Showing posts with label IRS. Show all posts
Showing posts with label IRS. Show all posts

Friday, September 17, 2010

Taxpayers Will See Relief By Way of Inflation-Adjusted Indexing, But Total Tax Impact Remains Unclear, CCH Says

/PRNewswire/ -- Taxpayers stuck in the current economic downturn will get at least some relief in 2011 thanks to the mandatory upward inflation-adjustments called for under the tax code, according to CCH, which today released estimated income ranges for each 2011 tax bracket. CCH also projects the growing number of other inflation-sensitive tax figures, such as the personal exemption and the standard deduction.

"Indexing for inflation has become an established part of our tax system, and it's likely to be a part of the tax law for the foreseeable future even as Congress debates changes to the tax rates themselves," according to George Jones, JD, CCH Senior Federal Tax Analyst.

Projections this year, however, are clouded by the uncertainty of expiring provisions in the tax code. If Congress allows the tax cuts within Economic Growth and Tax Relief and Reconciliation Act of 2001 (EGTRRA) to expire as called for at the end of 2010, many taxpayers could lose more ground than they will otherwise gain.

When there is inflation, indexing of brackets lowers tax bills by including more of people's incomes in lower brackets - in the existing 15-percent rather than the existing 25-percent bracket, for example. The formula used in indexing showed a relatively small amount of inflation this year, just under 1.5 percent. However, this is far greater in comparison to the 0.18 percent inflation factor used to set 2010 tax amounts. Therefore, while 2010 inflation-adjusted amounts in many cases stayed flat as a result, most 2011 figures will move higher.

For 2011, however, the big question is not whether the brackets will continue to increase because of inflation - they will. Rather, it is what tax rates will be applied against those brackets. The current 10-, 15-, 25-, 33- and 35-percent rates are now scheduled to sunset to the pre-EGTRRA rate structure of 15, 28, 31, 36 and 39.6 percent. In addition, there are two possible alternative scenarios being debated by lawmakers:

-- Extend the current tax bracket structure in its entirety; or
-- As the proposal from President Obama calls for, keep the current rate
structure except revive the 36- and 39.6-percent rates, starting at a
higher income bracket level; he would also amend the standard
deduction so that it does not revive the marriage penalty that had
been in place prior to EGTRRA.



In other words, Jones noted, it gets complicated quickly without knowing yet which approach Congress will take.

"While we were looking at the very real possibility of deflation in the tax adjustment required under the tax code last year, this year we are 'back to normal' in the sense that the expected upward adjustment in tax benefits from 2010-2011 are taking place," said Jones. "The only wildcard remains how Congress will deal with the sunsetting provisions. We may not know that until a possible lame-duck session of Congress this December."

The examples below show the modest tax savings generated by indexing and how they would be reversed if the EGTRRA tax cuts were to expire wholesale:

-- Because of inflation adjustments, a married couple filing jointly with
a total taxable income of $100,000 should pay $112.50 less in income
taxes in 2011 than they will on the same income for 2010 (compared to
only a $12.50 savings between 2009 and 2010). That savings remains
whether the EGTRRA tax cuts are fully extended or President Obama's
proposal is adopted. However, if the rates and marriage penalty relief
sunset entirely, the couple will end up paying $3,143 more in taxes in
2011.
-- A single filer with taxable income of $50,000 should owe $56 less next
year due to the adjustments (again, compared to only a $6.25 savings
between 2009 and 2010). However, once again, even with savings from
the inflation adjustments, a single filer will owe $834 more in 2011
than in 2010 on the same $50,000 amount if complete sunset of the
rates takes place.
-- For taxpayers with more than $379,150 in taxable income in both 2010
and 2011, the maximum savings from indexing the tax brackets for 2011
will be more dramatic. However, so will the additional tax that would
be owed under either a complete sunset of the EGTRRA tax cuts or
adoption of the Obama proposal, which would continue to give
high-income taxpayers the incremental benefit of the 10-percent rate
bracket as well as allow them an expanded 28-percent bracket.
Inflation-generated savings if all rates were extended would amount to
$330 for a single filer with $400,000 taxable income, for example.
However, that same taxpayer would pay an additional $11,394 under a
full sunset of the rates, and $5,080 more under the Obama proposal
above 2010 amounts.


