Filing an Amended Tax Return

What should you do if you already filed your federal tax return and then discover a mistake? First of all, don’t worry. In most cases, all you have to do is file an amended tax return. But before you do that, here is what you should be aware of when filing an amended tax return.

Taxpayers should use Form 1040X, Amended U.S. Individual Income Tax Return, to file an amended (corrected) tax return. You must file the corrected tax return on paper. An amended return cannot be e-filed. Please call if you need assistance or have any questions about Form 1040X.

If you need to file another schedule or form, don’t forget to attach it to the amended return.

An amended tax return should only be filed to correct errors or make changes to your original tax return. For example, you should amend your return if you need to change your filing status, or correct your income, deductions or credits.

You normally do not need to file an amended return to correct math errors because the IRS automatically makes those changes for you. Also, do not file an amended return because you forgot to attach tax forms, such as W-2s or schedules. The IRS normally will mail you a request asking for those.

Note: Eligible taxpayers who filed a 2014 tax return and claimed a premium tax credit using incorrect information from either the federally facilitated or a state-based Health Insurance Marketplace, generally do not have to file an amended return regardless of the nature of the error, even if additional taxes would be owed. The IRS may contact you to ask for a copy of your corrected Form 1095-A to verify the information.

Nonetheless, you may choose to file an amended return because some taxpayers may find that filing an amended return may reduce their tax owed or give them a larger refund (see below for additional information).

If you are amending more than one tax return, prepare a 1040X for each return and mail them to the IRS in separate envelopes. Note the tax year of the return you are amending at the top of Form 1040X. You will find the appropriate IRS address to mail your return to in the Form 1040X instructions.

If you are filing an amended tax return to claim an additional refund, wait until you have received your original tax refund before filing Form 1040X. Amended returns take up to 16 weeks to process. You may cash your original refund check while waiting for the additional refund.

If you owe additional taxes with Form 1040X, file it and pay the tax as soon as possible to minimize interest and penalties. You can use IRS Direct Pay to pay your tax directly from your checking or savings account.

Generally, you must file Form 1040X within three years from the date you filed your original tax return or within two years of the date you paid the tax, whichever is later. For example, the last day for most people to file a 2012 claim for a refund is April 15, 2016. Special rules may apply to certain claims. For more information see the instructions for Form 1040X or call the office.

You can track the status of your amended tax return for the current year three weeks after you file. You can also check the status of amended returns for up to three prior years. To use the “Where’s My Amended Return” tool on the IRS website, just enter your taxpayer identification number (usually your Social Security number), date of birth and zip code. If you have filed amended returns for more than one year, you can select each year individually to check the status of each.

Filing an amended return after receiving a corrected Form 1095-A

If you enrolled in qualifying Marketplace health coverage, then you have probably filed a tax return based on a Form 1095-A that you received from the Marketplace. Your Marketplace may have subsequently told you that your original Form 1095-A contained an error and sent a corrected Form 1095-A. Comparing the forms can help you determine whether you are likely to benefit from filing an amended tax return.

Specifically, you are likely to receive a larger refund or owe a smaller tax payment using the corrected Form 1095-A if the two Forms 1095-A generally show the same information, but any one of the five scenarios below is true on the corrected form.

1. Second Lowest Cost Silver Plan Premium is Larger: The monthly premium amounts of the second lowest cost silver plan, shown in Part III, column B, lines 21-32, are greater on the corrected form than on the original form.

2. Monthly Premium Amounts are Larger: The monthly premium amounts of the plan in which you enrolled, shown in Part III, column A, lines 21-32, are greater on the corrected form than on the original form.

3. Advance Payment of the Premium Tax Credit Amounts are Lower: The monthly amounts of advance payment of the premium tax credit shown in Part III, column C, lines 21-32 are smaller on the corrected form than on the original form.

4. More Months of Coverage: Your corrected Form 1095-A lists more months of coverage and your situation meets all the following conditions:

  • The corrected form shows more months of coverage than the original form. This means that the corrected form shows positive values in more of the rows under Part III than the original form.
  • The values are the same on the corrected form for the months that the original form showed coverage.
  • On your original tax return, you claimed a net premium tax credit, meaning you entered a value on line 26 of the Form 8962 you filed.

5. Fewer Months of Coverage: Your corrected From 1095-A lists fewer months of coverage and your situation meets all the following conditions:

  • The corrected form shows fewer months of coverage than the original form. This means that the corrected form shows positive values in fewer of the rows under Part III than the original form.
  • The values are the same on the original form for the months that the corrected form shows coverage.
  • On your original tax return, you reported owing a repayment of excess APTC, meaning you entered a value on line 29 of the Form 8962 you filed.

If there were multiple differences between your original and the corrected forms or you are not sure if you would benefit from amending, you may want to consult with a tax professional.

If you have any questions or need help filing an amended return please call.

Tax Implications of Retiring Overseas

Are you approaching retirement age and wondering where you can retire to make your retirement nest egg last longer? Retiring abroad may be the answer. But first, it’s important to look at the tax implications because not all retirement country destinations are created equal. Here’s what you need to know.

Taxes on Worldwide Income

Leaving the United States does not exempt U.S. citizens from their U.S. tax obligations. While some retirees may not owe any U.S. income tax while living abroad, they must still file a return annually with the IRS. This would be the case even if all of their assets were moved to a foreign country. The bottom line is that you may still be taxed on income regardless of where it is earned.

Unlike most countries, the United States taxes individuals based on citizenship and not residency. As such, every U.S. citizens (and resident alien) must file a tax return reporting worldwide income (including income from foreign trusts and foreign bank and securities accounts) in any given taxable year that exceeds threshold limits for filing.

The filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the foreign earned income exclusion or the foreign tax credit, that substantially reduce or eliminate U.S. tax liability.

Note: These tax benefits are not automatic and are only available if an eligible taxpayer files a U.S. income tax return.

Any income received or deductible expenses paid in foreign currency must be reported on a U.S. return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars.

In addition, taxpayers who are retired may have to file tax forms in the foreign country in which they reside. You may, however, be able to take a tax credit or a deduction for income taxes you paid to a foreign country. These benefits can reduce your taxes if both countries tax the same income.

Nonresident aliens who receive income from U.S. sources must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens is April 15 or June 15 depending on sources of income.

Income from Social Security or Pensions

If Social Security is your only income, then your benefits may not be taxable and you may not need to file a federal income tax return. If you receive Social Security you should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of your benefits. Likewise, if you have pension or annuity income, you should receive a Form 1099-R for each distribution plan.

Retirement income is generally not taxed by other countries. As a U.S. citizen retiring abroad who receives Social Security, for instance, you may owe U.S. taxes on that income, but may not be liable for tax in the country where you’re spending your retirement years.

However, if you receive income from other sources (either U.S. or country of retirement) as well, from a part-time job or self-employment, for example, you may have to pay U.S. taxes on some of your benefits. You may also be required to report and pay taxes on any income earned in the country where you retired.

Each country is different, so consult a local tax professional or one who specializes in expat tax services.

Foreign Earned Income Exclusion

If you’ve retired overseas, but take on a full-or part-time job or earn income from self-employment, the IRS allows qualifying individuals to exclude all, or part, of their incomes from U.S. income tax by using the Foreign Earned Income Exclusion (FEIE). In 2015, this amount is $100,800. This means that if you qualify, you won’t pay tax on up to $100,800 of your wages and other foreign earned income in 2015.

Note: Income earned overseas is exempt from taxation only if certain criteria are met such as residing outside of the country for at least 330 days over a 12-month period, or an entire calendar year.

Tax Treaties

The United States has income tax treaties with a number of foreign countries, but these treaties generally don’t exempt residents from their obligation to file a tax return.

Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from U.S. income taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income.

Treaty provisions are generally reciprocal; that is they apply to both treaty countries. Therefore, a U.S. citizen or resident who receives income from a treaty country and who is subject to taxes imposed by foreign countries may be entitled to certain credits, deductions, exemptions, and reductions in the rate of taxes of those foreign countries.

Affordable Care Act

Starting in 2014, the individual shared responsibility provision calls for each individual to have minimum essential coverage (MEC) for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return.

All U.S. citizens are subject to the individual shared responsibility provision. If you are not yet eligible for Medicare, U.S. citizens living abroad are generally subject to the same individual shared responsibility provision as U.S. citizens living in the United States.

However, U.S. citizens or residents living abroad for at least 330 days within a 12 month period are treated as having MEC during those 12 months and thus will not owe a shared responsibility payment for any of those 12 months. Also, U.S. citizens who qualify as a bona fide resident of a foreign country for an entire taxable year are treated as having MEC for that year.

State Taxes

Many states tax resident income as well, so even if you retire abroad, you may still owe state taxes–unless you established residency in a no-tax state before you moved overseas.

Some states honor the provisions of U.S. tax treaties; however, some states do not, therefore it is prudent to consult a tax professional.

Relinquishing U.S. Citizenship

Taxpayers who relinquish their U.S. citizenship or cease to be lawful permanent residents of the United States during any tax year must file a dual-status alien return and attach Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with Internal Revenue Service (Philadelphia, PA 19255-0049), by the due date of the tax return (including extensions).

Note: Giving up your U.S. citizenship doesn’t mean giving up your right to receive social security, pensions, annuities or other retirement income. However, the U.S. Internal Revenue Code (IRC) requires the Social Security Administration (SSA) to withhold nonresident alien tax from certain Social Security monthly benefits. If you are a nonresident alien receiving social security retirement income, then SSA will withhold a 30 percent flat tax from 85 percent of those benefits unless you qualify for a tax treaty benefit. This results in a withholding of 25.5 percent of your monthly benefit amount.

Before You Retire Consult a Tax Professional

Don’t wait until you’re ready to retire to consult a tax professional. Call the office today and find out what your options are.

Paying Taxes on Household Helpers

If you employ someone to work for you around your house, it is important to consider the tax implications of this arrangement. While many people disregard the need to pay taxes on household employees, they do so at the risk of paying stiff tax penalties down the road.

As you will see, the rules for hiring household help are quite complex, even for a relatively minor employee, and a mistake can bring on a tax headache that most of us would prefer to avoid.

Commonly referred to as the “nanny tax”, these rules apply to you only if (1) you pay someone for household work and (2) that worker is your employee.

  1. Household work is work that is performed in or around your home by baby-sitters, nannies, health aides, private nurses, maids, caretakers, yard workers, and similar domestic workers.

    A household worker is your employee if you control not only what work is done, but how it is done.

Who Is a Household Employee?

If a worker is your employee, it does not matter whether the work is full-time or part-time or that you hired the worker through an agency or from a list provided by an agency or association. It also does not matter whether you pay the worker on an hourly, daily or weekly basis or by the job.

If the worker controls how the work is done, the worker is not your employee but is self-employed. A self-employed worker usually provides his or her own tools and offers services to the general public in an independent business.

Also, if an agency provides the worker and controls what work is done and how it is done, the worker is not your employee.

Example: You pay Betty to babysit your child and do light housework four days a week in your home. Betty follows your specific instructions about household and child care duties. You provide the household equipment and supplies that Betty needs to do her work. Betty is your household employee.

Example: You pay John to care for your lawn. John also offers lawn care services to other homeowners in your neighborhood. He provides his own tools and supplies, and he hires and pays any helpers he needs. Neither John nor his helpers are your household employees.

Can Your Employee Legally Work in the United States?

When you hire a household employee to work for you on a regular basis, he or she must complete USCIS Form I-9 Employment Eligibility Verification. It is your responsibility to verify that the employee is either a U.S. citizen or an alien who can legally work and then complete the employer part of the form. It is unlawful for you to knowingly hire or continue to employ a person who cannot legally work in the United States.

Keep the completed form for your records. Do not return the form to the U.S. Citizenship and Immigration Services (USCIS).

Tip: Two copies of Form I-9 are contained in the UCIS Employer Handbook. Visit the USCIS website or call 800-767-1833 FREE to order the handbook, additional copies of the form, or to get more information, or give us a call.

Do You Need to Pay Employment Taxes?

If you have a household employee, you may need to withhold and pay Social Security and Medicare taxes, or you may need to pay federal unemployment tax or both. Refer to this table for details:

If you…

Then you need to…

Will pay cash wages of $1,900 or more in 2015 to any one household employee.Do not count wages you pay to:

  • your spouse,
  • your child under age 21,
  • your parent, or
  • any employee under age 18 during 2015.
Withhold and pay Social Security and Medicare taxes.

  • The combined taxes are generally 15.3% of cash wages.
  • Your employee’s share is 7.65%.

(You can choose to pay the employee’s share yourself and not withhold it.)

  • Your share is 7.65%.
Have paid or will pay total cash wages of $1,000 or more in any calendar quarter of 2014 or 2015 to household employees.Do not count wages you pay to:

  • your spouse,
  • your child under age 21, or
  • your parent.
Pay federal unemployment tax.

  • The tax is 6.0% of cash wages.
  • Wages over $7,000 a year per employee are not taxed.
  • You also may owe state unemployment tax.

If neither of these two contingencies applies, you do not need to pay any federal unemployment taxes. But you may still need to pay state unemployment taxes (see below).

You do not need to withhold federal income tax from your household employee’s wages. But if your employee asks you to withhold it, you can choose to do so.

Tip: If your household employee cares for your dependent that is under the age of 13 or your spouse or dependent that is not capable of self-care, so that you can work, you may be able to take an income tax credit of up to 35 percent (or $1,050) of your expenses for each qualifying dependent. If you can take the credit, then you can include your share of the federal and state employment taxes you pay, as well as the employee’s wages, in your qualifying expenses.

State Unemployment Taxes

Please contact us if you’re not sure whether you need to pay state unemployment tax for your household employee. We’ll also help you figure out whether you need to pay or collect other state employment taxes or carry workers’ compensation insurance.

Note: If you do not need to pay Social Security, Medicare, or federal unemployment tax and do not choose to withhold federal income tax, the rest of this article does not apply to you.

Social Security and Medicare Taxes

Social Security taxes pays for old-age, survivor, and disability benefits for workers and their families. The Medicare tax pays for hospital insurance.

Both you and your household employee may owe Social Security and Medicare taxes. Your share is 7.65 percent (6.2 percent for Social Security tax and 1.45 percent for Medicare tax) of the employee’s Social Security and Medicare wages. Your employee’s share is 6.2 percent for Social Security tax and 1.45 percent for Medicare tax.

You are responsible for payment of your employee’s share of the taxes as well as your own. You can either withhold your employee’s share from the employee’s wages or pay it from your own funds. Note the limits in the table above.

Wages Not Counted

Do not count wages you pay to any of the following individuals as Social Security and Medicare wages:

    1. Your spouse.
    2. Your child who is under age 21.
    3. Your parent.

Note: However, you should count wages to your parent if they are caring for your child and both of the following apply: (a) your child lives with you and is either under age 18 or has a physical or mental condition that requires the personal care of an adult for at least four continuous weeks in a calendar quarter, and (b) you are divorced and have not remarried, or you are a widow or widower, or you are married to and living with a person whose physical or mental condition prevents him or her from caring for your child for at least four continuous weeks in a calendar quarter.

    1. An employee who is under age 18 at any time during the year.

Note: However, you should count these wages to an employee under 18 if providing household services is the employee’s principal occupation. If the employee is a student, providing household services is not considered to be his or her principal occupation.

Also, if your employee’s Social Security and Medicare wages reach $118,500 in 2015 ($117,000 in 2014), then do not count any wages you pay that employee during the rest of the year as Social Security wages to figure Social Security tax. You should, however, continue to count the employee’s cash wages as Medicare wages to figure Medicare tax. You figure federal income tax withholding on both cash and non-cash wages (based on their value), but do not count as wages any of the following items:

  • Meals provided at your home for your convenience.
  • Lodging provided at your home for your convenience and as a condition of employment.
  • Up to $130 a month in 2015 for transit passes that you give your employee or, in some cases, for cash reimbursement you make for the amount your employee pays to commute to your home by public transit. A transit pass includes any pass, token, fare card, voucher, or similar item entitling a person to ride on mass transit, such as a bus or train.
  • Up to $250 a month in 2015 to reimburse your employee for the cost of parking at or near your home or at or near a location from which your employee commutes to your home.

As you can see, tax considerations for household employees are complex; therefore, professional tax guidance is highly recommended. This is definitely an area where it’s better to be safe than sorry. If you have any questions at all, please call.

What to Do if You Haven’t Filed a Tax Return

Filing a past due return may not be as difficult as you think.

Taxpayers should file all tax returns that are due, regardless of whether full payment can be made with the return. Depending on an individual’s circumstances, a taxpayer filing late may qualify for a payment plan. It is important, however, to know that full payment of taxes upfront saves you money.

Here’s What to Do When Your Return Is Late

Gather Past Due Return Information

Gather return information and come see us. You should bring any and all information related to income and deductions for the tax years for which a return is required to be filed.

Payment Options – Ways to Make a Payment

There are several different ways to make a payment on your taxes. Payments can be made by credit card, electronic funds transfer, check, money order, cashier’s check, or cash.

Payment Options – For Those Who Can’t Pay in Full

Taxpayers unable to pay all taxes due on the bill are encouraged to pay as much as possible. By paying as much as possible now, the amount of interest and penalties owed will be lessened. Based on the circumstances, a taxpayer could qualify for an extension of time to pay, an installment agreement, a temporary delay, or an offer in compromise.

Taxpayers who need more time to pay can set up either a short-term payment extension or a monthly payment plan.

  • A short-term extension gives a taxpayer an additional 60 to 120 days to pay. No fee is charged, but the late-payment penalty plus interest will apply. Generally taxpayers will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time.
  • A monthly payment plan or installment agreement gives a taxpayer more time to pay. However, penalties and interest will continue to be charged on the unpaid portion of the debt throughout the duration of the installment agreement/payment plan. Taxpayers who owe $25,000 or less in combined tax, penalties and interest can apply for and receive immediate notification of approval through an IRS web-based application. Balances over $25,000 require taxpayers to complete a financial statement to determine the monthly payment amount for an installment plan.When it comes to paying your tax bill, it is important to review all your options; the interest rate on a loan or credit card may be lower than the combination of penalties and interest imposed by the Internal Revenue Code. You should pay as much as possible before entering into an installment agreement.
  • You can also pay your Federal taxes using a major credit card or debit card. There is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee or flat fee.
  • A user fee will also be charged if the installment agreement is approved. The fee, normally $120, is reduced to $52 if taxpayers agree to make their monthly payments electronically through electronic funds withdrawal. The fee is $43 for eligible low-and-moderate-income taxpayers.

What Happens If You Don’t File a Past Due Return or Contact the IRS?

It’s important to understand the ramifications of not filing a past due return and the steps that the IRS will take. Taxpayers who continue to not file a required return and fail to respond to IRS requests for a return may be considered for a variety of enforcement actions.

If you haven’t filed a tax return yet, please contact the office for assistance.

Turn Your Vacation into a Tax Deduction

Tim, who owns his own business, decided he wanted to take a two-week trip around the US. So he did–and was able to legally deduct every dime that he spent on his vacation. Here’s how he did it.

1. Make all your business appointments before you leave for your trip.
Most people believe that they can go on vacation and simply hand out their business cards in order to make the trip deductible.

Wrong.

You must have at least one business appointment before you leave in order to establish the “prior set business purpose” required by the IRS. Keeping this in mind, before he left for his trip, Tim set up appointments with business colleagues in the various cities that he planned to visit.

Let’s say Tim is a manufacturer of green office products and is looking to expand his business and distribute more of his products. One possible way to establish business contacts–if he doesn’t already have them–is to place advertisements looking for distributors in newspapers in each location he plans to visit. He could then interview those who respond when he gets to the business destination.

Example: Tim wants to vacation in Hawaii. If he places several advertisements for distributors, or contacts some of his downline distributors to perform a presentation, then the IRS would accept his trip for business.

Tip: It would be vital for Tim to document this business purpose by keeping a copy of the advertisement and all correspondence along with noting what appointments he will have in his diary.

2. Make Sure your Trip is All “Business Travel.”
In order to deduct all of your on-the-road business expenses, you must be traveling on business. The IRS states that travel expenses are 100 percent deductible as long as your trip is business related and you are traveling away from your regular place of business longer than an ordinary day’s work and you need to sleep or rest to meet the demands of your work while away from home.

Example: Tim wanted to go to a regional meeting in Boston, which is only a one-hour drive from his home. If he were to sleep in the hotel where the meeting will be held (in order to avoid possible automobile and traffic problems), his overnight stay qualifies as business travel in the eyes of the IRS.

Tip: Remember: You don’t need to live far away to be on business travel. If you have a good reason for sleeping at your destination, you could live a couple of miles away and still be on travel status.

3. Be sure to deduct all of your on-the-road-expenses for each day you’re away.
For every day you are on business travel, you can deduct 100 percent of lodging, tips, car rentals, and 50 percent of your food. Tim spends three days meeting with potential distributors. If he spends $50 a day for food, he can deduct 50 percent of this amount, or $25.

Tip: The IRS doesn’t require receipts for travel expense under $75 per expense–except for lodging.

Example: If Tim pays $6 for drinks on the plane, $6.95 for breakfast, $12 for lunch, $50 for dinner, he does not need receipts for anything since each item was under $75.

Tip: He would, however, need to document these items in your diary. A good tax diary is essential in order to audit-proof your records. Adequate documentation includes amount, date, place of meeting, and business reason for the expense.

Example: If, however, Tim stays in the Bates Motel and spends $22 on lodging, will he need a receipt? The answer is yes. You need receipts for all paid lodging.

Tip: Not only are your on-the-road expenses deductible from your trip, but also all laundry, shoe shines, manicures, and dry-cleaning costs for clothes worn on the trip. Thus, your first dry cleaning bill that you incur when you get home will be fully deductible. Make sure that you keep the dry cleaning receipt and have your clothing dry cleaned within a day or two of getting home.

4. Sandwich weekends between business days.
If you have a business day on Friday and another one on Monday, you can deduct all on-the-road expenses during the weekend.

Example: Tim makes business appointments in Florida on Friday and one on the following Monday. Even though he has no business on Saturday and Sunday, he may deduct on-the-road business expenses incurred during the weekend.

5. Make the majority of your trip days count as business days.
The IRS says that you can deduct transportation expenses if business is the primary purpose of the trip. A majority of days in the trip must be for business activities; otherwise, you cannot make any transportation deductions.

Example: Tim spends six days in San Diego. He leaves early on Thursday morning. He had a seminar on Friday and meets with distributors on Monday and flies home on Tuesday, taking the last flight of the day home after playing a complete round of golf. How many days are considered business days?

All of them. Thursday is a business day since it includes traveling – even if the rest of the day is spent at the beach. Friday is a business day because he had a seminar. Monday is a business day because he met with prospects and distributors in pre-arranged appointments. Saturday and Sunday are sandwiched between business days, so they count, and Tuesday is a travel day.

Since Tim accrued six business days, he could spend another five days having fun and still deduct all his transportation to San Diego. The reason is that the majority of the days were business days (six out of eleven). However, he can only deduct six days’ worth of lodging, dry cleaning, shoe shines, and tips. The important point is that Tim would be spending money on lodging, airfare, and food, but now most of his expenses will become deductible.

To make sure that you can legally deduct your vacation when you combine it with business, call the office before you plan your trip.

IRS Rehired Hundreds of Misbehaving Employees with Conduct Problems

The Internal Revenue Service rehired hundreds of former employees with prior conduct or performance issues, including employees who failed to file their taxes, falsified official forms and misused IRS property, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, acknowledged that most rehired employees do not have performance or conduct issues associated with prior IRS employment. However, TIGTA said it identified hundreds of former employees with prior substantiated conduct or performance issues ranging from tax issues, unauthorized access to taxpayer information, leave abuse, falsification of official forms, unacceptable performance, misuse of IRS property, and off-duty misconduct.

TIGTA reviewed a random sample from more than 300 employees with significant prior performance or conduct issues who were hired between January 2010 and July 2013 and determined that the IRS appropriately applied OPM suitability standards, such as determining whether applicants had prior criminal activity, material false statements, or illegal drug use.

“Based on the types of prior performance and conduct issues we identified, rehiring certain employees presents increased risk to the IRS and taxpayers,” said TIGTA Inspector General J. Russell George in a statement.

TIGTA found that nearly 20 percent of the rehired former employees sampled with prior substantiated or unresolved conduct or performance issues had new conduct or performance issue, such as tax noncompliance or unauthorized access to tax account information.

Between January 2010 and September 2013, IRS records show that the IRS hired more than 7,000 former employees, 78 percent of which were temporary or seasonal positions. Hundreds of former employees were rehired, even though they had previous conduct or performance issues. For example, 141 former employees with prior substantiated tax issues, including five who the IRS found had willfully failed to file their federal tax returns, were hired. Other substantiated issues from previous IRS employment included unauthorized access to taxpayer information, leave abuse, falsification of official forms, unacceptable performance, misuse of IRS property, and off-duty misconduct.

Although they may meet OPM suitability standards, rehiring prior employees with known conduct and performance issues presents increased risk to the IRS and taxpayers, TIGTA noted.

During the audit, IRS officials stated that prior conduct and performance issues do not play a significant role in deciding the candidates who are best qualified for hiring and that they believe they are applying Office of Personnel Management suitability standards appropriately. In addition, IRS officials stated that the OPM and IRS General Legal Services should be consulted to determine if full consideration of prior conduct and performance issues violates federal regulations.

TIGTA recommended that the IRS Human Capital Officer work with General Legal Services and the OPM to determine whether and during what part of the hiring process the IRS can fully consider prior conduct and performance issues.

IRS management agreed with the recommendation and said they have already requested written opinions from General Legal Services and the OPM but believe that the current process is adequate to mitigate any risks to American taxpayers.

“IRS already fully considers prior conduct and performance issues before the final job offer is issued to all new hires,” wrote IRS human capital officer Daniel T. Riordan in response to the report.

However, TIGTA said it remains concerned because IRS records indicate it is hiring individuals with significant prior conduct and performance issues.

The IRS provided a further response in an email to Accounting Today. “The IRS is committed to providing the best possible service to American taxpayers and is working to ensure it fully considers prior conduct and performance issues before the final job offer is issued to all new hires,” said the IRS in a statement. “It’s important that the Inspector General for Tax Administration noted we have followed government hiring guidelines. In addition, we have implemented a new, more rigorous, consistent standard for reviewing the suitability of job applicants since 2012. Consistent with that commitment, in 2012, the IRS has accepted TIGTA’s specific recommendation that we further consult with IRS General Legal Services to look to further strengthen our processes. We believe our new, rigorous standard addresses many issues raised in this report. We remain committed to working with TIGTA and other partners to address these important issues and will look for additional ways to improve.”

 

Immigrants and Tax Return Filing

On November 20, 2014 President Obama announced an executive action on immigration which could extend relief from deportation to an estimated 5 million undocumented immigrants.

 

The administration has not said which documents it will accept, however, we believe that the Citizenship and Immigration Services which vets applications under Homeland Security may require 5 years of accurately prepared tax returns as additional proof of residence if applicants claim to have worked in the United States since their arrival.

 

 

Those who have filed accurate tax returns with their Individual Tax Identification Numbers (ITIN) and have retained their records will be light years ahead of those who have not. We recommend that you and your tax preparers get ready to answer tax questions for those applying for this new program.

Make sure you have tax preparation software setup for at least the past 5 years.

  1. Understand what documentation your clients need for a W-7
  2. Paystubs
  3. W-2s
  4. 1099 Miscellaneous forms
  5. Paid baby sitter receipts
  6. Traffic tickets
  7. Receipt books
  8. Expense receipts
  9. Amending prior year returns (filing status, dependents, earnings, etc.)
  10. Searching the Internet may help find documentation

House Passes $42 Billion Plan to Revive U.S. Tax Breaks for 2014

The House of Representatives voted to revive dozens of lapsed U.S. tax breaks for this year and set them to expire again on Dec. 31.

The 378-46 vote today would provide $42 billion in temporary relief to taxpayers, including companies that rely on the research tax credit and the production tax credit for wind energy. It provides no certainty for 2015, though lawmakers said the one-year extension was the best available option after a broader deal collapsed.

“This is a short-term fix when Congress needs to work toward a long-term solution,” second-ranking House Democrat Steny Hoyer of Maryland said during floor debate. Hoyer said he was voting for the measure although “it isn’t what I hoped for.”

The bill now heads to the Senate, where Finance Committee Chairman Ron Wyden has complained that it excludes tax breaks for the health care of laid-off workers and the purchase of plug-in electric motorcycles. Wyden also would prefer a bill that would continue breaks through 2015.

Lindsey Held, a spokeswoman for Wyden, said Republicans rejected a “reasonable, balanced” proposal Nov. 30.

Wyden ’Disappointed’
“We are disappointed that at this point there doesn’t appear to be a procedural path forward,” she said.

President Barack Obama said today that the administration is open to a short-term extension. He hasn’t said whether he would sign the House bill.

The tax breaks, which ended Dec. 31, 2013, aid businesses and individuals. Corporations including Citigroup Inc. and General Electric Co. would benefit from the ability to defer U.S. taxes on overseas financing income. Companies making capital purchases would have faster writeoffs.

Individuals who sold their homes for less than what they owed would be able to exclude the forgiven debt from income.

Abandoned Deal
The House vote came about a week after lawmakers abandoned efforts to reach a larger deal on reviving tax breaks that would have exceeded $400 billion over a decade.

That bipartisan plan, which was being negotiated by Senate Majority Leader Harry Reid and House Ways and Means Chairman Dave Camp, would have locked in some benefits including the research tax credit by removing their expiration dates.

Most of the other breaks would have been extended through 2015.

The talks fell apart when Democrats, including Obama and Treasury Secretary Jacob J. Lew, objected to the lawmakers’ plan not to revive an extension of tax credits for low-income and middle-income families.

Obama threatened to veto the emerging proposal.

The tax-break bill, H.R. 5771, will be combined with a Senate bill, H.R. 647, to create tax-advantaged accounts for disabled people.

Such accounts “will give those individuals a chance to realize their hopes and their dreams, to be able to be part of the American dream,” said Representative Ander Crenshaw, a Florida Republican, during floor debate.

2014 Tax Provisions for Individuals: A Review

From tax credits and educational expenses to the AMT, many of the tax changes affecting individuals for 2014 were related to the signing of the American Taxpayer Relief Act (ATRA) in 2013–tax provisions that were modified, made permanent, or extended. With that in mind, here’s what individuals and families need to know about tax provisions for 2014.

Personal Exemptions
The personal and dependent exemption for tax year 2014 is $3,950.

Standard Deductions
The standard deduction for married couples filing a joint return in 2014 is $12,400. For singles and married individuals filing separately, it is $6,200, and for heads of household the deduction is $9,100.

The additional standard deduction for blind people and senior citizens in 2014 is $1,200 for married individuals and $1,550 for singles and heads of household.

Income Tax Rates
In 2014 the top tax rate of 39.6 percent affects individuals whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return). Marginal tax rates for 2014–10, 15, 25, 28, 33 and 35 percent–remain the same as in prior years.

 

Due to inflation, tax-bracket thresholds increased for every filing status. For example, the taxable-income threshold separating the 15 percent bracket from the 25 percent bracket is $73,800 for a married couple filing a joint return.

Estate and Gift Taxes
In 2014 there is an exemption of $5.34 million per individual for estate, gift and generation-skipping taxes, with a top tax rate of 40 percent. The annual exclusion for gifts is $14,000.

Alternative Minimum Tax (AMT)
AMT exemption amounts were made permanent and indexed for inflation retroactive to 2012. In addition, non-refundable personal credits can now be used against the AMT.

For 2014, exemption amounts are $52,800 for single and head of household filers, $82,100 for married people filing jointly and for qualifying widows or widowers, and $41,700 for married people filing separately.

Marriage Penalty Relief
The basic standard deduction for a married couple filing jointly in 2014 is $12,400.

Pease and PEP (Personal Exemption Phaseout)
Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) limitations were made permanent by ATRA (indexed for inflation) and affect taxpayers with income at or above $254,200 (single filers) and $305,050 for married filing jointly in tax year 2014.

Flexible Spending Accounts (FSA)
Flexible Spending Accounts are limited to $2,500 per year in 2014 and apply only to salary reduction contributions under a health FSA. The term “taxable year” as it applies to FSAs refers to the plan year of the cafeteria plan, which is typically the period during which salary reduction elections are made.

Specifically, in the case of a plan providing a grace period (which may be up to two months and 15 days), unused salary reduction contributions to the health FSA for plan years beginning in 2012 or later that are carried over into the grace period for that plan year will not count against the $2,500 limit for the subsequent plan year.

Further, employers may allow people to carry over into the next calendar year up to $500 in their accounts, but aren’t required to do so.

Long Term Capital Gains
In 2014 taxpayers in the lower tax brackets (10 and 15 percent) pay zero percent on long-term capital gains. For taxpayers in the middle four tax brackets the rate is 15 percent and for taxpayers whose income is at or above $406,750 ($457,600 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.

Getting Married Can Affect Your Premium Tax Credit

The IRS reminds newlyweds to add a health insurance review to their to-do list. This is particularly important if you receive premium assistance through advance payments of the premium tax credit through a Health Insurance Marketplace.

If you, your spouse or a dependent gets health insurance coverage through the Marketplace, you need to let the Marketplace know you got married. Informing the Marketplace about changes in circumstances, such as marriage or divorce, allows the Marketplace to help make sure you have the right coverage for you and your family and adjust the amount of advance credit payments that the government sends to your health insurer.

Reporting the changes will help you avoid having too much or not enough premium assistance paid to reduce your monthly health insurance premiums. Getting too much premium assistance means you may owe additional money or get a smaller refund when you file your taxes. Getting too little could mean missing out on monthly premium assistance that you deserve. You should also check whether getting married affects your, your spouse’s, or your dependents’ eligibility for coverage through your employer or your spouse’s employer, because that will affect your eligibility for the premium tax credit.

Other changes in circumstances that you should report to the Marketplace include:

  • the birth or adoption of a child,
  • divorce,
  • getting or losing a job,
  • moving to a new address, gaining or losing eligibility for employer or government sponsored health care coverage, and
  • any other changes that might affect family composition, family size, income or your enrollment.

In addition, certain life events – like marriage – give you and your spouse the opportunity to sign up for health care during a special enrollment period. That means that if one or both of you is uninsured, you may be able to get coverage now.  In most cases, the special enrollment period for Marketplace coverage is open for 60 days from the date of the life event.