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

You Can Pay in Advance for a Tax Deduction This Year Instead of Next Year

As the year draws to a close, many of my clients are looking for ideas on end-of-year tax saving strategies. 

For taxpayers wishing to shift taxable income from 2014 into 2015, saving dollars on their 2014 tax obligations, the idea of prepaying deductible business expenses often comes up.
This strategy usually works to provide a deferral of the taxes from one year to the next. Whatever taxes are saved in 2014 will have to be paid for 2015. But this is a particularly beneficial strategy if there is a bump-up in income in 2014 that is unlikely to repeat in 2015.
If a taxpayer is in a lower tax rate bracket in 2015 than in 2014, this results in a tax savings as well as a tax deferral.

There is no overall dollar limit on a taxpayer's ability to prepay business expenses but it is important not to waste money prepaying for things that might not be needed.

I have reviewed the rules for deducting prepaid expenses with three different clients in the past week, so I thought this would make a good topic for my blog.

Most taxpayers file their returns using the cash method, where income is taxed when received in cash and deductions are permitted when paid in cash. Almost all individual taxpayers and almost all small and medium size businesses are cash basis taxpayers.

Larger businesses are accrual basis taxpayers. They report their taxable income when it is earned and deduct their expenses when they are incurred. The distinction between cash and accrual basis is important and accountants study the rules for accrual basis accounting, known as Generally Accepted Accounting Principles in their college accounting courses.
The ability to deduct a prepayment is only permitted for cash basis taxpayers.  If you are an accrual basis taxpayer this idea will not work for you.

For cash basis taxpayers, IRS regulations prohibit deductions for prepaid interest which is not deductible until incurred. Payments that create an asset (tangible or intangible) are not deductible either. 

Since prepaid expenses are all considered to be assets, an exception to the rule, known as the 12-month rule is most useful. The exception that is almost as big as the rule itself. Under the 12-month rule, prepayments for expense items that create benefits for a relatively brief period of time, such as insurance, security, rent, and warranty service contracts may be immediately deducted when paid if the contract period to which the prepayment applies is not more than a year and the contract period does not extend beyond the end of the taxable year following the tax year in which the payment is made.

Other expenses that fit into this 12-month rule would be advertising, marketing, postage (stocking up on postage stamps), business travel expenses (buy those airline tickets before the end of the year), conference registrations and business education. Professional fees for legal and accounting advice will often fit within this rule, but not always.

A cash basis taxpayer receiving prepayments must include the prepayments in taxable income in the year received, so your plan to shift taxable income from 2014 to 2015 by prepaying your expenses may be foiled by your customers who prepay you.

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

IRS Predicting Extra Difficult Tax Filing Season (Again)

John Koskinen, Commissioner of Internal Revenue, addressed the American Institute of CPAs' (AICPA) National Tax Conference earlier this month. He talked about the upcoming 2015 tax filing season. “We believe it may be one of the most complicated filing seasons we’ve ever had, for a number of reasons".

“Continuing uncertainty about the extender legislation imposes stress, not only on the IRS, but on the entire tax community,” he said, and “if the uncertainty over extenders continues into December, the IRS could be forced to postpone the opening of the 2015 filing season.” With Congress now on Thanksgiving break, this seems to be a certainty.

I have written about the "extender legislation" in previous posts on this blog.

Reductions to the IRS's budget “will pose serious challenges to our customer service, enforcement efforts and information technology projects,” he said. Telephone service could drop from the 2014 service level of 71 percent to 53 percent in 2015, because the IRS has not been given the funds to hire sufficient staff to handle incoming calls.

Poor customer service at the IRS has been getting worse and worse every year because a hostile Congress has not given the IRS the funds they need to do the job. Because of long waits, I never even attempt to call the IRS on the phone. Rather, I write them a letter and send it in the mail.  It takes months to get a response. Thanks, Congress.

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

Inflation Adjustments Increase Tax Exemptions and Lower Rates (Slightly)

The IRS has announced the annual inflation adjustments for 43 different tax provisions including the rate thresholds for the tax rate schedules. These go into effect on Jan 1, 2015.

Here are some of the adjustments:

• The top federal tax rate of 39.6 percent affects single taxpayers whose income exceeds $413,200 ($464,850 for marrieds), up from $406,750 and $457,600, respectively. 
• The standard deduction rises to $6,300 for singles and $12,600 for married couples filing jointly, up from $6,200 and $12,400, respectively. The standard deduction for heads of household rises to $9,250, up from $9,100.
• The income threshhold where itemized deductions begin to be phased out begins with incomes of $258,250 or more ($309,900 for married couples filing jointly).
• The personal exemption for tax year 2015 rises to $4,000, up from the 2014 exemption of $3,950. The exemption phase-out begins with adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly) and phases out completely at $380,750 ($432,400 for marrieds).
• The 2015 maximum Earned Income Credit amount is $6,242 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,143 for tax year 2014.
• The Alternative Minimum Tax exemption amount for tax year 2015 is $53,600 ($83,400, for married couples filing jointly). The 2014 exemption amount was $52,800 ($82,100 for married couples filing jointly).
• This amount of the basic exclusion (exemption) from federal estate taxes for decedents who die during 2015 is $5,430,000, up from a total of $5,340,000.
• The annual exclusion for gifts remains at $14,000 for 2015.
• For 2015, the foreign earned income exclusion is $100,800, up from $99,200 for 2014.

Here's one I hadn't previously imagined. The tax on arrow shafts for 2015 (to be paid by the manufacturer or importer of certain arrows) is going up to $0.49 per shaft. To avoid this tax, it looks like you want your arrows to be less than 18 inches long and less than 5/16 of an inch in diameter, unless of course your arrows are suitable for use with a bow having a peak draw weight of 30 pounds or more, in which case all your arrow shafts are taxable.

Complete details can be found in Rev. Proc. 2014-61.

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

New Per Diem Rates for Business Travel Deductions

The IRS has revised their simplified per diem reimbursement rates for lodging, meals, and incidental expenses effective October 1, 2014. These rules provide convenience to employers and employees by eliminating the need to save detailed receipts for employee travel reimbursements. The rules have also been further clarified. Under the new IRS pronouncement, "incidental expenses" include only fees and tips given to porters, baggage carriers, hotel staff and staff of ships.


