Tuesday, April 9, 2013

2013 Innovation Award Nominee: TurboTax CPA Select

CPA Practice Advisor writes: 2013 Innovation Awards Nominee: TurboTax CPA Select www.CPASelect.com   Intuit's latest innovation, TurboTax CPA Select is the companies first platform solution that connects taxpayers and tax preparers in a mutually beneficial way. The solution offers convenience for taxpayers and helps them save more of their hard earned money, while helping CPAs grow their practice. Using this solution, consumers and small businesses who are looking for a CPA to do their taxes for them can easily find and choose a qualified CPA, agree to clear upfront pricing, and upload their tax documents securely anytime from anywhere.
CPAs looking to grow their business benefit from Intuit connecting them with potential new clients online, with the creation of a profile for free. From there, consumers and small business clients simply upload their tax documents for CPAs to process. The online tools lower marketing and administrative costs and increase productivity and overall efficiency for the CPAs. Additionally, with no physical stores, TurboTax CPA Select can offer pricing up to 40% off market rates, and CPAs receive 75% of the revenues generated by the returns they prepare.
As a new solution, Intuit is providing a way to help CPAs by delivering tax customers, including all their documents, directly to them -? online. Furthermore, it aids consumers and small businesses who do not have the confidence to complete their return on their own, or have had unpleasant tax store experiences.
In all, Intuit is equally committed to the success of its professional tax preparers, consumers who choose to do their own taxes, and those who want someone to do their taxes for them. Regardless of how someone wants to do their taxes, Intuit now offers a full breadth of tax preparation solutions for accountants and consumers that are unmatched in the industry.
What Customers are saying:
"It was a very smooth process, the product did most of the work for me," said Justin Sadler, a CPA based in Texas who completed a dozen returns in 2 ½ weeks during an extension season beta test. "The clients are already vetted, and their documents are uploaded right to me. I am excited to be part of the program this season to see if I can scale up and do enough returns to shift my entire business online in the future."
â??I wanted the peace of mind of having a CPA prepare my taxes. I was very impressed with the concept of TurboTax CPA Select which was why I gave it a try. And the process was easy, so that made it even better."
"I loved how quickly my CPA responded to my questions and filed my return. My favorite feature, though, was being able to simply take a picture of my documents on my phone and uploading them directly on to the site."
Posted on 8:49 AM | Categories:

Best Cheapest, Phone, iPad Android Tax 2012 Apps with Free E-File

Lynn Walford for Wirelessandmobilenews.com  writes: hoa look up at the calendar, taxes are due next Monday, April 15 and you better get your apps ready. Most software is free, the filing of federal or sate taxes may cost you. We've found the cheapest filing fees for you.
We've used many of the products in different versions.  The newest app that seems promising is TaxACT's DocVault, to help you keep track of your documents before you complete your tax preparation. All of the tax apps come with support, audit support and highest refund guarantees.Best Cheapest, Phone, iPad Android Tax 2012 Apps with Free E FileCheapest Deals - Free Federal Filing
TaxACT is best known for offering free federal filing and software, you only pay for state software.  Although TaxAct doesn't have a free filing app from your phone, you can save documents from smartphones.  TaxACT offers the least expensive free tablet app.
TaxACT Free Federal Tablet - you ca file your federal taxesFREE with TaxACT Free Federal Edition on your tablet.  Free to download, prepare, print and e-file. For simple & complex tax returns. Available for Android and iPad. Sate return costs $14.95 includes unlimited online and email support, which could be too late for procrastinators.
TaxACT Deluxe for tablets received Editor's Choice priced at $9.99. Tablet app users can upgrade to TaxACT Deluxe risk-free at any time. It includes import of last year's TaxACT return, TaxTutor, form previews and unlimited tech support phone support.
TaxACT DocVault - DocVault enables users to create digital copies of tax documents and information for free. images can be uploaded to TaxACT's secure servers throughout the year, where they are encrypted and saved. Users can store up to 3GB of tax images.. The documents then can be securely imported in TaxACT Deluxe.
TaxACT Central - helps you get organized, check the status of filing, create accounts, ask questions and get reminders.

Next Cheapest Prep & Filing Apps from iPhone or Android

The free H&R Block 1040EZ app for Android and iPhone in allows you to file a 1040EZ from your phone. You take a photo of your W-2 forms with your phone and import it into your return.  This app is for single or married filing a joint return, an  income of $100,000 or less, rent or lease  and no dependents. Federal and State Returns for Android and iPhone prepared for free, pay $9.99 for efile.
TurboTax's SnapTax is for people who don’t own a home, only have W-2, interest, or unemployment income and earned less than $100K in 2012 ($120K if married). You take photos of your W-2 forms. $24.99 to e-file with state included.
The H&R Block at Home 2012 for iPad (FREE), lets you prepare, print and e-file simple tax returns from your iPad for free. Free preparation, federal e-file free.  Ssimple tax return excludes self-employment income (Schedule C), rental and royalty income (Schedule E), farm income (Schedule F) and shareholder/partnership income or loss (Schedule K-1). State filing $29.99 -$39.99.
TurboTax for iPad walks you through your taxes step by step and double checks for every credit and deduction. You can take a photo of your W-2 (new iPad only), answer simple questions, and then e-file. Prices start at $29.99 federal and the state is an additional fee.
The H&R Block app  to check the status of a refund, find a nearby office, set an appointment or read tax tips, get answers to the most popular tax questions and view checklist. Free.
TAX TIPS:
  •  Keep records of everything in more than one place and makes copies.
  • If your taxes are on your phone or tablet, makes sure that the device is password protected.
  • Do not file your taxes from an n0n-secure open Wi-Fi connection, tax fraud is rampant.
  • Hide your passwords for your tax software and e-filing.
  • The IRS has three years to give you a refund, three years to audit your tax return, and ten years to collect any tax due.
  •  There is No Statute of Limitations: if there is a "willful attempt to evade or defeat tax laws", there is no statute of limitations for assessment.  The IRS can audit your return at anytime if they can prove fraud or evasion.
  • IRS.gov gives you access to all tax forms including 4868 to file an extension. You still have to pay your taxes, but you have until October to file your forms.
Posted on 8:49 AM | Categories:

IRS to monitor Facebook, Twitter for tax cheats

RT.com writes: Is the IRS about to get too close for comfort? New reports brought to light by one privacy and data security expert suggest that this tax filing season the Internal Revenue Service may be monitoring social media for any clues of tax cheats.
According to Kristen Mathews, a partner attorney at law firm Proskauer Rose LLP who specializes in privacy and data security, there are reports that the IRS will be checking into individual Facebook and Twitter accounts for improprieties.
Though the agency says that it will only conduct such monitoring if a tax form raises a red flag, it is somewhat unclear to what extent it will be capable of delving into social media accounts.
Social media tools used by marketing companies, for example, are capable of conducting widespread searches for certain keywords, and though they can often take advantage of small “loopholes” in Facebook privacy settings, they are generally limited to publicly divulged information.
Data mining is now widespread on social media, as companies often use Twitter buzz and comments left on Facebook to measure consumers’ thoughts on particular products, or to get ahead of a potential public relations issue.
In regards to government monitoring of social media, there are already plenty of instances where information collected through both Twitter and Facebook has been used to file criminal charges against individuals. Just last week, New York officials announced the indictment of 63 East Harlem gang members, whose movements were tracked with the help of clues they left behind on their social media accounts.
According to Proskauer's comments to a local Fox affiliate, there may be good reason to take care with what you say in regards to tax information via social media channels.
So far, most concerns regarding the government’s surveillance of social media have been focused on the Department of Homeland Security and the FBI. Organizations such as the Electronic Privacy Information Center have filed Freedom of Information Act requests and even gone to court to acquire more details on just what kind of data the government is looking for, and whether their monitoring tools could exceed privacy settings.
Only a few months ago, The Guardian published information about one highly invasive tool called “Riot” being developed by Raytheon, one of America's largest defense contractors, which could not only mine information from social networking websites, but even predict behavior based on data. Riot is allegedly able to extract data embedded on photographs shared via social media, for example, to provide geographic information to track an individual’s actual movements, and collect an “entire snapshot of a person's life” in short order.
Though there’s no evidence that an agency such as the IRS would resort to such a powerful degree of monitoring, the fact that government contractors are already working on such tools seems to make transparency a key measure of intent.
Only last year, it was revealed that the DHS had been creating accounts on blogs and social networking sites such as Twitter and Facebook to gather data on “suspect terms” posted by Americans. At the time, the agency only said that it was in the process of developing guidelines for how to gather information from social media while still protecting privacy, though it made it fairly clear that it considered such monitoring fair game.
Posted on 8:48 AM | Categories:

SnapTax: Do Your Taxes At Lightning Speed : Android and i0s app from TurboTax.

Eric Reed for MainStreet.com writes: I did my taxes the other afternoon while waiting for the Red Line in Chicago. It took about five minutes, but to be fair that’s mostly because my phone is old and gets bad service.
Welcome to the world with SnapTax, the Android and i0s app from TurboTax. Now at crunch time, there are a few quick-fix apps out there, but if you have a relatively simple return to file, you might stick with SnapTax.
I’ll be honest, before reviewing this app, I’d never considered doing my taxes on a smartphone. Doing everything else, sure, but taxes have always been something I save for Saturday afternoon, a sputtering calculator and a bottle of dark liquor to ease the pain. To my surprise, though, the platform turned out to be a natural fit.
“People are using their mobile smartphones for everything now,” said Ashley McMahon, a spokesperson for TurboTax who released the SnapTax app. “Consumers want to be able to use [them] for everything from shopping to banking and now their taxes.”
McMahon has a point. Since the IRS introduced e-filing in its current form, the service has exploded. Over 100 million returns were filed online in 2011, covering almost 75% of all taxpayers. Many people are even already required use e-filing. For businesses worth more than $10 million, or entity filing more than 100 returns at a time, the IRS no longer accepts hard copies at all. Calling e-filing the wave of the future is like saying those guys over at Google are probably going to make it.
SnapTax wants to take advantage of e-filing’s phenomenal success. With this app you can add tax preparation to your list of in-between activities, the things to do while waiting for a train or sitting at lunch. It would be easy to say that scheduling your taxes around your life is a major feature of doing them on a smartphone, and it really is. It’s also, however, an unnecessary one. As I discovered, with SnapTax, that first five minutes is all you need.
The fact that it’s also something of a technical marvel? Well that’s just icing on the cake.
The Good
Intuit’s SnapTax is a clean, well-laid out program that will look instantly familiar to anyone who’s used one of the company's Turbo Tax programs before. The selling point of this app is the eponymous “snap” feature. It uses the phone’s camera to photograph your W-2 and automatically plugs in the information with the help of your responses to a few personal questions to fill in the blanks. Two large boxes at the top of the screen tell you how much you owe in state and federal income tax, and a final step lets you file at the push a button.
At first I was deeply skeptical. I’ve had my heart broken by OCR software many times before. The programs that claim to photograph or scan documents directly into text have disappointed me every time, and I expected SnapTax to be no different. In fact I already had planned out a review in my head that read “a neat toy, but I spent more time fixing its mistakes than doing my taxes the old fashioned way.”
Then lo and behold: it worked.
There’s no more complicated way to say it. It worked smoothly, seamlessly and exactly as advertised. I lined up my W-2 inside a little, white box, snapped a picture and about 45 seconds later, up popped a completed 1040A in iPhone format. It even automatically imported my personal data from when I used TurboTax online last year, populating the form with my name and contact information and leaving me with nothing to do but select “unmarried” and move on to filing. Total elapsed time: two and a half minutes.
SnapTax files using the same encryption that most banks use for handheld devices according to McMahon, and no tax information is ever actually stored on your device. After five minutes of inactivity, say if you walk away from the phone or simply close out of the program, SnapTax erases all of its data. This means that if you put it aside to work on later you’ll have to start over again, but it also builds in a buffer against theft or loss.
The program isn’t designed for anyone with complicated taxes. According to McMahon it’s intended for the 60 million people who file with the 1040A or 1040EZ every year. This isn’t a flaw, however. SnapTax does exactly what it was designed to do: prepare simple tax returns easily and quickly.
The Bad
Unfortunately, although it’s a free download, SnapTax doesn’t actually work for free. Where the TurboTax website only charges to file state taxes, SnapTax charges a flat rate of $24.99 to file both state and federal. This admittedly felt somewhat steep considering that e-filing is a free service offered by the IRS and most states.
Overall
Technically speaking, this app is fantastic. I was actually disappointed when I filed my taxes, because I wanted to be able to go back and do it all again. Users do have to remember, though, that this free download ultimately comes with a $24.99 price tag to file. While that did give me pause for thought, I ultimately felt the money was worth it. After all, I did just file my taxes with a camera.
Posted on 8:48 AM | Categories:

Biz2Credit to Host Last Minute Tax Advice Twitter Party for Small Business Owners on Thursday, April 11, 2013 / Leading Small Business Finance Platform Offers Twitter Event to Help Identify Overlooked Deductions and Secure Financing in Case They Owe Back Taxes

Biz2Credit will host a Twitter Party in which small business owners can ask tax advice of experts from the leading online resource for small business finance.  The online Q&A session, Last Minute Tax Advice for Small Business Owners, will be hosted by Rohit Arora, CEO of Biz2Credit and one of the nation's leading experts in small business finance.

Topics will include: 
  • Most important deductions and overlooked deductions
  • Resolving a dispute, debt, or tax lien with the IRS and state tax divisions
  • What really happens if tax returns are not filed or if you can’t pay your tax bill
  • Obtaining funding when a tax debt is present
  • Other small business tax-related topics.

"Countless small business owners wait until the April 15 deadline to file their taxes or they apply for extensions. Sometimes in their haste, they overlook critical deductions that could save them hundreds or even thousands of dollars from their tax returns," said Rohit Arora, CEO of Biz2Credit and one of the nation's top experts in small business finance. "To help, we have organized our second ever Twitter Party -- Last Minute Tax Advice for Small Business Owners -- to offer free tax advice for small business owners."

Joining Rohit Arora for the event will be David Miles, EA, an Enrolled Agent and Tax Consultant with 20/20 Tax Resolution.

"Owing back taxes or dealing directly with the IRS can be confusing and challenging undertaking for small businesses," said, David Miles, EA, Senior Tax Consultant with 20/20 Tax Resolution, "We're looking forward to joining Biz2Credit to help small businesses feel confident about what can be done to resolve tax debts."

Questions and submissions can be made online on Twitter by using the hash tag #Biz2Credittaxadvice

For further information about business lines of credit to help pay tax debts, visit https://www.biz2credit.com/get-a-loan/expand-my-business/business-line-of-credit.html.
Last Minute Tax Advice for Small Business Owners on Twitter: 

Posted on 8:47 AM | Categories:

Taxes / Reporting your investment

Kay Bell for Bankrate.com writes: You call it making your money work for you. The Internal Revenue Service calls it unearned income. Regardless of the name, the tax collector wants to know how much you make each year on earnings from your savings accounts, stocks and bonds, certificates of deposit or mutual funds.

Just how you report your investment income, however, depends largely on how much you made. For many taxpayers, the process is relatively simple and requires no additional tax forms. Those who pocketed a bit more from their investments will have to give the IRS details via extra forms.

And every investor who benefits from the lower capital gains and dividend tax rates will have to pay for their tax savings by running extra computations to figure out their precise IRS bill.


Smaller earnings mean less tax filing

First, take a look at investors who have the easiest reporting route.  If your dividend and interest income is less than $1,500 in each category, you don't have to file Schedule B with your Form 1040 or Form 1040A. You simply list your interest and dividend income directly on your 1040 or 1040A.

And don't forget to report tax-exempt interest. It won't be counted in your eventual tax calculations, but the IRS wants to know about it anyway, on line 8b of the 1040 and 1040A.
The $1,500 threshold also applies to interest income earned by Form 1040EZ filers. Previously, when the interest earnings limit was substantially smaller, taxpayers who otherwise qualified to use the simple EZ return were forced to file one of the more complex individual returns.

But now, as long as an individual meets the 1040EZ's other requirements (e.g., taxable income, filing status), that taxpayer can earn up to $1,500 in interest and still use this one-page return.
The EZ remains off limits, however, for individuals who earn dividend income. They'll have to move up to the 1040A.


