Each year, the IRS mails millions of notices and letters to taxpayers for a variety of reasons. This can be extremely upsetting when receiving this form of communication, whether it is from the IRS or any other taxing authority. The following tips are presented to reduce your anxiety and to provide a specific action plan for any correspondence received from the IRS (or from your state or local taxing authority):
- Don’t Panic: You can usually deal with a notice simply by responding to it. You should immediately contact your tax attorney, CPA or tax adviser to discuss this matter in more detail.
- Tip: Waiting can only compound and complicate your tax problems.
- Most IRS notices are about federal tax returns or tax accounts: Each notice has specific instructions, so read your notice carefully because it will tell you what you need to do. Follow the instructions very carefully. The goal here is to give a specific and detailed response to the tax issue in question.
- Tip: Only respond to the particular issue and do not provide or discuss issues that are not being raised by the IRS.
- Taxes You Owe or Payment Request: Your notice will likely be about changes to your account, taxes you owe or a payment request. However, your notice may ask you for more information about a specific issue.
- Tip: Do not assume that the taxes owed are correct. In many cases, the IRS calculates taxes without all the relevant facts.
The Internal Revenue Service on December 18, 2015 issued the 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
• 54 cents per mile for business miles driven, down from 57.5 cents for 2015
• 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015 Continue reading
Here is a neat info-graphic on the tax positions of the Presidential Candidates. Special thanks to MBACentral.org
On Friday, July 31, 2015, President Barack Obama signed HR 3236, the “Surface Transportation and Veterans Health Care Choice Improvement Act of 2015” (the “Act”). Not sure how this name relates to taxes but in any event the following tax law changes and provisions became law under this Act:
- Changes to the due dates for various returns. The Act sets new due dates for partnership returns, C corporation returns.
- Foreign Bank Account Reporting: New due dates for the important and often overlooked foreign bank account reporting (FBAR) forms, known as FinCEN Form 114, Report of Foreign Bank and Financial Accounts have been implemented.
- Changing the six year statute of limitations to apply to understatements of income that resulted from taxpayers overstating tax basis when calculating sales. This change overturns the Home Concrete case where the Supreme Court ruled that understatements of income as a result of basis miscalculations would not trigger the extended six-year statute of limitations applicable to understatements of income.
- Requiring consistent basis reporting for estates and estate beneficiaries.
- Requiring additional information to be included in mortgage information statements.
- Other Information Returns: The new act imposes new filing requirements for several other IRS information returns.
Posted in Basis, Basis Reporting For Estates and Beneficiaries, C Corporation Tax Returns, Estate Administration, Estate Planning, FBAR, Hidden Bank Accounts, Home Concrete Supreme Court Case, HR 3236, Partnership tax returns, Six Year Statute of Limitations, Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Taxes
Tagged Basis Reporting, C Corporation Reporting Due Dates, FBAR, FIN Cen Form 114, income tax, information returns, Mortgage Information Returns, Partnership Reporting Due Dates, Statute of Limitations, tax law, Taxes
Philadelphia notice Requirements for Businesses for 2015
If you are a business that has employees or independent contractors who live in Philadelphia, the City of Philadelphia is now imposing new notice requirements.
Beginning January 1, 2015, Title 19, Chapter 19-4000, of the Philadelphia Code, entitled “Income Inequality Initiative – Earned Income Tax Credit,” requires all employers to provide notice of the federal Earned Income Tax Credit (“EITC”) program to all Philadelphia resident employees and non-payroll workers at the same time as their W-2, 1099, or comparable forms are provided.
This new law applies to not only companies in Philadelphia but to those entities not located in Philadelphia that employ or pay residents of the City of Philadelphia.
About the Earned Income Tax Credit:
The Earned Income Tax Credit (“EITC”) is a refundable credit available to low to moderate income individuals and families. Over 40,000 Philadelphia residents are not claiming EITC, which has an average benefit of $2,400 per return. The goal of this law change is to help help more of its citizens take advantage of this tax break and ultimately infusing an extra $100 million into the Philadelphia economy.
The City of Philadelphia Earned Income Tax Credit Notice Requirements:
Under Title 19, Chapter 19-4000 of the Philadelphia Code, an employer must do the following:
(A) The employer must give the employee or non-payroll worker the “2014 Earned Income Tax Credit (‘EITC’) Notice,” at the same time it provides a W-2, 1099, or comparable form
Business Year-End Tax Planning
The arrival of year-end presents special opportunities for most small businesses to take steps in lowering their tax liability. The starting point is to run projections to determine the income and tax bracket for this year and what it may be next year. Once this is known, decisions can be made as to whether any of the following planning tools should be employed to cut taxes before the tax year closes.
Last second tax law changes also must be considered. It is also important to know that on December 19, 2014, the President passed the Tax Increase Prevention Act that extended many expired tax provisions some of which are discussed in more detail below. Note that these tax breaks are only available through the end of 2014. If any of these tax breaks are available to you, it would be prudent to take advantage of them before they expire.