Transportation beween places of lodging or business and places where meals are taken (ie. cab fares) are no longer included in incedential expenses. Employees can be separately reimbursed for the actual costs of transportaion and mailing expenses, in addition to the flat daily amount for "incidental expenses". 

The new per diem rates are $259 for travel to any high-cost locality and $172 for any other place. These rates are an increase from those allowed earlier. High-cost localities include: Sedona AZ, Chicago IL, New Orleans LA, Bar Harbor ME, Conway NH, Kill Devil NC, Philadelphia PA, Charleston NC, Midland TX, Park City UT, Seattle WA, Jackson/Pinedale WY and several trendy places in CA, CO, FL, MD, MA, NY and most of the Washington D.C. area. Some areas are considered high-cost for only a portion of the year.

See IRS Notice 2014-27 for complete details.

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

Social Security Wage Base For 2015 Increases To $118,500

The Social Security Wage Base for 2015 will be $118,500. Wages and self-employment earnings in excess of this amount will not be subject to the 6.2% employer-paid social security tax or the 6.2% employee share. Earnings from self employment in excess of $118,500 will not be subject to the 12.4% social security portion of the self employment tax.

Single taxpayers with earnings from employment over $200,000 and married taxpayers with earnings over $250,000 will again be subject to the medicare surtax of .9%.

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

Contribution Limits to 401(k) Plans for 2015 are Increased

The IRS has announced upward revisions to the annual contribution limits for pension and other retirement plans for 2015. Taxpayers will be allowed to make contributions of $18,000 to 401(k) plans for 2015. The increase, from $17,500 to $18,000 also applies to 403(b) plans and 457 plans. In addition, the limit on "catch-up" contributions for taxpayers over the age of 50 has been increased from $5,500 to $6,000.

Many of my clients will benefit from these increases in the limits as these will result in bigger deductions for their retirement savings. Those that are saving for retirement with Roth accounts will benefit from the increased contribution limits as well.

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

Scam Alert for Minnesota Taxpayers

The Minnesota Department of Revenue has issued a warning about a new scam. Fraudsters are calling taxpayers and demanding immediate payments over the phone.

The callers claim to be from the Department of Revenue and tell people they owe the state money and must pay it immediately by credit card or money order or the police will be sent to their home.

The MN Department of Revenue says on their website that they never call taxpayers to demand immediate payment or threaten to send the police to a taxpayer's home.

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

You Can Avoid The Inconvenience Of A Late Tax Refund

Once again tax refunds for early filers in 2014 will be delayed.  Refunds were delayed in 2013 and 2014 because Congress didn't enact it's 2012 or 2013 tax laws until the following January. This is going to happen again for 2014 returns filed in 2015.

But there a way to avoid this problem.  The work-around is to reduce your withholding for November and December.  This will put the refund dollars you would have expected to collect in the form of a refund in January or February 2015 when you file your return into your hands now.  The reduction in withholding puts the cash into your paychecks now, instead of into your refund later.

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

Put Your Dog to Work and Get a Tax Deduction

Service dogs, the canines that lead the blind and provide emotional support, have been gaining in popularity. They are helpful in many contexts and enjoy special status under the Americans with Disabilities Act. They also have special status under IRS rules because their medical expenses and the cost of their food and training can be deductible as a medical expense. No deductions are allowed for ordinary dogs.

Here is what IRS Publication 502, Medical and Dental Expenses has to say about it: "You can include in medical expenses the costs of buying, training, and maintaining a guide dog or other service animal to assist a visually impaired or hearing disabled person, or a person with other physical disabilities. In general, this includes any costs, such as food, grooming, and veterinary care, incurred in maintaining the health and vitality of the service animal so that it may perform its duties".

The medical expense deduction in my experience is mostly an illusion because only the amount of medical expenses in excess of 10% of a taxpayer's income is deductible. Furthermore, taxpayers who do not itemize deductions are unable to benefit from medical deductions. Nevertheless, I predict that service dogs are going to continue to grow in popularity and that lots of dog owners are going to want to pass Fido off as a service animal in order to get a tax deduction.

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

Get Your Orders in Today

For all of us living here in Minnesota, today, Sept 30, 2014 is going to be our last day to make purchases via Amazon.com without paying Minnesota sales tax. The on-line retailing giant has announced that effective October 1st, they will be collecting Minnesota sales taxes on purchases made by Minnesota residents. Amazon has not stated any reason for the change.

Under Minnesota law any business with a "physical presence" in Minnesota is required to collect sales tax on sales to customers in Minnesota. The rate of sales tax in Minnesota is 6.875%.

I am old enough to remember when it was zero and then became 3%.

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

US Treasury Cracks Down on Inversions

The Treasury Department announced this week a batch of new rules designed to curtail inversions, the corporate income tax loophole du jour.

The inversion loophole is expected to cost the US $20 billion in revenue losses over the next 10 years, unless Congress takes action. Since Congressional action isn't going to happen, the executive branch is stepping up with the limited authority it has to try to limit the fiscal hemmoraging these inversions are causing.

The inversion loophole is used by large US corporations to avoid US income taxes by having the income taxed in a foreign jurisdiction having a lower tax rate. In a typical inversion transaction, a US corporation merges with a foreign corporation.  The newly merged entity retains it's status as a foreign corporation, even if most of the operations are located in the US.

Under current law, the merged entity is not treated as a US corporation if the (old) US company's shareholder's end up owning less than 80% of the combined company. The obvious solution would be to lower the 80 percent to 50 percent, but congressional Republicans will not permit that to happen.
The new rules issued by the Treasury Department are intended to make the 80% rule harder for companies to get around.

The press release issued by the Treasury Department states: "Today’s action eliminates certain techniques inverted companies currently use to gain tax-free access to the deferred earnings of a foreign subsidiary, significantly diminishing the ability of inverted companies to escape U.S. taxation.  It also makes it more difficult for U.S. entities to invert by strengthening the requirement that the former owners of the U.S. company own less than 80 percent of the new combined entity".