2 types of dividends, 2 lines to complete

Taxpayers who are able to report dividend payments directly on their 1040 or 1040A returns also need to note that there are two lines for these earnings.
On each of these forms, ordinary dividends go on line 9a. Just below is 9b, where you'll enter any qualified dividends that are eligible for the lower tax rates. For most taxpayers, these qualified amounts are taxed at 15 percent, rather than regular income tax rates that go as high as 35 percent. In some cases, however, the tax rate on investment income could be zero. (More later on figuring out what tax you owe on your various earnings.)
The year-end tax statement for each dividend-paying investment will detail how much of your earnings to enter on line 9a and 9b.


Count interest and dividends separately

Taxpayers also must evaluate their earnings in interest and dividend categories separately to see if they can be free of some forms. The new limit is applied independently to each type of income.
So, if you received $500 in interest from a certificate of deposit and your stocks paid $1,200 in dividends, you don't have to file Schedule B even though your investment income total is $1,700. But if either category alone exceeds $1,500, you must report the amount on the appropriate schedule and send it with your return to the IRS.


Of course, to see if you need to file Schedule B, you'll have to total up the amounts from your Form 1099-INT and Form 1099 DIV. Because the tax schedules are designed for this information, why not go ahead and use the one that matches your return? If the totals aren't enough to require filing the appropriate investment earnings schedule, simply keep it as part of your personal tax records.  And taxpayers with bank or financial accounts in foreign countries, or who are involved in certain foreign trusts, will still have to file Schedule B regardless of interest or dividend income amounts.


Distributions also divided on the forms

What if your year-end account statement indicates you received capital gain distributions? You still might be able to escape the more complicated Schedule D, and Form 8949 report these earnings directly on your individual return (1040 or 1040A filers only).

Capital gain distributions do not mean that you personally sold any of your holdings. Rather, asset managers sell portions of portfolios throughout the year. If these sales produce a profit, the gain is passed along to individual shareholders as capital gain distributions.
To let the IRS know of this income, Form 1040 and Form 1040A filers with no other capital gain activity can simply enter the distribution amounts on their individual tax returns.
Form 1040 taxpayers report distributions on line 13. Be sure to check the box at the end of the line so the IRS won't look for a Schedule D with your return. If you file Form 1040A, your distributions go on line 10.


Figuring your investment tax bill

Now to the ultimate goal of tax filing: determining your tax bill. When it comes to your investment earnings, you'll find that your earlier ease in reporting earnings is countermanded by a separate page of tax computations.  You probably noticed that the dividend and distribution amounts entered on line 9b are inset on each return so they're not included when you total your adjusted gross income. Rather, you must transfer these amounts, along with other entries from your return, to a work sheet found in the 1040 or 1040A instruction booklets. You'll also need the work sheet if you reported qualified capital gains distributions (line 13 on the 1040; line 10 on 1040A forms).  By variously adding and subtracting different entries transferred from your return to the work sheet, you'll eventually arrive at your correct tax bill. It definitely takes time, especially if you're still doing your taxes by hand, but you have two good reasons not to take any shortcuts here.
First, the IRS gets copies of all your earning statements so agents can double-check your amounts. If your numbers don't jibe with the statements, the IRS will certainly let you know.
But more importantly, doing the extra math can save you some tax dollars.


Posted on 8:46 AM | Categories:

Taxes for business travelers: What is and isn't deductible

Nancy Trejos for USA Today writes: African safaris. Drinks at strip clubs. Gifts for wives and children. Wine-tasting trips. An orthopedic "doughnut" cushion.
Accountants and other tax experts say they've seen it all when it comes to expenses business travelers try to deduct during tax season. Sometimes, they're legitimate. Often, they're not.
Philip Panitz, a tax litigator at Panitz & Kossoff in Westlake Village, Calif., once had a physician try to deduct his wife's snorkeling expenses in Hawaii while he was at a medical seminar.
"In his eyes, that was worthy of a deduction, because if it wasn't for the business trip, she wouldn't be there snorkeling," he says.
Not legitimate.
The deadline for filing your tax returns is six days away. As you do your last-minute filings, be aware there are certain business travel expenses you'd be surprised you can deduct and others you can't. Just be prepared to offer documentation — even in the form of handwritten notes — to back them up.
"Make sure to keep track of all receipts and records. The easiest and most efficient way is to write on the back of each slip the following: reason of the expense, name of the person you met, the location and date," says Paul Golden, spokesman for the National Endowment for Financial Education.
Each year, many people don't, yet still try to deduct as many of their business travel expenses as they can, tax experts say.
"A lot of people just really push the rules, and, actually, they don't even push the rules; they go over the line," says Scott Estill, a former IRS trial attorney and author ofTaxThis! An Insider's Guide to Standing Up to the IRS.
If you're an employee traveling for business and your company doesn't reimburse you for all your expenses, you can deduct any out-of-pocket expenses that exceed 2% of your adjusted gross income. If you're self-employed or a small-business owner, you don't have to reach that threshold.
Anything that relates to your business is fair game: airfare, gasoline for your car, baggage fees, taxis, lodging, meals, phone calls and supplies. You can even deduct your laundry service, dry cleaning and drinks at the bar.
But, says, Bob Meighan, lead certified public accountant for the American Tax and Financial Center at TurboTax, the IRS says your expenses have to be "ordinary and necessary."
That is, they're typical of your industry and necessary for your business. But even that guideline can yield confusion.
"It is a gray area, so you have some leeway to be aggressive, but it gives the IRS the ability to be aggressive in terms of denying it, too," Meighan says.
Javier Goldin, a certified public accountant and managing partner of Goldin Group in Bethesda, Md., says you basically have to prove you're trying to make money.
"You don't necessarily have to make money, but it has to have the intent of making money," he says.
Mixing business, pleasure
Business travelers beware: The IRS is particularly keen on watching your expenses.
"The IRS does look closely at business travel expenses, because there is a lot of room for manipulation, the most common method being grouping personal travel expenses in with business travel expenses," says Mark Minassian, a certified public accountant at Minassian Associates in Waltham, Mass.
To make your entire trip deductible, the primary purpose has to be business rather than pleasure, says Gail Rosen, a certified public accountant in Martinsville, N.J. But you can take some personal time.
Let's say you fly to Florida on a Monday with your spouse and take Tuesday as a vacation day. On Wednesday, you meet with a client, and on Thursday, you have lunch with that client, then you catch a flight home.
Monday, your travel day, plus Wednesday and Thursday count as business days, Rosen says. But not Tuesday. You can deduct your airfare but not your spouse's, and you can deduct your hotel room for any night but Monday, plus half of your client meals.
Goldin says there's nothing wrong with mixing business with pleasure as long as you're clear about it. Deduct only your business expenses. Don't try to pass off that lunch your daughter had at Disneyland as a business expense.
"We oftentimes travel with mixed intentions or multiple intentions that are not clear," he says. "If you understand what the law says, and you plan it properly ahead of time, and you document what you did and what you learned, then things will probably work out."
Conventions and conferences can be a sticking point. You can deduct your expenses if the convention is in North America and the Caribbean if you can prove they are directly related to your trade or profession. But try to attend a convention in Rome, and the IRS will ask why you couldn't get the same benefit from going to a convention in, say, Cleveland.
"The IRS does check the nature of conventions, seminars, etc., carefully to make sure they are not vacations in disguise," Rosen says.
Keep all convention-related materials, she says. When it comes to family, tread carefully.
"I've seen it where people take their family and kids, and call their kids employees," Estill says. "There's a lot of abuse there."
What is and isn't deductible
There's a lot you can write off. Panitz says if you're attending a seminar and there's a sponsored excursion, such as a side trip to a winery or a balloon ride, that will hold up as a business deduction. But it must be substantiated as a business experience. Keep the brochure that lists it, Panitz says.
"Typical proof is that the seminar or continuing education activity has the excursion listed as a networking meet-and-greet on the brochure," he says. "A brochure is good proof of it being a sponsored event."
The owners of a dairy business once went on an African safari and wrote it off because they said the research of wild animals was necessary for their business. The IRS approved it, Meighan says.
Some USA TODAY Road Warriors, who combined log millions of miles a year for business, have been surprised at what they've been able to write off, though none went as far as taking a safari.
Bill Johnson of Bloomingdale, Ill., once deducted 100-dozen golf balls that he bought during a trip for an executive golf meeting because his boss forgot to buy them. "I had to bang on doors trying to get someone to sell me these," he says.
He kept meticulous records of the purchase and any other expenses while traveling for work.
He's never been audited by the IRS, but he says he and others have been questioned. He's known people to be audited for having questionable items.
"I have been questioned about individual items, however never a full-blown audit," he says. "Yet, some of my staff have been in the past, as I didn't catch a dollar figure not in line with policy."
Phil Bush, a strategic sales planner in Atlanta, once got to deduct a hat to fly into Canada. But he kept a record of it, as he does with all business travel expenses.
"My e-mail system reminds me of where I have gone, and that way the expenses kind of get put in the right bucket," he says.
Penalties are serious if you can't substantiate your claim. You could lose the deduction and end up having to pay the tax, plus interest and a penalty. If, after recalculation, it turns out you understated your tax liability by 10% or $5,000, whichever is greater, you could get slapped with a 20% understatement penalty. Then there's the sheer stress of it all.
When the IRS finds one discrepancy, "they wonder what else on this return is personal expenses and bogus deductions," Estill says. "They start digging. And it's hard when they start digging to get them to stop."
Posted on 8:46 AM | Categories:

2012 Taxpayer Relief Act Creates More Certainty in Estate Planning

For the first time in over 10 years, the maximum estate tax rate, the inflation-adjusted estate tax exclusion, and other estate tax provisions have been made permanent. Effective January 1, 2013, the American Taxpayer Relief Act of 2012, P.L. 112-240, provides needed certainty for individuals who want to arrange their financial affairs and for practitioners who want to provide estate planning advice. This article takes a look at the 2012 Taxpayer Relief Act’s effect on estate and gift tax provisions.

Estate taxes

Under the 2012 Taxpayer Relief Act, the top estate tax rate is set at 40 percent for 2013 and later years (up from 35 percent in 2012). The maximum exclusion for both estate and gift taxes is a unified amount of $5 million (indexed for inflation at $5.12 million for 2012 and $5.25 million for 2013), and portability applies to a deceased spouse’s unused exclusion amount. The five-percent surtax on estates and gifts between $10 million and $17,184,000, which had been designed to offset the benefits of graduated rates, has been permanently repealed. The generation-skipping transfer tax exemption, which is tied to the estate tax rate, is also set at $5 million and adjusted for inflation.

Comment
Had Congress and President Obama not come to an agreement, the maximum estate tax rate would have reverted to 55 percent, effective January 1, 2013, and the maximum exclusion would have been only $1 million.