Inflation Adjustments


Since the late 1980s, the U.S. tax code has required that federal income tax brackets be adjusted for inflation annually, and inflation adjustments have been inserted into the Internal Revenue Code in recent years with increasing frequency.

For example, the Code now requires over 50 other inflation-driven computations to determine deduction, exemption and exclusion amounts in addition to the 40 separate computations needed to inflation-adjust the tax bracket tables each year. In fact, the health care reform legislation passed earlier this year adds an even greater number of inflation-adjustments to the tax code, although health-related indexing won't start until 2013.

Most adjustments are based on Consumer Price Index figures for September through August immediately prior to the adjusted year. However, some inflation-adjusted figures are computed earlier and some later. For example, amounts such as the 2011 vehicle depreciation limits won't be available until 2011 (the $3,060 regular first-year amount for 2010 was not released until February 2010), while the standard business mileage rate (that is currently set at 50 cents for 2010) isn't expected to be computed for 2011 and released until December 2010.

CCH's projections for other indexed amounts are based on the relevant inflation data released September 17, 2010, by the U.S. Department of Labor.

The IRS usually releases official numbers by December each year. CCH tax bracket projections are provided for illustrative purposes only, and should not be used for income tax returns or other federal income tax related purposes until confirmed by the IRS later this year.

Some Items Not Indexed

Jones observed that some items in the Code are not indexed for inflation and stay the same, while others rise by dollar amounts already written into the tax law.

"The exemption amounts for the alternative minimum tax are not indexed, which means that each year Congress must either increase the amounts by statute or expose additional households to the AMT," Jones said.

For 2009, Congress set the AMT exemption amounts at $46,700 for single individuals and $70,950 for married couples filing jointly. Congress has relied on one- or two-year AMT patches to account for inflation from the initially set amounts of $33,750 and $45,000, respectively. However, there is no technical requirement under the tax code to increase those amounts for inflation. No amounts have been set yet for 2010, no less for 2011. While they are scheduled to revert to the default amounts of $33,750/$45,000 without action, the Obama administration tax proposals contemplate further increases.

Standard Deduction, Personal Exemption Rise

The standard deduction and personal exemption amounts are also subject to indexing; however, because of "rounding down," some years show no change at all. After very little movement in the 2010 amounts, 2011 will see a jump in all standard deduction levels. However, a wrinkle occurs if the EGTRRA sunset provisions move forward. In which case, the marriage penalty relief that has been built into the standard deduction for married couples filing jointly will be eliminated. Rather than double the standard deduction for unmarried single filers, the 2011 standard deduction for joint filers would drop by $1,750 to $9,650, even taking the past year's inflation into account.

Assuming that Congress will not let any of the standard deduction amounts sunset, however, the standard deduction for single taxpayers, heads of households and marrieds filing separately will all increase by $100 in 2011. The standard deduction for joint filers would rise by $200, to $11,600. Any increase in the standard deduction, of course, can produce lower taxes by decreasing the taxpayer's taxable income.

The additional standard deduction for those age 65 or older or who are blind will rise by $50 to $1,150 in 2011 for married individuals and surviving spouses, and by $50 to $1,450 for single filers. The personal exemption amount also gets bumped up by inflation by $50, to $3,700 in 2011.

Taxpayers have had to lose a good portion of the value of personal exemptions and itemized deductions when their incomes rise above certain levels, which have also been adjusted for inflation. For 2010, these "phaseouts" disappeared from the tax code, but only temporarily if Congress does not act. As part of the EGTRRA sunset, they are scheduled to return in 2011, with a personal exemption phase-out range starting at $254,350 for joint filers and $169,550 for single filers and a phase-out range for itemized deductions starting at $169,550 for all filers except married couples filing separately whose phase-out range for itemized deductions starts at $84,775.

"The removal of limitations on itemized deductions and personal exemptions, rather than indexing of brackets, will provide major tax savings in 2010 for many well-off taxpayers. The return of these limitations in 2011 would pose an equally important change in the reverse direction," Jones observed.

For a complete look at how income ranges for each tax bracket are projected to shift next, see the CCH chart below.

"Kiddie" Deduction, Gift Tax Exemption

In general, inflation adjustments are rounded to the next-lower multiple of $50, so if the adjustment produces an increase of less than $50, no increase is made. The "kiddie" deduction, used on the returns of children claimed as dependents on their parents' returns, increased only five times in the years 2001 through 2010. It last rose for the 2009 tax year. For 2011 the deduction will remain at that $950 level.