These actions are being taken under sections 304(b)(5)(B), 367, 956(e), 7701(l), and 7874 of the Internal Revenue Code.

Here are a few of the actions being taken to close these loopholes:

• Preventing inverted companies from restructuring a foreign subsidiary in order to access the subsidiary’s earnings tax-free (Section 7701(l) of the Internal Revenue Code).
• Closing a loophole to prevent an inverted company from transferring cash or property from a controlled foreign corporation to the new parent to completely avoid U.S. tax (Section 304(b)(5)(B) of the Internal Revenue Code).
• Restricting the "skinnying down" technique where corporations reduce their size before a merger so the new combined entity meets the requirements of current law (Section 7874 of the Internal Revenue Code).
• Preventing "spinversions" of business units into foreign corporations by treating the new spun-off company as a US domestic corporation (Section 7874 of the Internal Revenue Code).
• Eliminating "hopscotch loans", a technique whereby a foreign subsidiary of a US company loans money to a foreign corporation to help it finance an (inversion) merger with the US parent corporation are now forbidden (Section 956 of the Interal Revenue Code).

This is only a taste of today's loophole closing du jour.  For further details visit the Treasury Department's website at http://www.treasury.gov/press-center/press-releases/Pages/jl2645.aspx

- Mark Gleason
  www.lakes-cpa.com

"Exclusive" Use of Home Office May be Less Than Perfect

A recent tax court case sheds a little light on how flexible the "exclusive business use" requirement for a home office deduction can be.

In a rare taxpayer victory in the United States Tax Court, taxpayer Lauren Miller, who admitted to occasionally using portions of her home office space for nonbusiness purposes, was successful in defending against disallowance of her home office deduction. After analyzing the layout of her apartment and the business use of the home office, the court ruled that she was entitled to deduct one-third of her apartment rent and cleaning service charges for the year, as claimed in her income tax return.

Although this is a tax court summary decision in a case involving less than $50,000 and is not to be treated as precedent for any other case, taxpayer's victory hints that if facts and circumstances warrant, minor, "de minimis" personal use of a home office will not cause failure of the entire deduction.

This case is available on line at http://ustaxcourt.gov/InOpHistoric/MillerSummary.Guy.SUM.WPD.pdf

Mark S Gleason CPA
www.lakes-cpa.com

New IRS Forms for Implementing the Affordable Care Act

The IRS has released draft versions of a bunch of forms for individuals and employers to make reports required under the Affordable Care Act (ACA). These forms will be used to gather the information necessary to administer the tax credits and penalties provided by the ACA.

• Form 1094-B is the Transmittal of Health Coverage Information Returns which accompanies the filings of Forms 1095-B (below).
• Form 1095-B is the Health Coverage form requesting information about each "responsible" individual policy holder.
• Form 1094-C is the Transmittal of Employer-Provided Health Insurance Offer and Coverage forms contains information about the "applicable large employer" and is to be sent in with the forms 1095-C (below) .
• Form 1095-C is the the Employer-Provided Health Insurance Offer and Coverage form having fields for the social security numbers for all the covered individuals along with information regarding the offer of coverage and the employer share of premiums. It looks like employers will provide one of these forms for each employee.
• Form 1095-A is the Health Insurance Marketplace Statement containing information about health care recipients and their families and other details such as dates of birth, coverage periods, and their premium payments. It looks like employers will provide one of these forms for each employee.
• Form 8965 is the form for Health Coverage Exemptions and is to be attached to individual taxpayers' forms 1040, 1040-A, and 1040-EZ.

This law has lots of moving parts and it is going to be interesting to see how tax preparers deal with all these new forms. I think that I will be one of the few to be prepared for this transition.

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

Tax Deductions for Education Expenses

Here is a great tax tip I read about recently in an article by Julie Welch CPA. Her article Have Employer Pay for Your Tuition and Exclude Cost From Income addresses a tax savings technique that I have personally been using for several years. I decided for personal and professional reasons to learn to speak Spanish. I have devoted hundreds of hours and almost as many dollars to Spanish classes, tapes, and private lessons. I have taken eight semesters of college Spanish at a local universities and have studied Spanish abroad in Mexico and Guatemala. I have Spanish-speaking clients and have been involved in court cases as a referee where the parties have presented their claims and defenses in Spanish.

I have also taken many classes on business, technology, and tax and accounting topics over the years.
As a small business owner, the costs of these classes are deductible business expenses.

Ms Welsh writes in her article that education expenses can reduce taxes in one of three ways:

First, job related education expenses can be deducted, along with other miscellaneous itemized deductions, to the extent they exceed 2% of the adjusted gross income. Education expenses are deductible if they are: job related, do not qualify a person for a new business, and are not taken to meet the minimum educational standards for qualification in a person’s business. The costs of obtaining an undergraduate degree do not qualify because they are usually meeting the minimum educational standards. The costs of obtaining a graduate degree, especially in business, generally qualify if a job is in the same subject area as the classes unless the degree qualifies that person
for a new business, such as law or medicine. Examples of some of the costs that can be deducted include tuition, books, supplies, car expenses, and travel costs.

Second, job-related education expenses [paid by your employer] can be excluded as a working condition fringe benefit. Many employers used this approach when the educational assistance provisions temporarily expired in prior years.

Third, education expenses under an employer’s educational assistance program can be excluded. This is generally the best approach. Check to see if the employer offers an educational assistance plan. If the employer does, up to $5,250 from income can be excluded. Although meals, lodging, and transportation costs cannot be reimbursed, the costs that can be reimbursed tax-free include: tuition, books, supplies and equipment. An employer can either pay the expenses directly to the school or reimburse the taxpayer after they are paid. Proof of the expenses will need to be provided, such as receipts for tuition and books. Unlike the deduction for education expenses, the subjects being studied do not have to be business or job related. Thus, a college degree can be completed or non-business courses can be taken. However, subjects considered a sport, game, or hobby are ineligible unless required as part of a degree program or related to an employer’s business. Graduate courses are also included in this exclusion.

Savings include both income tax and Social Security tax. Additionally, many states do not tax educational assistance reimbursements, thus saving even more.

