Blog

Just before Thanksgiving, the Internal Revenue Service took time to talk turkey about one major tax break for low and moderate-income families. On Nov. 22, IRS warned that taxpayers claiming the Earned Income Tax Credit or the Additional Child Tax Credit on their upcoming returns for 2016 can’t expect to receive a refund before Feb. 15.

That date really doesn’t have anything to do with how soon a taxpayer can send in a return. It’s now the law; the IRS simply is not allowed to pay out any quicker. Congress itself ordered the agency to hold back all refunds with those types of credits until mid-February. In its announcement, the IRS said the hold-up in early refunds will give it more time “to help detect and prevent fraud.”

While the delay in refunds was publicly disclosed, there’s also a lot going on behind the scenes to combat identity theft and other frauds. “These increased security screenings are invisible to most taxpayers,” IRS Commissioner John Koskinen said.

Some of those precautions behind the scenes involve tax preparers. Among them, paperwork has increased and the IRS has stiffened penalties for “reckless preparation” of forms applying for the Earned Income ax Credit and other related credits, EricJohn Ltd. owner Eric Buechler said.

Beginning with the 2016 tax return, taxpayers filing for the earned income and child tax credits should be prepared to document how household bills might be paid during a financial emergency, Eric said.  Specifically, that might require documents such as a  welfare or housing assistance statement or a court order for child support.

Despite the delay in early refunds for some taxpayers, most can still expect a refund check from Uncle Sam in their mailboxes within the normal time frame of about 21 days after the return is accepted for processing, the IRS said

As tax season approaches, we at EricJohn Ltd. can help with specialized tax credits or with tax planning.

A group of government agencies is bringing a wide-ranging seminar about business taxes and employment issues to a Stewartville golf course next month. Participants probably won’t hear much about long drives and putting, though.

The Minnesota Business Tax Education Partnership does promise in-depth information about topics important for Minnesota employers. Small businesses, which often can’t afford to have full-time personnel departments and tax advisors, especially can benefit.

Topics include:
• Independent contractor/company employee status
• Workings and requirements of state employment taxes
• New rules for hiring workers.
• Reporting about new employees to Homeland Security
• Labor standards
• Unemployment insurance and workers comp insurance

The educational meeting is from 8:30 a.m. to 4:30 p.m. on Tuesday, Nov. 22, at the Riverview Greens Golf Course, 1800 Clubhouse Drive N.E. in Stewartville.
Cost of $39 per person includes lunch and refreshments during breaks between sessions.

For reservations and questions about the Stewartville seminar, check online at www.uimn.org/uimn/employers/help-and-support/educational-seminars/seminar-schedule.jsp

The Minnesota Business Tax Education Partnership draws on experts from the Internal Revenue Service, state Department of Revenue, state Unemployment Insurance Program, U.S. Department of Labor, Internal Revenue Service, and Minnesota Workers Compensation Insurers Association.

We at EricJohn Ltd. also are ready to assist with tax advice or year-end business counseling.

The year 2012 probably is a distant memory for Minnesota soldiers, sailors, marines and other military who were serving in combat zones then.   But the state of Minnesota is reminding those veterans and active duty military to claim a substantial write-down of state taxes before it expires.

The deadline for applying for Minnesota’s Credit for Military Service in a Combat Zone is the middle of this month, Oct 15.

The Minnesota Department of Revenue figures that 2,400 veterans and active duty members of the armed forces are eligible, but have not yet applied for the “refundable” tax credit. It is set at $120 per month, or part of a month, served in the combat area.  A refundable credit is a direct subtraction from taxes.  A taxpayer can apply for the credit even if he or she had no state income in 2012 or didn’t file a tax return that year.

To claim the credit, fill in Form M99, entitled “Credit for Military Service in a Combat Zone.”

Minnesota Revenue also is accepting applications for the tax credits from Minnesotans who served in combat or hazardous duty areas from years 2013 through 2015. Look for more information on the tax agency’s Web site, www.revenue.state.mn.us.

EricJohn Ltd. of Rochester offers full tax preparation and tax consultation services.

Is your 2015 Minnesota tax return merely a distant memory now?

If you own or rent a home, you may want to spend a few more minutes with Minnesota Department of Revenue paperwork before mid-August. The state might have a property tax refund waiting for the asking!

Aug. 15 is the official due date for 2015 applications for the Homestead Credit Refund for Homeowners and the Renter’s Property Tax Refund. We say “official,” because Minnesota Revenue actually accepts 2015 applications for another year — until Aug. 15, 2017.

That makes Aug. 15 the final deadline for 2014 applications, and that probably is a distant memory!

Nonetheless, the refunds can mount up to serious cash. For 2015, a renter can receive as much as $2,050 and a homeowner as much as $2,640.at the highest level.

