The IRS has significantly ramped up its efforts to identify and pursue high-net-worth individuals who have not filed their tax returns for multiple years. This initiative is part of a broader strategy to close the tax gap and ensure that all taxpayers pay their fair share, particularly those with substantial incomes.
The IRS announced a new crackdown on high-income non-filers, focusing on those with significant financial activities who have failed to file federal income tax returns. Since 2017, there have been over 125,000 instances where high-income individuals, including millionaires, did not file their returns. This initiative is supported by resources from the Inflation Reduction Act, which has enabled the IRS to rejuvenate its non-filer program, previously hindered by budget and staffing constraints (IRS.gov) (ThinkAdvisor).
High-Income Non-Filers: The IRS is prioritizing cases involving individuals with incomes exceeding $1 million and tax debts over $250,000. The agency has already collected significant amounts from these taxpayers, with more than $482 million recovered from 1,600 millionaires as of early 2024 (IRS.gov) (U.S. Department of the Treasury).
Compliance Alerts: The IRS has begun sending compliance alert letters to non-filers. These letters serve as a prelude to more severe actions, such as audits and criminal prosecutions, if the recipients fail to come into compliance (Greenberg Firm).
Enhanced Use of Technology: Utilizing artificial intelligence and advanced data analytics, the IRS is better equipped to identify discrepancies and non-compliance, particularly among large partnerships and corporations. This technology helps focus enforcement efforts on the most egregious cases of tax evasion (U.S. Department of the Treasury).
Non-filers face substantial penalties, including:
Moreover, the IRS can file Substitute for Returns (SFRs) using available information from third parties, which usually results in a higher tax liability for the non-filer due to the lack of favorable deductions and credits (Greenberg Firm).
Non-filers are encouraged to come forward voluntarily to mitigate penalties and avoid potential criminal charges. Engaging with a qualified tax attorney under attorney-client privilege can provide the best protection and guidance in navigating the complexities of becoming compliant (Greenberg Firm).
The IRS’s enhanced enforcement efforts underscore the importance of filing tax returns and paying due taxes. High-income non-filers are under increased scrutiny, and the agency is committed to using all available resources to ensure compliance. Individuals in this category should take proactive steps to address their non-filing status to avoid severe financial and legal consequences.
For further details, you can refer to the IRS official announcements and detailed reports on these enforcement actions on their website and the U.S. Department of the Treasury website (IRS.gov) (IRS.gov) (ThinkAdvisor) (U.S. Department of the Treasury).
WK Tax Service helps individuals and businesses track their records for business and budgeting purposes as well as for tax purposes. Contact Mike Tavabi today to help get your financial house in order. We are happy to help simplify your life and help you be prepared to file your tax returns on time.
Contact: Mike Tavabi
Company: WK Tax Services
Phone: (310) 539-1068
Fax: (310) 988-2624
Email: mike@wkacctax.com
In 2024, several high-profile IRS cases in California highlighted the ongoing issue of tax fraud and non-filing among both individuals and businesses. These cases serve as a stark reminder of the severe consequences of failing to comply with tax laws.
1. Cryptocurrency Fraud and Misreporting: One significant case involved a San Francisco-based tech entrepreneur who failed to report substantial cryptocurrency gains. The individual had engaged in various cryptocurrency transactions, including mining and trading, but did not report these earnings on their tax returns. This resulted in a multi-million dollar tax evasion case. The IRS’s Criminal Investigation Division (CID) discovered the discrepancy through advanced data analysis and blockchain tracking technology, leading to criminal charges that included fines exceeding $1 million and a prison sentence of five years (IRS.gov) (Community Tax).
2. Syndicated Conservation Easement Schemes: Another notable case focused on a real estate developer in Los Angeles involved in an abusive syndicated conservation easement scheme. This fraudulent activity involved inflating the value of donated land to claim excessive tax deductions. The IRS cracked down on such schemes as part of their broader efforts to combat abusive tax shelters, resulting in the developer facing substantial fines and penalties along with potential criminal charges (IRS.gov).
1. High-Net-Worth Individuals: A prominent case of non-filing involved a wealthy Silicon Valley executive who had not filed tax returns for several years. The executive’s failure to report income from various investments and stock options led to a significant tax liability. The IRS pursued this case aggressively, resulting in a settlement that included paying back taxes, substantial penalties, and interest. This case underscored the importance of timely and accurate tax filings, especially for high-income individuals (IRS.gov).