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

Sloppy Recordkeeping Can Be Expensive

I ran across a recent tax court case that reminded me of some of my clients. Garza v Commissioner is a story about a taxpayer who couldn't convince the IRS that his records substantiated his deduction for auto mileage.

It's not that he don't keep any records, he just wasn't disciplined enough to do it every day. At the end of each month, he made a note of the odometer readings at the end of each month, with occasional additional mid-month readings. But there was no other information relating to vehicle expenses. There was nothing recorded about any personal travel. His entire deduction for auto mileage of $20,085.50 was disallowed by the IRS and Garza took the IRS to the Tax Court.

He lost because he did not record the amount, time, or business purpose for each business use of his truck.
To paraphrase the court, "a taxpayer generally  must maintain adequate records or produce sufficient evidence corroborating his own statement, establishing the amount, date, and business purpose of each expenditure or business use of [an automobile]".

So, my readers, don't let this happen to you.

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

Money Laundering 101

How's that for a catchy title for a blog post?

My friend Richard says that I remind him of Barry the Money Launderer, one of the characters in his favorite TV series, Burn Notice.
I am not an expert in money laundering.  I know next to nothing about it.
This afternoon I ran into an overview of money laundering on the Cornell University Law School Legal Information Institute website.
I thought I would share this information with my readers, some of whom are apparently admirers of Barry the Money Launderer.

"Money laundering refers to a financial transaction scheme that aims to conceal the identity, source, and destination of illicitly-obtained money. 
The money laundering process can be broken down into three stages. First, the illegal activity that garners the money places it in the launderer’s hands. 
Second, the launderer passes the money through a complex scheme of transactions to obscure who initially received the money from the criminal enterprise.
Third, the scheme returns the money to the launderer in an obscure and indirect way."

This article then goes on to discuss the relationship of money laundering to tax evasion. The two go hand-in-hand. 

"Tax evasion and false accounting practices constitute common types of money laundering. 
Often, criminals achieve these objectives through the use of shell companies, holding companies, and offshore accounts.
A shell company is an incorporated company that possesses no significant assets and does not perform any significant operations. 
To launder money, the shell company purports to perform some service that would reasonably require its customers to often pay with cash.
Cash transactions increase the anonymity of customers and therefore decrease the government’s ability to trace the initial recipient of the dirty money. 
Money launderers commonly select beauty salons and plumbing services as shell companies. The launderer then deposits the money with the shell company, which deposits it into its accounts. 
The company then creates fake invoices and receipts to account for the cash. Such transactions create the appearance of propriety and clean money. 
The shell company can then make withdrawals and either return the money to the initial criminal or pass the money on to further shell companies before returning it to further cloud who first deposited the money."

None of my former or current clients are hairdressers or plumbers and I have never had a client whom I suspected of engaging in this type of activity.

In 1970 Congress enacted the Bank Secrecy Act which requires banks to report cash and currency transactions of over $10,000.00.
Money laundering is a federal crime under the Money Laundering Control Act of 1986. 

If you are a money launderer, I do not want you for a client.

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

Perhaps The Greatest Tax Cheat in History

Paul Daugerdas, a lawyer and certified public accountant from Wilmette Illinois, seems to have won the world record for the biggest tax cheat in all history. He was sentenced yesterday to 15 years in prison.

He was found guilty of tax evasion, mail fraud, wire fraud, conspiracy to defraud the IRS and of "corruptly endeavoring to obstruct and impede the internal revenue laws."

According to a press release issued yesterday by the Department of Justice, Mr. Daugerdas marketed and implemented fraudulent tax shelters used by wealthy individuals to evade over $1.6 billion in taxes owed to the Internal Revenue Service (IRS), yeilding
approximately $95 million in fees to Daugerdas personally. 

He was ordered to pay $371,006,397 in restitution to the IRS. 

Several other co-conspirators had already been convicted and sentenced for their parts in this massive 20 year scheme.

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

IRS Issues New Taxpayers' Bill of Rights

Here are your rights, according to the IRS:

1. The Right to Be Informed
2. The Right to Quality Service
3. The Right to Pay No More than the Correct Amount of Tax
4. The Right to Challenge the IRS’s Position and Be Heard
5. The Right to Appeal an IRS Decision in an Independent Forum
6. The Right to Finality
7. The Right to Privacy
8. The Right to Confidentiality
9. The Right to Retain Representation
10. The Right to a Fair and Just Tax System

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

IRS Releases Statistics of Income for 2011

The Spring 2014 issue of the IRS's Statistics of Income Bulletin was released last week.
This issue presents some interesting information on high-income individual income tax returns for 2011.
This document is available for download at  IRS.gov/taxstats.
You will find some interesting articles at the above link. I especially enjoyed Individual Income Tax Rates and Shares, 2011 by Adrian Dungan and Michael Parisi, economists with the IRS. This article discusses the individual income tax rates and tax shares and the computation of “total income tax” for 2011 and provides some historical perspective by describing the income tax structure, relevant law changes and concepts of taxation. Here are some of the highlights:

• The top 1 percent of tax returns had adjusted gross income (AGI) of $388,905 and accounted for almost 19% of all individual income for 2011. 
• These taxpayers paid over 35% of the total individual income taxes paid.
• The cutoff for the top 5 percent was AGI of $167,728.

Do you know what your AGI is?

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

Youth and Summertime: Dreaming about Tax Avoidance

Summer is almost here.  Although the official beginning of Summer is a couple weeks away, many college and high school students are already have found summer employment and are hard at work. Others will be starting their summer jobs in the weeks to come.

Now is a good time to help these hard working young people get their retirement savings off to an early start. Parents and grandparents (uncles and aunts too) can contribute up to $5,500 to a young worker's Roth IRA.  If properly invested, the funds can grow into hundreds of thousands of dollars by the time these youngsters retire at age 65 or 70. The funds can be withdrawn from the Roth account tax free after age 59 and a half.

This is an uncommon little loophole in our tax system that rewards people for working.
Contributions to Roth IRAs are subject to a dollar limit ($5,500 for 2014 for singles under the age of 50) and an earned income limit: Roth contributions cannot exceed the student's earnings from employment (including self-employment). 

