Monday, December 30, 2013

More Assistance For Individual Taxpayers

Taxpayer Advocate Service
If you are experiencing economic harm, a systemic problem or are seeking help in resolving tax problems that have not been resolved through normal channels, you may be eligible for TAS assistance.

Free Tax Preparation for You by Volunteers
Trained community volunteers around the country help low-income, elderly, and military taxpayers with their income tax issues.

Order Forms and Publications
Find out how to order forms and publications here!

Refund Status
You can check the status of a return or refund online or call 1-800-829-4477 (must have been filed at least four weeks ago).

Where to File Addresses
Where to file addresses for businesses, tax professionals and individual taxpayers for use during the calendar year.

Where Do You Report Suspected Tax Fraud Activity?
If you have information about an individual or company you suspect is not complying with the tax law, report this activity.

Tax Topics
Find out about many different tax issues from filing requirements and types of income to itemized deductions and tax credits.

Tax Trails
Tax Trails is an interactive session which poses questions that you can answer by selecting Yes or No. It's just that simple. Your choice then activates a hypertext link to the next appropriate question until an answer is possible.

Interactive Tax Assistant
Use the ITA to find answers to your tax law questions.
Tax Kiosks

Print tax forms and get answers to frequently asked tax questions on these user friendly touch screen machines, located in many public buildings.

Telephone Assistance
Give us a call. During tax season live assistance is available from 7:00 a.m. to 10:00 p.m. (local time) weekdays. There is also a 24 hour recorded assistance line for  your convenience.

Contact My Local Office
IRS Taxpayer Assistance Centers are your source for personal tax help when you believe your tax issue cannot be handled online or by phone, and you want face-to-face tax assistance.

Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication
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Moving Soon? Let the IRS Know!

IRS Tax Tip 2011-37, February 22, 2011

If you’ve changed your home or business address, make sure you update that information with the IRS to ensure you receive any refunds or correspondence. The IRS offers five tips for taxpayers that have moved or are about to move:

  1. Change Your IRS Address Records  You can change your address on file with the IRS in several ways:

    • Write the new address in the appropriate boxes on your tax return;

    • Use Form 8822, Change of Address, to submit an address or name change any time during the year;

    • Give the IRS written notification of your new address by writing to the IRS center where you file your return. Include your full name, old and new addresses, Social Security Number or Employer Identification Number and signature. If you filed a joint return, be sure to include the information for both taxpayers. If you filed a joint return and have since established separate residences, each spouse should notify the IRS of their new address; and

    • Should an IRS employee contact you about your account, you may be able to verbally provide a change of address.

  2. Notify Your Employer  Be sure to also notify your employer of your new address so you get your W-2 forms on time.

  3. Notify the Post Office If you change your address after you’ve filed your return, don’t forget to notify the post office at your old address so your mail can be forwarded.

  4. Estimated Tax Payments If you make estimated tax payments throughout the year, you should mail a completed Form 8822, Change of Address, or write the IRS campus where you file your return. You may continue to use your old pre-printed payment vouchers until the IRS sends you new ones with your new address. However, do not correct the address on the old voucher.

  5. Postal Service The IRS does use the Postal Service’s change of address files to update taxpayer addresses, but it’s still a good idea to notify the IRS directly.
Visit http://www.irs.gov for more information about changing your address. At http://www.irs.gov, you can also find the address of the IRS center where you file your tax return or download Form 8822. The form is also available by calling 800-TAX-FORM (800-829-3676).

Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication
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Individual Taxpayer Identification Number (ITIN)

Effective January 1, 2013, the IRS implemented new procedures that affect the Individual Taxpayer Identification Number (ITIN) application process. Some of the information below, including the documentation requirements for individuals seeking an ITIN, has been superseded by these changes. Taxpayers and their representatives should review these program changes,which are further explained in these Frequently Asked Questions, before requesting an ITIN.

Effective January 1, 2013, authorized representatives are required to complete forensic training and submit the certificate of completion to the IRS no later than January 31, 2014.
Acceptance Agents' Alert (Posted July 1, 2010)

Effective July 1, 2010, all authorized representatives added to existing, approved acceptance agent agreements are required to take the mandatory Acceptance Agent training and submit the certification form along with the amended Form 13551.

New ITIN Acceptance Agent Program Changes

(Posted January 7, 2013)

Acceptance Agents Applications - Open Season
The Internal Revenue Service (IRS) will be accepting and processing Forms 13551, Application to Participate in the IRS Acceptance Agent Program, during open season May 1-August 31 of each year for new and renewing applicants. We will continue to accept amended applications throughout the year.

