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“Taxing” is a word synonymous with “onerous” and “wearing.” Bond Beebe, Accountants & Advisors, have created a user friendly blog called “It’s Taxing” to inform and educate our clients and business associates on timely topics related to tax, estates, accounting and finance. We hope our blog answers your questions and alleviates the heavy burden and anxiety related to understanding complicated tax laws and related matters.
The Maryland General Assembly has released more details about the Maryland Tax Amnesty Program. This program waives all civil penalties and one half of the interest for delinquent taxpayers who apply and are approved. We shared some information about the Tax Amnesty Program in April. To read more about the program and how it may affect you, visit taxes.maryland.com.
The IRS announced on Tuesday that identity thieves were able to access tax transcript information of more than 100,000 tax accounts through their “Get Transcript” application. Prior knowledge of personal information allowed the criminals to pass a multi-step authentication process to access the tax transcripts. The IRS believes approximately 200,000 attempts to access transcript information were made in total from “questionable e-mail domains” starting in February and ending in mid-May, with more than 100,000 gaining access.
The IRS has temporarily disabled the “Get Transcript” application. They also plan to contact via mail those 200,000 taxpayers whose accounts the criminals had attempted access. For those 100,000 accounts that were successfully accessed, the IRS will be offering free credit monitoring. The letters to those affected are set to be mailed later this week.
You can read the full IRS statement here.
On Monday, May 18th, the Supreme Court ruled that Maryland’s income tax law for income earned outside of the state is unconstitutional. The court voted 5-4 to affirm a 2013 Maryland Court of Appeals decision. The case specifically addressed Maryland’s denial of credits against the MD county income tax, otherwise known as the ‘piggy-back’ local tax. Going forward, residents who earn out-of-state income from certain businesses/sources will be able to claim a credit against the county taxes paid, too. This decision may cost Maryland an estimated $42 million a year in revenue.
Much has been written about the benefits of Roth versus Traditional IRAs, and over the past several
years a popular “backdoor Roth” conversion has made headlines as well. As a refresher, this method allows high-income taxpayers, who are excluded from making direct contributions to Roth IRAs, the ability to make non-deductible contributions to a Traditional IRA, and then immediately convert that amount to a Roth. The net effect, ideally, is minimal tax on any earnings between the date of contribution and the conversion, and years of tax-free growth in a Roth account moving forward. This is especially beneficial for young people who can benefit from growth over time, and can avoid theoretically higher tax rates in the future when distributions may be taken. Furthermore, required minimum distributions do not apply to Roth accounts.
On the surface, there doesn’t appear to be much downside. However, many taxpayers found out the hard way that there can be significant tax implications if other IRAs exist at the time of conversion. This is true because the IRS considers the value of all IRA assets at the time of conversion. For instance, if you had a Traditional IRA account with pre-tax assets of $544,500, made a $5,500 non-deductible IRA contribution and then immediately converted that $5,500 to a Roth account, 99% (or $5,445) would be taxable. In addition to creating an unintended tax liability, it also creates an administrative burden to track the amount on which tax has already been paid.
There have recently been a series of cases decided by the Tax Courts disallowing charitable contributions due to a lack of proper documentation about them. The rules here (under Code Section 170(f)(8)) are precise and strict:
For Maryland individuals and corporations past due on filing Maryland tax returns and paying Maryland taxes, the Maryland legislature has passed a tax amnesty bill which is awaiting the governor’s signature. The amnesty will apply to corporate and individual income taxes, withholding tax, sales and use tax or admissions and amusement tax and will waive all penalties and one half of the interest due. Although the bill takes effect June 1, 2015, the amnesty period will be starting on September 1, 2015 and run through October 31, 2015. See Senate Bill 763 for more information.
Each month, the IRS provides various prescribed rates for federal income tax purposes. These rates, known as Applicable Federal Rates (AFRs), are regularly published as revenue rulings.
The AFRs for April 2015 are as follows:
|Short-Term: 1-3 years||0.48%||0.48%||0.48%||0.48%|
|Mid-Term: >3 & up to 9 years||1.70%||1.69%||1.69%||1.68%|
|Long-Term: >9 years||2.47%||2.45%||2.44%||2.44%|
Posting by John Merchant
The Internal Revenue Service (IRS) has released its annual “dirty dozen” for 2015. The annual dirty dozen are the top twelve tax related scams that IRS has found are being perpetrated on unsuspecting victims each year. Once again, Unscrupulous Tax Preparers are on the list. The IRS reports that approximately 60% of all taxpayers use a paid preparer. While IRS acknowledges that most preparers provide very good service, every year there are some that run scams to defraud the government or to cheat their clients. Either way, the results can be devastating as these scams can lead to financial loss or even criminal prosecution for the taxpayer.
The unscrupulous preparers take advantage of honest taxpayers in several ways. Some promise large refunds and then take unallowable deductions to achieve their goal. Others prepare tax returns through April 15th and then simply disappear, leaving no one to help the taxpayer if the IRS questions the return. A few advertise themselves as licensed tax preparers when, in fact, they have no license and no training or background in tax law or tax return preparation.
The IRS offers several tips to taxpayers. These include:
For a complete list of IRS tips to taxpayers, go to www.irs.gov. Remember, even if you use a paid preparer, you are still responsible for the accuracy of your tax return. Choose your preparer carefully.