Most students probably need the money they earn in the summer for their education expenses. Without a little help from their families few students are able to take advantage of this tax planning opportunity.  Once they are established in their careers, many of these young people are going to find that their incomes exceed the earnings thresholds under which contributions to Roth accounts are allowed, so now is the time to start thinking about this.

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

 

How Much Can I Give Away Before Paying Gift Tax?

Because the gift tax "exemption" is now indexed for inflation, it keeps rising and changes almost every year.
For 2014 the gift tax exemption is $5.34 million.
It's scheduled to increase in future years.
$5.34 million is also the amount of the estate tax exemption for 2014.

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

Settle Your Tax Debt for Pennies on the Dollar!

The Federal Trade Commission (FTC) says "B.S. on that!" (in so many words).

Here is what the FTC is saying about Tax Relief Companies:

• Tax relief companies use the radio, television and the internet to advertise help for taxpayers in distress.
• If you pay them an upfront fee, which can be thousands of dollars, these companies claim they can reduce or even eliminate your tax debts and stop back-tax collection by applying for legitimate IRS hardship programs. 
• The truth is that most taxpayers don't qualify for the programs these fraudsters hawk, their companies don't settle the tax debt, and in many cases don't even send the necessary paperwork to the IRS requesting participation in the programs that were mentioned. 
• Adding insult to injury, some of these companies don't provide refunds, and leave people even further in debt.
• Some taxpayers who filed complaints with the Federal Trade Commission (FTC) reported that, after signing up with some of these companies and paying thousands of dollars in upfront fees, the companies took even more of their money by making unauthorized charges to their credit cards or withdrawals from their bank accounts.

This is not to say that relief from unpaid back taxes is impossible.
Believe it or not, The IRS has a forms for this.

The following information also comes from the FTC's website:

• If you owe back taxes, there are several IRS tax relief programs to help, including the agency’s Fresh Start initiative:
• An Installment Agreement is generally available to people who can't pay their tax debt in full at one time. The program allows people to make smaller monthly payments until the entire debt is satisfied.
• Under its Fresh Start initiative, the IRS raised the threshold for streamlined installment agreements from $25,000 to $50,000 in tax debt, and the maximum repayment term from five to six years. Taxpayers who owe less than $50,000 may apply online with the IRS and don’t have to complete an IRS Collection Information Statement (Form 433-A, 433-B or Form 433-F).
• An Offer in Compromise (OIC) lets taxpayers permanently settle their tax debt for less than the amount they owe. The OIC is an important tool to help people in limited circumstances; taxpayers are eligible only after other payment options have been exhausted.
• Under its Fresh Start initiative, the IRS expanded the OIC program to cover a larger group of struggling taxpayers. However, the IRS will not accept an offer if it believes the liability can be paid in full as a lump sum or through an installment agreement. The IRS offers guidance on choosing a tax professional for an OIC on its website.
• According to the IRS, you can apply for an Installment Agreement, OIC, or penalty or interest abatement without the help of a third party. If you prefer third-party assistance in negotiating with the IRS, only certain tax professionals — Enrolled Agents (federally-authorized tax practitioners who can represent taxpayers before all administrative levels of the IRS), Certified Public Accountants (CPAs), and attorneys — have the authority to represent you . Their services should involve a face to face meeting where they explain your options and their fee structure.

CPAs and attorneys are professionals licensed and regulated by the various states. There are stringent educational and testing requirements for obtaining licenses to practice law or accounting.  These professions are governed by enforceable ethical standards and licensees are required to have regular educational updates.

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

IRS Audit Lottery: Odds are Better than Winning the Lottery

Because of cuts to the IRS's budget fewer and fewer audits are being conducted by the IRS.

The audit rate for last year was a little under 1% for individual income tax payers but this 1% includes correspondence exams as well as in-person audits by revenue agents.

Individuals with over $1 million had a 5% chance of an encounter with a revenue agent but the rate for those with incomes between $200,000 and $1 million was only 1.11%.

Those of us with incomes below $200,000 had slightly less than a one quarter of 1% (.25%) chance of getting audited.

These are better odds than winning the lottery, but not nearly as much fun.

Chances of being audited in 2014 are even lower than last year. Audit rates for corporations are expected to decline this year also.

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

Revenge is a Dish Best Served with Hard Cold Cash

A recent Tax Court Summary Opinion (2014-28) tells a tale of greed, betrayal, and revenge.
It's not that interesting, but we hardly ever run into revenge stories in tax court opinions: greed is a common theme we see all the time in the tax business.

Mr and Mrs Kososki were in the process of terminating their marriage. Shortly before separating they filed a joint return claiming a refund ($7,768). The wife expected to get a portion of the tax refund, but the husband kept it all. The refund was directly deposited into the husband's bank account.

The wife filed another return for the same year (2010), filing not as married-joint but as married-separate.
The IRS audited the husband and changed his filing status to married filing separately.
The result was a refund to the wife with the husband owing taxes and penalties in excess of $5,000.


- Mark Gleason
  www.lakes-cpa.com

Status of Some Expired Income Tax Breaks

A pile of special deductions and credits expired at the end of 2013. We expect most of them to be retroactively re-enacted. Some of these are narrowly targeted at specific industries but some have a broader impact and affect mainstream taxpayers.
These include the ability of individual income taxpayers to deduct their sales taxes instead of their income taxes. This break is important to residents of states that have no income tax like Texas, Florida, Nevada, Washington, South Dakota and Alaska.
Another important expired tax break is the exclusion from taxable income for up to $2 million of forgiveness of indebtedness in relation to foreclosure of a personal residence.
I have at least one client that is hoping for reinstatement of the provision allowing direct distributions from taxpayers individual retirement accounts (IRAs) to charities.
Bonus depreciation and the credit for research and development are important to many businesses, both large and small.
Action by congress on these expired tax provisions is not expected until late in 2014.
I guess that congress likes to keep taxpayers guessing.

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

IRS and MN Dept of Revenue Announcements on Heartbleed

Both the IRS and the Minnesota Department of Revenue issued announcements proclaiming themselves unaffected by Heartbleed , the recently discovered coding flaw that lets hackers steal passwords from websites.