The Code only allows the gift tax exemption to rise when the inflation adjustment would produce an increase of $1,000 or more. The last increase occurred in 2009, when it rose to $13,000. It remains there for 2011.

CCH 2011 TAX PROJECTIONS*




  Married Filing Jointly (& Surviving Spouse)

    Tax
   Rate   2011 Taxable Income
                 Complete              Full
                  Sunset            Extension
     10%  n/a                         $0-$17,000
     15%           $0-$57,650    $17,000-$69,000
     25%  n/a                    $69,000-139,350
     28%     $57,650-$139,350  $139,350-$212,300
     31%    $139,350-$212,300  n/a
     33%  n/a                  $212,300-$379,150
     35%  n/a                           $379,150+
     36%    $212,300-$379,150  n/a
   39.6%             $379,150+ n/a





    Tax                                            2010 Taxable
   Rate            2011 Taxable Income                 Income
                          Obama
                         Proposal
     10%                            $0-$17,000         $0-$16,750
     15%                            $0-$69,000    $16,750-$68,000
     25%                      $69,000-$139,350   $68,000-$137,300
     28%                     $139,350-$237,300  $137,300-$209,250
     31%  n/a                                   n/a
     33%  n/a                                   $209,250-$373,650
     35%  n/a                                            $373,650+
     36%                     $237,300-$379,150  n/a
   39.6%                              $379,150+ n/a





  Unmarried Individuals (other than surviving spouses and heads of
  households)

  Tax Rate  2011 Taxable Income
              Complete Sunset     Full Extension
      10%   n/a                          $0-$8,500
      15%            $0-$34,500     $8,500-$34,500
      25%   n/a                    $34,500-$83,600
      28%       $34,500-$83,600   $83,600-$174,400
      31%      $83,600-$174,400  n/a
      33%   n/a                  $174,400-$379,150
      35%   n/a                           $379,150+
      36%     $174,400-$379,150  n/a
     39.6%             $379,150+ n/a





                                                     2010 Taxable
  Tax Rate     2011 Taxable Income                      Income
                 Obama Proposal
      10%                              $0-$8,500          $0-$8,375
      15%                         $8,500-$34,500     $8,375-$34,000
      25%                        $34,500-$83,600    $34,000-$82,400
      28%                       $83,600-$195,550   $82,400-$171,850
      31%  n/a                                    n/a
      33%  n/a                                    $171,850-$373,650
      35%  n/a                                             $373,650+
      36%                      $195,550-$379,150  n/a
     39.6%                              $379,150+ n/a





  Head of Household

  Tax Rate  2011 Taxable Income
              Complete Sunset     Full Extension
      10%   n/a                         $0-$12,150
      15%            $0-$46,250    $12,150-$46,250
      25%   n/a                   $46,250-$119,400
      28%      $46,250-$119,400  $119,400-$193,350
      31%     $119,400-$193,350  n/a
      33%   n/a                  $193,350-$379,150
      35%   n/a                           $379,150+
      36%     $193,350-$379,150  n/a
     39.6%             $379,150+ n/a





                                                     2010 Taxable
  Tax Rate     2011 Taxable Income                      Income
                 Obama Proposal
      10%                             $0-$12,150         $0-$11,950
      15%                        $12,150-$46,250    $11,950-$45,550
      25%                       $46,250-$119,400   $45,550-$117,650
      28%                      $119,400-$216,400  $117,650-$190,550
      31%  n/a                                    n/a
      33%  n/a                                    $190,550-$373,650
      35%  n/a                                             $373,650+
      36%                      $216,400-$379,150  n/a
     39.6%                              $379,150+ n/a





  Married Individuals Filing Separate Returns

  Tax Rate  2011 Taxable Income
              Complete Sunset     Full Extension
      10%   n/a                          $0-$8,500
      15%            $0-$28,825     $8,500-$34,500
      25%   n/a                    $34,500-$69,675
      28%       $28,825-$69,675   $69,675-$106,150
      31%      $69,675-$106,150  n/a
      33%   n/a                  $106,150-$189,575
      35%   n/a                           $189,575+
      36%     $106,150-$189,575  n/a
     39.6%             $189,575+ n/a





