Start Planning For Next Year's Return

The IRS provides 8 tips for being organized and ready for filing 2012 returns next year.

These eight things should make next year's deadline easier:

• Adjust your withholding
• Store your return in a safe place
• Organize your recordkeeping
• Review your paycheck
• Shop for a tax professional early
• Prepare to itemize deductions
• Strategize tuition payments
• Keep up with changes

For any specific tax tips, please contact me.  Follow me on Twitter.

Gov. Deal Signs Tax Bill Into Law

Nathan Deal signed H.B. 386 into law this week.

Highlights include:

• Eliminating the state sales tax on energy used in manufacturing. The tax will be phased out beginning Jan. 1 and will be fully eliminated Jan. 1., 2016. The governor has said this provision helped the state land Baxter International and Caterpillar, two recent economic development triumphs. Eliminating the tax could eventually cost the state about $95 million, and estimates show local governments losing up to $100 million.

• Increasing the income tax exemption for married couples filing jointly from $5,400 to $7,400. This takes effect Jan. 1.

• Eliminating the annual property tax on motor vehicles that owners must pay by their birthdays. Car buyers beginning March 1 will no longer have to pay the tax to their county. Instead, they will pay a one-time fee when they buy a car.

• Reinstating sales tax holidays for shoppers seeking back-to-school products Aug. 10-11 and energy-efficient appliances Oct. 5-7. The former covers a wide range of items, including clothing, computers, books and paper. The latter covers federally approved energy-efficient appliances and goods for personal use, including dishwashers and windows.

• Eliminating a sales tax on certain products used in agricultural industries. The exemption takes effect Jan. 1.

• Requiring many online retailers to collect state sales taxes. Beginning Oct. 1, retailers who have a physical presence in the state, including online affiliates, will have to collect sales taxes from consumers.

• Capping the retirement income exemption for seniors at $65,000 ($130,000 per couple) beginning Jan. 1.

• Creating a permanent 1 percent sales tax exemption on commercial aviation fuel beginning July 1.

In subsequent posts, I will expand on a few thoughts of the specific provisions.

If you have any questions about how the new law may affect you, please contact me.

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Colorado's "Amazon" Law Held To Be Unconstitional

U.S. District Court for the district of Colorado has found the State's "Amazon Law" to be unconstitutional.

The law would require out-of-state retailers with sales in excess of $100,000 who do not collect and remit Colorado sale tax to:

• Notify the purchaser that the retailer does not collect Colorado sales tax and the the purchaser is obligated to self-report and pay use tax. (Transactional Notice)
  
• Provide each customer who purchases more than $500/year from the retailer with an annualreport of the prior calendar year's purchases and infomr the customer that the retailer is required to file an annual purchase summary reporting the customer's name and total purchases to the Colorado Department of Revenue. (Annual Purchase Summary)
• Provide the Department of Revenue with an annual customer information report stating the name, billing and shipping address, and total purchases for each of its Colorado customers. (Customer Information Report)

A state tax will be sustained against a commerce clause challenge provided it:

• is applied to an activity with a substatial nexus with the taxing state
• is fairly apportioned
• does not discriminate against interstate commerc
• is fairly related to the service provided by the state

These requirements were found to be unconstitutional because they violate the Commerce Clause regulating interstate commerce. These requirements would have been imposed on out-of-state retailers and not in-state retailers. Therefore, these requirements are discriminatory. In order for the law to stand Colorado would have needed to prove that there was justification in the local benefits that would flow from the law and the unavailability of nondiscriminatory alternative adequate to preserve the local interests at stake.

The plaintiff argued that there were alternatives to collecting use tax:

• Some states include a line on their resident income tax returns on which residents report use tax due
• The DOR could increase audits of business consumers
• Consumer education and notification programs may increase compliance with use tax obligations.

The state said that it had not previously included a line on its income tax returns for reporting use tax. However, it said that Colorado did include a consumer use tax return with income tax return forms but that practice was discontinued because the amount of tax collected did not justify the printing expense.

As it stands, Colorado can not rely on out-of-state retailers to collect and remit sales and use tax on Colorado residents. My prediction is that states will continue to attempt to collect use tax through "Amazon" type laws. Those state will use the Colorado law as a starting point and attempt to correct it on constitutional grounds. Those grounds may include requiring all retailers both in-state and out-of state to report customer purchases. This might get by the discriminatory part. States may also increase audits of residents to seek compliance.

What are your thoughts on "Amazon" style tax laws?