2. Small Business Non-Filing: A small business owner in San Diego faced severe penalties for failing to file tax returns and underreporting income. The business, a local construction company, had systematically underreported earnings and failed to remit payroll taxes. The IRS imposed heavy fines, including a 20% accuracy-related penalty and the Trust Fund Recovery Penalty (TFRP), which applies to unpaid payroll taxes. Additionally, the business owner faced potential jail time for fraudulent reporting and tax evasion (Community Tax).
The IRS has intensified its efforts to detect and prosecute tax fraud and non-filing through various measures. These include employing advanced data analytics, increasing the number of audits, and expanding the IRS Criminal Investigation Division. The “Dirty Dozen” list, an annual compilation of the most common tax scams, serves as a public warning to deter fraudulent activities and educate taxpayers about the risks of engaging in such schemes (IRS.gov) (IRS.gov).
The 2024 cases in California highlight the severe repercussions of tax fraud and non-filing. Both individuals and businesses must remain vigilant and compliant with tax laws to avoid the heavy fines, penalties, and potential criminal charges that accompany such violations. Consulting with tax professionals and maintaining accurate records can help taxpayers navigate the complexities of the tax system and prevent legal issues.
WK Tax Service helps individuals and businesses track their records for business and budgeting purposes as well as for tax purposes. Contact Mike Tavabi today to help get your financial house in order. We are happy to help simplify your life and help you be prepared to file your tax returns on time.
Contact: Mike Tavabi
Company: WK Tax Services
Phone: (310) 539-1068
Fax: (310) 988-2624
Email: mike@wkacctax.com
In recent years, the Internal Revenue Service (IRS) has intensified its efforts to enforce tax compliance, particularly targeting high-income individuals and families. This renewed focus has been largely enabled by funding from the Inflation Reduction Act (IRA), which has provided the IRS with the necessary resources to address tax evasion and ensure that wealthy taxpayers pay their fair share.
Targeting High-Income Non-Filers
In February 2024, the IRS launched a new initiative aimed at high-income taxpayers who have failed to file federal income tax returns. This effort targets over 125,000 cases involving individuals with significant financial activity who have not filed returns since 2017. Among these, more than 25,000 involve individuals with incomes exceeding $1 million, while over 100,000 cases pertain to those earning between $400,000 and $1 million annually. These actions are part of a broader strategy to address non-compliance and promote fairness in the tax system.
Strengthening Enforcement with New Resources
The IRS has been able to strengthen its enforcement capabilities thanks to IRA funding. This includes hiring additional skilled accountants and leveraging advanced technology to identify and address tax evasion. The agency is now equipped to conduct more thorough investigations and audits, particularly focusing on complex financial arrangements and large corporate entities. This enhanced enforcement is expected to close significant gaps in tax compliance that have widened over the past decade due to budget constraints.
Notable Enforcement Actions
Several high-profile enforcement actions have underscored the IRS’s commitment to holding high-income individuals accountable. Recent cases include substantial restitution orders and prison sentences for individuals who engaged in elaborate tax evasion schemes, such as falsifying business expenses to fund luxury lifestyles and skimming business revenues for personal use. These actions demonstrate the IRS’s ability to effectively identify and prosecute tax evasion among the wealthy.
Focus on Large Corporations and Partnerships
In addition to individual high-income earners, the IRS is also targeting large corporations and complex partnerships. Initiatives include increased scrutiny of transfer pricing practices among U.S. subsidiaries of foreign corporations and the expansion of the Large Corporate Compliance program. These efforts aim to ensure that large entities accurately report their income and pay the appropriate amount of taxes. By using data analytics and artificial intelligence, the IRS is better positioned to identify high-risk areas and deploy resources where they are most needed.
Modernizing Taxpayer Services
To support these enforcement efforts, the IRS is also committed to improving taxpayer services. This includes expanding in-person services, enhancing online tools, and providing more comprehensive guidance to help taxpayers comply with tax laws. By making it easier for taxpayers to understand and meet their obligations, the IRS hopes to reduce errors and improve overall compliance.
In summary, the IRS’s recent initiatives represent a significant shift towards more rigorous enforcement of tax laws among high-income individuals and large corporations. With increased funding and advanced technology, the agency is better equipped to address tax evasion and ensure that all taxpayers contribute their fair share to the nation’s revenue.
For more detailed information, you can visit the IRS’s official announcements on their website: IRS News Releases.