                                                     2010 Taxable
  Tax Rate     2011 Taxable Income                      Income
                 Obama Proposal
      10%                              $0-$8,500          $0-$8,375
      15%                         $8,500-$34,500     $8,375-$34,000
      25%                        $34,500-$69,675    $34,000-$68,650
      28%                        $69,675-118,650   $68,650-$104,625
      31%  n/a                                    n/a
      33%  n/a                                    $104,625-$186,825
      35%  n/a                                             $186,825+
      36%                      $118,650-$189,575  n/a
     39.6%                              $189,575+ n/a





  Standard Deduction Amounts

  Filing Status    2011**                        2010   Increase
  Married Filing
   Jointly (&
   Surviving
   Spouse)             $9,650 (with marriage  $11,400   (-$1,750)
                    penalty relief
                    sunset);
                   $11,600 (without marriage
                    penalty relief
                    sunset)                   $11,400        $200
  Married Filing
   Separately          $4,825 (with marriage   $5,700     (-$875)
                    penalty relief
                    sunset)
                    $5,800 (without marriage
                    penalty relief
                    sunset                     $5,700        $100
  Single                              $5,800   $5,700        $100
  Head of
   Household                          $8,500   $8,400        $100

  **A marriage penalty exists when the combined tax liability of a
  couple filing a joint return is greater than the sum of the tax
  liabilities each would have if they were unmarried. If the EGTRRA
  sunset takes effect, it will trigger a marriage penalty with the
  basic standard deduction for married individuals filing joint
  returns dropping considerably.





  Standard Deduction for Dependents ("Kiddie" Standard Deduction)

        2011                   2010     Increase
             $950              $950              $0





  Income Level at Which 3-Percent Itemized Deduction Limitation Takes
  Effect (Adjusted Gross Income)

                      2011(with
  Filing Status        sunset)    2010***        2009
  Married Filing
   Jointly             $169,550  n/a         $166,800
  (& Surviving
   Spouse)
  Married Filing
   Separately           $84,775  n/a          $83,400
  Single               $169,550  n/a         $166,800
  Head of Household    $169,550  n/a         $166,800

  *** For 2010, these limitations disappeared from the tax code; if the
  limitation rules under EGTRRA are allowed to sunset, the above rates
  will apply for 2011.





  Personal Exemption Amounts

   2011     2010  Increase
  $3,700  $3,650       $50





  Threshold for Personal Exemption Phaseout

                    2011(with
  Filing Status       sunset)    2010****      2009
  Married Filing
   Jointly            $254,350  n/a        $250,200
  (& Surviving
   Spouse)
  Married Filing
   Separately         $127,175  n/a        $125,100
  Single              $169,550  n/a        $166,800
  Head of
   Household          $211,950  n/a        $208,500

  **** For 2010, these "phaseouts" disappeared from the tax code; if
  the phaseout rules under EGTRRA are allowed to sunset, the above
  phaseout levels will apply for 2011.





  Gift Tax Exemption

    2011      2010   Increase
  $13,000  $13,000         $0





  Income Limit for Full Roth IRA Contribution

  Filing Status      2011      2010   Increase
  Married
   Filing
   Jointly       $169,000  $167,000     $2,000
  Single         $107,000  $105,000     $2,000

  Income Limit for Full Roth IRA Contribution
  Filing Status               2011      2010  Increase
  Married Filing Jointly  $169,000  $167,000    $2,000
  Single                  $107,000  $105,000    $2,000


* These numbers are projected for the 2011 tax year and have not been confirmed by the Internal Revenue Service.
CCH, a Wolters Kluwer business (CCHGroup.com) is the leading global provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913.

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Thursday, April 8, 2010

With Tax Deadline Looming Remember the Newer Nastier IRS

/PRNewswire/ -- As taxpayers finish their 2009 returns, one tax resolution attorney has a warning: Today's IRS is nastier than ever.

"Those of us who fight the IRS every day know this is not true. The US Treasury is desperate for cash and the IRS has been told to get tougher in collecting old debts," says Anthony E. Parent, founder of IRS Medic, Wallingford, CT (www.irsmedic.com).

