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IRS Audits Its Own Activity | Tax Tip of the Week | No. 130 January 25, 2012

Posted by bradstreetblogger in : Tax Tip, Taxes, Taxes, Uncategorized , add a comment

More Reports of Tax Fraud

After the enactment of the refundable American Opportunity Credit, Treasury inspectors estimate tax filers erroneously received $3.2 billion in credits for 2009 and 2010.  Inspectors found the IRS was doing a poor job of policing returns, which contained these educational credits. (See TTW#87 for a refresher on refundable vs. non refundable credits).

In many of these cases, the IRS didn’t have a Form 1098-T from the college that the student supposedly attended.  Colleges and universities are required to issue a Form 1098-T to students and the IRS.  The IRS is now in the process of recovering these credits when there is no 1098-T that matches the IRS records and filer’s tax returns.

Editor’s Note:  The IRS is getting increasingly better, and more aggressive, in matching all forms of 1099s and 1098s to tax returns.

As always, you need to be able to substantiate any information on your tax return with good records.

Let us know if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

Tax Tip of the Week Video Series:

http://youtu.be/ZLy73yk6zR4

…until next week.

 

Not Much Changed From 2011 | Tax Tip of the Week | No. 129 January 18, 2012

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IRS Announces 2012 Mileage Rates

The 2012 optional standard mileage rate used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes is:

– 55.5 cents per mile for business purposes

– 23 cents per mile for medical or moving purposes

– 14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged for the mid-year adjustment that became effective on July, 1 2011.  The medical and moving rate has been reduced by 0.5 cents per mile.  The charitable mileage rate is set by Congress and remains unchanged.

The depreciation component of the business mileage rate is 23 cents per mile.

Taxpayers always have the option of calculating the actual costs of using their vehicles rather than using the standard mileage rates.

However, you cannot use the standard mileage rates for business if you made the election to take a deprecation deduction in the year you placed the vehicle in service.

Regardless of which method you choose to deduct vehicle expenses, the IRS requires that you keep contemporaneous records to substantiate your deductions.

Stay safe while driving in 2012—and keep track of those miles!

Let us know if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

Tax Tip of the Week Video Series:

http://youtu.be/y15GcklthdU

…until next week.

 

2011 Form 1099 Reminder | Tax Tip of the Week | No. 128 January 16, 2012

Posted by bradstreetblogger in : Tax Tip, Taxes, Taxes, Uncategorized , 1 comment so far

Special Tax Alert

We wanted to take an opportunity to remind all our business owners that the 2011 Form 1099s are due to be filed in the coming weeks. Here’s a quick update.
 
In 2010, a law was passed that would have required companies and many individuals to issue 1099s to practically all vendors. Due to public outcry that law was repealed. However, beginning with the 2011 tax returns, the IRS has added some new disclosure requirements.
 
The following questions have been added to all business returns, including Schedule C, Schedule F and Schedule E on individual returns (1040), as well as corporation (1120) and partnership (1065) returns.
 
. “ Did you make any payments in 2011 that would require you to file Form(s) 1099?”
•  “If “YES,” did you or will you file all required Forms 1099?”
 
Generally, if you are operating a business and you pay anyone other than a Corporation $600 or more during the year for services provided (including parts and materials), you are required to issue a 1099 to that entity (Person or Business “Service Provider”) by January 31, 2012.
 
The penalty for not filing a required 1099 with the IRS is $100 per 1099.  There is also a $100 penalty for each 1099 not provided to the recipient Service Provider.  If it is determined that a taxpayer willfully neglected to file 1099s, the penalty is $250 per 1099 not filed with the IRS and another $250 per 1099 penalty for not providing a copy to recipients.
 
Given that this is an area of greatly increased IRS scrutiny this year, we recommend that all business owners review your vendors’ payments for 2011, and determine who may or should receive a 1099.  Verify that you have the entity’s proper name, address and federal ID number.
 
You are welcome to contact our office if you have any questions or would like our help with Form 1099s. They are due to be filed by January 31, 2012.   

Let us know if you have any questions. 

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

Tax Tip of the Week Video Series:

http://youtu.be/xZnv0Bz79lM

…until next week.