Contact Us
WK Tax Service helps individuals and businesses track their records for business and budgeting purposes as well as for tax purposes. Contact Mike Tavabi today to help get your financial house in order. We are happy to help simplify your life and help you be prepared to file your tax returns on time.
Contact: Mike Tavabi
Company: WK Tax Services
Phone: (310) 539-1068
Fax: (310) 988-2624
Email: mike@wkacctax.com
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Keeping your financial records organized is essential for both business and personal tax filings. It helps ensure accuracy, minimizes stress during tax season, and can even save you money by maximizing your deductions and credits. Here’s a step-by-step guide on how to organize your sales revenue, expenses, investments, subscriptions, and other income to streamline your tax preparation process.
First and foremost, maintain a clear separation between your personal and business finances. This involves having separate bank accounts and credit cards for each. This distinction not only simplifies recordkeeping but also protects you in case of an audit.
Investing in reliable accounting software is crucial for effective financial management. Tools like QuickBooks, Xero, and FreshBooks offer features tailored for small businesses, including expense tracking, invoice management, and financial reporting. These programs can automatically categorize transactions, making it easier to compile data for tax filings.
Track and record all incoming sales revenue meticulously. Organize this information monthly or quarterly, depending on your business volume. Include all forms of payment received, such as cash, checks, credit cards, and online payments. Ensure each entry is dated and includes a customer identifier when possible.
Expenses can significantly reduce your tax liability if properly documented. Categorize each expense as it occurs to avoid a backlog at year-end. Common categories include:
– Rent or mortgage payments
– Utilities
– Supplies
– Travel
– Meals and entertainment
– Professional fees
Be sure to keep all related receipts or digital records. For vehicle-related expenses, maintain a logbook to record mileage for business trips, as this can be deductible.
For both personal and business tax filings, it’s important to keep detailed records of any investments. This includes the purchase date, cost basis, dividends received, and any capital gains or losses upon sale. Accurate records are crucial for calculating capital gains taxes owed or to claim losses that can offset other income.
Many businesses incur regular expenses through subscriptions, such as software licenses or membership dues. Track these expenses separately to ensure they are accounted for in your tax filings. Recurring personal subscriptions should also be tracked if they qualify for tax deductions.
Include any additional sources of income such as rental income, royalties, or freelance work. For personal taxes, this might also include alimony, investment income, or retirement distributions. Each type of income may be taxed differently, so proper classification is essential.
To efficiently manage the multitude of documents involved in tax preparation, consider using a digital document management system. This can include cloud storage solutions like Google Drive or Dropbox, where you can create folders for each tax year and type of document.
Regularly reviewing your financial records helps catch discrepancies early and keeps you aware of your financial position. Monthly or quarterly reconciliations can ensure that your records match up with bank statements and receipts.
Even with impeccable records, tax laws can be complex and frequently change. Consulting with a tax professional like WK Tax Service can provide guidance tailored to your specific situation, helping you take advantage of all available deductions and credits.
Conclusion
Organizing your financial records for tax purposes doesn’t just make tax filing easier—it’s also crucial for understanding the financial health of your business or personal finances. By taking steps throughout the year to maintain organized records, you can reduce the headache of tax season and focus more on growing your business or managing your personal finances effectively.
Contact Us
WK Tax Service helps individuals and businesses track their records for business and budgeting purposes as well as for tax purposes. Contact Mike Tavabi today to help get your financial house in order. We are happy to help simplify your life and help you be prepared to file your tax returns on time.
Contact: Mike Tavabi
Company: WK Tax Services
Phone: (310) 539-1068
Fax: (310) 988-2624
Email: mike@wkacctax.com
For the 2023 tax year, several new federal tax laws and adjustments went into effect. Here are some key changes:
1. Tax Inflation Adjustments: The IRS announced annual inflation adjustments for more than 60 tax provisions, including tax rate schedules and other tax changes. (Refer to: https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023)
2. Major Policy Change by IRS: A significant policy change was announced in July 2023, ending most unannounced visits to taxpayers by agency revenue officers. This move aims to reduce public confusion and enhance safety measures for taxpayers and employees. (Refer to https://www.irs.gov/newsroom/fact-sheets-2023)
3. Reporting Rules for Form 1099-K: There’s a change in reporting rules for Form 1099-K, Payment Card and Third Party Network Transactions. Taxpayers should receive Form 1099-K by January 31, 2023, if they received third-party payments in tax year 2022 for goods and services that exceeded $600. (Refer to: https://www.irs.gov/newsroom/get-ready-for-taxes-whats-new-and-what-to-consider-when-filing-in-2023)
4. 2023 Tax Brackets and Rates: There are seven federal income tax rates in 2023: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top marginal income tax rate of 37% applies to taxpayers with taxable income above $539,900 for single filers and above $693,750 for married couples filing jointly. (Refer to: https://taxfoundation.org/data/all/federal/2023-tax-brackets/)
5. Increased Paychecks Due to IRS Rules: The IRS raised the maximum amounts one can claim for the Earned Income Tax Credit (EITC) by about 7%, which could result in bigger paychecks. However, the additional money will not be received until the 2023 taxes are filed in early 2024. (Refer to: https://www.cnn.com/2022/10/19/success/inflation-adjustment-2023-taxes/index.html)
These changes reflect some of the US Federal government’s efforts to adjust to inflation and economic conditions, aiming to provide relief and clarity to taxpayers.
