June 30 is the filing deadline for the FinCEN Form 114. This is the form used to report those foreign accounts that exceeded $10000 at any time during the year. Penalties are extremely harsh for non-filers, so this form should not be taken lightly.
The IRS Customer Service was never what you would call “terrific” in the past, but within the last twelve months, it has declined even more. In the last few years, Congress has slashed the IRS’s budget. This has stemmed from Congress’ displeasure with several ways that the IRS was using their money on conferences and videos. Congress is also still very upset about the way the IRS treated various Tea Party groups that were applying for non-profit status prior to the last presidential election. The lack of funds has caused the IRS to decrease their customer service, with statistics showing that over 60% of callers unable to get through to the IRS during the tax season. In many cases, IRS employees were directing callers to the IRS website to find their own answers to their questions, instead of helping the callers over the phone. There is no increase expected to take place in the IRS’s budget for the upcoming year either, especially after Congress found out that the IRS found money in their budget to give their workers $60 million in bonuses while slashing customer service.
Employers who employ 50 or more full time equivalent workers (FTEs) in 2015 are subject to an additional reporting requirement in 2015: the Form 1095-C! This is a form that the employer will provide to the employees in January 2016 detailing the health care coverage for the employee and each of their dependents for each month of 2015. The form will need to include details regarding the employee and their dependents, such as the date of birth and social security number, as well as each month they were covered by the employer’s plan. This form will be used by the employee as proof that they had coverage during that time. It is our recommendation that our large employer clients put in place a recordkeeping system to accumulate this data on a monthly basis starting now, as this requirement will be very burdensome should you try to assemble the entire year’s worth of data in January. Do not expect or depend on your insurance agent or insurance company to handle this filing requirement for you. Some may offer to handle it, but it is an employer requirement, so you will need to follow up to ensure that it is taken care of, as the IRS penalty bill will come to the employer, not the insurance company you thought was handling it for you. Call us for more details on the recordkeeping that needs to be done each month.
We have found that the most common question in an IRS audit is, “Why did they pick my return to audit?” Here is a list of the top five (no – make it 6) red flags that we have seen.
- High Income - As we all know, the IRS cannot audit everyone, so their computer systems are configured to provide their auditors with a list of those returns most likely to generate the most revenue for them if audited. They want to audit someone that is able to pay them, and typically will not audit an individual with lower income.
- Self Employed – Errors and overstated deductions are very common with regard to self-employed individuals.
- High Charitable Contributions – This is an area where the IRS has seen a lot of abuse and inflated deductions. Make sure that all of your contributions are well documented.
- Rental Losses – Many rental losses cannot be deducted, so be very careful in this area, as excessive losses here tend to raise the eyebrows of the government.
- 100% Vehicle Business Use – This is a HUGE red flag, as it is almost impossible that the business vehicle was not used at least some for personal purposes.
- High Business Meals and Entertainment Deductions – Again, document, document, and then document!
Our biggest and best piece of advice with regard to taxes are to make sure to work with a tax professional to prepare your tax return every year.
Everyone has an opinion about the income tax system in the US, and usually that opinion is not a good one. We hear many times about folks with higher incomes paying little in federal taxes. There is some truth to that, but usually what is heard on the news is that they are paying a low percentage of taxes.
For example, Mitt Romney’s 2010 tax return showed over $3 million in taxes paid on $21 million of income, a total of 13.9% of his income. Our tax rate is usually much higher than 13.9%, but $3 million is still a lot of taxes to pay, right?
Here are some 2012 stats on the higher income tax payers…
The top 1% of earners made $434,682 or more and paid 38.1% of all income taxes paid in the US.
The top 5% of earners made $175,817 or more and paid 58.9% of all income taxes paid in the US.
The top 10% of earners made $125,195 or more and paid 70.2% of all income taxes paid in the US.
The bottom 50% of tax return filers paid 2.8% of the total taxes paid.
The 2015 mileage rates are out and ready to go. Here they are!
Business rate = $0.575/mile
Medical rate = $0.23/mile
Moving expense rate = $0.23/mile
Charitable driving = $0.14/mile
Do not forget that you can also deduct the parking and tolls that you incur in these activities.
The IRS will never make an unsolicited telephone call to a taxpayer, yet there have been several reports of folks claiming to be from the IRS and telling taxpayers that they owe taxes and must pay quickly to avoid arrest or losing their driver’s license. These criminals have the ability to further make the call believable by changing the caller ID to appear as if the IRS is calling.
Should you receive any such call, please contact Treasury inspectors at 800-366-4484 to report the crime.
There is a current movement within Congress to create savings accounts for those who have a mental or physical disability, much like the current 529 plans that are in place.
These accounts would allow a nondeductible contribution, probably up to $14000 per year, as well as tax free withdrawals, as long as the monies are used for housing, education, transportation, dental care, and other expenses for an eligible individual.
There may be an age limit of 26 placed on the disabled beneficiary of the plan as well (ie must be disabled prior to age 26), and the account would not be counted when considering Medicaid eligibility.
We will keep you posted on the developments as they occur.
The Jacksons owned and operated an insurance company which sold auto and RV insurance in Copperopolis, California. In 2004, they purchased a Winnebago RV, which they used to attend various RV rallies and events, gathering sales leads and using it as a meeting place for their potential clients to discuss insurance at the various RV related events. The couple then deducted the cost and expense of the RV as a business expense.
Upon audit, the IRS denied those deductions as business deductions, as no portion of the RV was used exclusively for business. The interest taxes paid with respect to the RV could be deducted as a second home, and the cost and maintenance of a second home is not allowed as a business expense deduction, even though the Jacksons had mileage logs and substantial documentation of their business use.
The tax court agreed with the IRS, and the Jacksons ended up with a $50,677 tax bill.