If you are still thinking about doing your own taxes, check out these 10 reasons why you need a tax pro.
IRS Newswire Issue Number: IR-2014-114, December 10, 2014
New Standard Mileage Rates Now Available; Business Rate to Rise in 2015
WASHINGTON — The Internal Revenue Service today issued the 2015 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2015, the standard mileage rates for the use of a car, van, pickup or panel truck will be:
- 57.5 cents per mile for business miles driven, up from 56 cents in 2014
- 23 cents per mile driven for medical or moving purposes, down half a cent from 2014
- 14 cents per mile driven in service of charitable organizations
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.
Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rates.
A taxpayer may not use the business standard mileage rate for a vehicle after claiming accelerated depreciation, including the Section 179 expense deduction, on that vehicle. Likewise, the standard rate is not available to fleet owners (more than four vehicles used simultaneously). Details on these and other special rules are in Revenue Procedure 2010-51, the instructions to Form 1040 and various online IRS publications including Publication 17, Your Federal Income Tax.
Besides the standard mileage rates, Notice 2014-79, posted today on IRS.gov, also includes the basis reduction amounts for those choosing the business standard mileage rate, as well as the maximum standard automobile cost that may be used in computing an allowance under a fixed and variable rate plan.
This article was published by the AICPA in The CPA Insider and ties perfectly to my last video about employees vs. independent contractors.
Is this something we need to discuss further to protect you?
Six myths that lead to worker misclassificationThese myths may give employers an unwarranted sense of security, and they can have costly consequences.August 26, 2013
By Jim Buttonow, CPA/CITP
Employers face an important decision in classifying their workers for tax treatment. Workers can be classified as employees, who receive Form W-2, Wage and Tax Statement, or as independent contractors, who receive Form 1099-MISC, Miscellaneous Income. There are decision criteria to help businesses properly classify their workers, but businesses have incentives to classify their workers as independent contractors. When workers are classified as independent contractors instead of employees, businesses don’t have to pay employment taxes and costly employee benefits, or comply with myriad employer rules.
In the next several years, businesses will have another reason to misclassify workers. In 2015, when the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, is fully implemented, businesses with 50 or more employees will be required to provide health insurance to employees to avoid a penalty. That penalty could be as high as $3,000 per worker. Businesses wanting to avoid the employer mandate to provide health insurance will have further motivation to classify workers as independent contractors.
The IRS has a big stake in proper worker classification. When workers are classified as independent contractors and should be employees, the government loses out on employment tax revenue. In the last quantifiable study done on worker misclassification, for tax year 1984, the U.S. Government Accountability Office estimated that 15% of employers misclassified 3.4 million workers as independent contractors, costing the federal government $1.6 billion. The current amount lost is unknown, but the IRS is completing a study that will help quantify the extent of the problem. Results of this study are due in 2015.
Six myths give a false sense of security
The determination of proper worker classification is based on whether the worker or the business has the right to control the worker.
In practice, this determination is complex and subjective, leaving businesses and their CPAs to interpret the facts and circumstances. The IRS doesn’t have a clear, bright-line test to determine classification. The IRS evaluates the facts and circumstances of each case and considers the 20 factors found in Rev. Rul. 87-41 in determining whether an individual is an employee under the common law rules.
In some circumstances, businesses may try to rely on one or more of the following common practices to classify a worker as an independent contractor. However, these practices are myths that don’t prevent IRS scrutiny and can have costly consequences.
Myth 1: We had a signed contract
A business engages a worker. The worker signs an agreement with a clause stating that the worker’s relationship to the business is that of an independent contractor. The business is confident that the agreement defines the relationship between the parties.
The reality is that proper worker classification is based on the actual working relationship between both parties. IRS auditors regularly look past contract clauses and look to evidence indicating who has the right of control. Agents are trained to consider the written contract only in “gray area” circumstances.
Myth 2: Everyone else is doing it
A business asserts that because other businesses in its industry, including its competition, treat certain types of workers as independent contractors, it can too. While this approach may have some merit if the treatment is a long-standing industry practice, employers should not rely on it without deep analysis. To prove reasonable reliance, the business should be able to provide documented evidence that it used to determine worker status before engaging the worker.
The IRS often finds that employers’ reliance on this approach does not come from documented knowledge, such as surveys, studies, and other informed evidence on industry practices. Rather, businesses often rely on after-the-fact assumptions to justify independent contractor treatment that the IRS easily dismisses in a worker status determination.
Myth 3: The worker was in a probationary period
A business wants to “try out” a worker before making a hiring decision. During the probationary period, the business treats the worker as an independent contractor. If the business is satisfied with the worker’s performance, the worker is hired as an employee. The IRS often questions this practice when it determines that the worker received a Form 1099 and a Form W-2, with no substantive change in the work performed or in the business-worker relationship.
Myth 4: They were part-time workers
A business hires part-time, temporary, or seasonal workers and classifies them as independent contractors, when they are actually employees. In classifying workers this way, many businesses want to avoid the administrative costs associated with employee status, especially when the workers are paid only small amounts or are paid significantly less than similar employees.
This myth is quickly dispelled when evidence indicates that the work performed is substantially similar to the work performed by other full-time workers or a class of workers who are treated as employees. Going forward, reliance on this myth will be even riskier, because new PPACA requirements suggest that the status of part-time workers could see significant scrutiny. Under the PPACA, part-time employees will be included in the computation of total employees to determine whether employers are required to make a shared responsibility payment (penalty) if they do not provide health insurance or do not provide insurance that is affordable and provides minimum value.
Myth 5: The contractor is an independent business
A worker has a business name and an employer identification number (EIN). The business engaging that worker automatically treats the worker as an independent contractor.
The IRS inadvertently overlooks many of these situations in audits because auditors commonly look for Forms 1099 issued to individuals with Social Security numbers. The worker’s business name and EIN may disguise an employee-employer relationship. Businesses should not automatically treat workers with EINs as independent contractors and instead should look at the substance of the worker relationship to determine proper classification.
Myth 6: Out of sight, not on payroll
A business treats workers who don’t work on business premises—at home, for instance—as independent contractors. As the IRS points out in its training materials, with today’s technological capabilities, off-site work is consistent with any type of worker. Relevant factors in weighing this determination include the worker’s personal investment, unreimbursed expenses, and the opportunity for profit or loss.
At federal and state levels, the stakes are getting higher for misclassification of workers, and this issue will only get more attention as the PPACA is implemented. It’s best to help your business clients properly classify workers before the work begins—and to help them see that the myths discussed in this article are just that: myths.
Pa. Unemployment fund offering amnesty to those who owe
By Stacy Wescoe, LVB.com
The Department of Labor & Industry’s unemployment compensation amnesty program aimed at recouping monies owed to the state’s UC fund is in its final month.
The UC Amnesty Program, the first of its kind in the state, began on June 1 and runs through the end of August.
“This is the first time, that we know of, that a state has done a UC amnesty,” spokeswoman Sara Goulet said.
Claimants who have received more UC benefits than they were entitled to and employers who have not made mandatory tax contributions to the UC Trust Fund have until midnight Aug. 31 to repay monies owed at what Goulet referred to as “the best deal.”
She said more than 92,000 individual claimants and 50,000 businesses owe money to the fund.
The largest amount owed is from those who knowingly tried to defraud the fund, Goulet said. They owe $274 million to the fund. Under the amnesty program, they have to pay what they owe, but only half of the penalties and interest owed.
That’s a similar deal for employers who owe a total of about $257 million to the fund, statewide. She said all taxes owed must be paid, but they only pay half of the interest during the amnesty.
She said there is also a group of individuals that are considered to owe money unwittingly, because of a misunderstanding over filing. That group owes about $81 million, but Goulet said they are only being asked to pay back half of what they owe, because the misfiling was unintentional.
While the department hasn’t released the amount recouped so far, Goulet said everyone is pleased with the response so far.
“It’s difficult to say what our goal is because we didn’t have anything to base it on because this has never been done before, but we feel anything we get back is a bonus because it goes back into the UC fund,” she said.
More information on the amnesty program can be found at makeitright.pa.gov.
Passed by Congress on July 2, 1909, and ratified February 3, 1913, the 16th amendment established Congress’s right to impose a Federal income tax.
Far-reaching in its social as well as its economic impact, the income tax amendment became part of the Constitution by a curious series of events culminating in a bit of political maneuvering that went awry.
The financial requirements of the Civil War prompted the first American income tax in 1861. At first, Congress placed a flat 3-percent tax on all incomes over $800 and later modified this principle to include a graduated tax. Congress repealed the income tax in 1872, but the concept did not disappear.
After the Civil War, the growing industrial and financial markets of the eastern United States generally prospered. But the farmers of the south and west suffered from low prices for their farm products, while they were forced to pay high prices for manufactured goods. Throughout the 1860s, 1870s, and 1880s, farmers formed such political organizations as the Grange, the Greenback Party, the National Farmers’ Alliance, and the People’s (Populist) Party. All of these groups advocated many reforms (see the Interstate Commerce Act) considered radical for the times, including a graduated income tax.
In 1894, as part of a high tariff bill, Congress enacted a 2-percent tax on income over $4,000. The tax was almost immediately struck down by a five-to-four decision of the Supreme Court, even though the Court had upheld the constitutionality of the Civil War tax as recently as 1881. Although farm organizations denounced the Court’s decision as a prime example of the alliance of government and business against the farmer, a general return of prosperity around the turn of the century softened the demand for reform. Democratic Party Platforms under the leadership of three-time Presidential candidate William Jennings Bryan, however, consistently included an income tax plank, and the progressive wing of the Republican Party also espoused the concept.
In 1909 progressives in Congress again attached a provision for an income tax to a tariff bill. Conservatives, hoping to kill the idea for good, proposed a constitutional amendment enacting such a tax; they believed an amendment would never received ratification by three-fourths of the states. Much to their surprise, the amendment was ratified by one state legislature after another, and on February 25, 1913, with the certification by Secretary of State Philander C. Knox, the 16th amendment took effect. Yet in 1913, due to generous exemptions and deductions, less than 1 percent of the population paid income taxes at the rate of only 1 percent of net income.
This document settled the constitutional question of how to tax income and, by so doing, effected dramatic changes in the American way of life.
(Information excerpted from Milestone Documents in the National Archives [Washington, DC: National Archives and Records Administration, 1995] pp. 69–73.) Reprinted from: http://www.ourdocuments.gov/doc.php?doc=57
IRS Plans Jan. 30 Tax Season Opening For 1040 Filers
IR-2013-2, Jan. 8, 2013
WASHINGTON — Following the January tax law changes made by Congress under the American Taxpayer Relief Act (ATRA), the Internal Revenue Service announced today it plans to open the 2013 filing season and begin processing individual income tax returns on Jan. 30.
The IRS will begin accepting tax returns on that date after updating forms and completing programming and testing of its processing systems. This will reflect the bulk of the late tax law changes enacted Jan. 2. The announcement means that the vast majority of tax filers — more than 120 million households — should be able to start filing tax returns starting Jan 30.
The IRS estimates that remaining households will be able to start filing in late February or into March because of the need for more extensive form and processing systems changes. This group includes people claiming residential energy credits, depreciation of property or general business credits. Most of those in this group file more complex tax returns and typically file closer to the April 15 deadline or obtain an extension.
“We have worked hard to open tax season as soon as possible,” IRS Acting Commissioner Steven T. Miller said. “This date ensures we have the time we need to update and test our processing systems.”
The IRS will not process paper tax returns before the anticipated Jan. 30 opening date. There is no advantage to filing on paper before the opening date, and taxpayers will receive their tax refunds much faster by using e-file with direct deposit.
“The best option for taxpayers is to file electronically,” Miller said.
The opening of the filing season follows passage by Congress of an extensive set of tax changes in ATRA on Jan. 1, 2013, with many affecting tax returns for 2012. While the IRS worked to anticipate the late tax law changes as much as possible, the final law required that the IRS update forms and instructions as well as make critical processing system adjustments before it can begin accepting tax returns.
The IRS originally planned to open electronic filing this year on Jan. 22; more than 80 percent of taxpayers filed electronically last year.
Who Can File Starting Jan. 30?
The IRS anticipates that the vast majority of all taxpayers can file starting Jan. 30, regardless of whether they file electronically or on paper. 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, higher education tuition and fees deduction and educator expenses deduction.
Who Can’t File Until Later?
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.
As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure as smooth a tax season as possible under the circumstances.
Check us out from January 7, 2013 news cast on Channel 69, WFMZ-TV, discussing the impact of the Fiscal Cliff on small business.
Click here for the video.
By now, of course, you’ve heard that Congress has passed legislation avoiding the tax increases of the “Fiscal Cliff.” Few of us who watched the process would consider it Washington’s finest hour. But we finally have answers to the questions that have made proactive planning so difficult. Here are the highlights:
- The Bush tax cuts are restored for income up to $400,000 ($450,000 for joint filers). Rates for income above those ceilings rise to 39.6% for ordinary income and 20% for qualified corporate dividends and long-term capital gains.
- The Alternative Minimum Tax is finally indexed for inflation, meaning Washington won’t need to “patch” it every year.
- The estate tax “unified credit” amount that you can bequeath tax-free remains at $5 million, indexed for inflation. The actual rate rises from 35% to 40%.
- The 2% payroll tax holiday has expired, most likely for good.
The legislation also extends several popular tax breaks, like higher limits for business equipment expensing, deductions for student loan interest, and tax-free charitable gifts made directly from Individual Retirement Accounts.
We realize you’ve already heard this news. But we want you to know we’ll be studying the new law in the coming weeks and months to look for every opportunity to help you save. And of course, if you have any questions about how all this applies to you, don’t hesitate to call me at 610-440-4049.
IRS Provides Updated Withholding Guidance for 2013
IR-2013-1, Jan. 3, 2013
WASHINGTON — The Internal Revenue Service today released updated income-tax withholding tables for 2013 reflecting this week’s changes by Congress.
The updated tables, issued today after President Obama signed the changes into law, show the new rates in effect for 2013 and supersede the tables issued on December 31, 2012. The newly revised version of Notice 1036 contains the percentage method income-tax withholding tables and related information that employers need to implement these changes.
In addition, employers should also begin withholding Social Security tax at the rate of 6.2 percent of wages paid following the expiration of the temporary two-percentage-point payroll tax cut in effect for 2011 and 2012. The payroll tax rates were not affected by this week’s legislation.
Employers should start using the revised withholding tables and correct the amount of Social Security tax withheld as soon as possible in 2013, but not later than Feb. 15, 2013. For any Social Security tax under-withheld before that date, employers should make the appropriate adjustment in workers’ pay as soon as possible, but not later than March 31, 2013.
Employers and payroll companies will handle the withholding changes, so workers typically won’t need to take any additional action, such as filling out a new W-4 withholding form.
As always, however, the IRS urges workers to review their withholding every year and, if necessary, fill out a new W-4 and give it to their employer. For example, individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms.
If you previously updated your tax tables, please use this newly issued Notice 1036 to replace those tables. Let me know if you need help.
The IRS issued the following statement today regarding payroll withholding tables:
“We are aware that employers have questions with respect to 2013 withholding. Since Congress is still considering changes to the tax law, we continue to closely monitor the situation. We intend to issue guidance by the end of the year on appropriate withholding for 2013.”
So, keep checking back with me…