Eager to file your 2013 taxes? Want to shoot those numbers out of your computer and into the machines at the Internal Revenue Service as soon as possible?

Sooner may be better for you, but not for the IRS. Both the IRS and the Minnesota Department of Revenue have announced their starting dates for 2013 tax filings, and the federal government’s shutdown delayed things a bit.

Individuals

The tax collectors begin accepting 1040 forms and other returns from individual taxpayers – that includes businesses that file through the 1040 system – on Friday, Jan. 31, 2014. That’s the date when the IRS computers will open and processing will begin.

The deadline is the same for either e-file (electronic) or paper tax returns. “The IRS cautioned that it will not process any tax returns before Jan. 31, so there is no advantage to filing on paper before the opening date,” according to the agency.

Of course, an accountant or tax preparation service probably will want to have your figures as soon as possible to prepare your return. But even they won’t be able to hasten processing or speed up an IRS refund.

Businesses

Corporations, partnerships and other businesses will be able to file their 2013 returns about 2½ weeks earlier on Monday Jan. 13. They typically deal with the IRS through its Business Master File. Among the federal returns being accepted then are:  Forms 1120 (corporations), 1120S (S corporations), 1065 (partnerships); 1041 (estates and trusts).

Again, this date does not include filings for many small businesses — sole proprietors, landlords, farmers, etc. — whose main return is a Form 1040.

Minnesota basically has pegged its start-up to the federal dates. The Minnesota return uses the federal tax return as its starting point.

What did the government shutdown have to do with it?

The IRS originally scheduled Jan. 21 as its start date for individual tax returns, and that actually would have been nine days ahead of last year’s opening; instead, it now will be one day later than last year. The October shutdown halted close to 90 percent of IRS operations “during the peak period for preparing IRS (computer) systems for the 2014 filing season,” the IRS said in a written release. It threw the work of programming and testing more than 50 IRS systems off schedule by nearly three weeks, the agency said.

Federal and state tax returns for 2013 still will be due on April 15, 2014.  As in past years, the IRS is encouraging all individual taxpayers to file electronic returns through either its e-file or Free File systems.

.The online word from IRS: http://www.irs.gov/uac/Newsroom/2014-Tax-Season-to-Open-Jan.-31;-efile-and-Free-File-Can-Speed-Refunds

 

Planning to deal with the Minnesota Department of Revenue by computer this weekend?

Well, take the weekend off for holiday shopping instead. You’re going to have to wait until Monday, Dec. 9, to talk to the state’s tax computer.

The Department of Revenue announced that its entire set of online services, including the e-Services system, will not be available on Dec. 7 and Dec. 8. because of scheduled maintenance. That means that taxpayers won’t be able to file returns, make payments, submit W-2 forms or complete any other electronic transactions.

The temporary interruption in e-Services won’t affect any due dates. Regular deadlines for filing and paying taxes still apply, a department notice said. “Please plan accordingly,” it advised.

 

 

 

 

 

 

 

Uncle Sam still is willing to give tax breaks for saving energy around your house.  The American Recovery and Reinvestment Act of 2012 extended tax credits for many common upgrades through Dec. 31, 2013, and for additions of alternative energy until the end of 2016.

Homeowners can claim a tax credit of 10 percent of the costs of improvements made to a “main home,” during 2013.  Energy-efficient upgrades such as insulation, doors, roofs and windows qualify.  The actual costs of some types of improvements, such as water heaters or heating systems, also can meet IRS approval, but there are various limitations to the costs. But there’s one important caution:  Buyers should check eligibility carefully, because not all energy-efficient installations qualify. The IRS advises obtaining a manufacturer’s credit certification, which should come with any energy-efficient equipment.

The tax credit for 2012 and 2013 is a maximum of $500, of which $200 can be claimed for new windows.

Incentives for  alternative energy equipment– such as solar electric panels, solar water heaters and wind turbines – are more generous. Homeowners can take a tax credit of 30 percent of  those installations, and there is no limit to the credit. In fact, the credit also can be carried forward to next year’s tax return if it’s not all used in 2013!  Those tax breaks are available through 2016.

Taxpayers can claim both the “Non-Business Energy Property Credit” (insulation, doors, etc.) and the “Residential  Energy Efficient Property Credit” (alternative energy devices) on IRS Form 5695.

In 2014, Various Tax Benefits Increase Due to Inflation Adjustments

IR-2013-87, Oct. 31, 2013

WASHINGTON — For tax year 2014, the Internal Revenue Service announced today annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2013-35 provides details about these annual adjustments.

The tax items for tax year 2014 of greatest interest to most taxpayers include the following dollar amounts.

• The tax rate of 39.6 percent affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return), up from $400,000 and $450,000, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.
• The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly, up from $6,100 and $12,200, respectively, for tax year 2013. The standard deduction for heads of household rises to $9,100, up from $8,950.
• The limitation for itemized deductions claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).
• The personal exemption rises to $3,950, up from the 2013 exemption of $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly.)
• The Alternative Minimum Tax exemption amount for tax year 2014 is $52,800 ($82,100, for married couples filing jointly). The 2013 exemption amount was $51,900 ($80,800 for married couples filing jointly).
• The maximum Earned Income Credit amount is $6,143 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,044 for tax year 2013. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
• Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000, up from a total of $5,250,000 for estates of decedents who died in 2013.
• The annual exclusion for gifts remains at $14,000 for 2014.
• The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains unchanged at $2,500.
• The foreign earned income exclusion rises to $99,200 for tax year 2014, up from $97,600, for 2013.
• The small employer health insurance credit provides that the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,400 for tax year 2014, up from $25,000 for 2013.