The IRS announcement:

The IRS continues to accept tax returns as normal. Our systems continue operating and are not affected by this bug, and we are not aware of any security vulnerabilities related to this situation. We continue to monitor the situation and remain in contact with our software partners. The IRS advises taxpayers to continue filing their tax returns as they normally would in advance of the deadline.

The Minnesota Department of Revenue announcement: 

The Minnesota Department of Revenue systems have not been affected by the “heartbleed” virus.  We are accepting tax returns as normal and we encourage taxpayers to file their returns in advance of the April 15 deadline.  We continue to monitor the situation and will remain in contact with the IRS and software vendors.  If the situation changes we will provide an update. 

For those of us who depend on the internet to get our daily work done, this has been an unwelcome distraction, especially coming right before the April 15 tax filing deadline.

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

Who are the One Percent?

We hear about the top 1% all the time.  Who are the 1%?
The most frequently represented occupations of taxpayers in the top 1% of US taxpayers, according to IRS data, includes corporate executives,  financial professionals, doctors, lawyers and a broad category of occupations that including technical, scientific, computer, math and engineering jobs.

In 2011 a taxpayer mades the cut and is included in the top 1% at $379,000 annual income.
Most of these people should be given medals for their productivity and their contribution to society in the form of all the taxes they pay.
The top 1% earned 19% of all the income reported to the IRS (2011) and paid 35% of all federal income taxes.
Thank you!

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

The IRS: A Historical Perspective

A review today in the Washington Post talks about a recent lecture by Donald Korb, a former Chief Counsel for the IRS and former Assistant Commissioner of the Internal Revenue Service.

He talked about some of the changes in our federal income tax system over the years and how the system of taxation has evolved.

Here are some interesting highlights from his talk:

• Today the highest income tax rate for an individual is 43.4% and for a corporation its 35%. Although there is still a lot of whining about our rates, in 1974 the top rates were 70% for individuals and 48% for corporations.
• There are over 5,000 pages in today's Internal Revenue Code when in 1974 there were only about 1,500 pages.
• In 1974 the IRS administered approximately 12,100 pages of Treasury Regulations. Today they have over 44,000 pages of regulations to work with.
• The IRS had about 78,000 employees in 1974. Today there are about 89,500.

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

IRS Addresses Virtual Currency (Bitcoin)

As far as I know, none of my existing clients have transacted any business involving bitcoins or other virtual currency.
But just to let the world know that I'm ready to file returns reflecting transactions denominated in bitcoins, my topic for today is virtual currency.

The official guidance issued by the IRS earlier this week (IR-2014-36) on the subject was exactly what I had expected:

• The virtual currency is treated as property for US federal tax purposes.
• General tax principles that apply to property transactions apply to transactions using virtual currency.
• Wages paid to employees using virtual currency are taxagble to the employee, must be reported on form W-2 and are subject to income tax withholding and payroll taxes.
• Payments using virtual currency to independent contractors and other service providers are taxable and general self employment tax rules apply.
• The character of gain or loss form the sale or eschange of virtual currency depends on the status of the virtual currency in the hands of the taxpayer is a capital asset (or not).
• Payments made with virtual currency are subject to information reporting to the same just like any other payment in property.
• Transactions using virtual currency are to be reported in US dollars.
• Taxpayers are to determine the dollar value of their virtual currency in a reasonable manner consistently applied.
• Virtual currency "mined" is includible in a taxpayer's gross income.
• Virtual currency is not treated as a foreign currency that could generate foreign currency gain of loss for US tax purposes.

Other than the fact that this is pretty obvious to anyone that has studied or worked with our tax laws for more than a day or two, these points are a nice top-level summary of general income tax law applicable to most business transactions and to most individual taxpayers.

Notice 2014-36 didn't indicate one way or the other whether the IRS will accept virtual currency in payment of federal taxes.  I guess that's such a dumb question, they just didn't want to go there...


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

Retroactive Minnesota Tax Law Changes

The CPAs that participate in an email tax forum I belong to are whining about changes to the tax law enacted last week. The tax cuts included in this new law affect 2013 tax returns that have already been filed.
Many tax preparers are not happy about this. I think the CPA's should be happy that taxes have been cut for their clients.

The MN Department of Revenue is having a little hand-holding session to comfort the upset tax preparers and "provide you with more information". So the upshot of all this (according to the MN Department of Revenue) is:

If your client has already filed, and the return is affected by the changes, they will receive notification from us.  Please tell them not to do anything until they receive direction from us.
One of three things will happen with the return.  The department:
1. Will fix the return and send the taxpayer a letter explaining how it was fixed.
2. Will send a letter to the taxpayer requesting more information and use that information to fix the return.  They will receive a letter explaining how it was fixed.
3. Will not be able to fix the return.  If this happens, the taxpayer will receive a letter explaining the return can’t be fixed.  If this happens, they will need to file an amended return to get the benefits of the law changes that apply to them.
If your client has not filed…
Please wait to file their return.  We are working to get new forms and instructions to you by April 3.  
Note:  If you use a desktop version of a software product, please be sure to watch for software updates from your software company.
We appreciate the job you do helping taxpayers file their returns and appreciate your patience as we review and implement the law changes.

Meaningful tax savings will be had by very few taxpayers including those suffering the tax consequences of a real estate foreclosure or who incurred adoption expenses. I don't think any of my clients will incur retroactive tax relief of over $50. Some of my clients will be effected by the mortgage insurance deduction, student loan interest and classroom expenses.

