Author: Eric Buechler

Baffled by a tax issue on your 1040 this year? Don’t count on phoning a friend at the Internal Revenue Service for a one-on-one chat.

The tax agency says it doesn’t have enough phone reps to tackle the deluge of questions coming to its telephone help lines . So, IRS customer service representatives now will refer taxpayers with complicated tax issues to its recorded briefings or to the IRS Web site (www.IRS.gov) to hunt for an answer themselves. IRS agents still will answer some basic questions about returns (see below), which account for a majority of inquiries, the tax collector says.

In an announcement, the agency cited “limited resources to support person-to-person services on the phone or at (local IRS) Taxpayer Assistance Centers.” That sounds a lot like a budget squeeze, and money shortages trace back to Congress, where budgets are set. So, if you’re irritated about losing the call-in help, our advice is: “Don’t get mad at IRS; be furious with Congress!”

More taxpayer-friendly is a new, automated service called “Get Transcript.” It allows taxpayers with computers to view and print out prior tax returns, as well as some other tax records. Look under the “Tools” heading on the IRS Web site.

Which services are being curtailed? Here’s a quick list:

• Tax law assistance: Callers with detailed issues about tax law will be directed to the IRS Web site, tax publications or tax preparation software. During tax season, (January to mid-April), the IRS will continue to answer basic questions pertaining to 1040A and 1040EZ returns and related 1040 issues, such as filing status, dependents, exemptions and taxable income.
• Tax return preparation: This service generally has been limited to lower income taxpayers. Now, the IRS will refer those taxpayers to various volunteer groups that offer tax preparation. Anyone with computer access also will be told about the IRS Free File system for e-filing.
• Tax refund tracking: The IRS will help with the status of refunds only 21 days after a return has been e-filed or six weeks after a paper filing. Otherwise, callers will be sent to “Where’s My Refund,” an automated service.
• Employee Identification Number requests: All requests for new EINs will go to the EIN Online Assistant, another computerized service. IRS representatives will only deal with problems regarding existing EINs.

By the way, the IRS also has figured out that a “growing number” of taxpayers in recent years have been calling into its dedicated phone line for professional tax preparers and accountants. That won’t work any more. The IRS says it now is restricting use of its “Practitioner Priority Service” to tax pros.
Of course, you still can ring up one of them yourself. We’ll take on your perplexing questions at EricJohn Ltd.!

Many taxpayers with W-2 wages normally would leave withholding for a new tax for Medicare in the trustworthy hands of their employers.  The additional tax is 0.9 percent, and the IRS requires employers to add it to the worker’s basic Medicare withholding (1.45 percent) once earnings reach $200,000.

But it’s not a perfect world out there, even on your W-2.  We’ve heard reports that a well-known software program used by many small businesses erroneously started withholding the new Medicare surtax on incomes much less than that relatively large $200,000 threshold.

Fortunately, employees can get any overpayment back through their tax returns, but, you guessed it, it takes another form. They (or their tax preparers) can file new IRS Form 8959, called “Additional Medicare Tax.”

So, are you affected by the software snag? There’s a short way to check by using your W-2.  Here’s how:

• · Locate box 5 (Medicare wages and tips) on the W-2.
• · Multiply those wages by 1.45 percent, if they are less than $200,000.
• · Compare the answer with the dollar amount stated in box 6 (Medicare tax withheld).  If it’s the same, there’s no problem. The withholding was correct. If it’s much different, the taxpayer should fill out Form 8959 and recover the extra tax withheld.

It’s a good idea to make the simple check. Even a small 0.9 percent tax can build into hundreds of dollars on a year’s worth of wages.

One last note:  Double incomes and filing status may force a taxpayer to file the additional Form 8959 anyway.  For example, the Medicare surtax applies to self-employment earnings as well as regular wages.

More questions? We can help at EricJohn Ltd. We pride ourselves on solving tax problems. (But, sorry, we don’t rewrite software!)

 

We know you’re working on your income tax returns now. But the Minnesota Department of Revenue this weekend turned our attention to the complicated – and often overlooked – world of sales and use taxes in Minnesota.
DOR highlighted a package of seven of its YouTube videos about those year-round taxes for both businesses and individual taxpayers. Together, sales and use taxes produce more than $10 billion per year, or about one-sixth of Minnesota’s annual revenues.