Alert:
Although IRS accepted applications during the interim period; we did not approve any new or renewing applications.  With the release of the final changes to the Acceptance Agent Program, we will now process these applications on a first-in, first-out basis. Those who submitted a renewing application that was not rejected can continue to operate under the old agreement until the new agreement is finalized.

General ITIN Information
  • What is an ITIN?
  • What is an ITIN used for?
  • Who needs an ITIN?
  • How do I know if I need an ITIN?
  • How do I apply for an ITIN?
  • When should I apply for an ITIN?
  • Where can I get help with my ITIN application?
  • How and when can I expect to receive my ITIN?

REVISED APPLICATION STANDARDS FOR ITINs
  • What are the revised application standards for ITINs?
  • Why did IRS change from an ITIN card to an authorization letter?
  • Why did IRS revise the ITIN application process?
  • What documents are acceptable as proof of identity and foreign status?

FORMS AND PUBLICATIONS

Before submitting Form 13551 to apply to participate in the Acceptance Agent Program, access and complete the mandatory Acceptance Agent training

 Additional ITIN Information

  • How can I obtain an ITIN from abroad?
  • Are ITINs valid for identification?
  • Are ITINs valid for work purposes?
  • Can ITINs be used as proof of identification to obtain a state driver's license?
  • What do I do when I am assigned a social security number (SSN)? 
  • What ITIN information is available in Spanish? 
  • What ITIN information is available for tax professionals?
  • What is an ITIN Acceptance Agent?
  • How can I become an acceptance Agent?
  • What information is available for Foreign Property Buyers/Sellers?

Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication
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Life events have a significant tax impact

Did you know that life events like marriage, divorce and retirement may have a significant tax impact? Organized by type of event, this page provides resources that explain the tax impact of each. 

From Birth through Childhood


Marriage

Divorce or Separations

Job Loss or Starting a new Career or Job


Disasters and Casualties

Persons with Disabilities

Planning for Retirement?

Mutual Fund Distributions

First-time Home Owner

Moving?

Bankruptcy

Decedents

  • Publication 559, Survivors, Executors and Administrators
  • Form 56, Notice Concerning Fiduciary Relationship
  • Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer
  • Form 4810, Request For Prompt Assessment Under Internal Revenue Code Section 6501(d)

Did you receive a Notice?

Filing or paying late - Information Taxpayers should know!
Many people today need more time to prepare their federal tax return. They may want to consider an  for time to file. However, extension of time to file a return does not grant any extension of time to pay a tax liability.

Additional Assistance

We want to remind military families that many of you may also qualify for EITC.

News Releases and Tax Tips

Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication
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Filing Past Due Tax Returns

 File all tax returns that are due, regardless of whether or not you can pay in full. File your past due return the same way and to the same location where you would file an on-time return.

If you have received a notice, make sure to send your past due return to the location indicated on the notice you received.

Why you should file your past due return now

Avoid interest and penalties

File your past due return and pay now to limit interest charges and late payment penalties.

Claim a refund

You risk losing your refund if you don't file your return. If you are due a refund for withholding or estimated taxes, you must file your return to claim it within 3 years of the return due date. The same rule applies to a right to claim tax credits such as the Earned Income Credit.

We hold income tax refunds in cases where our records show that one or more income tax returns are past due. We hold them until we get the past due return or receive an acceptable reason for not filing a past due return.

Protect Social Security benefits

If you are self-employed and do not file your federal income tax return, any self-employment income you earned will not be reported to the Social Security Administration and you will not receive credits toward Social Security retirement or disability benefits.

Avoid issues obtaining loans

Loan approvals may be delayed if you don't file your return. Copies of filed tax returns must be submitted to financial institutions, mortgage lenders/brokers, etc., whenever you want to buy or refinance a home, get a loan for a business, or apply for federal aid for higher education.

If you owe more than you can pay

If you cannot pay what you owe, you can request an additional 60-120 days to pay your account in full through the Online Payment Agreement application or by calling 800-829-1040; no user fee will be charged. If you need more time to pay, you can request an installment agreement or you may qualify for an offer in compromise.

What if you don’t file voluntarily

Substitute Return 

If you fail to file, we may file a substitute return for you. This return might not give you credit for deductions and exemptions you may be entitled to receive. We will send you a Notice of Deficiency CP3219N (90-day letter) proposing a tax assessment. You will have 90 days to file your past due tax return or file a petition in Tax Court. If you do neither, we will proceed with our proposed assessment. If you have received notice CP3219N you can not request an extension to file.
If any of the income listed is incorrect, you may do the following:
  • Contact us at 1-866-681-4271 to let us know.
  • Contact the payer (source) of the income to request a corrected Form W-2 or 1099.
  • Attach the corrected forms when you send us your completed tax returns.
If the IRS files a substitute return, it is still in your best interest to file your own tax return to take advantage of any exemptions, credits and deductions you are entitled to receive. The IRS will generally adjust your account to reflect the correct figures.

