IRS Tax Tip 2013-37: Itemizing vs. Standard Deduction: Six Facts to Help You Choose

Posted on March 20, 2013 by Stacie Clifford Kitts

When you file a tax return, you usually have a choice to make: whether to itemize deductions or take the standard deduction. You should compare both methods and use the one that gives you the greater tax benefit.

The IRS offers these six facts to help you choose.

1. Figure your itemized deductions.  Add up the cost of items you paid for during the year that you might be able to deduct. Expenses could include home mortgage interest, state income taxes or sales taxes (but not both), real estate and personal property taxes, and gifts to charities. They may also include large casualty or theft losses or large medical and dental expenses that insurance did not cover. Unreimbursed employee business expenses may also be deductible.

2. Know your standard deduction.  If you do not itemize, your basic standard deduction amount depends on your filing status. For 2012, the basic amounts are:

• Single = $5,950
• Married Filing Jointly  = $11,900
• Head of Household = $8,700
• Married Filing Separately = $5,950
• Qualifying Widow(er) = $11,900

3. Apply other rules in some cases. Your standard deduction is higher if you are 65 or older or blind. Other rules apply if someone else can claim you as a dependent on his or her tax return. To figure your standard deduction in these cases, use the worksheet in the instructions for Form 1040, U.S. Individual Income Tax Return.

4. Check for the exceptions.  Some people do not qualify for the standard deduction and should itemize. This includes married people who file a separate return and their spouse itemizes deductions. See the Form 1040 instructions for the rules about who may not claim a standard deduction.

5. Choose the best method.  Compare your itemized and standard deduction amounts. You should file using the method with the larger amount.

6. File the right forms.  To itemize your deductions, use Form 1040, and Schedule A, Itemized Deductions. You can take the standard deduction on  Forms 1040, 1040A or 1040EZ.

For more information about allowable deductions, see Publication 17, Your Federal Income Tax, and the instructions for Schedule A. Tax forms and publications are available on the IRS website at IRS.gov  You may also call 800-TAX-FORM (800-829-3676) to order them by mail.
Additional IRS Resources:

 

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Proposition 30 California Tax Increase –Tax Penalty Waiver.

Posted on January 13, 2013 by Stacie Clifford Kitts

The Franchise Tax Board has announced that taxpayers affected by the retroactive personal income tax increase (Proposition 30), may pay the amount due with their 2012 tax return.   Taxpayers subject to underpayment of estimated tax penalties may request relief by completing Form 5808 Underpayment of Estimated Taxes by Individual and Fiduciaries and completing Part 1, question 1 with the explanation that the underpayment is due to Proposition 30.

Filed under: CALIFORNIA, FRANCHISE TAX BOARD | Tagged: , , , , , , , , , , , , , | Leave a Comment »

AMERICAN TAXPAYER RELIEF ACT-SUMMARY FOR KATHERMAN KITTS CLIENTS READING PLEASURE

Posted on January 4, 2013 by Stacie Clifford Kitts

Yesterday, the President signed the American Taxpayer Relief Act, which was passed on New Year’s Day. Here is brief summary of selected portions of it, for your review. We can help answer any questions that you may have.

Individual Tax Rates
The Act preserves and permanently extends the Bush-era income tax cuts except for single individuals with taxable income above $400,000; married couples filing joint returns with taxable income above $450,000; and heads of household with taxable income above $425,000. Income above these thresholds will be taxed at a 39.6 percent rate, effective January 1, 2013. The $400,000/$450,000/$425,000 thresholds will be adjusted for inflation after 2013.
The new law, however, does not extend the payroll tax holiday. Effective January 1, 2013, the employee-share of Social Security tax withholding increased from 4.2% to 6.2% (its rate before the payroll tax holiday).

Capital Gains and Dividend Tax Rate
Effective January 1, 2013, the maximum tax rate on qualified capital gains and dividends rises from 15 to 20 percent for taxpayers whose taxable incomes exceed the thresholds set for the 39.6 percent rate (the $400,000/$450,000/$425,000 thresholds discussed above). The maximum tax rate for all other taxpayers remains at 15 percent; and moreover, a zero-percent rate will continue to apply to qualified capital gains and dividends to the extent income falls below the top of the 15- percent tax bracket. Note – The 2010 Affordable Care Act imposes a 3.8% Medicare tax on interest, dividends, capital gains, and other passive income, starting in 2013, and it applies at taxable income over $200,000 for single filers and over $250,000 for joint filers.