If you have questions, please contact us. We are happy to help:
Majid Tavabi, EA LLC
WK Tax & Resolution Services
23505 Crenshaw Blvd. Suite 222
Torrance, CA 90505
Line1: 310-539-1068
Line2: 310-894-9244
Fax: 310-988-2624
This has been a busy time for both the Internal Revenue Service and Congress. On December 18th Congress passed, and President Obama signed the Protecting Americans from Tax Hikes (PATH) Act of 2015. The IRS has been busy with the Affordable Care Act and the employer mandate, new FATCA regulations, and legislation to regulate the tax practitioner community.
While year-end planning is best done before the year end, the lateness of legislation passed by Congress is always a challenge for both the individual taxpayer and the tax preparer. The new PATH Act has made some provisions permanent, and others are now subject to a two-year implementation schedule, which will assist both of us in future years. For now, all we can do is look to see what provisions have been included in the extender bill and be sure to consider those as you put together your 2015 tax documents.
As always, the best strategy is to defer income and accelerate expenses to the extent possible. The one notable exception may be prepaying your state estimated taxes as that may trigger the alternate minimum tax (AMT) in some situations. Following are selected provisions and a brief description of the tax consequences. Be sure to contact our office if you have any questions regarding these tax provisions and how they may affect your tax return.
Qualified Dividends and Long Term Capital Gains
The income tax brackets for individuals remains the same from 2014. (They were last adjusted as a result of the Affordable Care Act.) The tax rates for qualified dividends and long-term capital gains are tied to the income tax brackets and range from 20% for those in the 39.6% bracket; 15% for those in the 25% to 35% brackets; and down to zero percent for those in the 10% to 15% tax brackets.
Assuming ordinary taxable income of $66,400 and long-term capital gains of $10,000 the taxpayer is taxed first on $18,450 which is in the 10% bracket and the remaining ordinary income of $47,950 would be taxed at the 15% bracket. Since the 15% bracket ends at $74,900 the difference of $8,500 attributable to the long-term capital gain would be taxed at zero percent and the remaining $1,500 of long- term capital gain would be at the 15% tax rate.
Net Investment Income Tax (NIIT)
As a result of the Affordable Care Act a new tax was assessed in 2013 on passive income. Net investment income includes interest income, capital gains and stock dividends. Also subject to the NIIT is income from a business in which you are a limited or passive participant, and some rental income. The NIIT may be assessed once your adjusted gross income has exceeded the threshold amount of $200,000 for an individual or $250,000 for a joint return. The NIIT is assessed on the lower of the excess over the threshold or the actual passive income.
myIRAs
A new Roth IRA plan – these are viewed as starter IRA’s for those with no plan available at their place of employment. myRA is a Roth IRA that invests in a new United States Treasury retirement savings bond, which will not lose money. myRA was designed for people without access to employer-sponsored retirement savings plans and for people looking for a simple, safe, and affordable way to start saving for retirement. myRA accounts cost nothing to open, have no fees, and don’t require a minimum amount of savings.
myRA could be a good option for you if you have not started saving for retirement because:
• You don’t have access to a retirement savings plan through your work,
• You have no other options available to start saving for retirement,
• You find the cost of opening and maintaining a retirement savings account is too high, or
• You are concerned about complicated investment options and losing money.
You can have a myRA even if you have other IRA or Roth IRA accounts. If you choose to open and contribute to a myRA and another IRA account, you need to make sure that the total of your contributions to all of your IRA accounts (Traditional IRA and Roth IRA accounts) do not exceed the annual contribution limit which is $5,500 for 2015 (plus the $1,000 catchup for those 50 years of age and older).