Collection and enforcement actions

The return we prepare for you (our proposed assessment) will lead to a tax bill, which, if unpaid, will trigger the collection process. This can include such actions as a levy on your wages or bank account or the filing of a notice of federal tax lien.

If you repeatedly do not file, you could be subject to additional enforcement measures, such as additional penalties and/or criminal prosecution.

Help filing your past due return

For filing help, call 1-800-829-1040 or 1-800-829-4059 for TTY/TDD. If you need income information to help prepare a past due return, call the toll-free number at 1-866-681-4271, or contact your employer or payer.

Get our online tax forms and instructions to file your past due return, or order them by calling 1-800-Tax-Form (1-800-829-3676) or 1-800-829-4059 for TTY/TDD.

If you are experiencing a hardship and you can’t file your past due return, you can call or write your local Taxpayer Advocate Office for your state.

Already filed your past due return

If you received a notice, you should send us a copy of the past due return to the indicated address.
It takes approximately 6 weeks for us to process an accurately completed past due tax return.

Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication
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2013 changes to itemized deduction for medical expenses

The rules are changing if you plan to itemize medical deductions on your 2013 federal tax return that you will file in 2014. It does not affect income tax returns for the 2012 taxable year filed in 2013.

Beginning Jan. 1, 2013, you can claim deductions for medical expenses not covered by your health insurance that exceed 10 percent of your adjusted gross income. This change affects your 2013 tax return that you will file in 2014.

There is a temporary exemption from Jan. 1, 2013 to Dec. 31, 2016 for individuals age 65 and older and their spouses. If you or your spouses are 65 years or older or turned 65 during the tax year you are allowed to deduct unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income. The threshold remains at 7.5% of AGI for those taxpayers until Dec. 31, 2016.

Beginning Jan. 1, 2017, all taxpayers may deduct only the amount of the total un reimbursed allowable medical care expenses for the year that exceeds 10% of your adjusted gross income.

Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication
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Sunday, December 22, 2013

Do I Need to Fill Out a New 2014 Form W-4?

The federal income tax is a pay-as-you-go tax. There are two ways to pay as you go.

Withholding

If you are an employee, your employer probably withholds income tax from your pay. Tax may also be withheld from certain other income — including pensions, bonuses, commissions, and gambling winnings. In each case, the amount withheld is paid to the IRS in your name.

Estimated tax

If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. People who are in business for themselves generally will have to pay their tax this way. You may have to pay estimated tax if you receive income such as dividends, interest, capital gains, rent, and royalties. Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well.
Salaries and Wages

Income tax is withheld from the pay of most employees. Your pay includes your regular pay, bonuses, commissions, and vacation allowances. It also includes reimbursements and other expense allowances paid under a non-accountable plan. See Supplemental Wages, later, for more information about reimbursements and allowances paid under a non-accountable plan.
Determining Amount of Tax Withheld Using Form W–4
The amount of income tax your employer withholds from your regular pay depends on two things.
  • The amount you earn.
  • The information you give your employer on Form W–4.
  • Form W–4 includes three types of information that your employer will use to figure your withholding.
    • Whether to withhold at the single rate or at the lower married rate.
    • How many withholding allowances you claim. (Each allowance reduces the amount withheld.)
    • Whether you want an additional amount withheld.
Note: You must specify a filing status and a number of withholding allowances on Form W–4. You cannot specify only a dollar amount of withholding.

For help with your withholding, you may use the Withholding Calculator. This easy-to-use calculator can help you figure your federal income tax withholding so your employer can withhold the correct amount from your pay. This is particularly helpful if you've had too much or too little withheld in the past, your situation has changed, or you are starting a new job.

New Job

When you start a new job, you must fill out IRS Form W–4 and give it to your employer. Your employer should have blank copies of the form. If you need to change the information later, you must fill out a new form.

If you work only part of the year (for example, you start working after the beginning of the year), too much tax may be withheld. You may be able to avoid over-withholding if your employer agrees to use the part-year method. See Part-year Method in Chapter 1 of Publication 505, Tax Withholding and Estimated Tax  for more information.

Changing Your Withholding

Events during the year may change your marital status or the exemptions, adjustments, deductions, or credits you expect to claim on your return. When this happens, you may need to give your employer a new Form W–4 to change your withholding status or number of allowances.
If the event changes your withholding status or the number of allowances you are claiming, you must give your employer a new Form W–4 within 10 days after either of the following.
  • Your divorce, if you have been claiming married status.
  • Any event that decreases the number of withholding allowances you can claim.
  • Generally, you can submit a new Form W–4 whenever you wish to change the number of your withholding allowances for any other reason.
  • Changing your withholding for the current year: If events in the prior year will decrease the number of your withholding allowances for this year, you must give your employer a new Form W–4 by December 1 of the prior year. If the event occurs in December of the prior year, submit a new Form W–4 within 10 days.
Completing Form W–4 and Worksheets

Form W–4 has worksheets to help you figure how many withholding allowances you can claim. The worksheets are for your own records. Do not give them to your employer.