Estate and Gift Tax
Federal transfer taxes (estate, gift and generation-skipping transfer (GST) taxes) seem to have been in a constant state of flux in recent years. The Act provides some certainty. Effective January 1, 2013, the maximum estate, gift and GST tax rate is generally 40 percent, which reflects an increase from 35 percent for 2012. The lifetime exclusion amount for estate and gift taxes is unchanged for 2013 and subsequent years at $5 million (adjusted for inflation). The GST exemption amount for 2013 and beyond is also $5 million (adjusted for inflation). The new law also makes permanent portability and some enhancements made in previous tax laws.

Other Act Elements Affecting Individuals
• AMT (Alternative Minimum Tax) – Higher exemptions are made permanent, and indexed for inflation
• IRA distributions to charitable organizations, (for those over age 70) – restored through 2013
• Exclusion for cancellation of debt on principal residence – extended through 2013
• Reduction of itemized deductions for incomes over certain levels, (which was not in place since 2010) – will apply starting in 2013

Business Tax Provisions
Code Sec. 179 business equipment expensing. In recent years, Congress has repeatedly increased dollar and investment limits under Code Sec. 179 to encourage spending by businesses. For tax years beginning in 2010 and 2011, the Code Sec. 179 dollar and investment limits were $500,000 and $2 million, respectively. [This means that you can expense up to $500,000 of equipment or software purchased, so long as you don’t spend more than $2 million in total. Expenditures over the $2 million level reduces the allowable expense amount dollar-for-dollar.] The Act restores the dollar and investment limits for 2012 and 2013 to their 2011 amounts ($500,000 and $2 million) and adjusts those amounts for inflation. However, this increase is temporary. The Code Sec. 179 dollar and investment limits are scheduled, unless changed by Congress, to decrease to $25,000 and $200,000, respectively, after 2013. The new law also provides that off-the-shelf computer software qualifies as eligible property for Code Sec. 179 expensing. The software must be placed in service in a tax year beginning before 2014. Additionally, the Act allows taxpayers to treat up to $250,000 of qualified leasehold and retail improvement property as well as qualified restaurant property, as eligible for Code Sec. 179 expensing.

Bonus depreciation. Bonus depreciation of business equipment is one of the most important tax benefits available to businesses, large or small. In recent years, bonus depreciation has reached 100 percent, which gave taxpayers the opportunity to write off 100 percent of qualifying asset purchases immediately. For 2012, bonus depreciation remained available but was reduced to 50 percent. The Act extends 50 percent bonus depreciation through 2013. The Act also provides that a taxpayer otherwise eligible for additional first-year depreciation may elect to claim additional research or minimum tax credits in lieu of claiming depreciation for qualified property.

While not quite as attractive as 100 percent bonus depreciation, 50 percent bonus depreciation is valuable. For example, a $100,000 piece of equipment with a five-year MACRS life would qualify for a $55,000 write-off: $50,000 in bonus depreciation plus 20 percent of the remaining $50,000 in basis as “regular” depreciation, with the half-year convention applied in the first and last year.

Bonus depreciation also relates to the passenger vehicle depreciation dollar limits under Code Sec. 280F. This provision imposes dollar limitations on the depreciation deduction for the year in which a taxpayer places a passenger automobile/truck in service within a business and for each succeeding year. Because of the new law, the first-year depreciation cap for passenger automobile/truck placed in service in 2013 is increased by $8,000.

Bonus depreciation, unlike Code Sec. 179 expensing, is not capped at a dollar threshold. However, only new property qualifies for bonus depreciation. Code Sec. 179 expensing, in contrast, can be claimed for both new and used property and qualifying property may be expensed at 100 percent.

Research Tax Credit. The research tax credit was restored for 2012 and extended through 2013.

If you have any questions, please contact us.

Filed under: AMT, DEBT RELIEF, DEDUCTIONS, FILING YOUR TAX RETURN, GIFT TAX, IRS, IRS PATROL, IRS PRESENTS, TAX ACTS, TAX BRACKETS, TIPS FOR ACCOUNTANTS, WAGES | Tagged: , , , , , | Leave a Comment »

HeLp fOr PeOpLe iN DiSaStEr SiTuAtIoNS

Posted on October 7, 2011 by Stacie Clifford Kitts
"Elk Bath" – A wildfire in the Bitte...

