A 36 year old female tax preparer named Marie Anderson gave false information to the IRS, and was sentenced to 2 years in prison in federal court. She had attempted to fudge information on a couple’s tax return so that they would receive a larger refund. The couple was retired and didn’t own a business, partnership or joint venture.

Anderson entered figures regarding their business income, business mileage, car and truck expenses with no documentation to show or information provided by the client. She had been preparing tax returns for the couple for 2 years prior. The couple received $4,955 as a refund for their 2010 return filed by Anderson.

Anderson was an employee of Four Seasons Finance and worked out of her home. Her sentence will include 1 year of supervised release and she is ordered to pay $99,786.64 in restitution.

It pays to make sure your tax preparer uses ethical practices before hiring them to do your taxes.

Don’t get caught up with a bad preparer. Check for a license, in good standing, and feel free to ask if he or she is insured, if he or she uses professional software, and how long he or she has been practicing.

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If you feel you need a fresh set of eyes and ears for your tax matters, call today.

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Normally, the custodial parent takes the exemption. Being the custodial parent means he or she cares for and lives with the child over 50% of the time. However, this can be negotiated especially if there is more than one child involved. The exemption may be able to be split if the non-custodial parent is paying child support. If there is only one child the exemption may be able to be alternated.

If one parent is in a high tax bracket, the exemption may not make much of a difference. Therefore, the parent with the lower tax bracket may receive more in savings with the exemption.

Also, when determining which parent receives the exemption, the parent paying child support must be current in their payments in order to receive it.

If a parent does not allow the other parent to claim the child, the custodial parent must sign the IRS form 8832 (Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent or a substantially similar statement and attach the form to his or her return.

At this point in the year, there is still time to plan for this exemption if there is only one child. Remember, the IRS counts for the 50% rule by the day, so if your child lives with you from June 30^th to December 31, that is more than half.

As divorce or separation can get messy, it would be to your advantage to consult your tax adviser before making any decisions regarding taking the exemption for any of your dependents.

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If you have any planning needs or questions, please contact us

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Even though there has been a decline of improper payment for Earned Income Tax Credit (EITC) since the 2003 fiscal year, errors at the IRS have increased from $10.5 billion in 2003 to $14.5 billion in 2013. In a report to TIGTA, the IRS reported improper payment in 2013 of EITC totaling approx. $60 billion and that 24 % were paid in error.

This prompted an audit because Executive Order 13520 (Reducing Improper Payments and Eliminating Waste in Federal Programs) requires that TIGTA assess IRS compliance with the order annually. This is so the TIGTA could determine if the IRS has complied with the Executive Order.

They found that the IRS was not in compliance for 2013 because it has not established annual payments in error reduction target as required.

It seems the government is making more and more mistakes, costing taxpayers even more money to fix them. It’s been my experience that the mistakes are affecting individual clients rather than the taxpayers in general (meaning, you are more likely to get a letter making it seem like you made a mistake).

It is in times like this that it is most important to seek out the advice of a tax professional. The IRS will play its game to lock the taxpayer into a collections nightmare, but you don’t have to be alone in this. We can help!!

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If you are receiving notices for underreported income or additional tax due, you should call us immediately. The problem won’t go away by hiding the envelope.

The post Errors at the IRS are Staggering Says TIGTA appeared first on Action Tax.

That’s why you need to take advantage of every legal and practical opportunity to reduce your tax bill and put your investible dollars into tax-free or tax-deferred products.

Our U.S. tax code allows you to save and invest to fund your retirement in accounts that are tax-advantaged. Anyone who is legally employed and earning an income can contribute to their employer-sponsored 401K (up to $18,000 for 2015) and also independent Retirement Accounts – IRA’s (up to $5,500). There are special catch-up provisions if you are over 50 (An additional $6,000 for 401(k) and an additional $1,500 for IRA).

You have a choice of 2 types of IRAs, a Traditional IRA or a Roth IRA. The Traditional IRA is tax deductible, while the Roth is not. The amount you contribute is deducted from your gross income and will reduce your tax bill. It will also increase the cash you have on hand.

Both of these accounts will grow on a tax-deferred basis. Your capital gains on assets held in 401K or Traditional IRA accounts are not taxed year to year. It makes sense not to give your yearly capital gains to the government. Instead, you can keep it in your account for tax-deferred compounded growth. When you make withdrawals, you will be taxed as earned income based on what your tax bracket is.

A person with a modified adjusted gross income (MAGI) of less than $129,000 to contribute to a Roth IRA, but anyone who earns an income can contribute to a Traditional IRA.

Early withdrawals are subject to penalties as these are both meant to be retirement accounts. The current retirement age in the U.S. is 59.5 years. Anyone younger will be subject to early withdrawal penalties. Early distributions or withdrawals may be subject to a 10% penalty of the amount withdrawn. A 10% penalty for a Roth IRA will apply for early distribution, but since the moneys contributed were after tax with no deduction, only the penalty applies.