Details on these inflation adjustments and others not listed in this release can be found in Revenue Procedure 2013-35, which will be published in Internal Revenue Bulletin 2013-47 on Nov. 18, 2013.

“Use-or-Lose” Rule for FSAs

Notice 2013-71 contains modifications to the rules for §125 cafeteria plans. This modification permits §125 cafeteria plans to be amended to allow up to $500 of unused amounts remaining at the end of a plan year in a health FSA to be paid or reimbursed to plan participants for qualified medical expenses incurred during the following plan year, provided that the plan does not also incorporate the grace period rule. This carryover of up to $500 does not affect the maximum amount of salary reduction contributions that the participant is permitted to make under §125(i) of the Code ($2,500 adjusted for inflation after 2012).

It’s That Time of the Year Again — Annual Renewals Due by December 31

All registered businesses and nonprofits must renew their filing each calendar year — for most businesses there is no charge. This can be done online or by mail.

Businesses required to file include corporations, limited liability companies (LLCs), partnerships and nonprofits. Failure to renew will result in dissolution.

By now you’ve heard the screaming over outages and other glitches in www.HealthCare.gov, the Web site for the new federal Affordable Care Act. In short, it’s swamped and it can’t keep up with demand from the public. It now appears that, once the site is reliable, some consumers may find gaps in the affordability of their insurance under the new health care system.

One gap — nicknamed “the family glitch” on the Internet — already has come to light.  Briefly, some taxpayers could end up paying unaffordable costs for insuring dependents because of the way “affordable” is interpreted.

Here’s the gap in the law. Most employers are required to offer health insurance to both employees and their families, or dependents.  However, the new regulations require “affordable” premiums only for employee’s portion of the insurance – not for the dependent coverage. Employers can decide to bear more of the cost to make family coverage less burdensome, but that is not required.

At the same time, the new law requires all parents to buy health insurance for their dependents or to pay penalties at tax time. (There are some exceptions for low-income people receiving government assistance and other situations..)

The ACA foresaw that some people would be stuck paying unaffordable premiums and authorized a federal tax credit to help pay them. But consumers caught by this “family glitch” cannot claim the credit because, technically, the insurance obtained through their job is regarded as “affordable.”

The Affordable Care Act is extremely complicated, and we expect some current gaps will be closed as rules are revised in coming months. In the meantime, employers should alert workers about their rights and consumers should decide how they will seek insurance, if they don’t already have it.

We at EricJohn Ltd. can help both employers and consumers in navigating the new Affordable Health Care Act.

 

One of the easiest steps an owner can take when starting a business is to open a separate checking account.  Yet many sole proprietors — and even some self-filed corporations — choose to use their personal checking accounts for business.  I see this as a big mistake, and here’s why:

1. Comingling business and personal dollars can be extremely confusing when an owner and/or accountant must reconcile the business’s finances. It could even lead to lost deductions or tax credits!
2. Separate accounts also make it harder for owners to raid their company’s cookie jar!  As a rule of thumb, even small businesses should establish and keep a $5,000 reserve in their checking accounts. This may be very difficult for a new businesses, but owners should set it as a short-term goal.
3. For small business corporations, mixing personal with corporate expenses pierces the protective legal shell enjoyed by the corporation. It opens the business to increased liabilities.
4. Finally, commingled funds could cause extra taxes and will cause larger  professional fees if the company is audited.  State and federal tax agencies like to use the “deposit method” to reconcile a business’s income.  In short, all deposits, from any bank account are considered to be income until proven to be personal in nature.  This proof can be very tricky to find in archived records.  Those records also may be costly to obtain from your bank for audits, which typically are conducted two to three years down the road.  In most cases, the audit agent will dismiss reviewing your personal checking records if you maintain separate “business” bank accounts.

My advice:  For your peace of mind– both business and personal — don’t mingle your money!

Eric

The Affordable Care Act (ACA) requires employers to provide all new hires and current employees with a written notice about ACA’s Health Insurance Marketplace, or exchanges, by October 1, 2013. The Department of Labor (DOL) has provided two sample exchange notices, one for employers who offer a health plan to some or all employees and one for employers who do not offer a health plan. Employers may use one of these models, as applicable, or a modified version, provided the notice meets the content requirements described above. The DOL website has many FAQs, most notably, the following:

Q: Can an employer be fined for failing to provide employees with notice about the Affordable Care Act’s new Health Insurance Marketplace?

A: No. If your company is covered by the Fair Labor Standards Act, it should provide a written notice to its employees about the Health Insurance Marketplace by October 1, 2013, but there is no fine or penalty under the law for failing to provide the notice.

An S corporation is a kind of special case for reporting cancellation of debts, whether they involve mortgages or other indebtedness.

In short, a solvent S corporation gives the proceeds from cancellation of debt directly to its shareholders, and they must pay tax on that income.  It is reported on IRS Form 1120S as “Other income.”

A bankrupt or insolvent S corporation is entitled to exclude the income coming from debt cancellation on its tax return. It shows that on IRS Form 982. The underlying shareholders generally do not owe tax on that income. Be cautious, though. Some tax could be due when an S corporation is insolvent on its books, but has not yet filed bankruptcy.  That’s a time to check with a tax professional such as EricJohn Ltd.