies (IBCs), foreign financial accounts, offshore credit/debit cards and other similar instruments.  The schemes are usually complex involving multi-layer transactions for the purpose of concealing the true nature and ownership of the taxable income and/or assets.

Form over substance are the most important words to remember before buying into any arrangements that promise to “eliminate” or “substantially reduce” your tax liability.  The promoters of abusive tax schemes often employ financial instruments in their schemes.  However, the instruments are used for improper purposes including the facilitation of tax evasion.

The IRS encourages taxpayers to report unlawful tax evasion. Where Do You Report Suspected Tax Fraud Activity?

Misuse of Trusts

Trusts also commonly show up in abusive tax structures. They are highlighted here because unscrupulous promoters continue to urge taxpayers to transfer large amounts of assets into trusts. These assets include not only cash and investments, but also successful on-going businesses. There are legitimate uses of trusts in tax and estate planning, but the IRS commonly sees highly questionable transactions. These transactions promise reduced taxable income, inflated deductions for personal expenses, the reduction or elimination of self-employment taxes and reduced estate or gift transfer taxes. These transactions commonly arise when taxpayers are transferring wealth from one generation to another. Questionable trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.

IRS personnel continue to see an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses, as well as to avoid estate transfer taxes. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.

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IRS Smartphone App Now Available

Posted by William Byrnes on February 18, 2014


Excerpt from the IRS Special Edition Tax Tip 2014-05 ….

The latest version of the innovative IRS2Go app is now available.  Here’s what you can do with the redesigned IRS Smartphone app IRS2Go, version 4.0, available in English and Spanish:

  • Check the status of your refund.  The new version of IRS2Go includes an easy-to-use refund status tracker so taxpayers can follow their tax return step-by-step throughout the IRS process. Just enter your Social Security number, filing status and your expected refund amount. You can start checking on the status of your refund 24 hours after the IRS confirms receipt of an e-filed return or four weeks after you mail a paper return. Since the IRS posts refund updates on a daily basis, there’s no need to check the status more than once each day.
  • Find free tax preparation.  You may qualify for free tax help through the IRS Volunteer Income Tax Assistance or Tax Counseling for the Elderly programs. A new tool on IRS2Go will help you find a VITA location. Just enter your ZIP code and select a mileage range to see a listing of VITA/TCE sites near you. Select one of the sites and your Smartphone will show an address and map to help you navigate.
  • Get tax records.  You can request a copy of your tax bill or a transcript of your tax return using IRS2Go. The post office will deliver to your address on record.
  • Stay connected.  You can interact with the IRS by following the IRS on Twitter @IRSnews@IRStaxpros and @IRSenEspanol. You can also watch IRS videos on YouTube, register for email updates or contact the IRS using the “Contact Us” feature.

Information on IRS2Go and other > IRS social media products <

For more than half a century, Tax Facts has been an essential resource designed to meet the real-world tax-guidance needs of professionals in both the insurance and investment industries.

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

The company also points out that the expert authors—Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.

tax-facts-online_medium

The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

Posted in Taxation | Tagged: , , | Leave a Comment »

Earned Income Tax Credit (EITC): The IRS Inappropriately Bans Many Taxpayers but a 22.7% Improper Payment Persists Regardless

Posted by William Byrnes on February 11, 2014


The National Taxpayer Advocate provides the following  > report information < on the Earned Income Tax Credit (EITC).

Earned Income Tax Credit and Family Credits

The Earned Income Tax Credit (EITC) is a refundable federal income tax credit for low to moderate income-earning individuals and families. If you qualify, the credit could be a maximum amount of up to $6,044 in 2013. This means you could pay less or no federal tax or even get a refund.

The EITC is based on your earned income and whether or not there are qualifying children in your household. You must file a tax return to claim the EITC and if you have children, they must meet the relationship, age and residency requirements.

What is the EITC?