Stepped-up basis

Stepped-up basis is preserved for assets passing through the estate. This is particularly important for people whose estates are not large enough to owe estate taxes (i.e., estates under $5 million, indexed for inflation). While stepped-up basis had originally been repealed for decedents dying after 2009 and before 2011, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, reinstated stepped-up basis for estates of decedents dying in or after 2010.

Comment
Under a special rule, estates of decedents dying in 2010, were allowed to opt out of the estate tax and apply modified carryover basis regime, with $1.3 million worth of assets subject to a basis step-up (plus $3 million for property passing to the spouse). All other properties would have a carryover basis and thus could have significant built-in gains when acquired by the estate beneficiary. Modified carryover basis treatment is not available to the estates of decedents dying before or after 2010.

The stepped-up basis rules continue to apply to estates of decedents dying after 2012. All properties passing through the estate for tax purposes are entitled to a step-up in basis, whether or not the estate owes any estate taxes. This has a significant impact on income taxes potentially owed by taxpayers receiving assets from the estate, by insulating built-in gains from taxes and allowing taxpayers to sell assets and invest the proceeds in other arrangements, if they choose.

Example 1
Tom bought stock in 1990 for $10,000. When Tom dies in 2013, the stock is worth $30,000. If Tom had sold the stock before he died, he would have owed income tax on $20,000 in capital gains. However, if Tom made a bequest of the stock to his daughter, Kit, she would inherit the stock with a basis of $30,000. If Kit sells the stock immediately for $30,000, she would owe no capital gains tax.

Gift taxes

As with the estate tax, the maximum gift tax rate for 2013 and beyond is 40 percent, up from 35 percent in 2012. For 2013, taxpayers can make tax-free gifts of up to $14,000 without owing any gift taxes and without reducing the lifetime exclusion for gifts and estates. Married couples can engage in gift-splitting and give up to $28,000 per recipient. Furthermore, unlimited gifts also can be made for tuition or medical expenses without gift tax liability, provided the gifts are made directly to the medical or educational provider.
Even though the lifetime exemption under the unified estate and gift tax ($5 million, adjusted annually for inflation) may never be fully used, a donor still must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, for gifts to a donee totaling more than the annual exclusion amount.
The gift tax annual exclusion is much lower than the lifetime exclusion. However, thanks to the lifetime exclusion, donors often will owe no federal gift taxes on a gift, even if the gift exceeds the annual exclusion.

Portability

The provisions allowing portability of the deceased spousal unused exclusion amount were enacted in 2010, and originally applied only if the first decedent in a married couple died in 2011 or 2012. In the 2012 Taxpayer Relief Act, Congress made portability permanent for the estates of decedents dying after 2012.
Under portability, if the first spouse to die has a taxable estate valued below the exclusion amount ($5.25 million for 2013 decedents), that spouse’s estate can allow the surviving spouse or his or her estate to use the unused exclusion amount by filing Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, even if the estate tax return is not otherwise required to be filed. Together, the husband and wife have a combined exclusion of $10 million (indexed annually for inflation).

Example 2
Tom dies in 2013 and has a taxable estate of $4.25 million. Tom’s estate has an unused exclusion amount of $1 million, which it transfers to Tom’s surviving spouse, Sheila. If Sheila uses none of this exclusion amount toward lifetime gifts, then when she dies, her estate tax exclusion ($5.25 million, as indexed for inflation), will be increased by the unused $1 million amount from Tom’s estate.

The marital deduction allows for unlimited tax-free transfers between spouses, both for estate and gift tax purposes. In the absence of portability, the first spouse to die could transfer property to the surviving spouse tax-free by claiming the marital deduction. However, as sole owner of the assets, the second spouse to die could be in danger of exceeding the applicable estate tax exclusion and owing more estate taxes.
Example 3
Tom owns $7 million in property, and his wife, Sheila, owns $5 million in property. Upon Tom’s death, his estate passes $2 million of property to his children, and $5 million in property to Sheila, using the marital deduction. When Sheila dies, she now has $10 million in property (assuming her earnings and expenses are a wash), but only has an exclusion of $5 million. Thus, $5 million of her assets are taxable.

Portability can eliminate or substantially lessen this problem. In Example 3 above, if the husband passes $2 million to his children, and $5 million to his wife, he has a DSUE amount of $3 million. Assuming that the wife makes no lifetime gifts that use any portion of her lifetime exclusion amount, when she later dies with an estate of $10 million, the wife has an estate tax exclusion of $8 million ($3 million from the husband, plus her own $5 million exclusion), and will owe estate tax on $2 million instead of $5 million. At a 40-percent maximum estate tax rate, this is a potential savings of $1.2 million to the husband and wife, collectively. Portability lessens the need for complex estate planning when the husband and wife together have assets in the $10 million range.

Other provisions

The 2012 Taxpayer Relief Act also provided certainty for other estate, gift, and generation-skipping tax transfer provisions. The act extended a number of GST tax provisions that had been set to expire at the end of 2012. These include the GST deemed allocation and retroactive allocation rules, the clarification of valuation rules for determining the GST inclusion ratio, rules allowing severance of a trust, and relief for late GST allocations and elections.
Liberalized estate tax installment payment rules continue to apply for certain estates, allowing payment of only interest for the first five years, followed by 10 years of principal and interest payments. The 2012 Taxpayer Relief Act eliminated the five-percent surtax on estates and gifts between $10 million and $17.184 million, which was designed to offset the benefits of graduated tax rates. The act also extended permanently certain modifications to the exclusion for qualified conservation easements, including the repeal of distance requirements.
Some act provisions are not beneficial to taxpayers. These include making permanent the deduction for death taxes imposed by a state, the corresponding permanent repeal of the more favorable state death tax credit; and the permanent repeal of the estate tax deduction for qualified family-owned business interests.