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Avoid Late Filing Penalties

It's Tax Deadline Eve. The only proper way to celebrate is to make sure you have either filed (and have received confirmation) or to file an extension if you need more time. Filing an extension doesn't allow you more time to pay (without interest) but it could save you some money in penalties. An extension can be granted for 6 months of additional time but filing Form 4868. It can be mailed or e-filed.

If you need more information, please contact me.

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Last-Minute Suggestions For Accuracy

Here are ten suggestions for those still working on their taxes:

• File electronically
• Check the identification numbers
• Double-check your figures
• Check the tax tables
• Sign your form
• Send your return to the right address
• Pay electronically
• Follow instructions when mailing a payment
• File of request an extension to file on time
• Go to IRS.gov for forms and instructions

I would add that if you file electronically be sure to check on a confirmation that the IRS and any states have received the returns. If you mail your return, it is wise to send it return receipt so that you have proof of filing.

If you have any additional questions, please contact me.

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Making Federal Tax Payments

Today the IRS provides a list of 10 tips to make sure your federal tax payments are properly credited to your account. Beyond the obvious advice of not sending cash, you're advised to write you SSN on the front of your check made payable to United States Treasury. Be sure to include a Form 1040-V voucher. You can also pay by phone using a debit or credit card. If you e-file, you can have the funds electronically drafted from a bank account.

You can see the full list here.

If you have any tax questions, please contact me.

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How To Get IRS Tax Help

Today's IRS Tax Tip tells how to get information or assistance about tax issues. The Tax Tip lists how you can:

• Check on your refund
• Get forms and publicatoins
• Get previous years' tax info
• Set up payment plans
• Get small business questions answered
• Understand a notice
• Get help for specialized reasons

If you need additional information, please contact me.

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How To Determine If Your Gift Is Taxable

The IRS has some information regarding gifts you make to others. The general rule is that gifts you make are taxable with the following exceptions:

• Gifts that do not exceed the annualu exclusion for the calendar year, $13,000 for 2011 and 2012. Married couples can choose to have gifts made one-half by each spouse which allows for a total gift of up to $26,000. Gift-splitting requires a gift tax return to be filed. Use Form 709.


• Tuition or medical expenses you pay directly to a medical or educational institution for someone.


• Gifts to your spouse.


• Gifts to a political organization for its use.


• Gifts to charities.

The eight tips the IRS recommends can be found here.

If you would like to consider the tax aspects of making a gift, please contact me.

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Tips For People Who Pay Estimated Taxes

The IRS provides some helpful information concerning paying estimated taxes. The main thing to remember is that you generally must pay estimates if your balance due is expected to be at least $1,000 AND your withholding and tax credits is less than the smaller of 90% of your current year's total tax or 100% of last year's total tax. For calendar year taxpayers, the due dates of estimated taxes are April 15, June 15, September 15 and January 15 of the following year.

Here is the link to the six tips from the IRS.

If you have any tax questions, please contact me.

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Health Care Tax Credit

Small businesses and tax-exempt organizations may be eligible for a valuable tax credit. The details can be found here.

In order to take the deduction on line 29 of Form 1040, you must be one of the following:

• A self-employed individual with a net profit reported on Schedule C, Schedule C-EZ or Schedule F.

• A partner with net earnings from self-employment reported on Schedule K-1 (Form 1065)

• A shareholder owning more than 2 percent of the outstanding stock of an S corporation with wages from the corporation reported on Form W-2.

The insurance must be established under your business.

If you need additional information, please contact me. Follow me on twitter.

Majority Believe America Is Overtaxed

A new Rasmussen Poll finds that a majority of Americans believe the nation is overtaxed. 56% of likely voters believe that America is overtaxed. 33% believe that America is not overtaxed. 12% are not sure.

Two years ago, 66% felt that America was overtaxed. Last year, 64% felt that America was overtaxed.

Here is the wording of the questions:

• As a nation, is America overtaxed?
  
  
• When thinking about all federal, state and local taxes, what does the average American pay in taxes as a percentage of their income…..10%, 20%, 30%, 40%, 50% or more than 50%?
  
  
• When thinking about all the services that are provided by federal, state and local governments, how much should the average American pay in taxes as a percentage of their income…..10%, 20%, 30%, 40%, 50% or more than 50%?
  
  
• Should any increase in federal taxes be approved by a vote of the American people?
  
  
• Should any changes in Medicare or Social Security be approved by a vote of the American people?

How would you respond? Do you feel Americans are overtaxed? Leave a comment.