Help in Disaster Situations

Reprinted from the IRS

Tax Relief for Victims of Aug. 30 Wildfires in Texas

Updated 9/29/11 to include Anderson, Caldwell, Fayette, Henderson, Hill and Rusk counties.
Updated 9/27/11 to include Harrison, Smith and Upshur counties.
Updated 9/20/11 to include Cass and Marion counties.
Updated 9/19/11 to include Gregg, Grimes, Montgomery, Walker and Waller counties.
Updated 9/15/11 to include Colorado, Houston, Leon, Travis and Williamson counties.

TX-2011-64, Sept. 12, 2011

HOUSTON — Victims of wildfires that began on Aug. 30, 2011 in parts of Texas may qualify for tax relief from the Internal Revenue Service.

The President has declared the following counties a federal disaster area: Anderson, Bastrop, Caldwell, Cass, Colorado, Fayette, Gregg, Grimes, Harrison, Henderson, Hill, Houston, Leon, Marion, Montgomery, Rusk, Smith, Travis, Upshur, Walker, Waller and Williamson. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Aug. 30 and on or before Oct. 31 have been postponed to Oct. 31. This includes corporations and other businesses that previously obtained an extension until Sept. 15 to file their 2010 returns, and individuals and businesses that received a similar extension until Oct. 17. It also includes the estimated tax payment for the third quarter, normally due Sept. 15.

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Aug. 30 and on or before Sept. 14, 2011, as long as the deposits were made by Sept. 14, 2011.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Oct. 31 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Aug. 30 and on or before Oct. 31.

The IRS also gives affected taxpayers until Oct. 31 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Aug. 30 and on or before Oct. 31.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Aug. 30 and on or before Sept. 14 provided the taxpayer made these deposits by Sept. 14.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Texas/Wildfires” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information

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Tax Relief for Victims of Hurricane Irene in Puerto Rico
Updated 9/29/11 to add the municipalities of Adjuntas, Ciales, Guaynabo.Updated 9/13/11 to add the municipalities of Fajardo, Gurabo, Las Piedras, Naguabo, Naranjito, Río Grande, San Lorenzo, Trujillo Alto, Vega Baja, Vieques and Villalba.Updated 9/6/11 to add the municipalities of Arroyo, Aguas Buenas, Cidra, Coamo, Comerio, Humacao, Jayuya, Juncos, Orocovis, Patillas and Ponce.

SP-FL-2011-14, Aug. 30, 2011

MIAMI — Victims of Hurricane Irene that began on Aug. 21, 2011 in parts of Puerto Rico may qualify for tax relief from the Internal Revenue Service.

The President has declared the following municipalities a federal disaster area: Adjuntas, Arroyo, Aguas Buenas, Caguas, Canóvanas, Carolina, Cayey, Cidra, Ciales, Coamo, Comerío, Fajardo, Guaynabo, Gurabo, Humacao, Jayuya, Juncos, Las Piedras, Loíza, Luquillo, Naguabo, Naranjito, Orocovis, Patillas, Ponce, Río Grande,  San Juan, San Lorenzo, Trujillo Alto, Vega Baja, Vieques and Villalba. Individuals who reside or have a business in these municipalities may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Aug. 21, and on or before Oct. 31, have been postponed to Oct. 31, 2011. This includes corporations and other businesses that previously obtained an extension until Sept. 15 to file their 2010 returns, and individuals and businesses that received a similar extension until Oct. 17. It also includes the estimated tax payment for the third quarter, normally due Sept. 15.

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Aug. 21, and on or before Sept. 6, as long as the deposits are made by Sept. 6, 2011.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The municipalities listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Oct. 31 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Aug. 21 and on or before Oct. 31.

The IRS also gives affected taxpayers until Oct. 31 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Aug. 21 and on or before Oct. 31.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Aug. 21 and on or before Sept. 6 provided the taxpayer makes these deposits by Sept. 6.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.
Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Puerto Rico/Hurricane Irene” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information

SP-FL-2011-14SP, Alivio Tributario a Víctimas del Huracán Irene en Puerto Rico
Disaster Assistance and Emergency Relief for Individuals and Businesses
Recent IRS Disaster Relief Announcements

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Tax Relief for Victims of Tropical Storm Lee in Pennsylvania
Updated 9/27/11 to include Berks, Bucks, Chester, Delaware, Montgomery, Northampton and Philadelphia counties.PA-34-2011, Sept. 13, 2011PHILADELPHIA — Victims of Tropical Storm Lee that began on Sept. 3, 2011 in parts of Pennsylvania may qualify for tax relief from the Internal Revenue Service.