According to Atty. Parent, the IRS has three new scary tactics:

New Revenue Officers

The IRS has hired many new and forceful Revenue Officers who will come to people's home, businesses or even to a Rotary Club meeting to find delinquent tax payers. "These Revenue Officers tend to be overly aggressive because they think that this will impress their superiors and get them promoted," he cautions.

Seizures of Personal Residences

For the first time, taxpayers' primary residences are up for grabs by the IRS. "The IRS is now willing to seize a taxpayer's primary residence if they feel there is enough equity to satisfy the tax obligation. They can be convinced to back off if you offer a reasonable collection alternative. It's not easy, but it's possible," says Atty. Parent.

Seizures of Retirement Accounts

In the past, the IRS would not seize retirement accounts, but that too has changed. "The IRS is getting bolder," says Atty. Parent. "They can and will wipe out a taxpayer's entire retirement savings if they feel they can collect enough money. There are legitimate ways to prevent this, but you need to know what you're doing."

The moral is anyone owing money to the IRS needs to be proactive and not wait for the IRS to come to them. "We've had clients who came to us after the IRS has pursued them. That makes helping them a lot harder. If someone comes to us early in the game, we have more options. Don't ignore the IRS. They have to send you a certified letter before they levy or seize your property, but people refuse to pick up those letters. And when the IRS takes aggressive action against them -- like wiping out a bank account or levying wages -- they were surprised. You do not want to be surprised by the IRS. It won't be pleasant and the longer you wait, the more shocking it will be."

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Tuesday, January 5, 2010

AICPA Supports IRS Plan to Register All Tax Preparers, Expresses Concern Over Wider Plan to Certify Non-CPAs

/PRNewswire/ -- The American Institute of Certified Public Accountants supports a proposal announced today by the IRS to regulate U.S. tax preparers by requiring nationwide registration of paid tax return preparers in 2011. The IRS's goals are to enhance compliance and elevate ethical conduct of tax preparers which are consistent with the AICPA's code of conduct and tax standards.

"The AICPA worked closely with the IRS during the public comment period leading up to this proposal and we believe this change will foster greater compliance with the tax code and better, more reliable service for U.S. taxpayers across the board," said AICPA President and CEO Barry Melancon.

"However, we have concerns about the IRS plan to provide tax preparers who are not already CPAs, enrolled agents or attorneys with a certification based on limited qualifications," Melancon said. "A new IRS examination process may cause confusion among taxpayers about the relative qualifications of tax return preparers."

The IRS plans to conduct a campaign to educate the public about the need to regulate tax preparers and the AICPA will work with the IRS to help it implement the recommendations to meet both the public interest and CPA practice requirements.

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Wednesday, October 28, 2009

US Lawmakers Now Agree with Cayman Approach to Tax Transparency

/PRNewswire/ -- Cayman Finance, representing the financial industry based in the Cayman Islands, today congratulated Chairman Max Baucus of the Senate Finance Committee and Chairman Rangel of the House Ways and Means Committee on their plan to tackle offshore tax abuse through increased transparency and enhanced reporting requirements. The new comprehensive proposal does away with the damaging features of Senator Levin's Stop Tax Haven Abuse Act, which would rely on "lists" and other provisions that would discourage corporations and other financial entities from conducting lawful business in Cayman and providing funding into the United States. "Cayman Finance commends Chairman Baucus, Chairman Rangel and their colleagues for their leadership on this important issue," said Cayman Finance Chairman Anthony Travers. "This proposal is entirely consistent with the approach suggested by Cayman Finance in our many meetings with these and other U.S. policymakers."

The new Senate-House proposal sets in place practices that will clamp down on jurisdictions which still practice tax evasion and improve taxpayer compliance by giving the IRS new administrative tools. The "Foreign Account Tax Compliance Act" aims to force foreign financial institutions, foreign trusts and foreign corporations to provide information about their U.S. accountholders, grantors and owners. The government and financial firms in the Cayman Islands have supplied full financial information and tax information for many years under the 1990 and 2001 treaties with the United States, and take pride in the regulatory and fiscal transparency that is a requirement for IOSCO (International Organization of Securities Commissions) membership. Cayman has also signed tax transparency treaties with the European Union and more than 12 other jurisdictions.

"Cayman Finance is confident that enactment of the U.S. legislation proposed by the two Chairmen will contribute significantly to the certainty and stability that the capital markets require, as well as the ability of the Cayman Islands to continue to successfully fund United States institutions from those markets," Travers said.