Two Jobs

If you have income from two jobs at the same time, complete only one set of Form W–4 worksheets. Then split your allowances between the Forms W–4 for each job. You cannot claim the same allowances with more than one employer at the same time. You can claim all your allowances with one employer and none with the other, or divide them any other way.

Married Individuals

If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments, deductions, exemptions, and credits. Use only one set of worksheets. You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims.

If you and your spouse expect to file separate returns, figure your allowances using separate worksheets based on your own individual income, adjustments, deductions.

Getting the Right Amount of Tax Withheld

In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules.
  • You accurately complete all the Form W–4 worksheets that apply to you.
  • You give your employer a new Form W–4 when changes occur.
But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. This is most likely to happen in the following situations.
  • You are married and both you and your spouse work.
  • You have more than one job at a time.
  • You have non-wage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income.
  • You will owe additional amounts with your return, such as self-employment tax.
  • Your withholding is based on obsolete Form W–4 information for a substantial part of the year.
To make sure you are getting the right amount of tax withheld, get Publication 919, How Do I Adjust My Tax Withholding? It will help you compare the total tax to be withheld during the year with the tax you can expect to figure on your return. It also will help you determine how much additional withholding, if any, is needed each payday to avoid owing tax when you file your return.

Rules Your Employer Must Follow

It may be helpful for you to know some of the withholding rules your employer must follow. These rules can affect how to fill out your Form W–4 and how to handle problems that may arise.

New Form W–4

When you start a new job, your employer should give you an IRS Form W–4 to fill out. Your employer will use the information you give on the form to figure your withholding beginning with your first payday.

If you later fill out a new Form W–4, your employer can put it into effect as soon as possible. The deadline for putting it into effect is the start of the first payroll period ending 30 or more days after you turn it in.

No Form W–4

If you do not give your employer a completed Form W–4, your employer must withhold at the highest rate—as if you were single and claimed no allowances.
Repaying Withheld Tax

If you find you are having too much tax withheld because you did not claim all the withholding allowances to which you are entitled, you should give your employer a new Form W–4. Your employer cannot repay any of the tax previously withheld.

However, if your employer has withheld more than the correct amount of tax for the Form W–4 you have in effect, you do not have to fill out a new Form W–4 to have your withholding lowered to the correct amount. Your employer can repay the amount that was incorrectly withheld. If you are not repaid, your Form W–2 will reflect the full amount actually withheld.

If you claim exemption from withholding, your employer will not withhold federal income tax from your wages. The exemption applies only to income tax, not to Social Security or Medicare tax.
You can claim exemption from withholding for the current year only if both the following situations apply.
  • For the prior year, you had a right to a refund of all federal income tax withheld because you had no tax liability.
  • For the current year, you expect a refund of all federal income tax withheld because you expect to have no tax liability.
Student

If you are a student, you are not automatically exempt.  If you work only part time or only during the summer, you may qualify for exemption from withholding.

For help with your withholding, you may use the Withholding Calculator.  This easy-to-use calculator can help you figure your federal income tax withholding so your employer can withhold the correct amount from your pay. This is particularly helpful if you've had too much or too little withheld in the past, your situation has changed, or you are starting a new job.

The Advanced Earned Income Tax Credit was eliminated effective Dec. 31, 2010. Taxpayers who are eligible for the EITC may claim it when they file their tax returns.
Net Investment Income Tax

A new Net Investment Income Tax goes into effect in 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts. For additional information on the Net Investment Income Tax, see our questions and answers.
Additional Medicare Tax 

A new Additional Medicare Tax goes into effect starting in 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation, and self-employment income that exceeds a threshold amount based on the individual’s filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for all other taxpayers. An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year.  For additional information on the Additional Medicare Tax, see our questions and answers.

Q & A for Net Investment Income Tax
Q & A for Additional Medicare Tax

Need more help?

Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication
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IRS Releases Final Rule on Net Investment Income Tax Under the ACA

The IRS has released final regulations under section 1411 of the Internal Revenue Code to provide guidance on the general application of the Net Investment Income Tax and the computation of Net Investment Income. The regulations affect individuals, estates, and trusts whose incomes meet certain income thresholds.  The tax does not apply to a nonresident alien or to a trust all of the unexpired interests in which are devoted to one or more of the purposes described in section 170(c)(2)(B). See section 1411(e). 