Also keep in mind ordinary income tax rates for individuals can be as high as 35% to 39.6% so members of flow through entities such as partnerships, limited liability companies (LLCs) and S Corporations need to recognize this and other tax changes and plan accordingly.
The following presents some year-end tax strategies that may prove helpful to businesses of all shapes and sizes:
1. Accelerating or Deferring Income and Deductions as Part of a Year-end Tax Strategy
A good part of year-end tax planning involves techniques to accelerate or postpone income or deductions, as your tax situation dictates. The idea is to keep income even from year to year. Having spikes in taxable income in any one tax year puts you in a higher average tax bracket than you would be in if you had evened out the amount of taxable income between current and later year(s). (Historical note: For those of you old enough to remember, there was an income averaging rule built into the tax code that actually corrected for the inequity that can result in big shifts in income from year to year. That provision has long been abolished.)
So every year, businesses can take advantage of the traditional planning technique that involves alternatively deferring income or accelerating deductions. For example, business taxpayers such as pass-through entities (limited liability companies, partnerships, S corporations, sole proprietorship) should consider accelerating business income into the current year and deferring deductions until 2015 (and perhaps beyond) if they expect income to rise next year. Continue reading
Posted in Bonus Depreciation, Business, Business Planning, Corporations, income tax planning, Income Taxes, IRS, Repair Regulations, Retirement Plan Drafting, Section 179, Small Business, Start Up Expenses, Taxes, Year End Tax Planning, Year-End Business Tax Planning
Tagged Business, corporate tax planning, income tax, income tax deductions, income tax deferral, Small Business, Small Business Year-End Tax Planning, tax law, tax strategies, Taxes
As the year-end quickly approaches, there is still time to do year-end tax planning to generate significant tax savings. As many of you know, changes to the tax laws in 2013 made many tax rates (subject to cost of living adjustments) and certain tax breaks permanent.
But some tax breaks expired in 2013 (discussed in more detail below) and Congress has not as yet revived them making year-end planning more complicated and frustrating.
The President has signed the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). Some tax breaks have been made permanent, some have been extended through 2016, and some have been extended through 2019. See Expired Tax Provisions below for more details.
This 2014 tax year will again be challenging as taxpayers will have to deal with the following recent tax law changes:
- Higher marginal income tax rates
- Higher capital gain tax rates
- Restoration of the phase out of itemized deductions and exemptions: If your adjusted gross income exceeds applicable thresholds, certain itemized deductions are reduced. The applicable thresholds for 2014 are $254,200 for singles, $279,650 for head of household and $305,050 for joint filers
- The new 3.8 % Medicare tax on unearned income, including interest, dividends and capital gains. etc. For more details please read 2013 Sneaky New Tax – Not Too Early to Plan for 3.8 % Medicare Tax on Investment Income
- The new 0.9% tax on earned income in excess of $200,000 for single taxpayers and $250,000 for married taxpayers filing jointly
- Same Sex Couples: The recent Supreme Court decision in Windsor may result in same-sex couples with dual income paying more income taxes filing jointly than if they were still able to file singly. For more details on the tax implications for same-sex couples please read Same-Sex Marriage Tax Guide: 16 Essential Tax Rules and Tips
It is important to know that this year-end tax guide only provides an overview of various tax strategies and some of the more important tax provisions and by no means covers all tax minimization techniques. Each taxpayer situation is unique and as a result tax strategies and projections should be developed for each client for the greatest results.
Where To Begin:
As a starting point, it is essential to know the customary year-end planning techniques that can cut income taxes. It all starts with a tax projection of whether you will be in a higher or lower tax bracket next year. In some cases it is imperative to project income and expenses for multiple years to smooth income out over time to avoid higher tax brackets over an extended period. This type of planning is beyond the scope of this discussion and should be explored directly with tax counsel.
Once your tax bracket for this year and next year are known, there are two basic income tax planning considerations:
- Should income be accelerated or deferred?
- Should deductions and credits be accelerated or deferred?
However, life is never that simple. Tax laws always make for some real guesswork. As discussed below, when it comes to certain deductions that have Continue reading
Posted in alternative minimum tax, Basis, Bonus Depreciation, Business, Business Planning, Capital Gain Planning, expiring tax provisions, income tax planning, Income Taxes, installment sales, marriage and income taxes, Married Same-Sex Couples, Medicare 3.8% Surtax, Medicare Tax, Minimum Required Distributions, qualified leasehold improvements, Roth conversions, Section 179, Step-up in Basis, Taxes, wash sale rules, Year End Tax Planning
Tagged 3.8% Medicare Tax, Alternative Minimum Tax, Capital Gain Tax Planning, Expiring Tax Provisions, income tax, income tax deductions, income tax deferral, income tax planning, Taxes, Year-End Tax Planning