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Tax Tip of the Week | No. 274 | IRS May Shift W-2 Deadlines to Combat Identity Theft and Tax Fraud October 29, 2014

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

Tax Tip of the Week | Oct 29, 2014 | No. 274 | IRS May Shift W-2 Deadlines to Combat Identity Theft and Tax Fraud

Here’s an article from Accounting Today….

The Internal Revenue Service is being urged to move up its W-2 filing deadline to January 31 and to lower the threshold for requiring electronic filing of W-2 returns in an effort to curb the growing trend of identity theft related tax fraud.

A new report from the Government Accountability Office suggested that additional actions such as these could help the IRS combat the threat of tax refund fraud. Based on a preliminary analysis, the IRS estimates it paid $5.2 billion in fraudulent identity theft refunds in the 2013 filing season, while preventing $24.2 billion in such refunds, based on what it could detect. The full extent of the fraudulent refunds is unknown, however, because of the challenges endemic in detecting identity theft-related refund fraud.

Identity theft-related refund fraud takes advantage of the IRS’s “look-back” compliance model, the GAO pointed out. Under this model, rather than holding refunds until completing all of its compliance checks, the IRS issues the tax refund after conducting selected reviews.

While there are no simple solutions, one option is earlier matching of employer-reported wage information to taxpayers’ returns before issuing tax refunds, the GAO noted. The IRS currently cannot do such matching because employers’ wage data (from Form W-2s) are not available until months after the IRS issues most tax refunds. As a result, the IRS begins matching employer-reported W-2 data to tax returns in July, after tax season. But if the IRS had access to W-2 data earlier—through accelerated W-2 deadlines and increased electronic filing of W-2s—it could conduct pre-refund matching and identify discrepancies to prevent the issuance of billions in fraudulent refunds, according to the GAO report.

The Treasury Department has also requested authority to reduce the 250-return threshold for e-filing information returns. The Social Security Administration estimated that to meaningfully increase W-2 e-filing, the threshold would have to be lowered to include those filing five to 10 W-2s. In addition, the SSA estimated an administrative cost savings of about $0.50 per e-filed W-2. Based on these cost savings and the ancillary benefits they would provide in supporting the IRS’s efforts to conduct more pre-refund matching, a change in the e-filing threshold is warranted, according to the GAO. Without this change, some employers’ paper W-2s could not be available for IRS matching until much later in the year, due to the additional time needed to process paper forms.

“The ability to narrow or close the gap between the time tax returns are filed and the time at which third-party information is available for use by the IRS is a concept with the potential to yield significant benefits to the government and to taxpayers, but can also impose burdens that must be quantified and carefully considered by policy makers,” wrote IRS deputy commissioner for services and enforcement, John Dalrymple, in response to the report. “Implementing such a change to the tax system would be a substantial undertaking, and we agree that the Congress needs to have a well-informed understanding of the costs and benefits in order to determine the best course of action.”

We’ll keep you posted, but we are glad to see some steps might be taken to prevent the rampant tax fraud that is going on.

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

…until next week.

Tax Tip of the Week | No. 273 | Congressional Bill Could Help Married Couples Deduct More Interest on Student Loan Debt October 22, 2014

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

Tax Tip of the Week | Oct 22, 2014 | No. 273 | Congressional Bill Could Help Married Couples Deduct More Interest on Student Loan Debt

Rep. Mark Pocan, D-Wis., has introduced a bill that would help low-income married couples deduct twice as much of the interest charged on their student loan debts.

Pocan recently introduced the Student Loan Interest Deduction Fairness Act, which would help low-income households who have made payments on their loans access greater equity in receiving the Student Loan Interest Deduction currently available to borrowers.

Under the Tax Code, individuals are able to receive up to a $2,500 tax deduction for interest paid on student loans, but when a couple is married and files jointly, the couple can only receive a maximum of $2,500. The Student Loan Interest Deduction Fairness Act, H.R. 5508, would allow married couples to access up to the full $5,000 benefit, which would have been available to individuals prior to marriage.

Currently, the average student graduates with around $29,400 in loans, Pocan’s office noted, and 58 percent of all student debt is held by families in the bottom 25 percent of household incomes. Nationally, student debt tops $1.2 trillion.

“Student loan debt is disproportionally affecting low-income households—burdening them with financial adversity and weighing down our economy,” Pocan said in a statement. “This bill will fix an inequity in our tax code and help these families, which hold 58 percent of all student debt, pay off their crushing levels of student loan debt.”

The bill is supported by the American Council on Education, the Association of Public-Land Grant Universities, Equal Justice Works and One Wisconsin.

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

…until next week.

Tax Tip of the Week | No. 272 | IRS Issues New Instructions for Obamacare October 15, 2014

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

Tax Tip of the Week | Oct 15, 2014 | No. 272 | IRS Issues New Instructions for Obamacare

The Internal Revenue Service has issued new draft instructions, notices and a publication to help taxpayers and tax practitioners deal with the Affordable Care Act.

The draft instructions were recently released for Form 8962, “Premium Tax Credit,” and Form 8965, “Health Coverage Exemptions.” The IRS had previously released draft versions of the forms themselves, both 8962 and 8965, along with draft instructions for several other draft forms for the Affordable Care Act (see IRS Gears up for Impact of Health Care Reform on Tax Season).

They are still draft, but in the world of today’s technology and computer-based tax preparation, early drafts—and even more important—the instructions to the drafts, are very important and pretty much the way it will ultimately shake out.