A taxpayer may qualify for the EITC if you worked any part of last year and made less than $51,000 in 2013.  Read more about the EITC, how to file for it, and how to receive a refund:

IRS Incorrectly Bans Many Taxpayers from Claiming EITC

The National Taxpayer Advocate reported that the IRS Incorrectly Bans Many Taxpayers from Claiming EITC (see > Taxpayer Advocate Report on EITC < )  Excerpted from the National Taxpayer Advocate report…

Section 32(k) of the Internal Revenue Code (IRC) authorizes the IRS to ban taxpayers from claiming the earned income tax credit (EITC) for two years if the IRS determines they claimed the credit improperly due to reckless or intentional disregard of rules and regulations.  This standard requires more than mere negligence on the part of the taxpayer.

According to IRS Chief Counsel guidance, a taxpayer’s failure to participate in an EITC audit does not justify imposing the ban.  Once the IRS imposes the ban, any EITC claimed in the next two years will be disallowed even if the taxpayer is otherwise eligible for the credit.

IRS data shows:

  • The IRS imposed the ban improperly almost 40 percent of the time in 2011;
  • Taxpayers who were (but for the 2011 ban) eligible for the credit in the following two years were deprived of a tax benefit that averaged more than $4,600 for the two years combined.

In a representative sample of two-year ban cases, the Taxpayer Advocate Service (TAS) found:

  • In 19 percent of the cases, the IRS imposed the ban solely because EITC had been disallowed in a previous year;
  • In only 10 percent of the cases did a taxpayer’s response to the audit raise the possibility that he or she had the requisite state of mind to justify the two-year ban;
  • In 69 percent of the cases, the ban was imposed without required managerial approval;
  • In almost 90 percent of the cases, neither IRS work papers nor communications to the taxpayer contained the required explanation of why the ban was imposed; and
  • Taxpayers’ average income was about $15,500.

Low income taxpayers face unique obstacles in learning EITC rules and substantiating their entitlement to the credit, but IRS procedures do not take this into account. Instead, the IRS applies the two-year ban on the basis of unexamined assumptions about the taxpayer’s state of mind or even presupposes reckless or intentional disregard of the rules and regulations, potentially causing significant harm to taxpayers who may be entitled to EITC in a subsequent year.

Treasury > reports < that the other benefit programs results in high administrative costs and low error because of the necessity of the pre-qualification for benefits by a caseworker, whereas the EITC’s program’s administrative costs are less than 1% of the program benefits.  The Treasury report continues that “the IRS screens EITC claims against certain criteria and also conducts approximately 500,000 audits of claims annually.”

Almost a Quarter of EITC Payments are in Error

Yet, considering that the IRS improperly bans taxpayers from the EITC program and performs 500,000 audits of EITC claims annually, 22.7% of the EITC is improperly paid.  A challenging problem to be addressed.  Low administrative cost but high rate of improper denial of eligibility and high rate of improper payment.  Send me (or use comments below) suggestions of how these problems may be mitigated.

2012: $55.4B Total Payments (Outlays) with $12.6B Improper Payments = 22.7% Improper Payment Rate

FISCAL REPORTING YEAR IMPROPER AMOUNT (IN BILLIONS) IMPROPER RATE
2010 $16.9 26.3%
2011 $15.2 23.5%
2012 $12.6 22.7%
2013 $13.2 22.8%
2014 $11.8 22.8%

Treasury’s EITC Program Comments

A number of factors unique to the EITC program trigger errors.  The complexity of the law contributes to confusion around eligibility requirements, mainly qualifying child relationship and residency rules.  Other factors include high program turnover of one-third annually, return preparer errors, and fraud.

The IRS will continue to address EITC noncompliance through its aggressive compliance program which includes examinations, reviews of income misreporting, systemic corrections during tax return processing, and an enhanced focus on paid return preparers.  Because tax return preparers handle two-thirds of returns claiming the EITC, the Department of the Treasury expects the implementation of new preparer requirements for registration, competency testing, continuing education, and compliance checks will improve EITC compliance, decrease fraud, and reduce overall program noncompliance.

Additional information on the program is also provided annually in the department’s Performance and Accountability Report

For more than half a century, Tax Facts has been an essential resource designed to meet the real-world tax-guidance needs of professionals in both the insurance and investment industries.