The Minnesota Society of Certified Public Accountants has released the following summary of things we tax preparers need to learn all about immediately:

Provisions enacted federally for 2012 and 2013 only and adopted for Minnesota retroactively to tax year 2013:
Deduction in adjusted gross income of up to $250 for classroom expenses paid by a K-12 grade educator
Exclusion for discharge indebtedness income on a principal residence
Itemized deduction for mortgage insurance premiums on a principal residence
F,or taxpayers 70-1/2 or older exclusion from gross income up to $100,000 of IRA distributions made directly to charitable organizations (the amount excluded is not allowed as a charitable deduction)
Increased maximum exclusion for employer provided commuter vehicle or transit pass fringe benefits from $125 per month to $245 per month to obtain parity with the exclusion of fringe parking benefits
Allowed expensing for the first $15 million of production costs of films and television shows
Allowed depreciation of leasehold improvements and qualified restaurant property, including new restaurant property and improvements to retail property over 15 years (rather than 39 years) for property placed in service through 2013
Allowed accelerated depreciation of qualified Indian reservation property for property placed in service through 2013
For contributions made in taxable years beginning through 2013, extension of basis adjustment to S corporation stock when the S corporation donates appreciated property, which is equal to the tax basis of the property rather than the fair market value
Allowed depreciation of certain motorsports entertainment complex property over 7 years rather than 15 or 39 years for property placed in service through 2013
Allowed expensing of 50% of the cost of advanced mine safety equipment for equipment placed in service through 2013
Special rule for charitable contributions of real property for conservation purposes for contributions made in tax years beginning in 2013
Allowance for companies other than C corporations to take a deduction for contributions to a charity equal to the cost basis plus one-half the normal price mark-up of food inventory for contributions made through 2013

Provisions enacted at the federal level for tax year 2013 and future years to which Minnesota would conform retroactively to tax year 2013 and for future years:
Increased contribution limits from $500 to $2,000 per year and allowed use of education savings accounts for elementary and secondary school expenses
Increased income limits and allowance of unlimited time period for the deduction of student loan interest
Exclusion from gross income for amounts paid or expenses incurred (up to $5,250 annually) by an employer in providing educational assistance to employees under an educational assistance program
Exclusion from income for awards under the National Health Service Corps scholarship program and related awards for health-care professionals
Exclusion for employer provided adoption assistance

Forgive the sloppy formatting of this post.  I am short of time today and this is what happens when cutting and pasting long quotations. My comments in this post are bold, the rest of this has been cut and pasted from the sources I identified.

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

April 15 is Your Last Chance to Claim Your 2010 Federal Income Tax Refund

The IRS announced today that there are $760 million in refunds for people who didn't file their 2010 income tax returns. "Refunds totaling almost $760 million may be waiting for an estimated 918,600 taxpayers who did not file a federal income tax return for 2010. However, to collect the money, a return for 2010 must be filed with the IRS no later than Tuesday, April 15, 2014."

As a matter of fact, I am meeting with someone next week to talk about preparing her 2010 income taxes. We believe there is a refund to be claimed.

This reminds me of Gleason's four rules of tax procrastination along with some of and their corollaries:

1. If you procrastinate long enough, the need to perform the task may go away. Corollary: You may die suddenly, and whatever it was that you didn't get around to doing, now just isn't going to get done.
2. The need to file a tax return doesn't go away, even if you die. Corollary: Someone else will have to take care of it for you.
3. Tax returns are never easier to prepare or file after they are long past due. Corollary: It's more difficult and time-consuming to gather the information to prepare a complete and accurate return years after the fact than it is right after the end of the year.
4. Filing your taxes late is illogical and more inconvenient than filing them on time.

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

Wealthy Taxpayers are Now Paying More in Taxes

Taxpayers having incomes that exceed 97% of all the other taxpayers' incomes are being hit with some new taxes for 2013.

Many of them (not my cients - they were all informed) are just finding out about these new tax hits as they prepare to file their 2013 tax returns.

First, the special reduced rate of tax for capital gains has been bumped up to 20% (from 15%) for married couples with incomes over $450,000 ($400,000 for singles).

Second, Medicare taxes are being increased from 1.45% to 2.35% on wages in excess of $250,000 for married taxpayers ($200,000 for singles).

In addition, there is a new 3.8% Medicare tax on investment income. This new tax applies to the lesser of: (a) taxable investment income or (b) the amount by  which their adjusted gross income exceeds $250,000 for married couples ($200,000 for singles). Investment income includes dividends, interest, rental income, capital gains and annuities.

Third, personal exemptions and itemized deductions for married taxpayers with adjusted gross incomes in excess of $300,000 ($250.000 for singles) are reduced. The "phase-out" of personal exemptions eliminates 2% of the personal exemption deduction for each $2,500 that adjusted gross income exceeds the $300,000/$250,000 thresholds. Itemized deductions are "phased-out" by reducing total itemized deductions by 3% of the amount adjusted gross income exceeds the $300,000/$250,000 thresholds. This reduction is limited to 80% of total itemized deductions.

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

¿Recién llegado a los Estados Unidos?

La informacion es del Internal Revenue Service:

Si usted está recién llegado a los Estados Unidos, deberá informarse sobre cuáles son sus responsabilidades tributarias. En esta página usted encontrará respuestas sobre quién tiene la obligación de presentar una declaración de impuesto federal en los Estados Unidos. Obtenga respuestas a las siguientes preguntas:
¿Cómo sé si tengo la obligación de presentar una declaración de impuesto federal en los Estados Unidos?
¿Determina mi estatus migratorio si debo o no pagar impuestos?
¿Qué beneficios obtendré al presentar una declaración de impuestos?
¿Existen multas por no presentar declaración?
Toda persona que resida en los Estados Unidos, reciba ingresos y cumpla con ciertos requisitos tiene la obligación de presentar una declaración de impuesto federal. La obligación de presentar la declaración no depende de su condición migratoria, sino más bien del nivel de sus ingresos. Presentar la declaración es la ley, y el no cumplir con ella le expone a sanciones, tanto civiles como penales.
La ley requiere un número de identificación a cada persona que aparezca en la declaración de impuesto federal. Por lo general, el Número de Seguro Social, expedido por la Administración del Seguro Social, es el número que aparece en la declaración de impuestos.
Si el contribuyente tiene la obligación de presentar una declaración de impuestos pero no cumple con los requisitos necesarios para obtener un Número de Seguro Social, el contribuyente, si reúne los requisistos, puede solicitar y obtener un Número de Identificación Personal del Contribuyente (ITIN) de parte del Servicio de Impuestos Internos para presentar la declaración.
Usted puede preparar y presentar su declaración por sí mismo o puede solicitar los servicios de algún profesional de impuestos. La declaración se puede presentar en formularios de papel y enviarse por correo. Algunos profesionales de impuesto ofrecen preparación y presentación.

