Tom Tahnk, CPA

3% Withholding Rule From Payments for Goods and Services

2011-08-26T10:14:00.000-07:00

A law scheduled to go into effect in 2013 requires federal, state, and local governments to withhold 3 percent from payments for goods and services. The law would be a constant cycle because funds would br withheld one year, recouped the following year, but then also withheld again.

Withholding funsa amounts to floating the federal government an interest-free loan. Businesses would have 3 percent less to spend, affecting day-to-day operations and future growth. State and local governments would stress their already strained budgets administering this program.

Tax Delinquents May Be Prohibited from Passport Renewals

2011-08-23T14:12:00.000-07:00

More than 224,000 people who received passports in 2008 owed a total of over $5.8 billion in federal income taxes, but Congress would need to change the laws to enable the State Department to coordinate with the IRS on denying them passports, according to a new government report.

The report, by the Government Accountability Office, noted that federal law currently prohibits the IRS from divulging taxpayer information, including unpaid federal taxes, to the State Department, unless the taxpayer consents. In contrast, federal law permits certain restrictions on the issuance of passports to individuals, such as individuals owing child support debts over $2,500 or with outstanding felony warrants.

Change in Federal Unemployment Tax Rate

2011-07-11T11:50:00.000-07:00

Effective July 1, 2011, the IRS announced that there will be a reduction in the Federal Unemployment Tax Act (FUTA) rate due to the expiration of the 0.2 percent FUTA surtax. This will decrease the overall rate from 6.2% to 6.0% on FUTA taxable wages paid after June 30, 2011. The annual FUTA taxable wage base of the first $7,000 paid to each employee remains unchanged.

Beware of emails claiming to be from the IRS

2011-07-10T13:29:00.000-07:00

Bogus email scams are resurfacing, including one involving payments allegedly rejected by the Electronic Federal Tax Payment System. The email has a link that may download malicious software.

PLEASE REMEMBER THAT THE INTERNAL REVENUE SERVICE NEVER SENDS AN EMAIL TO A TAXPAYER FOR ANY REASON AND CONSEQUENTLY WILL NEVER ASK FOR FINANCIAL INFORMATION VIA EMAIL, FAX, OR TELEPHONE. NEVER! IF YOU RECEIVE SUCH A REQUEST, IT IS BOGUS AND SHOULD BE DISREGARDED IMMEDIATELY.

New Mileage Rates Beginning July 1, 2011

2011-06-23T12:20:00.000-07:00

The Internal Revenue Service announced an increase in the optional standard mileage rate for the last six months of calendar year 2011. The new rate will be 55.5 cents per mile, an increase from 51 cents per mile for the first six months of 2011.

In addition, the medical and moving rate will be 23.5 cents per mile, an increase from 19 cents per mile for the first six months of 2011.

The charitable mileage remains at 14 cents per mile.

Proposed Vehicle Mileage Tax

2011-03-28T08:42:00.000-07:00

As an alternative to raising fuel taxes, one possibility would be imposing taxes on vehicle miles traveled. In order to impose so-called VMT taxes, however, metering devices would have to be installed in vehicles to keep track of the number of miles traveled. They might work similarly to transponder systems such as EZPass, which allow drivers to prepay tolls in 14 states.

IRS Will Audit More Landlords

2011-03-11T17:21:00.000-08:00

The Internal Revenue Service announced their intention to audit more income tax returns containing rental properties, especially those reporting minimal income or losses. The IRS believes that a significant number of landlords are either under-reporting rental income or over-reporting rental expenses - or both. Targeted will be returns that continuously report losses and/or extraordinary expenses.

Landlords are cautioned to maintain accurate records and receipts, and to know the tax laws dealing with rental property.

Forms Affected By the Extender Provisions

2011-01-29T12:51:00.000-08:00

Taxpayers will need to wait to file if they are impacted by any of the tax credits or deductions that expired at the end of 2009 and were renewed by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted Dec. 17. The delays impact taxpayers claiming:
.
Schedule A (Form 1040), Itemized Deductions
Form 8917, Tuition and Fees Deduction
Educator Expense Deduction claimed on Form 1040
Form 4684, Casualties and Thefts
Form 8859, District of Columbia First-Time Homebuyer Credit

A few other taxpayers will also need to wait to file, due to the impact of other recent changes, primarily some of those included in the Small Business Jobs Act of 2010. Affected forms include:
.
Form 3800, General Business Credit
Form 5405, First-Time Homebuyer Credit and Repayment of the Credit
Form 6478, Alcohol and Cellulosic Biofuel Fuels Credit
Form 8834, Qualified Plug-In Electric and Electric Vehicle Credit
Form 8910, Alternative Motor Vehicle Credit
Form 8936, Qualified Plug-In Electric DriveMotor Vehicle Credit

The delay affects both paper and electronic filers. All tax returns claiming these credits or deductions should not be filed until the IRS is ready to start processing these returns in mid-to late February. IRS e-file is the fastest, best way for those impacted by the delay to get their refunds.