2014_tf_on_individuals_small_businesses-m_1Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

The company also points out that the expert authors—Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.

tax-facts-online_medium

The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

Posted in Tax Policy, Taxation | Tagged: , , , | Leave a Comment »

Earned Income Tax Credit (EITC) for Low- and Moderate-Income Workers: a Significant Tax Benefit

Posted by William Byrnes on February 10, 2014


Last Friday (January 31, 2014) the IRS opened the tax filing season for 2013 taxes.  In Newswire (IR-2014-9 and -10), also released January 31, the IRS seeks to reach out to low and moderate income workers to alert them to take advantage of the Earned Income Tax Credit, known as the “EITC”.  The IRS stated that the EITC is often overlooked by the low and moderate workers, many whom do their own tax filing.

This year, taxpayers have until Tuesday, April 15, 2014 to file their 2013 tax returns and pay any tax due.  The IRS expects to receive more than 148 million individual tax returns this year, and more than 80% of tax returns are now filed electronically.

Approximately 75% of tax filers typically receive refunds, 90% of these refunds issued in less than 21 days.  Last year, taxpayers received an average refund of $2,744.  The IRS stated that “E-file” when combined with a direct deposit is the fastest way to receive a refund.  75% of refund recipients now choose direct deposit.

The Earned Income Tax Credit (EITC)

The IRS estimates that 20% of eligible low and moderate income workers miss out on taking advantage of the the EITC, and thus lose any potential refund generated by it.  Either the taxpayer does not claim the EITC when filing or does not file a tax return at all because their income is below the filing threshold.   The IRS further stated that one-third of the taxpayers eligible for EITC changes each year as their personal circumstances, such as work status or family situation, changes, affecting eligibility. 

The EITC varies depending on income, family size and filing status.  Last year, over 27 million eligible workers and families received more than $63 billion total in EITC, with an average EITC amount of $2,300.

Workers, self-employed people and farmers who earned $51,567 or less last year could receive larger refunds if they qualify for the EITC.  That could mean up to $487 in EITC for people without children, and a maximum credit of up to $6,044 for those with three or more qualifying children. Unlike most deductions and credits, the EITC is refundable. In other words, those eligible may get a refund even if they owe no tax

Common EITC Mistakes

Taxpayers are responsible for the accuracy of their tax return regardless of who prepares it.  The rules for EITC are complicated.  The IRS urges taxpayers to seek help if they are unsure of their eligibility (read about Taxpayer Clinics below).

There are several requirements to consider:

  • Your filing status can’t be Married Filing Separately.
  • You must have a valid Social Security number for yourself, your spouse if married, and any qualifying child listed on your tax return.
  • You must have earned income. Earned income includes earnings such as wages, self-employment and farm income.
  • You may be married or single, with or without children to qualify. If you don’t have children, you must also meet age, residency and dependency rules.
  • If you are a member of the U.S. Armed Forces serving in a combat zone, special rules apply.

Some common EITC errors are:

  • Claiming a child who does not meet the relationship, age or residency tests
  • Filing as “single” or “head of household” when married
  • Over or under reporting of income and or expenses to qualify for or maximize EITC
  • Missing Social Security numbers or Social Security Number and last name mismatches for both taxpayers and the children

Online Tools at IRS.gov Available to Help

People can find out if they qualify for the EITC by answering a few questions about income, family size and filing status, among other things using the EITC Assistant, a special online tool.  The EITC Assistant will help determine eligibility and will figure an estimated EITC refund.  A taxpayer can even get a printout explaining why he or she qualifies or has been denied.

Free Taxpayer Clinics Help Taxpayers File – Located Around the USA

Eligible taxpayers can also use another helpful online resource, the VITA Site Locator tool to locate one of nearly 13,000 community-based volunteer tax sites consisting of over 90,000 volunteers that can help them file their return for free.  (In San Diego, Thomas Jefferson School of Law has an active VITA program).

Tele-Tax, for example, help taxpayers see if they qualify for various tax benefits, such as the Child Tax Credit and Additional Child Tax Credit for eligible families, the American Opportunity Tax Credit for parents and college students, the saver’s credit for low-and moderate-income workers saving for retirement and energy credits for homeowners making qualifying energy-saving home improvements. The automated IRS services can also help home-based businesses check out the new simplified option for claiming the home office deduction, a straightforward computation that allows eligible taxpayers to claim $5 per square foot, up to a maximum of $1,500, instead of filling out a 43-line form (Form 8829) with often complex calculations.

