MN Dept of Revenue Advises Taxpayers on Hiring a Tax Preparer

The Minnesota Department of Revenue suggests asking the following questions to your prospective new tax preparer:

• What kind of formal tax training do you have?
• Do you hold any professional licenses or designations?
• Do you belong to any professional organizations?
• Do you take continuing professional education classes each year?
• How long have you been preparing tax returns?
• Have you ever done a tax return dealing with my situation?
• Are you available year-round if I need to contact you?
• Have you ever been disciplined by any governmental authority?
• Will you represent me if I’m audited?
• How much do you charge and how do you calculate your fees? 
• Can you provide me with names of references I can contact about your work?

Here are some additional things to consider:

• In my opinion, most taxpayers are best off preparing their own returns.
• I like Turbo Tax and other off the shelf software packages.
• Those who rely on paid preparers still need to understand how their taxable income and deductions are computed and reported.
• Your taxes are your responsibility even if you hire someone to prepare your returns for you.
• I mostly prepare returns for small business owners and others having unusually complicated tax forms.

- Mark S Gleason CPA
  www.lakes-cpa.com

SCORE Takes a Look at Accounting and Taxes

SCORE (Service Corps of Retired Executives - a resource partner of the Small Business Administration) has recently issued "A Look at Accounting & Taxes."

This document presents some interesting statistics about what small business owners' attitudes about the burden of tax preparation, bookkeeping, and payroll compliance costs.

40% say that bookkeeping and taxes are the worst part of owning a small business.
47% dislike the financial cost of bookkeeping and taxes.  It is surprising to learn that only 8% dislike the inequity of the tax code and only 8% dislike all the paperwork. Only 10% dislike changing regulations an confusion.

40% claim to spend 80+ hours per year on taxes, payroll, working with accountants and obligations and 16% claim to spend over $20,000 complying with the tax laws.

Although I have serious reservations about the methodology of this study and the sources cited in the bibliography, it's interesting to note that many business owners don't seem to mind the administrative headaches and time required to comply with tax laws.

- Mark S Gleason CPA

The United States Senate passed the Tax Increase Prevention Act of 2014 by a vote of 76 to 16 earlier this week, on Tuesday, December 16. This is the bill that the House of Representatives had passed earlier in December. I expect President to sign the bill into law soon.

The main purpose of the new tax legislation is to extend of bunch of tax provisions that expired at the end of 2013.

The biggest revenue impacts of the "Tax Increase Prevention Act"" (TIPA) were the deduction for state and local sales taxes and the credit for research and development.

Many of my business clients are favorably impacted by the extension of the 2013 deduction limit under Section 79. Had the 2013 limit of $500,000 not been extended the annual limitation for Section 179 would have been $25,000. Section 179 allows taxpayers to elect to deduct the entire cost of new property plaece in service in a trade or business, rather than the normal depreciation rule that spread the deductions out into the future.

I have several clients that were very interested in the provision that provides an exclusion from income up to $100,000 for an individual that directly makes charitable gifts with IRA (or other qualified plan) distributions. This is beneficial to donors because it allows them to circumvent some of the limitations on deductions for charitable contributions.

Additional details will be published here soon. 

- Mark S Gleason CPA
  www.lakes-cpa.com

Congress Cuts IRS Budget Again

There is $10.9 billion to fund the IRS for fiscal year 2015 in the spending bill that is working it's way through congress.  This is a 3% reduction from the funding level for 2014.

A spokesperson for the National Treasury Employees Union issued a statement saying
"This budget hurts everyone in our country by further eroding the IRS' ability to provide tax assistance to millions of Americans, curb tax fraud and collect the taxes owed that finance vital programs and services and reduce the federal deficit".

The IRS estimates that it will be able to answer about half the calls it receives with this budget. The IRS has lost 5,000 enforcement personnel and audit and collection activities have been impaired since congress began implementing a series of budget cuts that began in 2010 reducing the IRS annual budget by about 10 percent.


- Mark S Gleason CPA
  www.lakes-cpa.com

New Standard Mileage Rate is 57.5 Cents Per Mile

The standard mileage rate for 2015 has been increased to $ .575 per mile, up from the 56 cents that was allowed for 2014.  The new rate is effective on January 1, 2015.

- Mark S Gleason
  www.lakes-cpa.comwww.lakes-cpa.com

The IRS Has Over $ 1 Trillion in Frozen Credit Accounts.

Here are some figures from a report issued by the Treasury Inspector General for the United States (TIGTA),  Further Actions Are Needed to Resolve Millions of Dollars of Frozen Credits in Taxpayer Accounts, dated September 26, 2014 (Reference Number: 2014-30-089).

Number of Tax modules in credit status (payments exceeding assessments) at the end of Fiscal Year 2012 [total dollar amount]:
Business Master Files :  10.1 million modules [$883 billion]
Individual Master Files: 1.5 million modules [$305 billion]

Number of Tax modules in credit status (payments exceeding assessments) at the end of Fiscal Year 2013 [total dollar amount]:
Business Master Files :  10.2 million modules [$977 billion]
Individual Master Files: 15.6 million modules [$392 billion]

These numbers are not just "millions" but "hundreds of billions". This is a much more interesting story about FROZEN than the animated tale about Princesses Elsa and Anna. The truth is that the IRS is sitting on a big chunk of the economy.  This story almost slipped by me.  I would have noticed a TRILLION DOLLARS in credits but they only said MILLIONS in the title of their report.

The federal budget deficit for fiscal year 2015 (Oct 2014 through Sept 2015) is projected to be only $564 billion (per Kimperly Amadeo, US Economy Expert)  It looks to me like the IRS has got it covered, sort of.

The TIGTA report discusses how these funds are being handled by the IRS and made a series of recommendations regarding nonfiler and bankruptcy training, turning off backup withholding under certain conditions, monitoring nonfiler referrals, decision documentation, working civil penalty credit transcripts, aging frozen credits and evaluation of procedures.

The IRS responded to more than one recommendation by stating they were in agreement with the recommendation but that corrective action will not be taken because of limited information technology resources.

- Mark S Gleason CPA
  www.lakes-cpa.com

IRS Reminds Us About Documenting Deductible Gifts to Charity

Last week the IRS issued a new "year end tax tips" document reminding taxpayers making year-end gifts to charity that there have been some tax law changes affecting their deductions.

For charitable contributions of clothing and household items, taxpayers must get a written acknowledgement from the charity for all gifts worth $250 or more. It must include, among other things, a description of the items contributed.

For cash contributions, a taxpayer must have a bank record or a written statement from the charity in order to deduct any donation of money, regardless of amount. The record must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, and bank, credit union 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.

In addition, a taxpayer must 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.

Additional reminders from the IRS:

• Only give to qualified charities. Only donations to eligible organizations are tax-deductible. You can use Select Check, a searchable online tool available on IRS.gov to make sure the organizations you give to are eligible to receive deductible contributions. Churches, synagogues, temples, mosques and government agencies are also eligible to receive deductible donations. These is true even if they are not listed in the IRS's database.
• Contributions are deductible in the year made. Donations charged to a credit card before the end of 2014 count for 2014, even if the credit card bill isn’t paid until 2015. Also, checks count for 2014 as long as they are mailed in 2014.
• You must itemize your deductions. Individual taxpayers who itemize their deductions 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). Most taxpayers don't itemize deductions, so for most taxpayers, there is no tax benefit to making charitable contributions.
• Recordkeeping: 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.
• Special Rules. 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.
• Form 8283: 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.

IRS Publication 526 covers almost everything there is to know about tax deductions for charitable contributions.

- Mark S Gleason CPA
  www.lakes-cpa.com