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Thursday, October 15, 2009

IRS Amnesty Program Extended

24-7- The IRS Amnesty Program has been extended from September 23, 2009 to October 15, 2009. This program allows United States citizens and residents with offshore accounts to come forward and avoid criminal prosecution. In addition, the program results in significantly reduced penalties. The extension to October 15, 2009 allows more time for people to take advantage of this opportunity to avoid potential criminal prosecution for unreported offshore accounts.

The criminal penalties which can flow from unreported offshore accounts include:
1. Conviction of a felony punishable by up to 10 years in prison for not filing the yearly form disclosing offshore accounts over $10,000.00. This form is known as an FBAR.
2. Conviction of tax evasion, a felony punishable by up to 5 years in prison for willfully not reporting the income on foreign accounts.
3. Conviction of willfully filing a false tax return, a felony punishable by up to 3 years in prison for false statements on the tax return relating to the offshore accounts and income earned on the accounts.

The civil penalties imposed if the IRS learns of an unreported offshore account with a balance over $10,000.00 are severe and are in addition to criminal penalties. The civil penalty for not filing the yearly FBAR disclosing the offshore account is 50% of the highest value of the account, every year that the FBAR is not filed. Civil penalties for failure to disclose the income earned on offshore accounts can range from 20% to 75%.

The IRS Amnesty Program allows a person to avoid the potential criminal prosecution and significantly reduce the civil penalties.

An example of the civil penalties under the Amnesty Program compared to what would happen if the IRS discovers the offshore account reveals the benefit of the Amnesty Program. As an example, if the offshore account contains $1,000,000.00 and earned 5% per year from 2003 through 2008, the civil penalties and taxes on the earnings would be $386,000.00 plus interest under the Amnesty Program. Without the Amnesty Program the taxes and penalties would be $2,306,000.00 plus interest. This figure could be even more if the IRS imposed a fraud penalty
on the unpaid taxes.

In order to successfully enter and complete the IRS Amnesty Program, people should contact an attorney with experience in defending IRS criminal cases and investigations. Mark Horwitz is representing people who reside in the United States and in other countries in helping them successfully through the IRS Amnesty Program.

Article provided by Law Offices of Mark L. Horwitz, P.A.

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Thursday, September 3, 2009

IRS Voluntary Disclosure Program for Swiss Bank Accounts to End Sept. 23

The Internal Revenue Service is set to end Sept. 23 its voluntary disclosure program that allows U.S. taxpayers to avoid criminal prosecution if they pay taxes, interest and penalties for the past six years, in addition to a penalty equal to 20 percent of the highest account balance. Although the cost of voluntary disclosure is significant, it is much less than the costs of being pursued, either civilly or criminally, by the U.S. tax authorities.

The voluntary disclosure program was put in place after it was revealed that thousands of wealthy Americans were illegally hiding money in Swiss bank accounts. The activity came to light when a former employee of the Lichtenstein bank, LGT, provided data to the German government in 2008 on foreign accountholders using LGT to evade taxes. Later that summer a former employee of the Swiss bank, UBS, also admitted that UBS was assisting many wealthy Americans in evading taxes by hiding money offshore. Names were released and again the U.S. government was in hot pursuit of tax evaders. The UBS scandal gave rise to a lawsuit where UBS admitted to assisting in tax evasion, paid the U.S. government a $780 million fine, and ultimately agreed to turn over details on U.S. citizens with Swiss accounts at UBS.

To date, the IRS has witnessed an overwhelming response to its voluntary disclosure program. Stephen Ziobrowski, a tax partner in the Boston office of Day Pitney LLP, says: "The voluntary disclosure program has turned into a convenient revenue generator for the IRS. The IRS is able to collect significant past due taxes, interest and penalties without utilizing the resources that would be necessary to pursue these taxpayers on an individual basis." Mr. Ziobrowski added that, "Many clients come to us, unable to sleep at night, due to their fear of being caught by the IRS. Although the costs of voluntary disclosure are significant, clients often consider it a good investment to regain their peace of mind and ensure that their children or grandchildren do not someday inherit their tax problems."

