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.