Traditional IRA vs Roth IRA
Are you confused about your choices for deferring taxable income? Is it better to defer now or contribute to a post-tax IRA which then lets you grow your retirement money tax- free? Many factors can contribute to this decision including your age, taxable income bracket or other retirement options. There are many software tools available to help you with these choices. You can get help from your financial advisor or there are many online software tools such as the Vanguard calculator which determines your net benefit after taxes.
What is a Roth IRA?
A Roth IRA is an individual retirement arrangement. It is a personal savings plan that gives you tax advantages for setting aside money for retirement. An account must be designated as a Roth IRA when opened.
What is a SIMPLE IRA?
A savings incentive match plan for employees (SIMPLE) plan is a salary reduction between you and your employer that allows you to choose to reduce your pay by a certain percentage each pay period, and have your employer contribute the salary reductions to a SIMPLE IRA on your behalf. All contributions under a SIMPLE IRA plan must be made to a SIMPLE IRA, not to any other type of IRA.The SIMPLE IRA can be an individual retirement account. If your employer maintains a SIMPLE IRA plan, you must be notified, in writing, that you can choose the financial institution that will serve as trustee for your SIMPLE IRA and that you can roll over or transfer your SIMPLE IRA to another financial institution.
What is an IRA?
An IRA is an individual retirement arrangement. It is a personal savings plan that gives you tax advantages for setting aside money for retirement. An IRA is referred to as a Traditional IRA if it is not a Roth IRA or a SIMPLE IRA. Traditional IRAs include SEP IRAs. Contact us for help in assessing your tax situation before making your investment choices. There are significant penalties for excess or ineligible IRA contributions.
Affordable Care Act (ACA)
Shared Responsibility Payment
The ACA requires that all individuals who are either U.S. citizens, or an alien lawfully present in the U.S., must carry health insurance coverage that meets the definition of minimum essential coverage.You should verify with your insurance agent or employer that the policy provided satisfies the ACA minimum essential coverage requirements. There are two thresholds that must be met – the policy must provide minimum value and is affordable. If you have obtained your coverage through the health insurance marketplace, it is deemed to meet the requirements. If your insurance is through a government or military program (such as TRICARE, CHIPS or Medicare) it has also been determined to meet the definition of minimum essential coverage.
Those without healthcare insurance may be subject to the shared responsibility payment unless one of the exemptions applies. The minimum penalty amount for the shared responsibility payment is $325 for an individual and $975 for a family. The maximum penalty is $2,484 for an individual and $12,420 for a family of five or more members. This penalty is based on the average Bronze Plan premium of $207 per month.
Some of the exemptions include:
• Members of certain religious sects
• Hardship
• Members of Indian tribes
• Members of health care sharing ministries
• Incarcerated individuals
• Short coverage gap
• Member of tax household born, adopted or died
Premium Tax Credit
If you obtained your insurance through the health insurance marketplace, you may be eligible for the premium tax credit if your household income falls between 100% and 400% of the federal poverty line. Taxpayers who received their insurance through a private company or who had access to a qualified health plan at work are not eligible for the premium tax credit, even if their income would have otherwise qualified them for the credit.
An annual reconciliation of the advanced premium tax credit is calculated on Form 8962, Premium Tax Credit, which is filed with the Form 1040. All taxpayers who received their insurance through the health care exchange will receive Form 1095-A, Health Insurance Marketplace Statement, indicating the amount of advanced premium tax credit received. If you received the premium tax credit then you must file the Form 1040 to reconcile the amount received. If a return is not filed then the taxpayer will not be eligible to receive the credit in the next tax year.
You may have to repay all or part of the advanced premium tax credit if your income is greater than that reported when the insurance was obtained on the health insurance marketplace or if your income exceeded 400% of the federal poverty line. Individuals will exceed 400% of the federal poverty line when their income exceeds $46,680 and when a family of two persons exceeds $62,920.
Employer Mandate
In 2015, employers are subject to the shared responsibility payment if they are an applicable large employer (more than 50 employees) and do not provide health insurance coverage or the plan that is available does not meet the definition of minimum essential coverage.
New forms that you will see this year include Form 1095-B, Health Coverage, which will be issued by insurance companies to report the months that coverage was provided to you and your dependents. Employers will be issuing Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, to those employees who are employed by an applicable large employer. Form 1095- C will provide information about the insurance provided by the employer, who is covered by the insurance, and if it meets the definition of minimum essential coverage. Even if your employer does not provide health insurance coverage, you will receive Form 1095-C to note the absence of a qualified health insurance plan.
