This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.
Thanks to the passage of the American Taxpayer Relief Act of 2012 (ATRA) in January 2013, several tax provisions were extended through 2013 that are of benefit to taxpayers filing 2013 returns this year. Here are six of them:
1. Mortgage Insurance Deductible as Qualified Interest
ATRA extended, through 2013 (and retroactive to 2012), a tax provision that expired in 2011 that allows taxpayers to deduct mortgage insurance premiums as qualified residence interest. As such, taxpayers can deduct, as qualified residence interest, mortgage insurance premiums paid or accrued before Jan. 1, 2014, subject to a phase-out based on the taxpayer's AGI.
2. Limited Non-Business Energy Property Credits
Non-business energy credits expired in 2011, but were extended (retroactive to 2012) through 2013 by ATRA. For 2013 (as in 2011 and 2012), this credit generally equals 10 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $500 (down significantly from the $1,500 combined limit that applied for 2009 and 2010).
Because of the way the credit is figured however, in many cases, it may only be helpful to people who made energy-saving home improvements for the first time in 2013. That's because homeowners must first subtract any non-business energy property credits claimed on their 2006, 2007, 2009, 2010, 2011, and 2012 returns before claiming this credit for 2013. In other words, if a taxpayer claimed a credit of $450 in 2012, the maximum credit that can be claimed in 2013 is $50 (for an aggregate of $500).
The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items do not.
3. State and Local Sales Taxes
ATRA also extended, through 2013, (and retroactive to 2012) the tax provision that allows taxpayers who itemize deductions the option to deduct state and local general sales and use taxes instead of state and local income taxes.
4. Simplified Home Office Deduction
Starting with their 2013 tax return, taxpayers who claim deductions for business use of a home ("the home office deduction") now have another option. Taxpayers claiming the home office deduction are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.
Taxpayers claiming the optional deduction will complete a significantly simplified form. The new optional deduction is capped at $1,500 per year based on $5 per square foot for up to 300 square feet. Give us a call if you'd like more information on the simplified home office deduction for 2013.
5. Same-Sex Marriage
If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage.
If you meet certain requirements, you may be able to file amended returns to change your filing status for some earlier years. Please contact our office if you need to file an amended return or have any other questions.
6. Transportation "Fringe Benefits"
ATRA reinstated parity for transportation fringe benefits provided by employers for the benefit of their employees in 2013 (retroactive to 2012). As such, the monthly limit for qualified parking is $250 and the benefit for transportation in a commuter highway vehicle or a transit pass is $245 for tax year 2013.
If you have questions about these or other tax changes, please call us. We'd be happy to assist you.
Refund fraud caused by identity theft is one of the fastest growing crimes nationwide. Learn more about what the IRS is doing to protect your identity.
Stopping refund fraud related to identity theft is a top priority for the IRS. With more than 3,000 employees working on identity theft cases, the IRS is focused on preventing, detecting and resolving identity theft cases as soon as possible and has trained more than 35,000 employees to work with taxpayers to recognize and provide assistance when identity theft occurs.
Taxpayers might encounter identity theft involving their tax returns in several ways. One possible scenario is where identity thieves try filing fraudulent refund claims using another person's identifying information, which has been stolen.
Here are some tips to protect you from becoming a victim, and steps to take if you think someone may have filed a tax return using your name:
Tips to protect you from becoming a victim of identity theft
If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost or stolen purse or wallet, questionable credit card activity or credit report, contact the IRS Identity Protection Specialized Unit at 800-908-4490, extension 245 (Monday - Friday, 7 a.m. - 7 p.m. local time; Alaska and Hawaii follow Pacific time).
Be alert to possible identity theft if you receive a notice from the IRS, if you believe you're a victim of identity theft, or if you learn from your tax professional that:
If you receive a notice from the IRS and suspect your identity has been used fraudulently, respond immediately by calling the number on the notice. Please call us if you're not sure what to do or would like assistance with this.
If you did not receive an IRS notice but believe you've been the victim of identity theft, contact us or contact the IRS Identity Protection Specialized Unit directly at 800-908-4490, extension 245.
Also, you will need to fill out the IRS Identity Theft Affidavit, Form 14039. Please write legibly and follow the directions on the back of the form that relate to your specific circumstances. If you need help filling out this form, don't hesitate to give us a call.
We also recommend that you take additional steps with agencies outside the IRS such as:
If you have reported an identity theft case to the IRS and are waiting for your federal tax refund, be assured that the IRS is working to speed up and further streamline identity theft case resolution to help innocent taxpayers.
In many instances, these are extremely complex cases to resolve, frequently touching on multiple issues and multiple tax years and cases of resolving identity can be complicated by the thieves themselves contacting the IRS.
Due to the complexity of the situation, this is a time-consuming process. Taxpayers are likely to see their refunds delayed for an extended period of time while we take the necessary actions to resolve the matter. A typical case can take about 180 days to resolve, and the IRS is working to reduce that time period.
Also, please note that even if you have an open identity theft case that is being worked by the IRS, you need to continue to file your tax returns during this period.