Free Online Tax Software for Filing

When taxpayers are ready to fill out and file their returns, another online option enables anyone to e-file their returns for free. Free File offers two free electronic filing options: brand-name tax software or online Fillable Forms. Taxpayers who make $58,000 or less can choose free options from 14 commercial software providers. There’s no income limit for the second option, Free File Fillable Forms, the electronic version of IRS paper forms, which is best suited to people who are comfortable preparing their own tax return.

Online Refund Tool

Even after taxpayers file, there are more online tools that can provide them with valuable assistance long after tax season ends. One of the most popular is Where’s My Refund? a tool available on IRS.gov that enables taxpayers to track the status of their refund. Initial information will normally be available within 24 hours after the IRS receives the taxpayer’s e-filed return or four weeks after the taxpayer mails a paper return to the IRS. The system updates every 24 hours, usually overnight, so there’s no need to check more often.

Can’t Afford to Pay the Tax Bill by April 15th?  Use the Online Payment Agreement Tool 

For taxpayers whose concern isn’t a refund, but rather, a tax bill they can’t pay, the Online Payment Agreement tool can help them determine whether they qualify for an installment agreement with the IRS. And those whose tax obligation is even more serious, the Offer in Compromise Pre-Qualifier can help them determine if they qualify for an offer in compromise, an agreement with the IRS that settles their tax liability for less than the full amount owed.

Are You Withholding Enough or Too Much Tax During the Year?

Another useful year-round tool, the IRS Withholding Calculator, helps employees make sure the amount of income tax taken out of their pay is neither too high nor too low. This tool can be particularly useful to taxpayers who, after filling out their tax returns, find that the refund or balance due was higher than expected.

Beware of EITC Scams and Frauds

Scams that create fictitious qualifying children or inflate income levels to get the maximum EITC could leave taxpayers with a penalty.  If an EITC claim was reduced or denied after tax year 1996 for any reason other than a mathematical or clerical error, taxpayers must file Form 8862, Information To Claim Earned Income Credit After Disallowance, with the next tax return to claim the EITC.

Tax Help Through YouTube, Twitter, Tumblr

The IRS also offers more than 100 short instructional videos, tax tips and other useful resources year-round through a variety of social media platforms. They include:

2014_tf_on_individuals_small_businesses-m_1The newest addition to the Tax Facts Library, Tax Facts on Individuals & Small Business focuses exclusively on what individuals and small businesses need to know to maximize opportunities under today’s often complex tax rules.  It is the essential tax reference for financial advisors, & planners; insurance professionals; CPAs; attorneys; and other practitioners advising small businesses and individuals.  See http://www.nationalunderwriter.com/tax-facts-on-individuals-small-business.html

Organized in a convenient Q&A format to speed you to the information you need, Tax Facts on Individuals & Small Business delivers the latest guidance on:
» Healthcare
» Home Office
» Contractor vs. Employee — clarified!
» Business Deductions and Losses
» Business Life Insurance
» Small Business Valuation
» Small Business Entity Choices
» Accounting — including guidance on how standards change as the business grows
» Capital Gains
» Investor Losses
» New Medicare Tax and Net Investment Income tax
» Individual Income Taxation

Posted in Reporting, Taxation | Tagged: , , , , , | Leave a Comment »

Tax Whistleblowers – $104 Million IRS Award to Mr. Birkenfeld (UBS) Yet Nothing for Mr. Insinga (RABO)?

Posted by William Byrnes on February 9, 2014


 

Since its creation, the IRS Whistleblower Office has received over 1,300 tips. However, before pursuing tips analysts must first determine that a federal tax issue is involved and not based merely on speculation or conjecture.  The majority of the tips come from employees or former employees of companies that do not necessarily adhere to federal tax laws.  Tips deemed credible may lead to three different avenues, such as (1) a new audit, (2) expansion of a current audit, or (3) criminal investigation.

However, once the office makes an award determination, the Tax Court has authority to hear appeals resulting from claim disputes.

Read author Dawna Snipes‘ article on recent developments at > AdvisorFYI  < .  Dawna Snipes is an adjunct professor of National College of Business and Technology, and also with the University of Phoenix.

Posted in Taxation | Tagged: | Leave a Comment »

 
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