Protecting Americans from Tax Hikes (PATH) Act of 2015
Finally, during the late evening hours of Friday, December 18, President Obama signed the long awaited tax extender bill. Some of the provisions that had expired on December 31, 2014 have been made permanent, some have a two-year extension and others have been extended for one more year. Following is a selected list of provisions as they may affect your individual income tax return:
Enhanced child tax credit made permanent
The child tax credit (CTC) is a $1,000 credit. To the extent the CTC exceeds the taxpayer’s tax liability; the taxpayer is eligible for a refundable credit (the additional child tax credit) equal to 15 percent of earned income in excess of a threshold dollar amount (the “earned income” formula). Until 2009, the threshold dollar amount was $10,000 indexed for inflation from 2001 (which would be roughly $14,000 in 2015). Since 2009, however, this threshold amount has been set at an unindexed $3,000 and is scheduled to expire at the end of 2017, returning to the $10,000 (indexed for inflation) amount. The provision permanently sets the threshold amount at an unindexed $3,000.
Enhanced American opportunity tax credit made permanent
The Hope Scholarship Credit is a credit of $1,800 (indexed for inflation) for various tuition and related expenses for the first two years of post-secondary education. It phases out for AGI starting at $48,000 (if single) and $96,000 (if married filing jointly) – these amounts are also indexed for inflation.The American OpportunityTax Credit (AOTC) takes those permanent provisions of the Hope Scholarship Credit and increases the credit to $2,500 for four years of post-secondary education, and increases the beginning of the phase-out amounts to $80,000 (single) and $160,000 (married filing jointly) for 2009 to 2017. The provision makes the AOTC permanent.
Enhanced earned income tax credit made permanent
Low and moderate income workers may be eligible for the earned income tax credit (EITC). For 2009 through 2017, the EITC amount has been temporarily increased for those with three (or more) children and the EITC marriage penalty has been reduced by increasing the income phase-out range by $5,000 (indexed for inflation) for those who are married and filing jointly. The provision makes these provisions permanent.
Extension and modification of deduction for certain expenses of elementary and secondary school teachers
The provision permanently extends the above-the-line deduction (capped at $250) for the eligible expenses of elementary and secondary school teachers. Beginning in 2016, the provision also modifies the deduction to index the $250 cap to inflation and include professional development expenses.
Extension of deduction of State and local general sales taxes
The provision permanently extends the option to claim an itemized deduction for State and local general sales taxes in lieu of an itemized deduction for State and local income taxes. The taxpayer may either deduct the actual amount of sales tax paid in the tax year, or alternatively, deduct an amount prescribed by the Internal Revenue Service (IRS).
Extension of tax-free distributions from individual retirement plans for charitable purposes
The provision permanently extends the ability of individuals at least 70½ years of age to exclude from gross income qualified charitable distributions from Individual Retirement Accounts (IRAs) in a trustee to trustee transfer from their IRA to a qualified charity. The exclusion may not exceed $100,000 per taxpayer in any tax year.
Extension of exclusion of 100 percent of gain on certain small business stock
The provision extends the temporary exclusion of 100 percent of the gain on certain small business stock for non- corporate taxpayers to stock acquired and held for more than five years. This provision also permanently extends the rule that eliminates such gain as an AMT preference item.
Extension of reduction in S corporation recognition period for built-in gains tax
The provision permanently extends the rule reducing to five years (rather than ten years) the period for which an S corporation must hold its assets following conversion from a C corporation to avoid the tax on built- in gains.
Extension and modification of increased expensing limitations and treatment of certain real property as section 179 property
The provision permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). These amounts currently are $25,000 and $200,000, respectively. The special rules that allow expensing for computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) also are permanently extended. The provision modifies the expensing limitation by indexing both the $500,000 and $2 million limits for inflation beginning in 2016 and by treating air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing. The provision further modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap beginning in 2016.
Extension and modification of bonus depreciation
The provision extends bonus depreciation for property acquired and placed in service during 2015 through 2019 (with an additional year for certain property with a longer production period). The bonus depreciation percentage is 50 percent for property placed in service during 2015, 2016 and 2017 and phases down, with 40 percent in 2018, and 30 percent in 2019.
Extension and modification of exclusion from gross income of discharge of qualified principal residence indebtedness
The provision extends through 2016 the exclusion from gross income of a discharge of qualified principal residence indebtedness. The provision also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged in 2017, if the discharge is pursuant to a written agreement entered into in 2016.