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

Reduced Deduction for New Business Autos in 2014

With the end of bonus depreciation, which phased out at the end of 2013, the maximum deduction for depreciation on most automobiles for the first year is back down to $3,160.

The maximum deductions for the second and third years are now $5,000 and $3,500. The maximum annual deduction for years 4 and after is $1,875.

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

The IRS is Issuing Health Care Tips

The IRS is Issuing Health Care Tips
to explain to people what they need to know about how the Affordable Care Act will affect their income tax returns.

This resource is found at:
http://www.irs.gov/uac/Newsroom/Health-Care-Tax-Tips2.

Most of the items discussed in this forum are related to individual taxpayers and how their taxes for years after 2013 are affected by health care.

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

Minnesota K-12 Education Credit

The Minnesota Department of Revenue issued a reminder on it's Weekly Digest Bulletin about problems they are having with taxpayers claiming the K-12 education credit for items that do not qualify.

Here is what their bulletin said:
Minnesota offers a refundable education credit that reduces a taxpayer's income tax liability.  Taxpayers who meet the criteria can qualify to claim it.  We frequently see expenses claimed that do not qualify for the credit. Avoiding these common errors will help the taxpayer get their refund sooner.
Examples of expenses we see taxpayers claiming that DO NOT qualify include:
School uniforms including choir, band, dance, and graduation robes,
Fees for athletic programs including swimming and gymnastics,
PSAT, ACT, and SAT testing fees,
Computer hardware and/or software claimed for the full value (expenses are limited to $200 on line 14 of the M1ED),
Recreational programs such as Boy Scouts and Girl Scouts.

What they didn't say is that because a majority of the claims for this credit claim the credit for ineligible expenses, each one of these claims is manually examined (audited).  This was true some years ago and I don't know if it's still true, but this has been an ongoing problem for the MN Dept of Revenue. When I was a member of the MN House of Representatives during the Ventura years, the Department of Revenue wanted to repeal this credit because of the administrative headaches caused by all the ineligible claims.

Mark S Gleason CPA
www.lakes-cpa.com

Free Tax Preparation Assistance

Free in-person tax preparation assistance is currently being offered through two programs sponsored by the IRS. VITA (Volunteer Income Tax Assistance) is available to taxpayers having income of $52,000 or less. I have been a a VITA volunteer for one day each almost every year the past 15 years.

TCE (Tax) Counseling for the Elderly is for seniors over 60. To find a location near you, go to irs.treasury.gov/freetax-prep. It's best to call ahead for an appointment at most locations because the hours are limited.

Here in Minnesota, we also have AccountAbility Minnesota, a notn-profit that provides free tax assistance for low-income taxpayers. AccountAbility Minnesota offers appointments at two locations at 2610 University Ave W, Ste 450, St Paul, MN 55114 and at 2100 Plymouth Ave N, Minneapolis, NN 55411. Other locations are first-come, first-served. Visit www.accountabilitymn.org for more information.

Free tax preparation software is available from the IRS via "Free File" for taxpayers with income below $58,000. Electronic versions of IRS forms (pdf format) are available at www.irs.gov

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

Where's My Refund?

Most tax refunds are issued by the IRS within 21 days of filing a refund claim. Taxpayers who are anxious about the status of their refunds can use the "Where's My Refund Tool".

You can find it at www.IRS.gov/Refunds/Where's-My-Refund-It's-Quick,-Easy,-and-Secure.

There is also a smartphone app: IRS2go.

You will need your social security number, your filing status and the amount of your refund in order to access your information on this secure site.

The IRS doesn't want you to call them about the status of your refund unless it's been longer than 21 days since they accepted your return.

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

IRS Gives Its Advice on How to Work With a Tax Preparer

Here is a summary of the nine points in the document the IRS issued today.
1. Make sure the preparer has a PTIN - Preparer Tax Identification Number.
2. Check the preparer's disciplinary history with Better Business Bureau (or state board of accountancy for CPAs).
3. Make sure your preparer e-files your return.
4. Make sure your preparer will be available after the April 15 filing deadline in case questions come up about your return.
5. Provide records and receipts to your preparer.
6. Never sign a blank return.
7. Review your return before signing.
8. Make sure the preparer gives you a copy of your return.
9. Report abusive practices to the IRS.

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

Affordable Care Act Employer Mandate Postponed

The Treasury Department has announced that the employer mandate imposing penalties on "applicable large employers" that fail to provide affordable coverage to their employees and dependents will be postponed. The postponement applies to "applicable large employers" that have fewer than 100 full time (equivalent) employees. These employers now have until 2016 before the employer mandate kicks in.

Mark S Gleason CPA
www.lakes-cpa.com

For my full blog, please visit:
http://www.merchantcircle.com/business/Mark.S.Gleason.CPA.Ltd.612-861-4542
This is where I kept my blog up until February of 2014.

More Expired Tax Breaks for Small Businesses

Here are a few more tax breaks that expired at the end of 2013:

• 15 year depreciation for leasehold improvements and restaurant rennovations.
• The work opportunity tax credit for hiring disadvantaged workers.
• The research and development credit.

We can hope that congress will extend these breaks sometime in 2014.

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

Tax Credit for Small Businesses Offering Health Insurance to Employees

For 2014 the tax credit for small firms that offer health coverage rises to 50% of what they pay for insurance purchased through one of the health care insurance exchanges. The full credit is only available for companies with 10 or fewer full time employees with average wages of $25,400 or less. The credit is reduced for companies with more employees or higher average pay.

This is worth looking into.

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

I have been blogging about small business taxes for a few years now.  My blog was on the Merchant Circle blogging apparatus which can be found at http://www.merchantcircle.com/blogs/Mark.S.Gleason.CPA.Ltd.612-861-4542

I am unhappy with changes recently made by Merchant Circle to their blogging interface and have decided to continue my blog here on Google's blogger.  I hope this works better.

Content for today:

Effective 1/1/2014 only $25,000 of business assets can be expensed under Section 179.  this is down from the $500,000 maximum allowed for 2013. 50% bonus depreciation also ends with 2013.

There is still a good possibility that these expired tax provisions will be revived retroactively. There is lots of talk about tax reform in congress these days.

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