The regulations become effective once published in the Federal Register. 

The rule covers final amendments to 26 CFR part 1 under sections 469 and 1411 of the Internal Revenue Code.  Section 1402(a)(1) of the Health Care and Education Reconciliation Act of 2010 (Public Law 111-152, 124 Stat. 1029) (HCERA) added section 1411 to a new chapter 2A of subtitle A (Income Taxes) of the Code effective for taxable years beginning after December 31, 2012. 

On December 5, 2012, the Treasury Department and the IRS published a notice of proposed rulemaking in the Federal Register (REG-130507-11; 77 FR 72612) relating to the Net Investment Income Tax. On January 31, 2013, corrections to the proposed regulations were published in the Federal Register (78 FR 6781). The Treasury Department and the IRS received numerous comments in response to the proposed regulations. All comments are available at www.regulations.gov or upon request. The Treasury Department and the IRS held a public hearing on the proposed regulations on April 2, 2013. 

Key elements of the new regulation include: 
  • In the case of an individual, section 1411(a)(1) imposes a tax (in addition to any other tax imposed by subtitle A) for each taxable year equal to 3.8 percent of the lesser of: (A) the individual’s net investment income for such taxable year, or (B) the excess (if any) of: (i) the individual’s modified adjusted gross income for such taxable year, over (ii) the threshold amount. Section 1411(b) provides that the threshold amount is: (1) in the case of a taxpayer making a joint return under section 6013 or a surviving spouse (as defined in section 2(a)), $250,000; (2) in the case of a married taxpayer (as defined in section 7703) filing a separate return, $125,000; and (3) in the case of any other individual, $200,000. Section 1411(d) defines modified adjusted gross income as adjusted gross income increased by the excess of: (1) the amount excluded from gross income under section 911(a)(1), over (2) the amount of any deductions (taken into account in computing adjusted gross income) or exclusions disallowed under section 911(d)(6) with respect to the amount excluded from gross income under section 911(a)(1). Section 1.1411-2 of the final regulations provides guidance on the computation of the net investment income tax for individuals. 
  • In the case of an estate or trust, section 1411(a)(2) imposes a tax (in addition to any other tax imposed by subtitle A) for each taxable year equal to 3.8 percent of the lesser of: (A) the estate’s or trust’s undistributed net investment income, or (B) the excess (if any) of: (i) the estate’s or trust’s adjusted gross income (as defined in section 67(e)) for such taxable year, over (ii) the dollar amount at which the highest tax bracket in section 1(e) begins for such taxable year. Section 1.1411-3 of the final regulations provides guidance on the computation of the net investment income tax for estates and trusts. 
  • Section 1411(c)(1) provides that net investment income means the excess (if any) of: (A) the sum of (i) gross income from interest, dividends, annuities, royalties, and rents, other than such income derived in the ordinary course of a trade or business to which the tax does not apply, (ii) other gross income derived from a trade or business to which the tax applies, and (iii) net gain (to the extent taken into account in computing taxable income) attributable to the disposition of property other than property held in a trade or business to which the tax does not apply; over (B) the deductions allowed by subtitle A that are properly allocable to such gross income or net gain. Sections 1.1411-4 and 1.1411-10 of the final regulations provide guidance on the calculation of net investment income under section 1411(c)(1). 
  • Section 1411(c)(1)(A) defines net investment income, in part, by reference to trades or businesses described in section 1411(c)(2). A trade or business is described in section 1411(c)(2) if such trade or business is: (A) a passive activity (within the meaning of section 469) with respect to the taxpayer, or (B) a trade or business of trading in financial instruments or commodities (as defined in section 475(e)(2)). Section 1.1411-5 of the final regulations provides guidance on the trades or businesses described in section 1411(c)(2). 
In addition to these final regulations, the Treasury Department and the IRS have published a notice of proposed rulemaking in the Federal Register (REG-130843-13) relating to the Net Investment Income Tax on related issued that require further consideration.

Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication
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IRS Offers Tips for Year-End Giving

IRS YouTube Videos: 

Year-End Tax Tips:  English SaveFrom.net | Spanish SaveFrom.net | ASL
 SaveFrom.netCharitable Contributions:  English SaveFrom.net | Spanish SaveFrom.net | ASL
 SaveFrom.netExempt Organizations Select Check:  English SaveFrom.net | Spanish SaveFrom.net | ASL SaveFrom.net

IR-2013-98, Dec. 16, 2013

Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years. Some of these changes include the following:

Special Tax-Free Charitable Distributions for Certain IRA Owners

This provision, currently scheduled to expire at the end of 2013, offers older owners of individual retirement arrangements (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, first available in 2006, can be used for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.
To qualify, the funds must be transferred directly by the IRA trustee to the eligible charity. Distributed amounts may be excluded from the IRA owner’s income — resulting in lower taxable income for the IRA owner. However, if the IRA owner excludes the distribution from income, no deduction, such as a charitable contribution deduction on Schedule A, may be taken for the distributed amount.

Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats amounts distributed to charities as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.

Rules for Charitable Contributions of Clothing and Household Items

To be tax-deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.

 Donors must get a written acknowledgement from the charity for all gifts worth $250 or more that includes, among other things, a description of the items contributed. Household items include furniture, furnishings, electronics, appliances and linens.

Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

Reminders

To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:
  • Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2013 count for 2013. This is true even if the credit card bill isn’t paid until 2014. Also, checks count for 2013 as long as they are mailed in 2013.

  • Check that the organization is eligible. Only donations to eligible organizations are tax-deductible. Exempt Organization Select Check, a searchable online database available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in the database.

  • For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2013 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.

  • For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
  • The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.

  • If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.

  • And, as always it’s important to keep good records and receipts.
IRS.gov has Additional information on charitable giving including:

Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication
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Three Year-End Tax Tips to Help You Save

IRS Special Edition Tax Tip 2013-16, December 17, 2013

Although the year is almost over, you still have time to take steps that can lower your 2013 taxes. Now is a good time to prepare for the upcoming tax filing season. Taking these steps can help you save time and tax dollars. They can also help you save for retirement. Here are three year-end tips from the IRS for you to consider:
  1. Start a filing system.  If you don’t have a filing system for your tax records, you should start one. It can be as simple as saving receipts in a shoebox, or more complex like creating folders or spreadsheets. It’s always a good idea to save tax-related receipts and records. Keeping good records now will save time and help you file a complete and accurate tax return next year.

  2. Make Charitable Contributions.  If you plan to give to charity, consider donating before the year ends. That way you can claim your contribution as an itemized deduction for 2013. This includes donations you charge to a credit card by Dec. 31, even if you don’t pay the bill until 2014. A gift by check also counts for 2013 as long as you mail it in December. Remember that you must give to a qualified charity to claim a tax deduction. Use the IRS Select Check tool at IRS.gov to see if an organization is qualified.

    Make sure to save your receipts. You must have a written record for all donations of money in order to claim a deduction. Special rules apply to several types of property, including clothing or household items, cars and boats. For more about these rules see Publication 526, Charitable Contributions.

    If you are age 70½ or over, the qualified charitable distribution allows you to make tax-free transfers from your IRAs to charity. You can give up to $100,000 per year from your IRA to an eligible charity, and exclude the amount from gross income. You can use the excluded amount to satisfy any required minimum distributions that you must otherwise receive from your IRAs in 2013. This benefit is available even if you do not itemize deductions. This special provision is set to expire at the end of 2013. See Publication 590, Individual Retirement Arrangements (IRAs), for more information.

  3. Contribute to Retirement Accounts.  You need to contribute to your 401(k) or similar retirement plan by Dec. 31 to count for 2013. On the other hand, you have until April 15, 2014, to set up a new IRA or add money to an existing IRA and still have it count for 2013.

    The Saver’s Credit, also known as the Retirement Savings Contribution Credit, helps low- and moderate-income workers in two ways. It helps people save for retirement and earn a special tax credit. Eligible workers who contribute to IRAs, 401(k)s or similar workplace retirement plans can get a tax credit on their federal tax return. The maximum credit is up to $1,000, $2,000 for married couples. Other deductions and credits may reduce or eliminate the amount you can claim.
For more on all these topics, visit the IRS.gov website.
Additional IRS Resources:

Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication
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The Premium Tax Credit

Basic Information

Starting in 2014, if you get your health insurance coverage through the Health Insurance Marketplace, you may be eligible for the Premium Tax Credit. This tax credit can help make purchasing health insurance coverage more affordable for people with moderate incomes. The open enrollment period to purchase health insurance coverage for 2014 through the Marketplace runs from Oct. 1, 2013, through March 31, 2014.

The Department of Health and Human Services administers the requirements for the Marketplace and the health plans they offer. For more information about your coverage options, financial assistance and the Marketplace, visit HealthCare.gov.

Eligibility

In general, you may be eligible for the credit if you meet all of the following:
  • buy health insurance through the Marketplace;
  • are ineligible for coverage through an employer or government plan;
  • are within certain income limits;
  • file a joint return, if married; and
  • cannot be claimed as a dependent by another person.
If you are eligible for the credit, you can choose to:
  • Get It Now: have some or all of the estimated credit paid in advance directly to your insurance company to lower what you pay out-of-pocket for your monthly premiums during 2014; or
  • Get It Later: wait to get all of the credit when you file your 2014 tax return in 2015.