For victims of identity theft who have previously been in contact with the IRS and have not achieved a resolution to their case, you may contact the IRS Identity Protection Specialized Unit, toll-free, at 800-908-4490. If you are unable to get your issue resolved and are experiencing financial difficulties, contact the Taxpayer Advocate Service toll-free at 877-777-4778.
Identity theft is an issue that we, as tax professionals, take very seriously. If you have any questions or concerns, please do not think twice about calling us. We are here to help you.
If you are having trouble paying your debts, it is important to take action sooner rather than later. Doing nothing leads to much larger problems in the future, whether it's a bad credit record or bankruptcy resulting in the loss of assets and even your home. If you're in financial trouble, then here are some steps to take to avoid financial ruin in the future.
If you've accumulated a large amount of debt and are having difficulty paying your bills each month, now is the time to take action--before the bill collectors start calling.
1. Review each debt. Make sure that the debt creditors claim you owe is really what you owe and that the amount is correct. If you dispute a debt, first contact the creditor directly to resolve your questions. If you still have questions about the debt, contact your state or local consumer protection office or, in cases of serious creditor abuse, your state Attorney General.
2. Contact your creditors. Let your creditors know you are having difficulty making your payments. Tell them why you are having trouble-perhaps it is because you recently lost your job or have unexpected medical bills. Try to work out an acceptable payment schedule with your creditors. Most are willing to work with you and will appreciate your honesty and forthrightness.
Tip: Most automobile financing agreements permit your creditor to repossess your car any time you are in default, with no advance notice. If your car is repossessed you may have to pay the full balance due on the loan, as well as towing and storage costs, to get it back. Do not wait until you are in default. Try to solve the problem with your creditor when you realize you will not be able to meet your payments. It may be better to sell the car yourself and pay off your debt than to incur the added costs of repossession.
3. Budget your expenses. Create a spending plan that allows you to reduce your debts. Itemize your necessary expenses (such as housing and health care) and optional expenses (such as entertainment and vacation travel). Stick to the plan.
4. Try to reduce your expenses. Cut out any unnecessary spending such as eating out and purchasing expensive entertainment. Consider taking public transportation or using a car sharing service rather than owning a car. Clip coupons, purchase generic products at the supermarket and avoid impulse purchases. Above all, stop incurring new debt. Leave your credit cards at home. Pay for all purchases in cash or use a debit card instead of a credit card.
5. Pay down and consolidate your debts. Withdrawing savings from low-interest accounts to settle high-rate loans or credit card debt usually makes sense. In addition, there are a number of ways to pay off high-interest loans, such as credit cards, by getting a refinancing or consolidation loan, such as a second mortgage.
Caution: Be wary of any loan consolidations or other refinancing that actually increase interest owed, or require payments of points or large fees.
Caution: Second mortgages greatly increase the risk that you may lose your home.
You can regain financial health if you act responsibly. But don't wait until bankruptcy court is your only option. If you're having financial troubles, don't hesitate to call us. We can help you get back on your feet.
The 2014 tax season for individual taxpayers filing their 2013 tax returns opened on Jan. 31 this year, 10 days later than usual due to the 16-day federal government closure in October.
Small businesses that report their income on Form 1040 on Schedule C, Profit or Loss From Business (Sole Proprietorship), Schedule E, Supplemental Income and Loss, or Schedule F, Profit or Loss From Farming, are also subject to the Jan. 31 delayed start.
The filing season for business tax returns was not delayed however, and on Jan. 13, 2014, the IRS began accepting both paper and electronically filed business and excise tax returns.
The delayed opening date allowed the IRS adequate time to program and test its tax processing systems. 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 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," said IRS Acting Commissioner Danny Werfel.
More than 50 IRS systems handle the processing of nearly 150 million tax returns and updating these core systems is a complex, year-round process with most of the work beginning in the fall.
In addition, 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.
No tax returns were processed before Jan. 31, so there was no advantage to filing on paper before the opening date, noted the IRS in a statement, adding that taxpayers will receive their tax refunds much faster when they file electronically using direct deposit. Don't hesitate to call us if you need assistance filing your tax return electronically and setting up direct deposit.
The April 15 tax deadline is set by statute and will remain in place; however, it is possible to request an automatic six-month extension. If you think you will need an extension to file your tax return, please contact our office. We are happy to assist you with this.
You should receive a Form W-2, Wage and Tax Statement, from each of your employers for use in preparing your federal tax return. Employers must furnish this record of 2013 earnings and withheld taxes no later than January 31, 2014 (if mailed, allow a few days for delivery).
If you do not receive your Form W-2, contact your employer to find out if and when the W-2 was mailed. If it was mailed, it may have been returned to your employer because of an incorrect address. After contacting your employer, allow a reasonable amount of time for your employer to resend or to issue the W-2.
If you still do not receive your W-2 by February 15th, contact the IRS for assistance at 1-800-829-1040. When you call, have the following information handy:
If you misplaced your W-2, contact your employer. Your employer can replace the lost form with a "reissued statement." Be aware that your employer is allowed to charge you a fee for providing you with a new W-2.