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Approaching Deadlines

March 15th is the deadline for calendar year Corporations and S-Corporations to file their returns. Corporations should file Form 1120. S-Corporations should file Form 1120S. If additional time is needed an extension can be granted until September 15th. File Form 7004 to request a 6-month extension.

If you are seeking to be an S-Corporation for 2012, file Form 2553 by March 15th. If this deadline is missed, you will be a C Corporation, Partnership or Disregarded Entity (whatever the case may be) until 2013.

With the deadline approaching, here is a helpful link with all the due dates that will apply to small businesses.

If you have any questions about this or any other tax topic, please contact me.

IRS Podcast of Common Tax Return Mistakes

Here is a link to the IRS Podcast. The IRS reminds people that mistakes in a tax return can slow down the processing of your return. "Fewer mistakes means quicker refunds." Here is the list of items making the IRS' podcast:

• Incorrect social security numbers for filers or dependents. Double check your entry.
• Incorrect last names for filers or dependents. Make sure the names are as they appear on the social security cards.
• Incorrect filing status. There are 5 choices: Single, Married filing jointly, Married filing single, Head of household or Qualifying widow.
• Math errors. Tax software can eliminate this.
• Computational errors. If you're calculating any credits make sure you are using the correct amounts for things such as income as many credits are phased out for high-income earners.
• Incorrect bank account information. If you want direct deposit, make sure you have both the correct routing number and account number.
• Forgetting to sign the return. If you file by paper you and your spouse must sign. If you e-file, you must obtain a personal identification number to serve as the signature.

If you have any questions to this or any other entries, please leave a comment in the comment section.

20 Tax Changes You Should Know About

Investopedia has a list of 20 tax changes. The list is mostly comprised of current year amounts for things such as personal exemptions and standard mileage rates. There is a good reminder that if you made a Roth IRA conversion in 2011, all of the resulting income must be reported this year. If you made a conversion in 2010, half of the income is reported in 2011 and the rest in 2012.

Small Business & Self-Employed Tax Center

Here are several links that will be helpful to all small businesses and self-employed persons. In it you will find things such as:

• Which forms to use to file tax returns


• How to apply for an Employer ID number


• Information on starting, operating or closing a business


• How to determine if someone you pay should be classified as an employee or independent contractor

Alternative Minimum Tax

The IRS has a list of facts about the Alternative Minimum Tax. After the first two facts, which mention that the AMT was created to target high income taxpayers who could claim so many deductions they owed little or no tax and that the AMT was established in 1969 with no provision inflation adjustments causing a growing number of middle-income taxpayers to be subject, the rest of the bulletin should contain phone numbers of congressmen that should be called to eliminate this tax.

If you have any tax questions, please contact me.

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Tax Penalty Relief For the Unemployed

The IRS has announced an expansion to its "Fresh Start" initiative that can provide tax penalty relieft to unemployed and struggling self-employed people.

Those that qualify can receive a 6 month grace period on payment of taxes. A timely filed extension will also extend the time to pay. Note that all taxes and interest must be paid by October 15, 2012 to avoid the late payment penalty.

Two categories of taxpayers will qualify for this relief.

• Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for filing a federal tax return this year.
  

• Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.

For more information, leave your question in the comment section of this post.

Helpful Links For Information Returns

Need to file an information return such as a 1099 but not sure which one to use? The IRS has a list of all information returns and a link that provides information about who must file each form.

Tax Credit for Child and Dependent Care Expenses

The IRS published a list of 10 Tips that outline the rules and reporting requirements for anyone who may have child care expenses. The most important of the 10 are that the credit is for expenses that enable a taxpayer and spouse (if married filing jointly) to work. Both spouses must have earned income unless one is a full-time student or were physically or mentally unable to care for themselves.

Use Form 2441 to report the information and claim the credit.

More information can be found in Publication 503.

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.

12 Audit Red Flags

CBS Moneywatch has a list of 12 items that are either widely abused are likely to result in errors. The 12 "red flag" items listed are:

• Not reporting income.
  
  
• A large change in income.
  
  
• Being self-employed.
  
  
• Taking higher-than-average deductions.
  
  
• Large charitable contrtibutions.
  
  
• Small business losses.
  
  
• Claiming rental losses.
  
  
• A home office deducttion.
  
  
• Large business mealand entertainment deductions.
  
  
• 100% business use of a vehicle.
  
  
• Large casualty losses.
  
  
• Math errors.

You can read the description and additional information for each item here.

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.