Getting the Credit

To qualify for the credit, you must get insurance through the Marketplace.
During enrollment through the Marketplace, using information you provide about your projected income and family composition for 2014, the Marketplace will estimate the amount of the Premium Tax Credit you will be able to claim for the 2014 tax year that you will file in 2015.
You will then decide whether you want to have all, some or none of your estimated credit paid in advance directly to your insurance company.

Change in Circumstances

Report income and family size changes to the Marketplace throughout the year. Reporting changes will help make sure you get the proper type and amount of financial assistance and will help you avoid getting too much or too little in advance. Receiving too much or too little in advance can affect your refund or balance due when you file your 2014 tax return in 2015.
For example, if you do not report income or family size changes to the Marketplace when they happen in 2014, the advance payments may not match your actual qualified credit amount on your federal tax return that you will file in 2015. This might result in a smaller refund or balance due.

Claiming the Credit on Your Federal Tax Return

For any tax year, if you receive advance credit payments in any amount or if you plan to claim the premium tax credit, you must file a federal income tax return for that year.
If you choose to get it now: When you file your 2014 tax return in 2015, you will subtract the total advance payments you received during the year from the amount of the Premium Tax Credit calculated on your tax return. If the Premium Tax Credit computed on the return is more than the advance payments made on your behalf during the year, the difference will increase your refund or lower the amount of tax you owe. If the advance credit payments are more than the Premium Tax Credit, the difference will increase the amount you owe and result in either a smaller refund or a balance due.

If you choose to get it later: You will claim the full amount of the Premium Tax Credit when you file your 2014 tax return in 2015. This will either increase your refund or lower your balance due.

More Information

More detailed information about the credit is available in our Questions and Answers.
In addition, the Department of the Treasury and the IRS issued the following legal guidance related to the Premium Tax Credit:
  • Final regulations on the rules for individuals who enroll in qualified health plans through Marketplaces and claim the Premium Tax Credit.
  • Final regulations on the Premium Tax Credit affordability test for related individuals.
  • Proposed regulations on determining minimum value of eligible employer-sponsored plans and other rules regarding the Premium Tax Credit.
  • Notice 2013-41 on determining whether or when individuals are considered eligible for coverage under certain Medicaid, Medicare, CHIP, TRICARE, student health or state high risk pool programs.
An electronic flyer entitled "Facts about the Premium Tax Credit" (Publication 5120) is available for public use and distribution.

Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication
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2014 Tax Season to Open Jan. 31; e-file and Free File Can Speed Refunds

IR-2013-100, Dec. 18, 2013

The Internal Revenue Service today announced plans to open the 2014 filing season on Jan. 31 and encouraged taxpayers to use e-file or Free File as the fastest way to receive refunds.

The new opening date for individuals to file their 2013 tax returns will allow the IRS adequate time to program and test its tax processing systems. The annual process for updating IRS systems saw significant delays in October following the 16-day federal government closure.

“Our teams have been working hard throughout the fall to prepare for the upcoming tax season,” IRS Acting Commissioner Danny Werfel said. “The late January opening gives us enough time to get things right with our programming, testing and systems validation. It’s a complex process, and our bottom-line goal is to provide a smooth filing and refund process for the nation’s taxpayers.”

The government closure meant the IRS had to change the original opening date from Jan. 21 to Jan. 31, 2014. The 2014 date is one day later than the 2013 filing season opening, which started on Jan. 30, 2013, following January tax law changes made by Congress on Jan. 1 under the American Taxpayer Relief Act (ATRA). The extensive set of ATRA tax changes affected many 2012 tax returns, which led to the late January opening.

The IRS noted that several options are available to help taxpayers prepare for the 2014 tax season and get their refunds as easily as possible. New year-end tax planning information has been added to IRS.gov this week.

In addition, many software companies are expected to begin accepting tax returns in January and hold those returns until the IRS systems open on Jan. 31. More details will be available in January.
The IRS cautioned that it will not process any tax returns before Jan. 31, so there is no advantage to filing on paper before the opening date. Taxpayers will receive their tax refunds much faster by using e-file or Free File with the direct deposit option.

The April 15 tax deadline is set by statute and will remain in place. However, the IRS reminds taxpayers that anyone can request an automatic six-month extension to file their tax return. The request is easily done with Form 4868, which can be filed electronically or on paper.

IRS systems, applications and databases must be updated annually to reflect tax law updates, business process changes and programming updates in time for the start of the filing season.

The October closure came during the peak period for preparing IRS systems for the 2014 filing season. Programming, testing and deployment of more than 50 IRS systems is needed to handle processing of nearly 150 million tax returns. Updating these core systems is a complex, year-round process with the majority of the work beginning in the fall of each year.