The President has declared the following counties a federal disaster area: Adams, Berks, Bradford, Bucks, Chester, Columbia, Cumberland, Dauphin, Delaware, Lancaster, Lebanon, Luzerne, Lycoming, Montgomery, Montour, Northampton, Northumberland, Perry, Philadelphia, Schuylkill, Snyder, Sullivan, Susquehanna, Union, Wyoming and York. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Sept. 3, and on or before Oct. 31, have been postponed to Oct. 31, 2011. This includes corporations and other businesses that previously obtained an extension until Sept. 15 to file their 2010 returns, and individuals and businesses that received a similar extension until Oct. 17. It also includes the estimated tax payment for the third quarter, normally due Sept. 15.

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Sept. 3, and on or before Sept. 19, as long as the deposits are made by Sept. 19, 2011.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers
Related articles

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IRS Releases Specifications for Registered Tax Return Preparer Test – Doesn’t it just give you the chills?

Posted on September 7, 2011 by Stacie Clifford Kitts
Katherman Kitts & Co. LLP

Choose A Tax Preparer That Has a Clue

By Stacie Kitts, CPA

Here it is, what all un-registered (non CPA’s, attorneys, or enrolled agent) tax preparers have been waiting for.  The specs for the competency test  that will award those who pass the title of  “Registered Tax Return Preparer.”

Wowwee doesn’t it just give you the chills….

No – well maybe that’s because CPA’s and attorneys can sign tax returns even if they don’t have a single clue what they are doing.  They get to do this without passing a test (other than the initial licensing exam which he/she could have taken a hundred years ago – so not even relevant today) or taking a single hour of tax related continuing professional education.  You know, training that would keep you up to speed on the actual tax laws that apply to tax return preparation.

So what do you think the odds are that  many of these licensed “professionals” would have a difficult time passing the new competency test?

Ya, scary jacked up regulation that leaves out a large number of people who are trusted to prepare your tax return.

Fixing the mistakes of these so called professionals is a large part of my practice.  I guess I should be grateful instead of loosing my mind over the absurdity of it all.

WASHINGTON — The Internal Revenue Service today released the specifications for the competency test individuals must pass to become a Registered Tax Return Preparer.

The test is part of an ongoing effort by the IRS to enhance oversight of the tax preparation industry. Preparers who pass this test, a background check and tax compliance check as well as complete 15 hours of continuing education annually will have a new designation: Registered Tax Return Preparer.

The specifications identify the major topics that will be covered by the test, which will be available starting this fall. Although individuals who already have a provisional preparer tax identification number (PTIN) from the IRS do not have to pass the exam until Dec. 31, 2013, they may take the exam at any time once it is available.

The test will have approximately 120 questions in a combination of multiple choice and true or false format. Questions will be weighted and individuals will receive a pass or fail score, with diagnostic feedback provided to those who fail.

Test vendor Prometric Inc. worked with the IRS and the tax preparer community to develop the test. The time limit for the test is expected to be between two and three hours. The test must be taken at one of the roughly 260 Prometric facilities nationwide.

To assist in test preparation, the following is a list of recommended study materials. This list is not all-encompassing, but a highlight of what the test candidates will need to know.

Some reference materials will be available to individuals when they are taking the test. Prometric will provide individuals with Publication 17, Form 1040 and Form 1040 instructions as reference materials.

The fee for the test has not been finalized but is expected to be between $100 and $125, which is separate from the PTIN user fee. Currently there is no limit on the number of times preparers can take the test, but they must pay the fee each time. Individuals must pass the test only once.

Only certain individuals who prepare the Form 1040 series are required to take the test. Attorneys, Certified Public Accountants and Enrolled Agents (EAs) are exempt from testing and continuing education because of their more stringent professional testing and education requirements. Also exempt are supervised employees of attorneys, CPAs, attorneys or EAs who prepare but do not sign and are not required to sign the Form 1040 series returns they prepare and individuals who prepare federal returns other than the Form 1040 series.