Once the voluntary program ends there is no indication as to whether the IRS will extend the program beyond the current deadline. Daniel L. Gottfried, a tax attorney in the Hartford office of Day Pitney LLP, says, "The only way to resolve these tax compliance problems with a high degree of certainty is to enroll in the voluntary disclosure program, and taxpayers have a limited time to get into the program before the doors close. Affected taxpayers must consult their attorneys immediately in order to meet the Sept. 23 deadline."

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Friday, May 8, 2009

New I.R.S. Tax Rulings Provide Alternatives to Victims of Madoff, Ponzi Schemes

(BUSINESS WIRE)--Victims of the Bernie Madoff fraud and other Ponzi schemes have alternatives for obtaining refunds from tax losses and should weigh the numerous recovery avenues before proceeding with a course of action, according to a prominent Florida tax attorney with in-depth knowledge of the new rulings.

The topic, “The Safe Harbor, is it Worth it?” is published on www.bernardmadofftaxloss.com. It will be presented by Boca Raton-based attorney Richard S. Lehman on Wednesday, June 10, 3-5 p.m. at the Boca Raton (FL) Marriott. The course offers CPE credit for accountants. To register, call 561-368-1113 or visit www.bernardmadofftaxloss.com.

“Thousands of people are facing financial ruin from Ponzi scheme losses,” said Lehman. “Many of these victims aren’t aware of the many courses of action they can take for recovery of taxes paid. Accountants, financial advisors, and attorneys must work together in mapping out an effective strategy for these people.

“The I.R.S. offers victims a ‘safe harbor procedure’ that will be beneficial to many Ponzi scheme victims seeking tax refunds from tax losses. However, the I.R.S. requires the taxpayer to waive certain important tax rights to accept the benefits. For many people the tax rights they are forced to waive are very valuable and do not have to be waived.

“For victims to choose correctly between the safe harbor rules or alternatives, it will be important for them to have accounting and legal experts to guide them through the process of determining whether the safe harbor is the best choice and available to the client or whether the client will benefit more by proving that he is entitled to similar tax benefits to the safe harbor without waiving valuable rights.”

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Thursday, April 16, 2009

Tier Announces IRS Says Credit and Debit Card Convenience Fees are Deductible for Some Individual Taxpayers Who Itemize

(BUSINESS WIRE)--Tier Technologies, Inc. (NASDAQ:TIER) and Official Payments Corporation, its wholly-owned subsidiary, today announced that the Internal Revenue Service (IRS) has decided that the convenience fees charged for paying federal individual income taxes using a credit or debit card are deductible for some taxpayers who itemize. This decision is a change from prior policy.

The IRS had previously determined that only convenience fees incurred by business taxpayers can be deducted as a business expense.

In reassessing the position for individual taxpayers, the IRS decided that the convenience fees associated with the payment of individual federal taxes, including payment of estimated tax, can be included as a miscellaneous itemized deduction. However, only those miscellaneous expenses that exceeded 2 percent of the taxpayer’s adjusted gross income can be deducted.

Convenience fees are deductible in the tax year they occur. For example, fees charged to payments made during 2009 can be claimed on the 2009 return filed next year.

Since 1999, when Official Payments began processing federal tax payments for the IRS, the company has processed over $9.0 billion in federal taxes. Payments may be made securely with an American Express®, Discover® Network, MasterCard® or Visa® card or by calling 1-800-2PAY-TAXSM (1-800-272-9829) or visiting www.officialpayments.com.

Official Payments charges a convenience fee for this service. Taxpayers using credit and debit cards with bonus rewards programs may, depending on their card’s program, earn reward points, frequent flyer miles or money back for paying their taxes. Taxpayers are advised to check with their card issuer for details.

Not everyone who pays a convenience fee will be able to deduct them. Taxpayers first must be eligible to file a Form 1040 Schedule A to itemize their expenses. And, taxpayers must have enough miscellaneous expenses to exceed 2 percent of the taxpayer’s adjusted gross income. Miscellaneous expenses include but are not limited to items such as tax preparation costs, job search expenses and unreimbursed employee expenses.

Most individuals still pay their federal tax obligations by check, but last year more than 4 million taxpayers electronically paid their taxes according to the IRS.

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Monday, February 9, 2009

What You Need To Know About Dependents And Exemptions

(SPM Wire) It's that time of year again, when having dependents is a good thing for your wallet.

Before you claim all those dependents on your tax return, however, you need to make sure you're doing so correctly.