About 90 percent of IRS operations were closed during the shutdown, with some major work streams closed entirely during this period, putting the IRS nearly three weeks behind its tight timetable for being ready to start the 2014 filing season. There are additional training, programming and testing demands on IRS systems this year in order to provide additional refund fraud and identity theft detection and prevention.

Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication
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Wednesday, October 30, 2013

The Curse of the Home Office



A home office is the work reality for many CPA consultants and tax preparers. It beckons with the promise of an easy commute, and the comfort of working in your pajamas. It provides the flexibility of working when you want to. It can also save thousands of dollars that would otherwise be spent on rent. What’s not to love?

Well, as tax preparer Joyce Linzy has learned the hard way, a home office can also be a liability. To recap the Tax Court decision in Linzy v. Commissioner, T.C. Memo 2013-219, Joyce Linzy felt harassed by client visits and calls at her home office, rented a hotel room to get away during the busy season, and attempted to deduct the cost of the hotel and travel as a business expense. The court ruled against Linzy (see To Sleep, Perchance to Dream (of Escaping Your Tax Clients).

As I read the case and the decision, a question formed in my mind: “How does one end up in this situation?”  Your home is your castle. How does your home office become a place to run away from? Here are three ideas to get you started on your way to a home office nightmare, guaranteed and fast!

1. Let your clients know that it is OK to stop by any time. No one will want to work with you unless you make yourself available 24/7. Besides, nothing is better for a professional image than a face to face meeting with your CPA making breakfast while wearing the above-mentioned pajamas!

2. Set up a shared phone line for your home and office. This step works even better if you don’t have caller ID and are in the habit of answering every phone call when it comes in.

3. Encourage family and friends to interrupt your work any time for any reason. An office without a door works best for this; however, you can accomplish the same goal by consistently accepting interruptions, door notwithstanding.

Jokes aside, no one I know has ever announced to their client roster that dropping by the house at 11 PM with a shoebox of receipts is perfectly acceptable. In reality, the sacred boundary of your home office is more likely to erode in small patches. Driven by a sincere desire to help the clients and to provide the best customer service possible, you might make an exception here and there. Trouble is, the other party frequently walks away thinking that the exception is the normal way of doing business with you.

Many professionals working from home have become very adept at appearing to be patient while hating every minute of it. While no one starts their home office adventure by declaring it a free-for-all zone, few take the formal step of thinking through the things they are willing to tolerate—or not—while working. I have found the list below to be a helpful start, whether you are considering setting up a home work space, working in one, or even working in a conventional office arrangement.

1. What are the hours when you are available and open for business?
Choose the hours when you are most productive and able to focus on work. Setting up a phone call with a client at 7 AM or 8 PM may seem like a good idea in a pinch—until it sets an availability precedent that can be difficult to reverse.  Outrageous requests are easy to keep at bay; it is the requests on the fringe of reasonable that erode the boundary.

2. What is your policy on weekends or after-hour availability?
Will you make yourself available, cheerfully and without a grudge, to clients on weekends or after hours? Will it be a one-time arrangement or an ongoing one? How will your clients know the difference?

3. How will you deal with the inevitable interruptions?
Whether it is your child cruising in with the latest drawing, your pet barking while you are on a conference call, a friend stopping by to invite you out for lunch, or a client dropping by unannounced, it helps to have a plan. You are more likely to handle the interruption firmly, gently and with grace if you are prepared.

4. What exemplifies an emergency that requires your immediate and personal attention during your work hours?
Certain situations require an immediate and personal response: an injury to your child, a gas leak, a fire alarm. Be clear on what warrants an interruption, and help those around you get the same clarity.

5. What is your approach to office organization and order?
If you expect clients to visit your home office, how will you keep it professional and presentable? 
 Who is allowed to clean your office?

I encourage you to think through those questions, and come up with your own. The answers will form the basis for your rule book. No matter how good your rule book is, the only rules that matter are the ones that are communicated and enforced. Make sure that your clients understand your general policies. Putting them in a client agreement, or creating a client handbook, is a great start. While creating a written contract with your friends and loved ones may not be practical, be sure that everyone is clear on the rules. Above all else, be prepared to defend your boundary from all trespassers—gently, firmly, and consistently.

Setting boundaries can be a scary proposition. It can feel as though you are putting up walls, digging a moat, and setting up guns along the perimeter. However, it is possible to establish home office boundaries gracefully; as with any skill, this one is mastered with patient practice. It helps to remember that boundaries are not selfish. They can help you create a space to deliver a valuable service, grow your practice, and support yourself and your loved ones.


Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication
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