The 10% penalty may be exempt due to death and disablement of the account holder. In that case the disabled person or surviving beneficiary will not have to pay the penalty for early withdrawal.

Each year you do not make use of these tax-advantaged accounts to the maximum, is a lost opportunity that cannot be recovered so don’t put it off. The savings you will lose may be substantial.

To make sure you are taking advantage of every tax investing opportunity you can, contact your tax adviser immediately.

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If you have any questions or concerns about your tax situation related to investments, please call us.

The post It’s Never Too Early to Make Your Tax Investing Plans? appeared first on Action Tax.

The percentage that an individual’s tax return was examined in person or through the mail fell to 0.86% last year. It’s the lowest percentage since 2005. The audit rate rose between 2005-2010 and then dropped steadily by more than 20% during the next 5 years.  Approximately 1.2 million taxpayers were audited in 2014 down 162,000 from 2013.

1.2 million Taxpayers with an income of $200,000 and 34,000 Taxpayers with annual incomes of $1 million or more were audited in 2014. Kevin Thompson, CPA says “as a 40 year veteran of this business, I say this is great news for American taxpayers. The vast majority of examinations in which I have participated have been unnecessary.”

The reason that there are less audits is because of drops in IRS funding and less revenue agents. The IRS is also seeking Congressional approval for a 2016 fiscal budget hike after being lambasted for less taxpayer services and allegations it was targeting conservative tax-exempt organizations.

IRS Commissioner John Koskinen warned that the rate in audits may “corrode” even more American’s faith in the federal tax system.  He is also concerned that taxpayers may not comply with making voluntary payments. Thompson says “I disagree. I think the Service should be thinking about value for the American Taxpayers and finding more efficient ways to verify the accuracy of returns.”

He says that right now most people are paying their fair share, but if people start finding out their neighbors are not paying, they may not either. Thompson says “my experience is not this prediction at all. Every client of this office is directed to pay their share of the tax burden – But, NOT ONE PENNY MORE!”

Koskinen believes that if the number of IRS agents is restored and trained, it would produce $1.3 billion in government enforcement revenue by 2018.  Audits require rigorous training so they can’t simply shift other IRS workers into those jobs. Jobs throughout the IRS have been reduced and they are short-staffed as it is. “This is true and I can tell you that from experience” says Thompson. “Although the examination puts us at odds against the Service, I feel they are out-manned at every turn. Unless the taxpayer made a mistake, these examinations almost always result in a no-change.”

Sen Orrin Hatch, R-Utah believes that the operations of the agency and their request for more funding will be looked at with scrutiny and the IRS is not up to withstanding this scrutiny. Thompson says “I once spoke with a high-up official in the Memphis office and she asked me how the IRS was doing.” I said “as a practitioner, you scare me. You have so much power that results in the taxpayers and many of their representatives being afraid of the IRS. It should not be like that at all.” Thompson closed by saying “I strongly concur with Senator Hatch.”

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The 800,000 people who used the tax credit to lower their premium cost will be receiving an updated 1095-A shortly. Based on estimates, approximately 90-95 % have not yet filed their taxes. For those who have already filed their taxes, the Treasury Department will be providing additional information soon.

Form 1095-A contains important information that taxpayers need to complete their returns. This includes the premium amount for the “second lowest cost Silver plan” in the taxpayer’s area. This particular premium is said to be a benchmark used to determine the amount of premium tax credit taxpayers are eligible to receive. That information was incorrectly calculated.

This issue only affects 20% of taxpayers who signed up in the Marketplace and only those who signed up through Healthcare.gov. Most taxpayers will be able to check a box on their tax return to indicate they had health coverage in 2014 either through their employer, Medicare, Medicaid, veteran’s care or other qualified health coverage programs. Kevin Thompson, CPA says “we have seen only two 1095-A forms. One was correct and one, as stated here, was incorrect. It’s unfortunate that the administration has elected to make an already difficult and daunting experience for most taxpayers and make it worse.”

Taxpayers who are affected will be receiving a call from the Marketplace to alert them of the problem in early March and will also be sent letters and emails. Those who are concerned about their status can login to their account at healthcare.gov.

If a taxpayer needs to file their taxes sooner, a tool will be available to determine the correct amount. They can call the Marketplace at 1-800-318-2596 or alert their tax preparer. Thompson says “we had already decided to increase our fees by $150 for each tax return to comply with the requirements of the Affordable Care Act. I am not sure we can absorb the amended returns necessary to get this right.”

CMS also announced that it will provide a special enrollment period for people who learn of the tax penalty for not having health care at the time they file their taxes.

It’s recommended that you contact your tax preparer as soon as possible if you believe you have received incorrect information from the Marketplace. They will be able to insure you that the correct adjustments have been made.

