Blog

On Monday, taxpayers discovered whether they will or will not benefit from Minnesota’s  “middle class tax cuts,” approved by state lawmakers late last week. Minnesota Revenue Commissioner Myron Frans outlined the tax breaks at a news conference. (See http://vimeo.com/89950804. )

It’s clear that hundreds of thousands of taxpayers will benefit from them; it’s also clear that the late date of the changes – within a month of the filing deadline for 2013 returns – is going to complicate some filings and refunds,

April 3 is an important date.  That’s when the state Department of Revenue plans to have revised forms and instructions available both for tax preparers, such as EricJohn Ltd., and the general public.

All this is happening to simplify Minnesota’s tax system and coordinate it better with federal tax rules. In short, Minnesota has been taxing some items that are deductible on federal returns. The new state law allows those federal deductions to apply in Minnesota, as well. The DOR lists 10 changesfor 2013 tax returns:

• Expansion of the Working Family Tax Credit – It could add $334 for families declaring between $25,000 and $45,000 a year in their modified adjusted gross income.
• Mortgage insurance deduction – Homeowners now can deduct mortgage insurance premiums. A limit of $110,000 in modified adjusted gross income applies.)
• Mortgage debt forgiveness – If a lender forgave part of a mortgage loan, the homeowner can exclude that amount from Minnesota income.
•  Higher education tuition deduction — Many taxpayers who spent for tuition and fees to a college or another postsecondary school be in line for a deduction of as much as $4,000. (Modified AGI limits apply.)
• Student loan interest deduction – Those who paid student loan interest might be able to deduct as much as $2,500 from their Minnesota return. (Modified AGI limits apply.)
•  Education savings exclusion – Taxpayers who used a Coverdell savings account to pay education costs can exclude those distributions from Minnesota income.
•  Education scholarships – A couple of scholarships related to the National Health Service Corps also can be excluded.
•  Educator expense – Teachers or employees in K-12 schools can deduct as much as $250 for books or supplies they purchased for classroom use.
•  Assistance from an employer – Workers who receive money from an employer for education, commuting or adoption costs can exclude that assistance on Minnesota returns. (Each type of cost has a limit for the exclusion.)
•  Donations from an IRA – Taxpayers who are 70½ or older can exclude as much as $100,000 of their contributions from an IRA to a qualified charity.

Want more details?  Navigate by computer to www.revenue.state.mn.us and, on the first page, click the orange button named “Tax Law Changes.”

 

CLAIMING NEW TAX CUTS

About 1.4 million tax returns – of an estimated 2.7 million coming – already have been filed.  Minnesota’s DOR plans to make adjustments to any prevously filed returns with the new tax breaks, using figures from federal tax returns. Taxpayer involved will receive a notice by mail (NOT by email) and a refund. Or, the notice may ask for more information.

If the DOR can’t adjust a return adequately, the taxpayer will have to file an amended return to take advantage of the new tax cuts.

Here is some advice from the Minnesota Revenue. If you qualify for any of the new tax breaks and have not yet sent in your return, wait until after April 3, when revised forms become available. Your return won’t require special handling and processing should be quicker.

Your Minnesota return will be processed if you send it now, but you also may have to wait longer for a refund, especially with an amended return. The state tax agency could take as long as six months to process an amended return, Frans said.

Currently, about 1 in 10 taxpayers, or more than 250,000, are likely to receive a larger refund because of the changes approved in recent days. . Next year, about 1 million Minnesota taxpayers are expected to benefit from those tax breaks, Frans said.

 

 

The Minnesota Legislature finished it and Gov. Mark Dayton signed it Frida.y. A new TAX BILL is now law. As we told you last week, the law promises to change many taxpayers’ returns for the better. In some cases, it could be much better.

This weekend, the state Department of Revenue is suggesting that both taxpayers and preparers wait a few days to file M1s until its impact is explained. On Monday, State Revenue Commissioner Myron Frans will meet with media reporters to talk about the effects of the new legislation on taxpayers’ 2013 returns.

THE PRESS CONFERENCE WILL CARRIED LIVE ON THE INTERNET AT 11 A.M. LOOK AT: http://www.ustream.tv/channel/mn-department-of-revenue-live.

Why should you hold off filing for a few days? A number of the tax breaks in the new law are retroactive, meaning they apply backwards to tax year 2013. Dayton’s administration estimates that 300,000 to 500,000 tax filers stand to benefit to some exent.

Tax professionals will receive more detailed analysis in a conference call with DOR on Wednesday (3/26). “We are working to get new forms and instructions to you by April 3,” Terri Steenblock, assistant commissioner for individual taxation, announced.

The most likely scenario is that the department will try to fix many eturns that already have arrived. If they can’t be fixed right away, some taxpayers probably will have to amend theis.
r return
So, give it a few days, if you haven’t sent your return to Saint Paul yet.. Patience might pay better than a rush to file your Minnesota 2013 tax return!

Of course, you also can leave the tax chore with us at EricJohn Ltd or another preparer. Whichever you do, stay tuned! Some tax dollars you’ve spent may be floating back to you!

Minnesota lawmakers are in session, and their next few weeks of action could give taxpayers some new tax breaks.

Gov. Mark Dayton is proposing tax cuts that MIGHT BENEFIT even Minnesotans who already have filed their 2013 returns! If his line-up of tax breaks gets a go-ahead from the entire Legislature, some will apply retroactively to 2013. That’s according to Terri Steenblock, the Minnesota Department of Revenue’s assistant commissioner for individual taxation, and, of course, she should know.

