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