In the big picture, if you or your business buy something that’s taxable in Minnesota, you probably owe state sales or use tax on it under current laws. But there also are numerous details and exemptions inside the big picture. DOR delves into some of them in the videos and points you to the right places on its Web site for deeper explanation.

The most recent video, which was released last week, discusses a new exemption from sales and use taxes for local governments. You probably won’t be interested in it, unless you’re an elected official or local government employee.

Others are useful. Individual taxpayers/consumers will find the “What is Sales Tax?” and “What is Use Tax?” particularly worthwhile. They also note local sales taxes, which do apply in our hometown of Rochester, Minn.

For small businesses, “Sales and Use Tax: How It Affects Your Business” is a good wrap-up. It’s recent, having been released just last fall, and it runs about 6 ½ minutes.

The videos are available through YouTube. Use this URL: Sales and Use Tax – Inside Scoop: Local Government Sales Tax.

We at EricJohn Ltd. can steer you and your businesses through the ins and outs of Minnesota’s sales and use taxes.
http://ow.ly/trZuq

The Minnesota Department of Revene has started sending out acknowledgements of electronically filed corporate tax returns following maintenance to its computers.

In a bulletin issued on Wednesday (2/5),  the state agency said work on its computer system was completed and the notices to corporate tax filers started going out on Monday.  System maintenance had been underway since last Wednesday (1/29).

The computer issue apparently had affected electronic filings of  corporation franchise tax returns, partnership returns and S Corporation returns.

 

Uncle Sam will be slightly less accommodating with business mileage deductions in 2014 than in the last tax year.

Beginning Jan. 1, the IRS reset its standard mileage rates for the use of a car (including vans, pickups or panel trucks)  to:

• – 56 cents per mile for business miles driven.
• – 23.5 cents per mile driven for medical or moving purposes.

They amount to a minor — one-half cent — reduction from 2013’s  rates. The IRS adjusts those mileage rates annually.

The deduction for driving for charitable work remains at 14 cents a mile this tax year under federal law.

It’s been frigid in Minnesota, all right, but an audit report from Washington, D.C.,  had me steaming this week.

The U.S. Treasury Department’s Inspector General discovered that 1,168 vendors doing business with the Internal Revenue Service actually were delinquent in federal taxes. Together, those companies accounted for $589 million in unpaid taxes, and only $2 million worth of taxes from 50 vendors were part of payment schedule. One vendor alone apparently owed $525 million! (The contractor was not named in the report.)

How could IRS not  find that $525 million error?  That was inexcusable!

Until October 2011, the IRS could – and did – balk at checking contractors each year for tax compliance because there was no law explicitly allowing the agency to screen out tax violators that way.  Congress banned federal contracts to them with a law effective in fiscal year 2012, which began that October.

Most payments made by IRS apparently were under existing contracts. But auditors also found that the tax enforcement agency awarded $2.6 million worth of new or extended contracts to three vendors, who actually had been suspended from government work for tax reasons.

Although the system of controls appeared to be effective, “(The Treasury Inspector General for Tax Administration) found insufficient oversight and a lack of monitoring over operation and maintenance of the file, which contains information about vendors,” a Treasury announcement said.

For its part, the IRS accepted all of the Inspector General’s recommendations for finding vendors that owe Uncle Sam. Those contractors represented about 7 percent of 16,907 vendors dealing with IRS on July 2, 2012,

What’s irritating is the lack of oversight. It’s “Do as I say, not as I do!”

My personal and business taxes have to be current to renew my (Enrolled Agent) license, which is overseen by IRS, so why don’t the vendors? Why aren’t vendors of IRS held to a higher standard?

 

At tax time, do you struggle to find receipts for donations of clothing and other household items to charities?  Here’s a quick way to record your non-cash donations and reap a federal tax deduction for 2014.

As you drop off those used items at Salvation Army’s or Goodwill’s receiving stations, take a picture with your cell phone. Be sure to include both the goods for donation and the organization’s receipt in the photo.

Next, create an album on your phone and name it “2014 Tax.” Or, if you prefer to store the photos on your home computer,  simply email them to yourself.

It’s a simple trick that can save time and assure that you don’t miss out on deductions for charitable giving!

Here’s a real-life reminder to be wary of unsolicited mailings — even if they appear to be official.

Two EricJohnLtd. clients called last week to ask if they should fill out and submit an official-looking form they had received in the mail. It was titled: (MN) Annual Meeting (Corporate) Disclosure Statement, Minutes of Directors and Shareholders.

