Default Faith

IRS Announces additional delays to filing season.

IRS is announcing on Monday, January 28th that they will NOT be processing Form 8863 beginning on January 30th. Instead, it becomes one of the forms that is being delayed until late February or early March. This is a fairly common form that will impact many taxpayers.

Form 8863 is the Education Credits for American Opportunity and Lifetime Learning. This will bring the students of America into the fold of those affected by the government's late handling of legislation. Until today's announcement, it had been primarily business owners who were affected. There are several forms affected by the late legislation that require more extensive programming and testing of IRS systems. The IRS hopes to begin accepting tax returns including these tax forms between late February and into March; a specific date will be announced in the near future.

The key forms that require more extensive programming changes include Form 5695 (Residential Energy Credits), Form 4562 (Depreciation and Amortization) and Form 3800 (General Business Credit). A full listing of the forms that won’t be accepted until later is available on IRS.gov. The following tax forms will not be accepted by the IRS until late February or into March after updating forms and completing programming and testing of its processing systems. A specific date will be announced in the near future.

Form 3800 General Business Credit
Form 4136 Credit for Federal Tax Paid on Fuels
Form 4562 Depreciation and Amortization (Including Information on Listed Property)
Form 5074 Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern Mariana Islands
Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations
Form 5695 Residential Energy Credits
Form 5735 American Samoa Economic Development Credit
Form 5884 Work Opportunity Credit
Form 6478 Credit for Alcohol Used as Fuel
Form 6765 Credit for Increasing Research Activities
Form 8396 Mortgage Interest Credit
Form 8582 Passive Activity Loss Limitations
Form 8820 Orphan Drug Credit
Form 8834 Qualified Plug-in Electric and Electric Vehicle Credit
Form 8839 Qualified Adoption Expenses
Form 8844 Empowerment Zone and Renewal Community Employment Credit
Form 8845 Indian Employment Credit
Form 8859 District of Columbia First-Time Homebuyer Credit
Form 8864 Biodiesel and Renewable Diesel Fuels Credit
Form 8874 New Markets Credits
Form 8900 Qualified Railroad Track Maintenance Credit
Form 8903 Domestic Production Activities Deduction
Form 8908 Energy Efficient Home Credit
Form 8909 Energy Efficient Appliance Credit
Form 8910 Alternative Motor Vehicle Credit
Form 8911 Alternative Fuel Vehicle Refueling Property Credit
Form 8912 Credit to Holders of Tax Credit Bonds
Form 8923 Mine Rescue Team Training Credit
Form 8932 Credit for Employer Differential Wage Payments
Form 8936 Qualified Plug-in Electric Drive Motor Vehicle Credit

I'm trying to keep my client's affected by this informed but already see a few who are impatient to get started on their returns.

G Faith White, CPB, EA
GRADE A BUSINESS SERVICES
Default Faith

Taxmageddon Averted! and Caution to Self-Preparers

Just when most tax professionals, began to think that we were indeed going to take the fiscal cliff plunge, our political leaders found a way to get the job done. On January 1, 2013, Congress passed HR 8, The American Taxpayer Relief Act of 2012 (ATRA).  Due to the late legislation, there will be a filing delay for certain returns.  The tax return filing season will begin January 30 for most taxpayers.  This will include the bulk of the late tax law changes, which means the IRS will be able to accept tax returns affected by the late Alternative Minimum Tax (AMT) patch as well as the three major “extender” provisions for people claiming:


• The state and local sales tax deduction
• The higher education tuition and fees deduction
• The educator expenses deduction


I also want to share news about an important recent tax court case. 

Filed on September 4, 2012 a taxpayer was determined to owe $43,668.00 in tax and penalty under section 6662(a).  In what has become known as the "TurboTax Defense" the taxpayer maintained that she reported all of her income and that the mistakes made were “honest mistakes” resulting from her lack of familiarity with the TurboTax program. Petitioner claims she used the audit portion of the TurboTax program, believing the audit portion would catch any mistakes she otherwise might make.

In the end the court ruled that: Petitioner did not have reasonable cause for any portion of the resulting underpayment. Respondent’s determinations as to both the tax deficiency
and penalty are sustained.

Many taxpayers believe that buying software that is so very user-friendly and the fact that it generates what appear to be correct tax returns will be all the protection they need.  When the truth is that without the assistance of a qualified tax professional who understands the law, the information provided relating to your transactions and what is being reported on that form is the difference that provides peace of mind in your compliance.