At the same time, not every Minnesota taxpayer will be able to snap up the refund. Those who own homes must have incomes less than $107,930, and renters must have made less than $58,490.  The house also must be the owner’s “homestead,” or primary residence. Vacation and second houses aren’t eligible.

To apply, use Form M1PR, which is available online and can be filed electronically. Renters, this is where you use the CRP, or Certificate for Rent Paid, which your landlord gave you months ago in January. Homeowners, you can find necessary figures on the Statement of Property Taxes Payable in 2016, which came from your county government in March.

In the instructions for the M1PR, you’ll find a detailed discussion of typical issues for both homeowners and renters. For example, the application uses “Household income,” which includes some types of income that typically are not shown on state tax returns.

Not only is there the regular homestead property tax refund, but Minnesota Revenue also offers a second, “special” refund for homeowners who got clobbered with a sudden property tax increase in 2015. If property taxes jumped at least 12% (and at least $100) from 2015 to 2016, homeowners can apply for that payout.

Feel free to call on us at EricJohn Ltd. for the expertise you need in filing for Minnesota’s property tax refunds.

 

This new tax promise ought to help float your boat, if you are running a small business!

The Internal Revenue Service just made a 5-fold increase in the property expenses that business taxpayers can deduct against their income. The agency now has enlarged its “safe harbor” amount to $2,500 per item (or invoice), meaning small businesses can count on the IRS accepting that level of deduction without challenge.

The rule gives more direction in handling minor purchases of property used by small businesses in their work. For example, tools such as smart phones, tablet computers and even parts for office equipment, are considered tangible property and, according to tax codes, they had to be depreciated over their lifetimes instead of being written off right away.

Even the IRS thought that level of detail was burdensome. So, for tax year 2014, the agency opened a safe harbor– one source calls it a “loophole” – for property expenses of $500 or less.  In short, the feds promised to treat them like ordinary business costs and not to quibble over deductions taken in the same tax year,

Well, that promise, which the IRS calls a “de minimus safe harbor,” now will float larger boatloads of expenses. Beginning Jan. 1, the IRS raised the amount to $2,500 per purchase from the prior $500.  “De minimus” is a Latin term translating to “negligible” or “trivial” and it seems $500 was too small to ease the recordkeeping burden for many businesses.  (For the full rationale, look at IRS Notice 2015-82.)

To get that favorable treatment, the biz taxpayer must claim it explicitly on its tax return every year.  As you might guess, there also are some accounting details, including reliable records of   those safe harbor expenses.

But don’t make this a knee-jerk practice. The expanded safe harbor may or may not fit well into the big picture for tax planning.  For example, in years of large losses, a business taxpayer may not want to invoke the IRS “de minimus” rule, Eric notes. Those small purchases of tangible business property might create a bigger tax benefit over the next 2 to 5 years if they are  depreciated instead of being written off in one year, he says. Your accountant should be willing to run some scenarios and investigate the possibilities,

At the same time, for many small businesses, it’s clear the new safe harbor will ease recordkeeping and deliver quicker returns in tax deductions.

We at EricJohn Ltd. can help small businesses choose and use the larger safe harbor!

 

Running behind on your tax returns this year?  If you’re still sorting out receipts and penciling in numbers,  it might be time to start thinking about an extension!

We say “might” because, this year, you still have the weekend to wrap things up. The Internal Revenue Service will accept 2015 returns filed or mailed through the end of the day on Monday, April  18.   (The extra time has to do with a holiday in Washington, D.C.)

If you still can’t make that deadline, it’s time to join the multitudes of taxpayers asking for an extension.

The extension adds another six months to the normal deadline, making it Oct. 17.  The IRS won’t ask you why you need it.  BUT – and it can be a big “but” – the IRSstill expects you to estimate income and pay any taxes by the normal deadline.

You accomplish that on Form 4868 or “Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.” The extension generally is automatic. For a copy, see http://www.irs.gov/pub/irs-pdf/f4868.pdf.

The clock is ticking with this. Whether you’re sending it electronically or by “snail mail,” the extension form and any payments must be recorded or postmarked by the end of the day on April 18 to avoid penalties.

Now, from a technical standpoint, if you are absolutely certain that you will not owe any income taxes, you don’t need to file Form 4868. You can file your normal 1040 return later in order to capture your refund.

However, to be safe, we at EricJohn Ltd. advise filing the application for extension, whether or not you think you need it.  Miscalculations can happen, and there is a late filing penalty in addition to late payment penalties for any unpaid tax.

Finally, don’t forget any state taxes you owe.  In Minnesota, you don’t have to file an extension form. BUT – just as with the federal return – you must pay an estimate of tax due to avoid penalties. Minnesota Department of Revenue accepts tax payments through its Web site.

We at EricJohn Ltd. wish you easy and accurate filings for your 2015 filing season!

 

April 1 has a reputation as April Fool’s Day.  But for retired taxpayers who turned 70½ last year, it’s time to make a wise financial move.

April 1 is the deadline for retirees to take their first required distributions from traditional IRAs and employee retirement plans. The deadline also applies to SEP and SIMPLE IRAs, but not Roth IRAs, the Internal Revenue Service reminds us.

IRA owners who reached 70½ during 2015 – they were born after June 30, 1944, and before July 1, 1945 – have until April 1 (this Friday) to begin taking their money out.  The initial distribution is for 2015; the IRA owner also will have to take a “required minimum distribution” for 2016 by Dec. 31.

The IRS notes that some employees who still are working can wait to make their first withdrawals until April 1 of the year after they retire.

Take a look at IRS Publication 590-B, which spells out the details and contains tables for calculating distributions. It’s available at www.irs.gov.. Trustees of IRA plans also are required to provide a required minimum distribution or to offer to calculate one for retirees, the IRS notes.

Your IRA also has tax implications. Contact us at EricJohn Ltd. to explore them!

 

 

By now, you know the raw tax numbers – income, business expenses etc. – going into your 2015 return. But how familiar are you with the tax preparer who act on your behalf to send them to Internal Revenue Service and state tax collectors? Let’s take a few minutes for consumer savvy here in the thick of tax time!

Indiana’s Department of Revenue recently suggested five questions your tax preparer ought to be able to answer to your satisfaction.  We at EricJohn Ltd. also will answer them with our approach.  (Well, after all, this is OUR blog!)

Here’s a starting tip. Before hiring a tax preparer, you might want to check in with the Better Business Bureau or your state’s board of accountancy for any reports of adverse business practices or formal sanctions.

You also might be able to check the preparer’s professional credentials related to tax work. For example, Eric Buechler, the owner of EricJohn Ltd., holds the credential of an enrolled agent (EA), a credential for expertise that is recognized by the IRS.

Here are five questions and answers prompted by Indiana Revenue, followed by EricJohn’s approach (Italic type):

•  Q:  If I hire you, how can I contact you both in AND out of tax season? A: Find a preparer who will be available throughout the year in case of questions from tax agencies.                                                                                                                                  EricJohn Ltd. is available year-round via email, telephone and Webex meetings online.
• Q:  How do you protect my personal information and tax return?  A: Paper documents should be kept locked in secure containers and destroyed when no longer needed. Digital data should be encrypted in computer systems used for filing returns.                                                                                                                      EricJohn Ltd. provides a secure portal and Web “cloud” site for sending and receiving documents. All access to that information and to tax returns is password-protected. In addition, we use anti-virus and malware software, along with restrictions on downloads to flash drives.
• Q:  Will I receive a copy of my completed tax return(s)?  A:  Insist on it from your tax preparer. You need a copy in case of future questions from the IRS or amendments you make to the return. Always have a record.                                        EricJohn Ltd. provides you with an electronic copy via email using a password or a paper copy by regular mail.
• Q:  Who will sign my return(s)?  A: The tax preparer always should sign the return and include his/her PTIN (tax preparer identification number). You also will sign or authorize your signature electronically, of course. Never sign a blank tax return, even if the tax preparer promises to enter the numbers for your convenience.                                                                                                                              Owner Eric Buechler signs all returns prepared by EricJohn Ltd.
• Q:  How do you charge for preparing returns?  What are your service fees?  A:  Do not hire a tax preparer who charges a fee based on the amount of a refund. “Not only is this practice unethical – it is illegal, too!”  Indiana Revenue notes.               EricJohn Ltd. bases its fees on the forms being completed. There also may be charges for extra work, such as calculating the tax basis of a stock or researching an unusual tax situation.

There’s still time left in tax season to make a wise move and contact EricJohn Ltd. about your 2015 return!

If you’re still waiting for your year-end report from MNsure — the health insurance marketplace for Minnesota – you’re not alone. Twin Cities news outlets reported Wednesday (3/9) that a little less than 18,000 MNsure clients still don’t have the 1095-A certifications of insurance, which should have been mailed by Jan. 31.

MNsure’s CEO did say – but could not guarantee – that all forms will arrive before the April 18 deadline for filing taxes. However, some will not make it by March 15, a much more comfortable date for preparing returns. MNsure has delivered close to 62 percent, or 47,000 forms.

The 1095-A is important for tax returns of MNsure clients and others who bought insurance last year on federal or state marketplaces. It confirms coverage and also reports any federal aid received for paying premiums.

What should you do if it hasn’t arrived? This may be inconvenient, but the Internal Revenue Service says “Wait.”  Don’t file your tax return without the information on it. That might mean filing tax extensions instead of fully completed returns.

Allison O’Toole, MNsure’s top executive, said next week she plans to release advice for any clients who haven’t received forms.

For help navigating difficult tax situations, contact Eric at EricJohn Ltd. He’s an Enrolled Agent certified by the IRS.