New 1099-K Reporting Requirements

Credit card companies are now required to issue 1099-Ks to merchants. The IRS has some updated information here.

Recipients of the new forms will have to separately report the funds received as part of their gross income beginning in tax year 2012 to be filed in 2013. Forms such as Schedule C and 1120S have a separate line for 2011 forms, but the requirement to separate the information doesn't take effect until next year.

Georgia's Effort To Collect Taxes Due On Internet Sales

Jim Galloway of the AJC reports on the inevitable fight that is forming in regards to Gov. Nathan Deal's announcement that he is ready to go after the sales taxes that should accompany purchases Georgians make over the internet.

Deal's announcement got a response from Grover Norquist, president of Americans for Tax Reform, who refined his definition of what constitutes a tax increase. According to Norquist, if a government expands its tax collection system, and takes in more cash as a result, then it's a tax increase. That seems like a poor definition of a tax increase. I'm of the opinion that broad base and low rates are the best ways to tax and an increase in the base while lowering the rate would not necessarily be a tax increase.

Deal's office resonded by reiterating that this isn't a tax increase but an effort to collect taxes that are already law. "It's current law that all retail sales are supposed to pay a sales tax", said Deal spokesman Brian Robinson.

Robinson is referring to the Georgia Consumer Use Tax. The use tax applies when sales tax has not been charged for goods purchased for use or consumption in the state of Georgia. Purchases made over the Internet, by phone or out of state are some examples of transactions that would be subject to the use tax.

I don't have a strong opinion one way or the other whether companies that have no physical presence in Georgia should be tasked with collecting and remitting sales tax for sales to Georgians, but I feel it is misleading if not downright incorrect to label Georgia's attempt to collect such already enacted taxes as a tax increase.

2011 Deductions and Credits

CBS Moneywatch has a list of 18 deductions and credits for which you may qualify. The article also gives the current year amounts for inflation adjusted deductions such as personal exemptions. Readers are also reminded that the filing deadline is April 17th this year.

IRS Releases Tax Gap Information

Earlier this year, the IRS released tax gap estimates for the tax year 2006. The link shows a comparison of tax years 2001 and 2006. The compliance percentage is similar between the two years even though the raw "tax gap" has risen from $290 billion to $385 billion.

The IRS release breaks the 2006 tax gap into three categories of under-reporting, non-filing and underpayment. The tax gaps for those categories are $376 billion, $28 billion and $46 billion, respectively.

The release also sheds light on compliance relative to third-party reporting. Items such as wages which are reported on a W-2 only have a result of 1% misreporting. Income amounts that have no third party reporting requirements have a 56% misreporting rate for 2006.

As a result, look for the IRS to look for additional ways in which income items will be reported by third parties in an attempt to narrow the tax gap.

Home Office Deduction

The IRS provides tax tips via YouTube videos. The tax tips concerning home office deduction can be viewed here.

Here is a summary of the home office deduction that self-employed and employees who use a portion of their homes for business purposes may be able to take.

• Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly as your place of business, or as a place to meet with customers or in any connection with your trade or business where the business portion of your house is a separate structure not attached to your home.
  


• For storage use, rental use, or daycare-facility use, you are required to use the property regularly but not exclusively.
  
  
  
• The amount you can deduct depends on the percentage of your home used for business. Your deduction will be limited if your gross income from your business is less than your total business expenses.
  
  
  
• Special rules apply to qualified daycare providers and for people storing business inventory or product samples.
  
  
  
• Form 8829, Expenses for Business Use of Your Home is used by self-employed people to figure the home office deduction. That deduction is then reported on Schedule C, Profit or Loss From Business.
  
  
  
• Additional rules apply to an employee such as the regular and exclusive business use of the home must be for the convenience of the employer.
  

Additional information can be found in IRS Publication 587, Business Use of Your Home.

Congress Retroactively Reinstates Airline Excise Tax Then Provides Relief For Retroactively Reinstated Tax

This week Congress extended the Federal Aviation Administration's authority to collect federal passenger air transportation excise taxes ("ticket taxes'). On the brink of a possible government shutdown, the FAA budget authority expired on July 22, 2011. Airline tickets purchased between July 23 and August 5 were not assessed the ticket tax. The Congressional action retroactively reinstated the tax. However, the IRS is providing relief to purchasers of tickets and will not attempt to collect any unpaid taxes from the purchasers or the airlines.

Even the IRS recognizes that assessing and collecting taxes retroactively is foolish and nearly impossible to enforce.

All In The Family

If you own a trade or business and have a child under 18 that are capable of providing services, hiring him could provide a tax benefit for both you and the child. Payments to a child under age 18 are not subject to social security and medicare taxes if the business is a sole proprietorship or a partnership that both parents are the only partners. The payments are also not subject to federal unemployment tax.

Wages to a child are subject to social security , Medicare, and FUTA taxes if he or she works for:

A corporation, even if it is solely owned by the child's parent,

A partnership unless each partner is a parent of the child,

An estate, even if it is the estate of a deseased parent.

If you own your own business and have minor children that could work for you, now would be a great time to plan ways to minimize taxes for both you and your children.