Extension of mortgage insurance premiums treated as qualified residence interest
The provision extends through 2016 the treatment of qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction. This deduction phases out ratably for a taxpayer with AGI of $100,000 to $110,000.
Extension of above-the-line deduction for qualified tuition and related expenses
The provision extends through 2016 the above-the-line deduction for qualified tuition and related expenses for higher education. The deduction is capped at $4,000 for an individual whose AGI does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers).
Requirements for the issuance of ITINs
The provision provides that the IRS may issue taxpayer identification numbers (ITIN) if the applicant provides the documentation required by the IRS either (a) in person to an IRS employee or to a community- based certified acceptance agent (as authorized by the IRS), or (b) by mail. The provision requires that individuals who were issued ITINs before 2013 are required to renew their ITINs on a staggered schedule between 2017 and 2020. The provision also provides that an ITIN will expire if an individual fails to file a tax return for three consecutive years. The provision also directs the Treasury Department and IRS to study the current procedures for issuing ITINs with a goal of adopting a system by 2020 that would require all applications to be filed in person. The provision is effective for requests for ITINs made after the date of enactment.
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NOTE: To review your tax situation, contact Mike Tavabi at (310) 894-9244 or mike@wkacctax.com for a thoughtful evaluation of your options so you can be well ahead of the curve for the tax season.
(Source: IR-2015-126, Nov. 12, 2015)
WASHINGTON — The Internal Revenue Service today reminded eligible employees that now is the time to begin planning to take full advantage of their employer’s health flexible spending arrangement (FSA) during 2016. Plan now to use health flexible spending arrangements in 2016; contribute up to $2,550; a $500 carryover option is available to many.
FSAs provide employees a way to use tax-free dollars to pay medical expenses not covered by other health plans. Because eligible employees need to decide how much to contribute through payroll deductions before the plan year begins, many employers this fall are offering their employees the option to participate during the 2016 plan year.
Interested employees wishing to contribute during the new year must make this choice again for 2016, even if they contributed in 2015. Self-employed individual are not eligible.
An employee who chooses to participate can contribute up to $2.550 during the 2016 plan year. Amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax. If the plan allows, the employer may also contribute to an employee’s FSA.
Throughout the year, employees can then use funds to pay qualified medical expenses not covered by their health plan, including co-pays, deductibles and a variety of medical products and services ranging from dental and vision care to eyeglasses and hearing aids. Interested employees should check with their employer for details on eligible expenses and claim procedures.
Under the use or lose provision, participating employees often must incur eligible expenses by the end of the plan year, or forfeit any unspent amounts. But under a special rule, employers may, if they choose, offer participating employees more time through either the carryover option or the grace period option.
Under the carryover option, an employee can carry over up to $500 of unused funds to the following plan year—for example, an employee with $500 of unspent funds at the end of 2016 would still have those funds available to use in 2017. Under the grace period option, an employee has until 2Vz months after the end of the plan year to incur eligible expenses—for example, March 15, 2017, for a plan year ending on Dec. 31, 2016. Employers can offer either option, but not both, or none at all.
Employers are not required to offer FSAs. Accordingly, interested employees should check with their employer to see if they offer an FSA. More information about FSAs can be found in Publication 969 , available on IRS.gov.
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We are always happy to help. If you have any questions, please contact:
Majid “Mike” Tavabi, EA
Office: (310) 894-9244
Direct: (310) 539-1068
Fax: (310) 988-2624
Email: mike@wkacctax.com
(Source: IRS Special Edition Tax Tip, September 2, 2014)
The IRS continues to warn the public to be alert for telephone scams and offers five tell-tale warning signs to tip you off if you get such a call. These callers claim to be with the IRS. The scammers often demand money to pay taxes. Some may try to con you by saying that you’re due a refund. The refund is a fake lure so you’ll give them your banking or other private financial information.
These con artists can sound convincing when they call. They may even know a lot about you. They may alter the caller ID to make it look like the IRS is calling. They use fake names and bogus IRS badge numbers. If you don’t answer, they often leave an “urgent” callback request.
The IRS respects taxpayer rights when working out payment of your taxes. So, it’s pretty easy to tell when a supposed IRS caller is a fake. Here are five things the scammers often do but the IRS will not do. Any one of these five things is a sign of a scam. The IRS will never:
1. Call you about taxes you owe without first mailing you an official notice.
2. Demand that you pay taxes without giving you the chance to question or appeal the amount they say you owe.
3. Require you to use a certain payment method for your taxes, such as a prepaid debit card.
4. Ask for credit or debit card numbers over the phone. 5. Threaten to bring in local police or other law-enforcement to have you arrested for not paying.