Future changes?

A recent Congressional Research Service report on the 2012 Taxpayer Relief Act’s estate and gift tax provisions also discusses several important items affecting estate planning that have been proposed by the Obama administration, and that may be raised in President Obama’s fiscal year 2014 budget proposal. These include:
  • requiring a minimum 10-year term for grantor retained annuity trusts;
  • disallowing minority discounts, which are important for estates leaving interests in a family partnership;
  • requiring consistent valuation for estate tax and basis for capital gains, rather than allowing a low value for estate tax and a high value for basis of an asset in an heir’s hands; and
  • limiting the duration of generation-skipping trusts to 90 years.

Conclusion

Although the estate and gift tax rules have fluctuated since 2001, the 2012 Taxpayer Relief Act has provided some beneficial provisions and needed permanence to the treatment of transfer taxes. Despite the limited application of the estate tax, if a particular taxpayer has a taxable estate, the 40-percent estate tax rate can take a substantial bite out of the decedent’s assets. Taxpayers still need to pay attention to the relevant provisions, so that they can transfer assets to their intended beneficiaries while minimizing their estate and gift tax liabilities.
Posted on 8:45 AM | Categories:

Tax Strategy: 2014 Affordable Care Act Provisions Begin to Get Noticed

GEORGE G. JONES AND MARK A. LUSCOMBE for ACCOUNTINGTODAY.COM WRITE:  Major new requirements and obligations under the Affordable Care Act go into effect in 2014. Many individuals and employers are only vaguely aware of them; fewer still appear to be aware of how to react. The Internal Revenue Service itself seems to be engaged in issuing just-in-time guidance that is critically needed by individuals and employers to start making preparations now, for the changes that will take place in 2014. In some cases, steps may be taken to minimize the cost of compliance; in other situations, simply preparing the resources necessary to cover the additional costs that may be imposed is critical.

A review of recent IRS guidance on certain ACA provisions is an important step in preparing for the change coming in 2014. Recent guidance has clarified dozens of rules involving the individual mandate, the Section 38B health insurance premium credit, the employer mandate, essential health benefits, and health coverage notices, among other issues. This month's column takes a look at these developments from that perspective.


Individual mandate
The IRS issued both proposed regulations and questions and answers this year on the shared responsibility payment, a.k.a. the individual mandate (NPRM REG-148500-12). Under the individual mandate, which starts in January 2014, a non-exempt individual must maintain minimum essential coverage or make a shared responsibility payment on their federal income tax return. The regulations clarify the statutory categories of individuals who are exempt from the shared responsibility payment. This group includes, among others, those for whom coverage is unaffordable, and taxpayers with income below the income tax filing thresholds. These individuals, if not Medicaid or Medicare eligible, are generally expected to apply for the Code Sec. 36B premium tax credit. Hardship cases and individuals who experience short coverage gaps (less than three consecutive months) are also among the exceptions.
Coverage is deemed not affordable under the individual mandate if the required contribution for minimum essential coverage exceeds 8 percent of the taxpayer's household income for 2014. For an individual with employer coverage, the test applies to the cost of the lowest self-only coverage.
Affordability for purposes of the individual mandate should not be confused with affordability related to the employer mandate, which is dependent upon whether an employee is eligible for a Code Section 36B premium tax credit when purchasing insurance through an exchange. There, the standard for determining the penalty imposed on the employer is whether the cost of employer coverage is greater than 9.5 percent of household income.
Premium tax credit
The IRS issued final regulations on the health insurance premium tax credit under Code Sec. 36B in early 2013 that added to 2012 final regulations (TD 9611). Those later final rules retain a controversial provision that bases the affordability of minimum essential coverage for family members ("related individuals") on the employee's cost of self-only coverage. Furthermore, starting in 2014, premiums cannot be set based on health status (known as community rating) or provision of essential health benefits.
Beginning in 2014, individuals who obtain health insurance coverage through an Affordable Insurance Exchange may qualify for a refundable Code Sec. 38B premium tax credit. The credit will be given to qualified individuals who are not eligible for affordable coverage and whose household income falls within specified thresholds, based on the federal poverty level. The taxpayer's household income generally must be between 100 percent and 400 percent of the FPL. Initial eligibility for the premium assistance credit is generally based on the individual's income for the tax year ending two years prior to the enrollment period. Household income is modified adjusted gross income that includes, in addition to AGI, Section 911 foreign-based income, tax-exempt income and otherwise excluded Social Security benefits. An individual may apply for and be approved in advance for a premium assistance credit.
The Code Sec. 36B premium tax credit plays a role in both the individual mandate and the employer mandate. The Code Sec. 36B credit is not available if the individual is eligible for MEC through an employer-sponsored plan that is deemed affordable and that provides minimum value. Coverage is considered affordable if the employee's required contribution to the plan for self-only coverage does not exceed 9.5 percent of the taxpayer's household income. Providing minimum value requires that the plan's share of the employee's health costs be at least 60 percent of total costs.

