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 The funds can be withdrawn from the Roth account tax free after age 59 and a half.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