Link to full tax court filing:  
BRENDA FRANCES BARTLETT, Petitioner v.  COMMISSIONER OF INTERNAL REVENUE, Respondent

Faith White, CPB, EA
GRADE A BUSINESS SERVICES

Default Faith

CPE: Federal Tax Update

This was presented by the Phoenix West Chapter, Arizona Society of Enrolled Agents.

Our speaker was Bianna Whitlock and frankly she was able to make 8 hours of probably one of the most boring topics ever very fun.

Yes, 8 hours...I'm still exhausted from this class.

2013 Total CPE:  9
Default Faith

Continuing Professional Education: Advising Clients in Decline

Presented by: Pamela Willson, PhD, ABPP/CN
Sponsor: Central Arizona Estate Planners Council

Pamela Willson, PhD is an Arizona Licensed Clinical Psychologist, and nationally board-certified in Clinical Neuropsychology with the American Board of Professional Psychology.

Dr. Willson is a member of the American Psychological Association (Div. 40, Neuropsychology, and Div. 56, Trauma Psychology), the International Neuropsychological Society, and other professional organizations.

What will Dr. Willson be presenting?

"...I think we will focus not on diagnosing cognitive problems, apart from a little bit about how subtle the early stages can be, the major different types of cognitive or psychological disorders, and what should make your antennae go up - then if people want to ask about diagnosis/tx, I'll of course be happy to give more detail.

To me, emphasizing the issues of vulnerability, undue influence, and loss of capacity (from a cognitive and functional perspective) makes the most sense.

What makes a 'vulnerable adult,' personality and cognitive changes with mild dementia that make people susceptible to influence, testamentary vs. financial capacity issues."

1 - Hour CPE for 2013

CPE: 2011 Drake Software Evaluation Guide

Due to changes in my practice and rules for tax software required by Internal Revenue Service I have looked around at a new software vendor.  Drake is used by many EAs and while the $1,500 price tag is about triple what I was paying for my other software, I'm hopeful I will have growing in my tax practice and will be able to re-coup this part of my overhead expenses.

So I did the long Evaluation Guide for the software and completed the test.  This counts as 11 hours of CPE and I still feel like I don't know all the ins and outs of using it yet.

Total Continuing Education Hours for 2012 = 40

Faith White, CPB, EA
GRADE A BUSINESS SERVICES

Obamacare: Seven New Taxes on Citizens Earning Less than $250,000

Source:  Robert Allen Bonelli, www.breitbart.com

While we were all debating the cost to our liberty due to the Patient Protection and Affordable Care Act (Obamacare), we were ignoring the cost to our pockets.  If there ever was a reason for bipartisan rage about this law, it should be on the twenty - yes, twenty - hidden new taxes of this law.  Making matters even more relevant is that seven of these taxes are levied on all citizens regardless of income.  Hence, Mr. Obama’s promise not to raise taxes on anyone earning less than $250,000 is just another falsehood associated with this legislation.

The first, and best known, of these seven taxes that will hit all Americans as a result of Obamacare is the Individual Mandate Tax (no longer concealed as a penalty). This provision will require a couple to pay the higher of a base tax of $1,360 per year, or 2.5% of adjusted growth income starting with lower base tax and rising to this level by 2016.  Individuals will see a base tax of $695 and families a base tax of $2,085 per year by 2016. 

Next up is the Medicine Cabinet Tax that took effect in 2011.  This tax prohibits reimbursement of expenses for over-the-counter medicine, with the lone exception of insulin, from an employee’s pre-tax dollar funded Health Saving Account (HSA), Flexible Spending Account (FSA) or Health Reimbursement Account (HRA).  This provision hurts middle class earners particularly hard since they earn enough to actually pay federal taxes, but not enough to make this restriction negligible.

The Flexible Spending Account (FSA) Cap, which will begin in 2013, is perhaps the most hurtful provision to the middle class.  This part of the law imposes a cap of $2,500 per year (which is now unlimited) on the amount of pre-tax dollars that could be deposited into these accounts.  Why is this particularly hurtful to the middle class?  It is because funds in these accounts may be used to pay for special needs education for special needs children in the United States.  Tuition rates for this type of special education can easily exceed $14,000 per year and the use of pre-tax dollars has helped many middle income families.