Employer mandate
The IRS in early January issued comprehensive proposed reliance regulations on the employer shared responsibility provisions, a.k.a. the "employer mandate" (NPRM REG-138006-12). This guidance includes definitions; rules for determining status as an applicable large employer; rules for determining full-time employees; and rules for determining the scope and extent of assessable payments. The proposed reliance regulations assist in planning properly within the context of eligibility and plan design.
Assessment payment liability. Under Code Section 4980H, an applicable large employer is subject to a shared responsibility payment (an assessable payment) for months beginning after Dec. 31, 2013, if any full-time employee of the organization is certified to receive an applicable premium tax credit or cost-sharing reduction, and either:
1. The employer does not offer to its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan (Code Sec. 4980H(a)); or,
2. The employer offers its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that, with respect to a full-time employee who has been certified for the advance payment of an applicable premium tax credit or cost-sharing reduction, either is unaffordable relative to an employee's household income or does not provide minimum value (Code Section 4980H(b)). The proposed regulations stress that an employer must be notified if one of its employees is determined to be eligible for a premium assistance credit or reduced cost-sharing and be provided with an appeals process.
The Code Sec. 4980H(b) penalty applies to coverage that is "unaffordable," meaning that the coverage costs more than 9.5 percent of the employee's household income. Since employers may not be able to determine household income, the proposed regs provide three affordability safe harbors: the Form W-2 safe harbor (based on employee wages); the rate-of-pay safe harbor (based on hourly or monthly pay rates); and the federal poverty line safe harbor. Most employers should make a decision in 2013 on which safe harbor might be appropriate while there is still time to evaluate what works best within a particular employee population.
Amount of the penalty. For employers that do not offer minimum essential coverage (Code Sec. 4980H(a)), the assessable payment for a month is equal to the number of full-time employees (regardless of the number of employees receiving a premium assistance credit, as long as at least one qualifies for the credit) over a 30-employee threshold during the applicable month, multiplied by one-twelfth of $2,000. Critics predict that employers who may be subject to this penalty will decrease full-time employees, likely those earning lower wages, and freeze hiring in general. Others are calculating whether paying the penalty will eventually be more cost-efficient than continuing offering coverage to the degree that will now be required.
For employers that offer minimum essential coverage but have one or more employees who enroll in an exchange and qualify for a credit (Code Sec. 4980H(b)), the penalty generally will not be nearly as high as if no MEC plan were offered. The employer in that situation must pay one-twelfth of $3,000 multiplied by the number of such employees qualifying for the credit. This amount is further capped to be no more in amount than would be imposed on an employer that did not offer minimum essential coverage.
Applicable large employer. An applicable large employer is an employer that employed an average of at least 50 full-time employees during the preceding calendar year, including full-time equivalent employees. For 2014, 2013 becomes the critical applicable year to evaluate the current workforce for "large employer" status, particularly for those employers that are borderline in connection with the 50-full-time-employee all-or-nothing floor.
The statute defines a full-time employee as an employee who on average was employed for at least 30 hours of service per week. One hundred and thirty hours of service in a calendar month is also treated as full-time. The proposed reliance regs determine FTEs by calculating the aggregate hours of service worked in a month by non-full-time employees (up to 120 hours per employee) and dividing the total by 120.
A new employer is an applicable large employer if it reasonably expects to employ an average of at least 50 full-time employees (including full-time equivalents) during the current calendar year. The IRS explained that it declined to exempt new employers from any assessable payment, but has requested comments on whether to provide safe harbors or presumptions to help new employees determine their status.
Determination of hours of service for employees employed on a non-hourly basis may be determined under several methods under proposed regulations that use daily or weekly equivalencies, unless it understates actual hours to the extent that an employee is not treated as full-time. Full-time status, in turn, for ongoing employees generally may be determined under a measurement period looking back to not less than three but not more than 12 consecutive months.
All entities treated as a single employer under Code Section 414 are treated as a single employer for determining whether the group is an applicable large employer. However, if the group is an applicable large employer, the penalty provisions apply to each company separately. Of particular note, the IRS has recognized that the application of Code Section 4980H to temporary staffing agencies may be particularly challenging, and has requested comments on possible rules. However, it is also aware that staffing agencies might be used to evade Code Section 4980H and it has promised anti-abuse rules targeted toward such maneuvers.
Essential health benefits
Frequently asked questions on rules describing standards for essential health benefits for individual and small group plans are available online (FAQs Part XII, on www.hhs.gov or www.irs.gov). Beginning in 2014, all non-grandfathered health insurance coverage in the individual and small group markets must cover EHB and do so without annual limits.
Under the Patient Protection and Affordable Care Act, EHBs include ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative services, laboratory services, preventive services, and pediatric services.
Final rules also address actuarial value levels in the individual and small group markets. Beginning in 2014, plans that cover EHB must cover a certain percentage of costs, known as "actuarial value." The levels are 60 percent for a bronze plan, 70 percent for a silver plan, 80 percent for a gold plan, and 90 percent for a platinum plan.
Health coverage notices
In late January, the Treasury, the U.S. Department of Health and Human Services, and the U.S. Department of Labor announced in the frequently asked questions postponement of the March 1, 2013, effective date for the requirement that employers notify their employees and new hires of coverage available through a health insurance exchange. The delay is intended to coincide with an anticipated release of a model notice with generic language.

Conclusions
Opinions may be split on the ultimate value of the provisions within the Affordable Care Act, let alone the impact they may have on the economy during this year and next. Employers and employees, irrespective of the macro-economic consequences, however, must start to pay attention to an immediate future that includes the "individual mandate" and the "employer mandate" on their own "micro" levels. Reviewing the rules, as they have been recently developed by IRS guidance, can save costs in some instances, and serve to reduce costly surprises in others. They are worth a careful look in either case.

Posted on 8:44 AM | Categories: