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Professional Tax News & Advice

Did You Know About the IRS Video Portal?

The IRS offers a video portal so that tax preparers may view videos on various tax topics, view webinars, and panel discussions from reputable industry sources. The videos are a great tool to keep up with current trends and refresh your current knowledgebase. Remember that your clients view you as an expert; therefore, it is important that you stay abreast of the information being provided through the IRS Video Portal. [More]

IRS Delays Business Requirement of Affordable Care Act

The IRS has announced that The White House has delayed a portion of the Affordable Care act that required businesses with 50 or more employees to provide health insurance or face penalties. The requirement will now take effect in 2015. Business owners were concerned about the amount of time they had to implement the complicated requirements of law. The delay will give the IRS more time to simply reporting requirements an educate business owners on these procedures. However, the government is encouraging businesses to begin voluntarily reporting in 2014 to make a smooth transition into 2015. Businesses would have paid a fee of $2,000 per uninsured employee after the first 30 employees. Although the business requirement has been delayed, individuals will still need to have health insurance this coming tax season.

IRS Regulations Impose Strict Penalties on Tax Preparers for Inaccurate EITC Claims

The IRS is making major changes to the Paid Preparer's Earned Income Credit Checklist and is continuing to crack down on inaccurate Earned Income Tax Credit (EITC) claims. Make sure you know the Earned Income Tax Credit Due Diligence Requirements, because the consequences of incorrectly filing the EITC can have devastating effects on you, your employees, and your tax business. [More]

It Is Now Possible To E-file A Return With An ITIN/SSN Mismatch

            The IRS e-file system has been changed, effective June 22, 2012, to allow returns being filed with an Individual Taxpayer Identification Number to show wages reported to a Social Security number. When tax returns are filed this way it creates an identification number (ITIN/SSN) mismatch.  In the past, returns with this mismatch could only be filed on paper. Due to programming changes the IRS' e-file system can now accept these returns.             The IRS states, “The taxpayer's correct ITIN should be used as the identifying number at the top of Form 1040. When inputting W-2 information, the SSN should be entered exactly as shown on the Form W-2 issued by the employer. It is now possible to e-file a return with an ITIN/SSN mismatch”.             The IRS made this programming change to help ensure that the correct tax information is being captured and to reduce the burden on taxpayers filing this type of return.

Injured Spouse Tax Relief

A taxpayer is considered an injured spouse when a joint overpayment was or is expected to be applied to a past due obligation of the other spouse. By filing Form 8379, Injured Spouse Allocation, the injured spouse may be able to get back his or her share of the refund.   Qualifications For Injured Spouse Relief Your client may qualify as an injured spouse if: 1.       Your client filed jointly with their spouse 2.       Some or all of the expected refund (overpayment) was applied to one of the following agencies for your client’s spouse's obligations: ·         Unpaid federal tax liabilities ·         Past due child or spousal support ·         Past due debts owed to other federal agencies (such as a student loan) ·         Past due state income tax obligations owed to a state   Injured Spouse Relief                If the IRS has applied your client's refund against their spouse's tax liability, or your client is concerned that the IRS may do so, they should file a Form 8379. Your Client Should File Form 8379 if all three of the following apply: 1.       The injured spouse is not required to pay the past-due amount, 2.       The injured spouse reported income such as wages, taxable, interest, etc., on the joint return, and 3.       The injured spouse made payments such as federal income tax withheld or estimated payments, or claimed the EIC or other refundable credit on the joint return. Form 8379 requests identifying information for your client and spouse, and information needed to determine how much of the tax - and refund - is attributable to each spouse. The IRS makes the actual calculation that divides the refund between your client and his or her spouse.

How Do I Classify A Domestic Limited Liability Company (LLC)?

Limited Liability Companies (LLC) are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation. Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single member” LLCs, those having only one owner. A few types of businesses generally cannot be LLCs, such as banks and insurance companies. Check your state’s requirements and the federal tax regulations for further information. There are special rules for foreign LLCs.   Classification The federal government does not recognize an LLC as a classification for federal tax purposes. An LLC business entity must file a corporation, partnership or sole proprietorship tax return. Generally, if a domestic LLC has:       Only one owner, (see Publication 555, on community property states), it will automatically be treated as if it were a sole proprietorship (an entity disregarded as separate from its owner), unless an election is made for it to be treated as a corporation.    Has two or more owners, it will automatically be treated as a partnership unless an election is made for it to be treated as a corporation. However, if the LLC has employees, for employment tax purposes the LLC will be treated as a corporation.   If the LLC does not make a classification election, a default classification of disregarded entity (single-member LLC) or partnership (multi-member LLC) will apply. The election referred to is made using the Form 8832, Entity Classification Election. If a taxpayer does not file Form 8832, a default classification will apply. Different classification rules may apply in special situations, including banks, insurance companies, and nonprofit organizations that are LLCs.

How to Help Your Clients With the Tax Ramifications Of Selling Their Home in 2012

Many homeowners that are selling their home have no idea what tax ramifications exist. As a tax professional, this is where you can come into play. You can help your clients consider what the tax consequences of selling their home would be. In the end, if it turns out that they will owe a large amount of money in taxes, they may reconsider selling their home or take whatever steps necessary to reduce their tax liability. Be sure to help them determine their capital gains or loss, tell them about the consequences and exemptions of capital gains and inform them of any further development, such as legislation, affecting the tax ramifications as they present themselves.   Determining Capital Gains or Loss To determine the gain or loss on the sale of your clients main home, you need to know the selling price, the amount realized, and the adjusted basis. You subtract the adjusted basis from the amount realized to get their gain or loss from selling their home. ·         Selling Price: The total amount your client receives for their home (includes money, all notes, mortgages or other debts assumed by the buyer as part of the sale) ·         Amount Realized: The selling price minus selling expenses o    Selling expenses include: commissions, advertising fees, legal fees and loan charges paid by the seller ·         Adjusted Basis: While your client owned their home, they may have made adjustments to the basis. These may include both increases and decreases. o    Increases to their basis may include: Capital improvement made to the home that add value, prolong the condition of the home, or give it a different function. Examples: remodeling the home or parts of the home or adding a swimming pool, etc. o    Decreases to their basis may include: Any depreciation, energy credits or damage, destruction or loss of your property from any sudden, unexpected, or unusual event claimed to reduce taxes while you client owned the home are considered decreases to their basis. Capital Loss Capital loss on personal residence is not tax deductible. If your client has a capital loss on the sale of their home, they will not be able to write that loss off against other income.   Capital Gains Long Term Capital Gains If your client makes a profit on the sale of their home, they may need to report the profit as a capital gain when they file their taxes. However, if they owned and lived in the home as their main home for at least 2 out of the past 5 years, they may be able to exclude up $250,000 of the gain if they are single and $500,000 for married couples filing jointly.   Tip: Per the IRS Publication 523, “The required 2 years of ownership and use during the 5-year period ending on the date of the sale do not have to be continuous nor do they have to occur at the same time. You meet the tests if you can show that you owned and lived in the property as your main home for either 24 full months or 730 days (365 × 2) during the 5-year period ending on the date of sale.”   Note: If your client is eligible to exclude the gain, they do not need to report the sale on their tax return unless they receive a Form 1099-S, Proceeds from Real Estate Transactions.   Short Term Capital Gains If your client lived and owned the current property, they are considering selling for less than two years, they still may be able to claim part of the capital gain exclusions. There are three exceptions to the capital gains rule, and the amount your client is able to exclude is determined by a formula based on the amount of time they actually lived in the home. The three exceptions to the rule are as follows: ·         Your client was forced to move because of health concerns. Exceptions include: o    Selling home to obtain, provide, or facilitate the diagnosis, cure, mitigation, or treatment of a disease, illness, or injury of a qualified individual o    Selling home to obtain or provide medical or personal care for a qualified individual suffering from a disease, illness of injury. ·         You client is moving due to employment reasons. For this to be considered, it must meet the following criteria: o    The change of employment occurred during the period your client owned and used the property as their main home. o    The new place of employment is at least 50 miles farther from the home they sold than was the former place of employment. If there is no former place of employment, the distance between new place of employment and the home sold is at least 50 miles. ·         Your client is moving because of unforeseen events. Examples of unforeseen circumstances that apply are: o    Home is destroyed or condemned o    Natural or man-made disasters o    Death   The IRS has created a page on IRS.gov for information about Publication 523. Any further development affecting Publication 523 (such as legislation) for 2012 will be posted to that page.