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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.
IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.
Co-authors: Dan Bottner and William Thomas
Picking up right where we left off, remember the Foreign Account Tax Compliance Act (FATCA) was part of the Hiring Incentives to Restore Employment (HIRE) Act from 2010. One of the goals of this Act was to develop a framework for the IRS to ensure disclosure of foreign (or off-shore) assets held by individuals and companies. Not to mention, off-shore asset disclosure has become a theme within our own blog.
There are many guidelines outlined in the Act set to take effect over the next few years. As a step towards the implementation of these disclosure requirements, the IRS has released a *new* tax form due with your 2011 individual income tax return. Other U.S. entities will most likely be required to file this particular form in future years, among various other foreign disclosure forms as more FATCA guidelines are put into practice.
The Internal Revenue Service is going back to the well one more time as it released the Offshore Voluntary Disclosure Program (OVDP) for a third time in as many years. For Uncle Sam, this program has been very successful in raising approximately $4.4 Billion.
Little has changed from the previous Offshore Voluntary Disclosure Program published earlier in our blog. The IRS intends for this program to function similarly by offering an opportunity for taxpayers to report offshore accounts and get current with their taxes.
The benefit of this program is the IRS has established no end date to “OVDP version 3”. The IRS has issued one large caveat to the third installment of the OVDP by stating the program can be changed or ended entirely at any point.
Obviously, the incentive is to come forward as soon as possible because those who do will not face the substantial penalties for fraud and foreign information returns along with the increased likelihood of criminal prosecution.
To put this in perspective, the current OVDP leaves taxpayers with a 27.5 percent penalty on the highest balance of the foreign asset, not to mention all the back taxes and interest for all years the assets were unreported. Accuracy-related and/or delinquent penalties will be tacked on for those back years, as well.
Congress opted to extend the 2% reduction in Social Security withholding from employees and the similar reduction in self employment tax thru February 29th, setting up another legislative showdown on the subject 2 months from now.
IRS recently released 2011’s form 1040 and its corresponding schedules C, E and F. These schedules are used by sole proprietors to report different kinds of business income. IRS has added questions dealing with 1099 reporting to all three schedules for tax year 2011. The first question asks if the taxpayer has made any payments in 2011 that would require him/her to file Form(s) 1099. If the answer is yes, then the next item asks whether the taxpayer did or will file all required Forms 1099.
Generally, a taxpayer must file Form 1099-MISC if he/she paid at least $600 in rents, services, prizes, medical and health care payments and other income payments. There are a few exceptions to this rule, for instance, payments made to corporations. Additional exceptions and other instructions (including due dates) can be found on IRS’ “General Instructions for certain information returns,” available online at www.irs.gov.
As the on-going battle over the extension of the payroll tax cuts continues in Congress, those of us in the tax professional community are left scratching our heads and trying to advise our clients on what will happen with respect to income and estate taxes over the next few years. The only thing I can say to my clients with any confidence is that anyone who tries to predict what tax changes may emerge from this Congress is talking through his or her hat. Uncertainty continues to be the theme with respect to tax and fiscal policy in the current political environment of Washington.
To that end, I strongly advise that my clients follow the time honored adage, “Make hay while the sun shines.” In some respects, the current income and estate tax law provide really great opportunities and anyone concerned about higher income tax rates or fundamental changes to our estate tax system would be well served to seize on these opportunities while they still exist.
You can look to prior entries in this blog to highlight many of the taxpayer friendly provisions of the code that are set to expire after 2011 and 2012, but below I am highlighting what I consider to be the big three opportunities.
Last week, the Internal Revenue Service issued the 2012 optional standard mileage rates for taxpayers who choose to use this method in calculating the deductible costs of operating an automobile for business, charitable, medical, or moving purposes.
The rate for business miles driven remains unchanged from the mid-year adjustment on July 1, 2011. The charitable mileage rate remains unchanged from 2011 as well, while the medical and moving mileage rate is reduced by 0.5 cents per mile.
The IRS has introduced a new tax form (Form 8949) for reporting capital gains and losses from stocks, bonds, mutual funds and similar investments. Starting with the 2011 tax year, investment transactions will be reported on the new Form 8949, Sales and Other Dispositions of Capital Assets.
Starting in 2011, cost basis information for “covered securities” will be included directly on the 1099-B. Brokers are required to provide cost basis for stock in a corporation acquired on or after January 1, 2011, for mutual fund shares acquired on or after January 1, 2012, for stock in a corporation purchased through a dividend reinvestment plan acquired on or after January 1, 2012, and notes, bonds, commodities (and derivatives or contracts based on commodities) acquired on or after January 1, 2013 directly on the 1099-B. Stock purchased prior to 2011, mutual fund shares purchased prior to 2012, and bonds purchased before 2013 will not have basis reported on the 1099-B. As before, this information will likely be found in other reports or data such as brokerage statements, year-end reports or trade confirmations.
As we enter the last month of the year, taxpayers are once again faced with a mountain of expiring tax provisions. There are 59 different provisions that will expire on December 31, unless Congress sees fit to extend some or all of them. It is a safe bet that some will be extended, (perhaps retroactively), but others will die.
The most likely survivor will be the extension of the social security tax payroll reduction that has been around since January, 2011. Congressional Democrats and Republicans are in favor of this extension. The sticking points are how much of a reduction and how will it be paid for. Stay tuned for that argument.