Here are some of the top things you'll need to know, from the experts at the IRS:

Dependents may be required to file their own tax return. Even though you are a dependent on someone else's tax return, you may still have to file your own tax return. Whether or not you must file a return depends on several factors, including: the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and any advance Earned Income Credit payments you received.

Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,500 on your 2008 tax return. Exemptions amounts are reduced for taxpayers whose adjusted gross income is above certain levels, which is determined by your filing status.

Dependents may not claim an exemption. If you claim someone as a dependent, such as your child, that dependent may not claim a personal exemption on their own tax return.

Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you're filing a separate return, you may claim the exemption for your spouse only if he or she had no gross income, are not filing a joint return and were not the dependent of another taxpayer.

Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if he or she files a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children.

For more information on dependents and exemptions, including whether or not you or your dependent needs to file a tax return, read IRS Publication 501, entitled "Exemptions, Standard Deduction, and Filing Information" and available online at www.IRS.gov.

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Monday, January 19, 2009

History and Overview of the Federal Estate Tax

/24-7/ -- The federal estate tax is defined by the Internal Revenue Service as a tax on the right to transfer property at death. The tax is imposed on the taxable estate, which is the total fair market value of the property transferred at death (called the gross estate) minus allowable deductions. Deductions allowed under the Internal Revenue Code include administration expenses, funeral expenses, charitable transfers and property that will be passed on to a surviving spouse.

History of the Estate Tax

Prior to 1916, death taxes were enacted temporarily to raise funds for a specific purpose. For example, the first version of the estate tax was enacted by Congress in 1797 to fund the formation of the American Navy. The Revenue Act of 1862 enacted an inheritance tax and introduced a gift tax for the first time in order to fund the Civil War effort. The War Revenue Act of 1898 implemented an inheritance tax of .74%.to 15%, which was used to fund the Spanish-American War.

The Revenue Act of 1916 assessed taxes on estates based on their value as of the date of death. An exemption of $50,000 was allowed. Rates ranged from 1% for estates with a net value below $50,000 to 10% for estates over $5,000,000. These rates were increased in 1917 to 2% for estates valued at less than $50,000 and 25% for estates over $10,000,000. The Revenue Act of 1918 cut the rates on estates valued below $1,000,000 and expanded the estate tax base by including life insurance proceeds and the value of the surviving spouse's interest in the estate above $40,000 of the estate's value.

The Revenue Act of 1924 raised the tax rate to 40% on estates over $10,000,000 and added a gift tax. The gift tax was repealed in 1926 and the estate tax rate was lowered to 1% for estates below $50,000 and set at 20% for estates over $10,000,000. Between 1932 and 1942, estate and gift taxes were increased several times and exemption amounts were lowered. Estate tax rates were at their highest rate in 1941 - 77% for estates over $50,000,000.

The Tax Reform Act of 1976 brought sweeping changes to the estate and gift tax laws. The reform included a generation-skipping tax. The three separate taxes became part of a unified system for the first time. Estate and gift taxes were capped at 70% for estates over $5,000,000.

The Economic Recovery Act of 1981 phased in an increase in the unified tax transfer credit from $47,000 to $192,000 and a decrease in the maximum tax rate from 70% to 50%. The limits on estate and gift tax marital deductions were eliminated. The Taxpayer Protection Act of 1997 phased in an increase in the amount excluded from taxes from $600,000 in 1997 to $1,000,000 in 2006.

Current Law

The current estate taxes are nearing the end of the phased changes set forth in the Economic Growth and Tax Relief Reconciliation Act of 2001 ("2001 Act"). The 2001 Act gradually reduced the maximum estate tax rates from 50% in 2002, to the current rate of 45%, where it will remain through 2009. The amounts exempt from estate taxes increased from $1,000,000 in 2002 to $2,000,000 for 2008. This amount increases to $3,500,000 for 2009. The 2001 Act repeals the federal estate tax in 2010. Unless Congress acts to extend the tax relief offered by the 2001 Act, the rates will return to pre-2001 Act levels in 2011.

The history of federal estate taxes indicates that the U.S. government has used estate taxes as a source of revenue during tough economic times and war. With the war in Iraq draining resources and the current economic recession, it seems possible that Congress will not extend the estate tax relief provided in the 2001 Act.

Article provided by the Prince Law Firm. Please visit us at www.probateprince.com.

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