Approximately 730,000 return preparers have registered and received PTINs in 2011. Approximately 62 percent do not have professional credentials. The IRS does not yet know how many preparers will fall into other exempt categories, but those individuals will be required to identify themselves when they renew an existing PTIN or obtain a new PTIN beginning in October 2011.

The IRS will notify those preparers who have a testing requirement and provide more details. Once the test is available, preparers who have on-line accounts can use their accounts to schedule a test time and select a Prometric site.

At the time the current version of Publication 17 went to press, there were certain tax benefits that had not been finalized and several tax benefits were subsequently extended. See Legislative Changes Affecting the 2010 Publication 17 on IRS.gov for the details needed for study purposes.

Filed under: COMMENTARY, IRS, IRS PATROL, TIPS FOR ACCOUNTANTS | Tagged: , , , , , , , , , | Leave a Comment »

Have You Been a Bad Bad Taxpayer? No Worries California is Willing to Give You a Break

Posted on August 3, 2011 by Stacie Clifford Kitts

Even if you have been a bad taxpayer, California is willing to give you a break.

Voluntary Compliance Initiative 2 (VCI 2) is an opportunity for taxpayers who underreported their California income tax liabilities, through the use of abusive tax avoidance transactions (ATAT) or offshore financial arrangements (OFA), to amend their returns for 2010 and prior tax years and obtain a waiver of most penalties.

Filing period: August 1, 2011 to October 31, 2011

Applicable tax years: 2010 and prior

Eligibility

You are eligible to participate in VCI 2 if you (or one of your related entities):

  • Filed a tax return that underreported your income or tax liability through the use of an ATAT or OFA.

You are eligible even if you:

  • Are currently under FTB examination for an ATAT or OFA.
  • Are currently under administrative protest or appeal for an ATAT or OFA.
  • Participated in the IRS’s Offshore Voluntary Disclosure Initiative.

Participation

You must take the following steps to participate:

  1. File a completed Participation Agreement form with us between August 1, 2011 and October 31, 2011.
  2. Attach the form to your amended return to report all income from all sources, without regard to the ATAT and including all income from the OFA.
  3. Pay all tax and interest by October 31, 2011. See payment options for more information.

Benefits

Participation in VCI 2 will allow you to avoid:

  • The cost of litigation.
  • Certain penalties and the associated interest.
  • Criminal prosecution.

Penalties

You can avoid the following penalties under VCI 2:

  • Noneconomic Substance Transaction Understatement Penalty
  • Accuracy Related Penalty
  • Interest Based Penalty
  • Fraud Penalty

If you are eligible but do not participate, you will be subject to the full range of penalties and interest, and may be subject to criminal prosecution.

The Large Corporate Understatement Penalty (LCUP) and the Amnesty Penalty cannot be waived under this initiative.

Filed under: CALIFORNIA, FILING YOUR TAX RETURN, FRANCHISE TAX BOARD, IRS, TAX CHEATS, TAX FRAUD | Tagged: , , , , , , , , , | 1 Comment »

Tax Stuff to Know When Your Son or Daughter Takes a Summer Job

Posted on August 3, 2011 by Stacie Clifford Kitts

Here are six things the IRS wants students to be aware of when they start a summer job.

1. When you first start a new job you must fill out a Form W-4, Employee’s Withholding Allowance Certificate. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. If you have multiple summer jobs, make sure all your employers are withholding an adequate amount of taxes to cover your total income tax liability. To make sure your withholding is correct, use the Withholding Calculator on www.irs.gov.

2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tips you receive are taxable income and are therefore subject to federal income tax.

3. Many students do odd jobs over the summer to make extra cash. Earnings you receive from self-employment – including jobs like baby-sitting and lawn mowing – are subject to income tax.

4. If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.

5. Food and lodging allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.

6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:

  •  You are in the business of delivering newspapers.
  •  All your pay for these services directly relates to sales rather than to the number   of hours worked.
  •  You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.