You still must file your tax return on time even if you do not receive your Form W-2. If you cannot get a W-2 by the tax filing deadline, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement (available on the IRS website), but it will delay any refund due while the information is verified.
If you receive a corrected W-2 after your return is filed and the information it contains does not match the income or withheld tax that you reported on your return, you must file an amended return on Form 1040X, Amended U.S. Individual Income Tax Return.
If you have questions about your Forms W-2 and 1099 or any other tax-related materials, please call or email our office.
Updated income-tax withholding tables for 2014 have been released by the IRS and supersede withholding tables issued in December 2013. The newly revised version contains percentage method income-tax withholding tables and related information that employers need to implement these changes.
In addition, employers should continue withholding Social Security tax at the rate of 6.2 percent of wages paid. The Social Security wage base limit increases to $117,000. The Medicare tax rate remains at 1.45 percent each for the employee and employer.
The additional Medicare tax of .09 percent for employees (not employers) remains in effect and should be withheld from employee wages that exceed $200,000 in a calendar year, at the beginning in the pay period in which the employee's wages exceed $200,000.
Employers should start using the revised withholding tables and correct the amount of Social Security tax withheld as soon as possible in 2014, but not later than February 15, 2014. For any Social Security tax under-withheld before that date, employers should make the appropriate adjustment in workers' pay as soon as possible, but not later than March 31, 2014.
Employers and payroll companies will handle the withholding changes, so workers typically won't need to take any additional action, such as filling out a new W-4 withholding form. Individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms.
As always, it's prudent for workers to review their withholding every year and, if necessary, fill out a new W-4 and give it to their employer. For example, individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms.
Give us a call if you have any questions about income tax withholding in 2014. We're here to help.
Under a joint IRS and U.S. Department of the Treasury ruling issued in 2013, same-sex couples, legally married in jurisdictions that recognize their marriages, are treated as married for federal tax purposes, including income and gift and estate taxes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.
In addition, the ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.
Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country is covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.
Legally-married same-sex couples generally must file their 2013 federal income tax return using either the married filing jointly or married filing separately filing status.
Individuals who were in same-sex marriages may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations.
Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011 and 2012. Some taxpayers may have special circumstances, such as signing an agreement with the IRS to keep the statute of limitations open, that permit them to file refund claims for tax years 2009 and earlier.
In addition, employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pre-tax and excludable from income.
If you need to file a claim for a refund or have any questions about the IRS ruling, please let us know. We are happy to assist you.
Employers - Federal unemployment tax. File Form 940 for 2013. This due date applies only if you deposited the tax for the year in full and on time.
Employers - Social Security, Medicare, and withheld income tax. File Form 941 for the fourth quarter of 2013. This due date applies only if you deposited the tax for the quarter in full and on time.
Farm Employers - File Form 943 to report Social Security and Medicare taxes and withheld income tax for 2013. This due date applies only if you deposited the tax for the year in full and on time.
Certain Small Employers - File Form 944 to report Social Security and Medicare taxes and withheld income tax for 2013. This tax due date applies only if you deposited the tax for the year in full and on time.
Employers - Nonpayroll taxes. File Form 945 to report income tax withheld for 2013 on all nonpayroll items. This due date applies only if you deposited the tax for the year in full and on time.
Employees - who work for tips. If you received $20 or more in tips during January, report them to your employer. You can use Form 4070.
Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for
payments in January.
Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in January.
Individuals - If you claimed exemption from income tax withholding last year on the Form W-4 you gave your employer, you must file a new Form W-4 by this date to continue your exemption for another year.
Employers - Begin withholding income tax from the pay of any employee who claimed exemption from withholding in 2013, but did not give you a new Form W-4 to continue the exemption this year.
Businesses - File information returns (Form 1099) for certain payments you made during 2013. There are different forms for different types of payments. Use a separate Form 1096 to summarize and transmit the forms for each type of payment. See the 2013 Instructions for Forms 1099, 1098, 5498, and W-2G for information on what payments are covered, how much the payment must be before a return is required, what form to use, and extensions of time to file.
If you file Forms 1098, 1099, or W-2G electronically (not by magnetic media), your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms is still January 31.
Payers of Gambling Winnings - File Form 1096, Annual Summary and transmittal of U.S. Information Returns, along with Copy A of all the Forms W-2G you issued for 2013. If you file Forms W-2G electronically (not by magnetic tape), your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms remains January 31.
Employers - File Form W-3, Transmittal of Wage and Tax Statements, along with Copy A of all the Forms W-2 you issued for 2013.
If you file Forms W-2 electronically (not by magnetic media), your due date for filing them with the SSA will be extended to March 31. The due date for giving the recipient these forms is still January 31.
Employers - with employees who work for tips. File Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips. Use Form 8027-T, Transmittal of Employer's Annual Information Return of Tip Income and Allocated Tips, to summarize and transmit Forms 8027 if you have more than one establishment. If you file Forms 8027 electronically (not by magnetic tape), your due date for filing them with the IRS will be extended to March 31.
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