Another direct hit to the middle class is the Medical Itemized Deduction Hurdle which is currently 7.5% of adjusted gross income.  This is the hurdle that must be met before medical expenses over that hurdle can be taken as a deduction on federal income taxes.  Obamacare raises this hurdle to 10% of adjusted gross income beginning in 2013.  Consider the middle class family with $80,000 of adjusted gross income and $8,000 of medical expenses.  Currently, that family can get some relief from being able to take a $2,000 deduction (7.5% X $80,000 = $6,000; $8,000 –$6,000 = $2,000).  An increase to 10% would eliminate the deduction in this example and if that family was paying a 25% federal tax rate, the real cost of that lost deduction would be $500.

The fifth new tax on the middle class, and all Americans, is the Health Savings Account (HSA) Withdrawal Tax Hike.  This provision increases the additional tax on non-medical early withdrawals from an HSA from 10% currently to 20% beginning in 2013.  This provision actually sets these accounts apart from Investment Retirement Accounts (IRAs) and other tax advantaged accounts, all of which remain with a 10% early withdrawal tax.

Another regressive tax that is part of this law began in 2010 and that is the Indoor Tanning Services Tax, which places a 10% excise tax on people using tanning salons.  While some may regard this as insignificant, the broader implication is that this act of taxation is a blatant move by the federal government to control the behavior of citizens.  This provision, as does the Individual Mandate and as Justice Kennedy said during the oral arguments on the constitutionality of the law said, “….fundamentally changes the relationship between the federal government and the citizen.”

The seventh new tax that directly impacts the middle class, along with all citizens, is the Excise Tax on Comprehensive Health Insurance Plans or the “Cadillac” Health Insurance Plan Tax.  These are plans that provide extensive coverage and that are generally fully paid for, or largely paid for, by employers.  This provision imposes a 40% excise tax on the employer-paid premium on taxpayers who are covered by such plans, beginning in 2018.  The reason it begins in 2018 is because most unionized workers are covered by plans that fall under this definition and a deferral was made to spare union members from this tax for at least a period of time.

There are thirteen other taxes that apply to businesses and that apply to high income (over $250,000 per year) households.  While these additional provisions will not impact the middle class directly, they can have serious indirect consequences for middle and low income earners.  Beginning in 2014, the Employer Mandate Tax will impose an annual non-deductible tax on employers with more than 50 employees who do not provide health insurance for their employees. 

The impact of this provision on low and middle income earners, and really all working Americans, is that employers will be confronted with three choices. The first is provide some level of health insurance, as many do today, and there would be no impact on employees.  The second choice is to pay the penalty, which would most likely be less expensive than providing health insurance, and force employees to seek their own health insurance or purchase it through federal government controlled state exchanges.  Studies have estimated that 20 million Americans will lose their employee funded health insurance as a result of this provision and employers electing this option.  The third choice is for employers to lay off employees, or not hire additional employees, because Obamacare forces them to either provide health insurance or pay the new tax. 

Another new tax, the Tax on Medical Device Manufacturers that begins in 2013, places a 2.3% excise tax on all items retailing for more than $100.  This provision will not only drive up the cost of various medical devices ranging from mobility assistance devices to personal testing supplies, but will also impact an industry that employs 360,000 people in 6,000 plants across our country.  This tax, while not a direct tax, would have significant negative impact on the middle class.

The Surtax on Investment Income for households earning $250,000 and more, beginning in 2013, will raise the Capital Gains Tax from 15% to 23.8% on investment income for these households and will raise Taxes on Dividends from 15% to 43.4% for the same households.  Aside from the impact on retired citizens dependent on dividends, this provision will pull income from the private economy.  In addition, the tax rate on Other Investment Income earned by Subchapter S Corporation (which many small business are organized as, allowing the owners to claim all business income as personal income) will rise from 35% to 43.4%.  This part of the provision would place additional pressure on small businesses resulting in more layoffs and less hiring, impacting all American workers.

All but one of the remaining new taxes in Obamacare are directed at health industry businesses and while they will not impact middle income families directly, the additional costs will most likely be passed on to the public.  The last new tax is really interesting, it is a tax on certain biofuels! 

These are the facts.  It does not matter if you support Mr. Obama and his new law or if you oppose it, the new taxes on the middle class or real and all Americans should understand their impact on their families and the economy.  Citizens, regardless of political beliefs, should recognize that Obamacare was passed with almost no sunlight shined on these middle class tax increases and need to understand that the new law was sold with the promise that there would be no new middle class taxes.  This is not partisan, it is simply the reality of politics.

Faith White, CPB, EA
GRADE A BUSINESS SERVICES
Certified Public Bookkeeper
Enrolled Agent