If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what to do:
1. If you know you owe taxes or think you might owe, call the IRS at 800-829-1040 to talk about payment options. You also may be able to set up a payment plan online at IRS.gov.
2. If you know you don’t owe taxes or have no reason to believe that you do, report the incident to TIGTA at I .800.366.4484 or at www.tigta.gov.
3. If phone scammers target you. also contact the Federal
Trade Commission at FTC.gov. Use their “FTC Complaint Assistant” to report the scam. Please add “IRS Telephone Scam” to the comments of your complaint.
Remember, the IRS currently does not use unsolicited email, text messages or any social media to discuss your personal tax issues. For more information on reporting scams, go to www.irs.gov and type “scam” in the search box.
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We are always happy to help. If you have any questions, please contact:
Majid “Mike” Tavabi, EA
Office: (310) 894-9244
Direct: (310) 539-1068
Fax: (310) 988-2624
Email: mike@wkacctax.com
(Source: IRS Newswire, Issue Number IR-2015-134, November 25, 2015)
WASHINGTON — The Internal Revenue Service today reminded individuals and businesses making year-end gifts to charity that several important tax law provisions have taken effect in recent years.
Some of the changes taxpayers should keep in mind include:
Rules for Charitable Contributions of Clothing and Household Items
Household items include furniture, furnishings, electronics, appliances and linens. Clothing and household items donated to charity generally must be in good used condition or better to be tax-deductible. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.
Donors must get a written acknowledgement from the charity for all gifts worth $250 or more. It must include, among other things, a description of the items contributed.
Guidelines for Monetary Donations
A taxpayer must have a bank record or a written statement from the charity in order to deduct any donation of money, regardless of amount. The record must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, and bank, credit union and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.
Reminders
The IRS offers the following additional reminders to help taxpayers plan their holiday and year-end gifts to charity:
Qualified charities. Check that the charity is eligible. Only donations to eligible organizations are tax-deductible. Select Check, a searchable online tool available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations. That is true even if they are not listed in the tool’s database.
Year-end gifts. Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2015 count for 2015, even if the credit card bill isn’t paid until 2016. Also, checks count for 2015 as long as they are mailed in 2015.
Itemize deductions. For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction. This includes anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2015 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
Record donations. For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
Special Rules. The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
______________
We are always happy to help. If you have any questions, please contact:
Majid “Mike” Tavabi, EA
Office: (310) 894-9244
Direct: (310) 539-1068
Fax: (310) 988-2624
Email: mike@wkacctax.com
(Source: IRS Special Edition Tax Tip 2015-20, November 24, 2015)
The holiday season often prompts people to give money or property to charity. If you plan to give and want to claim a tax deduction, there are a few tips you should know before you give. For instance, you must itemize your deductions. Here are six more tips that you should keep in mind:
1. Give to qualified charities. You can only deduct gifts you give to a qualified charity. Use the IRS Select Check tool to see if the group you give to is qualified. You can deduct gifts to churches, synagogues, temples, mosques and government agencies. This is true even if Select Check does not list them in its database.
2. Keep a record of all cash gifts. Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift. The statement must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, or bank, credit union and credit card statements. If you give by payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document from your employer. It must show the total amount withheld for charity, along with the pledge card showing the name of the charity.
3. Household goods must be in good condition. Household items include furniture, furnishings, electronics, appliances and linens. These items must be in at least good-used condition to claim on your taxes. A deduction claimed of over $500 does not have to meet this standard if you include a qualified appraisal of the item with your tax return.
4. Additional records required. You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.
5. Year-end gifts. Deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2015. This is true even if you don’t pay the credit card bill until 2016. Also, a check will count for 2015 as long as you mail it in 2015.
6. Special rules. Special rules apply if you give a car, boat or airplane to charity. If you claim a deduction of more than $500 for a noncash contribution, you will need to file another form with your tax return. Use Form 8283, Noncash Charitable Contributions to report these gifts. For more on these rules, visit IRS.gov.
Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.
______________
We are always happy to help. If you have any questions, please contact:
Majid “Mike” Tavabi, EA
Office: (310) 894-9244
Direct: (310) 539-1068
Fax: (310) 988-2624
Email: mike@wkacctax.com