Both the envelope and the form appeared to be official government documents, but they really were creative solicitations from a private firm. (If you ready thoroughly, they carried a disclaimer.)

The promotion plays off the well-known requirement that Minnesota corporations hold annual meetings. Most companies have attorneys, accountants, or other advisers help with this requirement — not an unknown mail solicitor. That’s just a good and solid business practice.

We feel it is important for you as a corporate officer to seek out and align your business with trusted advisers. This clever come-on is one reason.

My accounting and tax preparation firm, EricJohnLtd., does offer a template form for recording minutes and results of annual meetings. But as always in legal matters, we also suggest you obtain proper guidance from your attorney.

Just one day left until the 2013 tax year ends! Where can an enterprising taxpayer turn for a very LAST-CHANCE deduction? How about CHARITY – and, come to think of it, and that’s not a bad way to wrap things up for the year!

Donations made through December 31 will apply to the 2013 tax return, whether they involve cash or goods. You’ll have to itemize on your federal tax return to take advantage of the deduction. However, Minnesota also offers some relief from state taxes for many taxpayers, even if they do not itemize.

For starters, look under the Christmas tree. Do some gifts replace clothes or toys that children have outgrown? You might also check your closets for obsolete stuff that someone else might use. You can contribute those secondhand items (in good condition, of course) to Goodwill Industries, the Salvation Army or another charity and reap a deduction.

One caution: Be sure to ask for a receipt showing the Dec. 31 date, as well as the initials of the employee or volunteer who receives the items. (You’ll probably have to set your own value for the items.) It also wouldn’t hurt to back up your deduction further, by taking a cell phone picture of the articles you contributed.

Generous taxpayers also can give dollars instead of goods and receive a deduction. We’d suggest dating a check and placing it in the mail in time to be postmarked on Dec. 31. Electronic donations also may qualify. For example, a charge made to a credit card is considered to be delivered in the year when you actually make the charge, the IRS says. For more details, check IRS Publications 526 or 17 (shorter explanation).

Meanwhile, Minnesota Department of Revenue allows taxpayers to subtract a portion of their charitable donations, if the giving is larger than $500 and they did NOT itemize on a federal return. That’s covered in the instructions for Schedule M1M.

The options for last-day tax deductions are limited, but helping others with a contribution will work, if done correctly!

Happy New Year from EricJohnLtd!!.

The Indiana General Assembly made some changes to tax laws that may help our individual income tax clients from that state. As with many states, the starting point for Indiana income taxes is the federal Form 1040.  Indiana then adds in various expenses that are deductible on the 1040, but are not deductible in Indiana. The state Legislature recently eliminated several of those “add back” items, which, in effect, passes the federal deduction into the state returns of Indiana taxpayers.

The requirement to add back these deductions (below)  has been eliminated and is retroactive to Jan. 1, 2013, the state Department of Revenue says. In short, taxpayers do not have to report them in state returns after the 2012 tax year.

• Educator expense
• Employer-provided educational expenses
• Qualified environmental remediation costs
• Oil and gas well depletion
• Qualified electric utility amortization
• RIC dividends to nonresident aliens
• Start-up expenditures
• Student loan interest

These add-backs were eliminated retroactive to Jan. 1, 2012 , which  means they are not required to be added back after the 2011 tax year.

• IRA charitable distribution add-back
• Motorsports entertainment complex expense
• Qualified advanced mine safety equipment expense
• Qualified leasehold improvement property expense
• Qualified restaurant property expense
• Qualified retail improvement property expense
• Qualified transportation fringe expense
• Tuition and fees deduction

If you reported any of the these  eight add-backs on your 2012 state tax return, you may be eligible for a refund or a tax reduction. See page 14 of the2013 IT-40 instruction booklet for details.

The state legislature made a few other changes for individuals.

• The automatic taxpayer refund credit is not available for the 2013 tax year.
• The School Scholarship Credit can now be carried forward for nine years after the unused credit year, and the cap on this credit has increased from $5 million to $7.5 million.
• The Coal Combustion Credit has been repealed.

The Indiana Department of Revenue also has changed some forms involving county taxes. The full-year, resident county tax schedules CT-40 and CT-40EZ have been simplified.  Also, the tax rates listed on the back of the schedules no longer include the nonresident rates. All 92 counties now have some level of income taxes.

All the 2013 individual forms and booklets are now available on the department’s website at www.in.gov/dor/4878.htm.

For more information about these legislative changes and more, see the 2013 Legislative Synopsis.