Category Archives: Audit

IRS Offers Simpler Option for Calculating Home Office Tax Deduction

Posted on by
Reply

The Internal Revenue Service plans to introduce a simplified way for small business owners and home-based employees to claim the home office tax deduction.

 

Small business owners and employees who work from home and who maintain a qualifying home office will be able to deduct up to $1,500 per year.  The new option allows qualified taxpayers to deduct annually $5 per square foot of home office space on up to 300 square feet, for as much as $1,500 in deductions.  To take advantage of the new option, taxpayers will complete a much simpler version of the current 43-line form.

The new simplified option will be available starting with the 2013 return that most taxpayers file early in 2014.

The IRS anticipates taxpayers will be able to save more than 1.6 million hours per year in tax preparation time from this simpler calculation method. The effort was described by Deputy Treasury Secretary Neal S. Wolin and SBA Administrator Karen Mills as part of the ongoing efforts by the Obama administration to reduce paperwork burdens.

“The announcement builds on the President’s commitment to streamline and simplify the tax code for small businesses and to reduce the burden for tax compliance,” they wrote. “It is part of broader efforts to make interacting with the federal government easier and more efficient for businesses of all sizes.”

The new option for the home office deduction will be available starting with the tax year 2013 return, according to Mills and Wolin, which most taxpayers file early in 2014. In addition, the IRS is accepting comments for improving upon this new option.

Current restrictions on claiming the home office deduction, such as the requirement that a home office be used regularly and exclusively for business and the limit on the amount of the deduction tied to income derived from the particular business, will still apply under the new option.

The new option provides eligible taxpayers an easier path to claiming the home office deduction. Instead of filling out the 43-line Form 8829, which often entails complex calculations of allocated expenses, depreciation and carryovers of unused deductions, taxpayers can claim the optional deduction through a significantly simplified form.

“This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction,” said Acting IRS Commissioner Steven T. Miller in a statement. “The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013.”

While homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions do not need to be allocated between personal and business use, as is required under the traditional method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees, are still fully deductible, the IRS noted.

Further details on the new option can be found in Revenue Procedure 2013-13, posted Tuesday on IRS.gov. Revenue Procedure 2013-13 is effective for taxable years beginning on or after January 1, 2013, and the IRS welcomes public comment on this new option to improve it for tax year 2014 and later years. There are three ways to submit comments.

• E-mail to: Notice.Comments@irscounsel.treas.gov. Include “Rev. Proc. 2013-13” in the subject line.

• Mail to: Internal Revenue Service, CC:PA:LPD:PR (Rev. Proc. 2013-13), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

• Hand deliver to: CC:PA:LPD:PR (Rev. Proc. 2013-13), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.

The deadline for comment is April 15, 2013.

For more information: www.onts9.com

 

IRS Audited Mitt Romney

Posted on by
Reply

Mitt Romney, the presumptive Republican presidential nominee, admitted he has been audited by the Internal Revenue Service.

 

David Muir of ABC News asked Romney during an interview Sunday in Israel if he had ever paid less than a 13.9 percent tax rate, the lowest rate in the tax returns he has released so far.

“I haven’t calculated that,” Romney replied. “I’m happy to go back and look, but my view is I’ve paid all the taxes required by law. From time to time, I’ve been audited, as happens I think to other citizens as well, and the accounting firm which prepares my taxes has done a very thorough and complete job paying taxes as legally due. I don’t pay more than are legally due, and frankly if I had paid more than are legally due, I don’t think I’d be qualified to become President. I’d think people would want me to follow the law and pay only what the Tax Code requires.”

Romney has come under pressure to release more tax returns, but so far, he has only released his complete tax return for 2010 and an estimate of his taxes for 2011. A complete version of the 2011 return has been promised for release before the election.

 

For more information: www.onts9.com

 

IRS Increases Audits of Wealthy

Posted on by
Reply

The Internal Revenue Service has been increasing its audits and examinations of high-income individuals in the past year, examining nearly 30 percent of the tax returns of those earning $10 million and more, nearly twice the rate of a year earlier.

Last year, the IRS examined 29.93 percent of individual income tax returns, compared to about 18 percent the previous year, according to CNN Money. Taxpayers with incomes between $5 million and $10 million were examined at a rate of 20.75 percent, compared to about 12 percent in fiscal year 2010. Those with incomes between $1 million and $5 million were audited at a rate of 11.8 percent, compared to about 7 percent a year earlier. Overall, about 1.1 percent of taxpayers were audited in FY 2011, about the same rate as in FY 2010.

IRS Commissioner Doug Shulman warned Congress during a hearing about tax season on Thursday that if budget cuts at the agency continued, the service would be forced to cut down on its audits. The agency endured a $300 billion cut in its fiscal 2012 budget, leading to effects such as long waiting times for telephone assistance. Shulman predicted that tax compliance rates would likely go down as word spread that the audit rates were decreasing as a result of further budget cuts.

Other significant information in the IRS FY 2011 Data Book included the fact that the IRS collected $2.4 trillion and processed more than 234 million tax returns from Oct. 1, 2010, to Sept. 30, 2011. Taxpayers electronically filed more than 133 million business and individual income tax returns, including 77 percent of all individual income tax returns. More than 119 million individual income tax returns, about 83 percent of all individual returns, resulted in tax refunds, totaling almost $338 billion. The IRS examined 1.1 percent of all individual income tax returns and 1.5 percent of corporation income tax returns (excluding S corporation returns).  The IRS provided taxpayer assistance through 319 million visits to IRS.gov and assisted nearly 83 million taxpayers through its toll-free telephone helpline or at walk-in sites.

For more information: www.onts9.com