On the governor’s list of tax-reducing actions are
• Allow as much as $190 a year in deductions for student loan interest paid by recent college graduates.
• Allow an exclusion from income for any discharge of debt involving a home. That might happen if a lender forgives part of a mortgage.
• Help teachers who spend their own money for classroom supplies with a deduction of as much as $250 for those personal expenses, which are not deductible now in Minnesota/
• Enable Minnesotans over age 70½ to exclude as much as $100,000 for making a contribution from an IRA to a recognized charitable organization.
Other provisions would align Minnesota’s tax codes closer to federal tax law, simplifying the system.

The bill already has passed the Minnesota House of Representatives, and has landed in the Senate for action.

You might be wondering how taxpayers will receive the benefits under the new law if they already have sent their 2013 returns. (Minnesota has received more than 1 million returns this tax filing season so far.)

Steenblock says the state Department of Revenue actually may just fix the return itself. It also could ask you for more information in a letter and then adjust your return. In some cases, if the agency can’t repair the return itself, it will send the taxpayer a notice and ask for an amended return.

So there are still chances for more tax breaks, even if the 2013 return has gone to the tax collectors. The bill to watch in the Senate is SF 2388. Track it via this link: https://www.revisor.mn.gov/bills/bill.php?b=Senate&f=SF2388&ssn=0&y=2014.

Indiana taxpayers who are trying to trim their state income taxes probably can find a tax break or two at their homes!

Homeowners can lop residential property taxes right out of their tax returns, up to a maximum of $2,500. The state Department of Revenue does note that the residence involved has to be subject to Indiana property taxes; the residence can’t be in another state, for example. That deduction saves about $85 in taxes, the agency says.

Renters get a similar opportunity. They can subtract up to $3,000 worth of rent they paid. That tax break is worth about $105, the department estimates. The deduction could help college students who are paying apartment rent and must pay Indiana income tax on earnings from a job.

The Indiana DOR notes the state actually offers about 20 more tax cuts for individuals. They include breaks for costs of energy-saving materials, insulation and a portion of unemployment compensation, among others. Find more information online at: http://www.in.gov/dor.

Experienced in multi-state returns, EricJohn Ltd. can find those deductions for either your Indiana or your Minnesota income tax return!! Call to find out more at (763).537-3244 or email to: [email protected]

Here’s one way to make use of your children’s elementary and high school educations. Minnesota taxpayers with children often will be able to lower their state income taxes by deducting various school-related expenses.

In fact, some families qualify for the most powerful breaks – refundable tax credits, which offset taxes on a dollar-for-dollar basis. Many families with too much income for a tax credit still can take advantage of a “subtraction,” which reduces taxable income on the return.

Which schooling expenses are eligible? Expenses required by public schools and personal supplies (pens, pencils, rulers, etc.) necessary for classes generally qualify for a tax break. Private school tuition is eligible for the subtraction; some expenses of tutoring and home-schooling also can be claimed for at least one of the two tax-saving measures.

Most non-academic activities are excluded, but there are some important exceptions to that rule. For example, while athletics are out, music lessons from a “qualified instructor,” are eligible. The state Department of Revenue recently listed some common errors in claiming educational tax cuts. These expenses are not eligible:

• Fees for athletic programs.
• School uniforms of any type, including graduation gowns. (But gym clothes required for physical education classes are an exception and are eligible.)
• PSAT, ACT, and SAT testing fees
• More than $200 in spending for computer hardware and/or software.
• Costs of recreational programs including those run by the Boy Scouts and Girl Scouts.

Fortunately, the Minnesota DOR spells out the many ins-and-outs in the “K-12 Education Subtraction and Credit” fact sheet. Look for Income Tax Fact Sheet 8, available at the DOR Web site, www.revenue.state.mn.us. The Web site also offers a page describing “Qualifying Expenses for the K-12 Education Credit and Subtraction.”

If you elect the education credit, you’ll be dealing with Schedule M1ED, which involves income limits. If you choose the subtraction, you’ll take it on Schedule M1M. Both forms feed into the M1 tax return for individuals.

We also can help. EricJohn Ltd. is equipped to wade through the technicalities of Minnesota’s tax breaks for education!

Sometimes the curiosity is overwhelming and you just have to know: “Is my tax refund on its way yet?” (This usually happens at the shopping mall, right?)

Well, the Internal Revenue Service now has added instant tracking via mobile devices for those times when you just can’t wait. A 2014 update to its IRS2GO smartphone app allows users to check the current status of refunds, as well as to order past tax returns and other tax-related records.

•Track refunds. Taxpayers can follow their 2013 returns step-by-step during IRS processing. You’ll need a social security number – the IRS promises it will be “masked and encrypted for security purposes” – along with your filing status and expected amount of the refund. Start checking as soon as 24 hours after the IRS confirms arrival of an e-filed return. Tracking of a paper return takes longer. You can start checking four weeks after mailing the return.

•Order personal tax records and returns – If you need a past tax return, bill or some other IRS-held tax record, you now can request a copy through IRS2GO. You won’t see it instantly on the screen, though. The IRS will send it by mail to your taxpayer address. This feature alone can be a huge time-saver. It used to take several weeks, or longer, to request and receive tax transcripts from the IRS. (By the way, a similar service also is available online at www.irs.gov. See my previous post.)

The tax agency also gave IRS2GO a new look and feel for 2014. Download it free at Apple’s iTunes App Store or Google Play for Android devices.

The IRS says IRS2Go has been downloaded 3.5 million times since its release in 2011. The 2014 edition is Version 4.0, and features are available in both English and Spanish.

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.