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The Department of Revenue says there is not a security breach and that taxpayer data is safe. There is technology in place to safeguard private info submitted by taxpayers.  The issue lies with the Turbo Tax software itself. When a user logs into the software it appears as if their tax return has already been filed. Thompson says “one of the greatest breaches of identity theft with the IRS is people filing tax returns early using information (usually fraudulent) for taxpayers other than themselves. These returns always result in refunds and the filer takes the money and runs. Since that practice is so prevalent, it is necessary for the taxing authorities to implement procedures to identify fraudulent returns. Personally, I laud the State of Minnesota for this action and hope that both they and Intuit can get it right.”

The Department is working with Intuit and will be providing updates. Any taxpayer affected can call 1-800-944-8596 for personal assistance.

This is the second time that Minnesota, in particular, has experienced issues with Intuit software. A similar warning was issued in 2012.  The Department of Revenue, at that time, issued a warning that the accuracy of returns filed with Turbo Tax may be inaccurate or delay refund checks and suggested that taxpayers use other software programs instead. “The challenge in 2012 was a different one,“ says Thompson. “In that instance, Minnesota just found too many errors with returns processed using Turbo Tax.” Tax compliance is complicated and should not be taken lightly. Most taxpayers want to comply and want to be efficient with their resources. “I think American taxpayers should give a second thought to compliance using over the counter software solutions,” says Thompson.

Turbo Tax has received negative press ever since it made changes to its software in January by removing interview pieces from Schedule C, Schedule D and Schedule E.  It announced it would provide updates and reverse those changes.

Don’t experience tax software glitches and inaccuracies.  Contact your tax preparer instead.

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Even though there has been a decline of improper payment for Earned Income Tax Credit (EITC) since the 2003 fiscal year, the amount of incorrect payments has increased from $10.5 billion in 2003 to $14.5 billion in 2013. In a report to TIGTA, the IRS reported improper payment in 2013 of EITC totaling approx. $60 billion and that 24 % were paid in error.

This prompted an audit because Executive Order 13520 (Reducing Improper Payments and Eliminating Waste in Federal Programs) requires that TIGTA assess IRS compliance with the order annually. This is so the TIGTA could determine if the IRS has complied with the Executive Order.

They found that the IRS was not in compliance for 2013 because it has not established annual payments in error reduction target as required.

The IRS is currently working to find a solution for this problem. The agency has obtained approval from the Office of Management and Budget to create and release additional measures instead of annual reduction targets.

Original Article

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Congress decided to renew several “extender’ provisions that had expired at the end of 2013 and they are being renewed through the end of 2014. You can read more about the tax extenders here. This was officially signed into law on December 19, 2014.

John Koskinen, IRS Commissioner commented that after the IRS reviewed the late tax changes they determined that they would aggressively work to assure their systems are up to speed in the next month so they will be ready to complete the final stages that will be needed for the 2015 tax season.

Taxpayers should be reminded that the most accurate way to file their returns and receive a refund is to do it electronically. It will not be to anyone’s advantage to file tax returns on paper in early January as they wait for e-filing to begin.

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Backup Withholding Triggers

• Have the payees TIN at the time you make the payment. That means you do not have until January 31^st to solicit them. Ideally, you need to gather this information when you first hire the employee or contractor.
• Assure that the TIN is certified.
• Make sure the payee responds to your B Notice letters and that the bank sends payer’s interest and dividends notices.
• If the payee crosses out the perjury section of the W-9 where it tells the payer to back up withhold on interest and payments, it will likely garner the attention of the IRS.

Guidelines for Reporting

Federal taxes withheld from payments must be deposited with the U.S. Treasury through the Electronic Federal Tax Payment System (EFTPS) and according to your organization’s tax schedule.

In 2015 you will be a monthly schedule depositor if the total tax on your TY 2013 Form 945 (form 945 filed in 2014 on line 3) was $50,000 or less. Deposits become due by the 15^th of the month following the month in which the liability arose. If you accumulate a $100,000 liability on any day during the calendar year, your deposit schedule will be changed on the next day to semi-weekly for the remainder of the year and for the following year.

If the total tax reported on Form 945 for TY 2013 exceeds $50,000, you will become a semi-weekly depositor.  Liabilities that arise on Wednesday, Thursday, or Friday must be deposited by the following Wednesday. Liabilities that arise on Saturday, Sunday, Monday, and Tuesday must be deposited by the following Friday.

Worker Misclassification

Independent Contractors must be reported in the correct classification and must qualify as independent in accordance to the IRS guidelines and not simply on the decision of the payer or payee.

Box 7 on Form 1099-MISC

It’s important that box 7 is filled out correctly to avoid problems with the IRS. Please be aware that:

Amounts reported in Box as non-employee compensation are subject to both income and self-employment tax.

The IRS will be looking for self-employment tax payments on the payee’s return. If they are not found, the IRS will contact the payees with notices of tax due.

Forms 1099-MISC reporting amounts in Box 7 that have TINs on them may be a red flag for work authorization violations.

Non-employee compensation is income from self-employment. Self-employment is employment meaning work authorization is likely to be necessary.  Its best to not address this in an accounts payable department but rather it should be reviewed somewhere in your organization.

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For help making sure 1099’s are correct and to avoid IRS audits, contact us.

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