The IRS also released last month a one-page publication to help taxpayers find out if they qualify for an exemption from the individual mandate for health coverage or from paying a penalty. Publication 5172, Health Coverage Exemptions includes information about how you get an exemption (see IRS Publishes Guide to Health Coverage Exemptions). The Affordable Care Act calls for each individual to have qualifying health insurance coverage for each month of the year, have an exemption, or make an individual shared responsibility payment when filing their federal income tax return, the IRS said Tuesday.

Taxpayers may be exempt if they have no affordable coverage options because the minimum amount you must pay for the annual premiums is more than eight percent of your household income, have a gap in coverage for less than three consecutive months, or qualify for an exemption for one of several other reasons, including having a hardship that prevents you from obtaining coverage or belonging to a group explicitly exempt from the requirement.

The IRS was not historically prone to releasing draft documents, but they recognized the sooner that they get that information into the hands of the tax industry, the software development industry and public media at large, the better people are able to understand it and communicate open issues.

Stay in touch, we’ll keep you posted.

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

…until next week.

Tax Tip of the Week | No. 271 | Treasury to Reduce Tax Benefits of Corporate Inversions October 8, 2014

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Tax Tip of the Week | Oct 8, 2014 | No. 271 | Treasury to Reduce Tax Benefits of Corporate Inversions

Article from the Ohio Society of CPAs….

The U.S. Treasury Department has changed some key tax rules to discourage so-called “tax inversions,” in which American companies reincorporate their headquarters overseas to avoid U.S. taxes. The newly tightened rules make it more difficult to use cash that a company might be gathering in foreign countries.

The Treasury and the IRS on Sept. 22 issued Notice 2014-52 that takes targeted action to reduce the tax benefits of — and when possible, stop — corporate tax inversions. The Treasury has said such transactions erode the U.S. tax base, unfairly placing a larger burden on all other taxpayers.

Some officials had previously spoken of making rule changes retroactive to a certain date – thus affecting companies that couldn’t possibly know such a change was coming – but these new guidelines only apply to deals that had not closed as of Sept. 22.

More than two years ago, President Obama laid out his framework for business tax reform. In addition, the Administration’s FY 2015 budget included a legislative plan to reduce the incentives to invert as well as make it more difficult to accomplish an inversion. Treasury Secretary Jack Lew has been urging Congress to move forward with anti-inversion legislation, which is the only way to fully rein in these transactions.

“These first, targeted steps make substantial progress in constraining the creative techniques used to avoid U.S. taxes, both in terms of meaningfully reducing the economic benefits of inversions after the fact, and when possible, stopping them altogether,” Lew said. “While comprehensive business tax reform that includes specific anti-inversion provisions is the best way to address the recent surge of inversions, we cannot wait to address this problem. The Treasury will continue to review a broad range of authorities for further anti-inversion measures as part of our continued work to close loopholes that allow some taxpayers to avoid paying their fair share.”

Genuine cross-border mergers make the U.S. economy stronger by enabling U.S. companies to invest overseas and encouraging foreign investment to flow into the U.S. But the Treasury has emphasized that these transactions should be driven by genuine business strategies and economic efficiencies, not just a desire to shift the tax residence of the parent entity to a low-tax jurisdiction and to avoid U.S. taxes.

Specifically, this action eliminates certain techniques inverted companies currently use to gain tax-free access to the deferred earnings of a foreign subsidiary, significantly diminishing the ability of inverted companies to escape U.S. taxation. It also makes it more difficult for U.S. entities to invert by strengthening the requirement that the former owners of the U.S. company own less than 80% of the new combined entity. For some companies considering mergers, the new rules will mean that inversions no longer make economic sense.

The Treasury said it will continue to examine ways to reduce the tax benefits of inversions, including through additional regulatory guidance as well as by reviewing our tax treaties and other international commitments.

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

…until next week.

Tax Tip of the Week | No. 270 | IRS Issues 401(k) After-Tax Rollover Rules October 1, 2014

Posted by bradstreetblogger in : General, tax changes, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes , add a comment

Tax Tip of the Week | Oct 1, 2014 | No. 270 | IRS Issues 401(k) After-Tax Rollover Rules

The IRS has issued new rules for taking after-tax money out of a 401(k), and they are taxpayer-friendly.

According to IRS Notice 2014-54, Guidance on Allocation of After-Tax Amounts to Rollovers, after-tax money in a 401(k) retirement account can be rolled into a Roth IRA where it will then grow tax-free (as opposed to tax-deferred). There are no pro rata taxes on the distribution.

The notice will affect distributions made on or after Jan. 1, 2015.

This decision is a shift from where the IRS stood on eligible rollover distributions of money from a retirement plan when those dollars included after-tax contributions. Previously, there was a question among experts on how to best deal with the issue. Some experts thought that if an employee wanted to split his retirement savings, sending pretax dollars to one place (say, another retirement plan or a traditional IRA) and after-tax dollars elsewhere (like a Roth IRA), it required a series of steps to do so. Taxpayers needed to have enough money outside of the plan to cover the tax bill for the portion put into the Roth IRA, too. The treatment of after tax and pretax money was the subject of heated discussion in the tax expert community.

Experts caution advisers that they should not interpret the new ruling as a blessing from the IRS that clients can take money out of an IRA and convert it tax-free. This decision applies strictly to money within a company’s retirement plan.

Be sure to check to determine if you have after-tax money in your retirement plans, and if not, see if you can make such contributions per the terms of retirement plan.

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

…until next week.