 

Increase in Social Security Wage Base | Tax Tip of the Week | No. 127 January 11, 2012

Posted by bradstreetblogger in : Tax Tip, Taxes, Taxes, Uncategorized , 2comments

You May Pay More in Social Security Taxes in 2012

For the first time since 2009 the earnings subject to Social Security is going up.  In 2009 and 2010, the first $106,800 in earnings was subject to this 6.20% tax (12.40% if self-employed).

In 2011, the wage base was also $106,800 but the tax rate was reduced from 6.20% to 4.20% (10.40% if self-employed).

In 2012, the wage base increases to $110,000.  It is unclear at the time of this writing if Congress will extend the reduction of the tax rate beyond the current two month extension.  We will keep you posted on that.

The reason for the change is because the law does not allow an increase in the wage base for years when there is no cost-of-living increase for Social Security recipients.  Since Social Security checks will be higher in 2012, you may be subject to having a larger share of your income subject to the tax.

Remember, there is no wage limit to the Medicare portion of your FICA tax.  The Medicare tax is 1.45% (2.90% if self-employed) regardless of your earned income.

Sometimes, change is a bad thing.

Let us know if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

Tax Tip of the Week Video Series:

http://youtu.be/xZnv0Bz79lM

…until next week.

 

Get Ready For The Tax Filing Season | Tax Tip of the Week | No. 126 January 4, 2012

Posted by bradstreetblogger in : Tax Tip, Taxes, Taxes, Uncategorized , add a comment

Happy New Year!

Hopefully, you followed some of the suggestions we outlined a couple of years ago in TTW #21 to organize your records.  If you did, great!  This will make filing your tax returns a lot easier this year.  It also means that you, and your tax advisor, can spend more time on tax and financial planning issues for 2012 vs. looking back to 2011.

If you are new to our Tax Tip of the Week series, or didn’t follow our suggestions last year, now would be a good time to review TTW #21.   You might want to make getting organized your 2012 New Year’s Resolution!

This week we will look at some of the more common forms that you should be watching for in the coming weeks and months:

W-2:   Employers should mail these by 1/31/12.

If you have moved during the year, make sure former employers are aware of your new address.

W-2G: Casinos, Lottery Commissions and other gambling entities should mail these by 1/31/12 if you have gambling winnings above a certain threshold.

Note:  Some casinos will issue you a W-2G at the time you win a jackpot.  Make sure you have saved those throughout the year.

1099-INT: Banks, Credit Unions, Brokerage Firms, etc. will issue these by 1/31/12 to show the amount of interest income you earned on your savings/investments.

1099-DIV: Brokerage Firms, Mutual Funds, etc. have until 2/14/12 to issue these forms to show the dividend income you earned for the year.

1099-B: Brokerage Firms, Mutual Funds, etc. have until 2/14/12 to show the proceeds from the sale of stocks and mutual funds.  Most brokerage firms have gotten better at showing the cost basis on the sale of these investments.  If the statements do not show the basis, then you have some homework to do before filing your tax return.

Note:  Most of the larger brokerage firms issue “Consolidated Statements” that have the 1099-INT, 1099-DIV and 1099-B earnings reported on the same report.

K-1s: If you are a partner or shareholder in a business or a limited partner in some investments, your income and expenses will be reported to you on a K-1.  The tax returns for these entities are not due until 4/15/12 (if they have a calendar-year accounting).  Sometimes, you may not receive a K-1 until shortly after the entities’ tax return is filed in April.  S-Corps are due 3/15 unless extended until 9/15.

If you are a beneficiary of an estate or trust, your share of the income and expenses for the year will also be reported on a K-1.  The timing of when you may receive your K-1 is the same as outlined above.

NOTE:  Many times partnerships, estates and trusts will put their tax returns on extension.  If they do, the due date of the return is not until 9/15/12.  We often see client’s receiving K-1s in the third week of September.

If you receive, or expect to receive, a K-1 it may be best if you place your personal return on extension.  It is a lot easier to extend your return than it is to amend your return after receiving a K-1 late in the year.

So start watching your mailbox and put all of these statements you receive in that new file you created!

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

Tax Tip of the Week Video Series:

http://youtu.be/e508wpthNYk 

…until next week.