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.

 

 

 

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.