 

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Filed under: IRS, IRS PRESENTS | Tagged: , , , , , , , , , | Leave a Comment »

Picking Apart the IRS’ Top 10 Tax Time Tips

Posted on January 10, 2011 by Stacie Clifford Kitts

By Stacie Clifford Kitts, CPA

The IRS has started their seasonal “Tax Tip” campaign.   I do like these tips.  They cover many of the general questions that taxpayers ask.   In the interest of having a little fun, let’s pick apart Tax Tip 2011-01

  1. Start gathering your records – I agree.  Waiting to the last minute can cost you deductions.  Lost receipts or forgotten documents are the bane of tax preparation. Give yourself time to get it together before the filing deadline gets here.
  2. Be on the lookout for w-2 and 1099’s – well duh IRS, this kind of falls into item number 1 don’t ya think?  If you are owed a 1099 or W2, these are delivered or mailed to you by January 31, 2011. So if it’s March and you don’t have your forms, better start making some calls because something is wrong.
  3. Use free file – This option is cool, but a bit deceiving.  Free file is a great product to prepare your federal income return if your income is less than $58,001.  Free file is sponsored by brand name – for profit- tax software companies.  So keep in mind, you still pay for the use of the software when you prepare your state tax return (only the federal part is prepared for free).
  4. IRS e-file – Personally I like efiling.  It is convenient, fast, accurate, and paperless.  Besides, here’s a heads up,  E-file is mandatory for some taxpayers.  It’s a new age, time to get on the ball and accept modern technological advances.
  5. Consider other filing options – Yes there are other options – you could prepare your return yourself (not recommended).  And, if you qualify, there are ways to get your return filed that don’t cost money.  Consider checking out your local VITA program.  The IRS Volunteer Income Tax Assistance Program (VITA) and the Tax Counseling for the Elderly (TCE) Programs offer free tax help for taxpayers who qualify.
  6. Consider direct deposit – I still get taxpayers who want to have their refund checks mailed to them.  I can’t really get my head around this one.  Generally, there isn’t  a good reason to have a check mailed versus having your refund direct deposited.
  7. Visit the IRS website again and again – okay, lots of helpful information here.  No reason not to.  I say, do it.
  8. Remember to checkout IRS publication 17. Well, yes if you want to learn all about income tax by all means here is a publication that will help.  Helpful stuff includes:  a) What’s new for 2010,  b) Reminder, c) When you should file a return, d) When to paper file vs. efile, c) Yada yada yada
  9. Review! Review! Review! – Well ya check for mistakes.  But people really, if you’re not a tax expert, you really aren’t going to know if you blew it.  Might I suggest you have a tax professional review your return before you file.
  10. Don’t panic! – Unless you want too of course – or waited until the last minute.  When all else fails, the IRS says you can give them a call at 800-829-1040.
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Filed under: FILING YOUR TAX RETURN, Form W-2, FREE TAX SERVICES, IRS, IRS PRESENTS | Tagged: , , , , , , , , | 2 Comments »

IRS Patrol: New Form 8941 -IRS Releases Form to Help Small Businesses Claim New Health Care Tax Credit

Posted on September 7, 2010 by Stacie Clifford Kitts
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WASHINGTON –– The Internal Revenue Service today released a draft version of the form that small businesses and tax-exempt organizations will use to calculate the small business health care tax credit when they file income tax returns next year. The IRS also announced how eligible tax-exempt organizations –– which do not generally file income tax returns –– will claim the credit during the 2011 filing season.

The IRS has posted a draft of Form 8941 on IRS.gov. Both small businesses and tax-exempt organizations will use the form to calculate the credit. A small business will then include the amount of the credit as part of the general business credit on its income tax return.

Tax-exempt organizations will instead claim the small business health care tax credit on a revised Form 990-T. The Form 990-T is currently used by tax-exempt organizations to report and pay the tax on unrelated business income. Form 990-T will be revised for the 2011 filing season to enable eligible tax-exempt organizations –– even those that owe no tax on unrelated business income –– also to claim the small business health care tax credit.

The final version of Form 8941 and its instructions will be available later this year.

The small business health care tax credit was included in the Affordable Care Act signed by the President in March and is effective this year. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

In 2010, the credit is generally available to small employers that contribute an amount equivalent to at least half the cost of single coverage towards buying health insurance for their employees. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. Beginning in 2014, the maximum tax credit will go up to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible, tax-exempt organizations for two years.  The maximum credit goes to smaller employers ¬¬–– those with 10 or fewer full-time equivalent (FTE) employees ––¬¬ paying annual average wages of $25,000 or less.

The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more. Because the eligibility rules are based in part on the number of FTEs, and not simply the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.

More information about the credit, including a step-by-step guide and answers to frequently asked questions, is available on the Affordable Care Act page on the IRS website.

Filed under: HEALTH INSURANCE, IRS, IRS PATROL | Tagged: , , , , , , , | 1 Comment »

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