Tax Tips on Tip Income

2011-01-21T16:06:00.000-08:00

If you work in an occupation where tips are part of your total compensation, you need
to be aware of several facts relating to your federal income taxes. Here are four things
the IRS wants you to know about tip income:

1. Tips are taxable. Tips are subject to federal income, Social Security and
Medicare taxes. The value of non–cash tips, such as tickets, passes or other
items of value, is also income and subject to tax.

2. Include tips on your tax return. You must include in gross income all cash
tips you receive directly from customers, tips added to credit cards, and your
share of any tips you receive under a tip–splitting arrangement with fellow
employees.

3. Report tips to your employer. If you receive $20 or more in tips in any one
month, you should report all of your tips to your employer. Your employer is
required to withhold federal income, Social Security and Medicare taxes.

4. Keep a running daily log of your tip income. You can use IRS Publication
1244, Employee's Daily Record of Tips and Report to Employer, to record
your tip income.

Repaying 2008 First-Time-Homebuyer Credit

2010-12-28T17:07:00.000-08:00

If you were a first-time homebuyer and received a credit of up to $7,500 in 2008, you agreed to repay the credit at a rate of 6 2/3% (or $500) in equal payments over 15 years, with no interest charges. The tax credit worked like an interest free loan.

The recapture period begins with the second taxable year following the year of purchase for which the credit is taken - 2010. The recapture amount is added to your income tax liability each year for 15 years, beginning in 2010. YOU WILL NOT RECEIVE A BILL OR REMINDER FROM THE IRS!

If you dispose of the principal residence for which a credit was allowed (or if it ceases to be your principal residence) before the end of the 15 year recapture period, the remaining credit repayment amount is added to your income tax liability for the year of sale or cessation of use.

(The law was changed in 2009 increasing the amount of the credit and providing that you do not have to repay the 2009-2010 credit, provided the home remains your main home for 36 months after the purchase date.)

Adjusting Minnesota W-2s

2010-12-22T10:34:00.000-08:00

Health coverage for adult nondependent children. Effective March 30, 2010, the health coverage provided for an employee’s adult nondependent children younger than age 27 is now generally tax-free to the employee for federal purposes. Employees with cafeteria plans are allowed to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.

For Minnesota purposes beginning with tax year 2010, employees and self-employed individuals will need to include in Minnesota taxable income the fair market value of the policy providing health coverage for their adult nondependent children.

When entering the Minnesota Gross Income amount from the W-2, add the above fair market value. If that amount is not shown on the w-2, it will have to be obtained directly from the employer

Delayed Refunds

2010-12-20T13:51:00.000-08:00

Congress waited until Christmas, 2007, to pass legislation regarding the Alternatve Minimum Tax (AMT). It took the Internal Revenue Service (IRS) eleven weeks to reprogram their computers. Until the reprogramming was completed. the IRS did not accept any returns (mailed or electronically filed) for processing. An unknown amount of returns were held in the queue until the programming was completed and the program was accepted. Refunds for e-filed returns were delayed 60-90 days, paper-filed returns several months.

Congress again waited until yearend to pass tax legislation. However, this time the list of tax changes is extensive and might require much more than eleven weeks for reprogramming, testing and acceptance. The IRS has not announced when it will begin accepting e-filed returns, so all filed returns will be held in limbo until that time. Refunds will consequently be delayed.

Need For Federal ID Number

2010-12-18T12:48:00.000-08:00

Recent federal legislation will soon require individual taxpayers (landlords, small business persons and others) to accumulate information and to send out a form similar to a 1099-MISC. In a era of rampant identification theft, the reporting individuals social security number is available to anyone viewing the tax form!

It is strongly recommended that every affected (or potentially affected) individual taxpayer obtain (or instruct their professional tax preparer to obtain on their behalf) a Federal Employee Identification Number (FEIN) for reporting purposes. There is no charge from the Internal Revenue Service. An ounce of prevention....