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Tax Blog
“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 IRS Dirty Dozen: Unscrupulous Tax Preparers

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:

  • Avoid preparers that base their fee on the size of your refund.
  • Always have any refund sent to you, not to the preparer.
  • Review your return carefully and make sure that you agree with amounts reported.
  • Make sure that the preparer signs your return and includes their Preparer Tax identification Number (PTIN).

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.

Everyone wants it now! - A Summary of the 2015 Annual Gift Tax Exclusion & Other Non-Taxable Gifts

taxformThe Federal gift tax return (Form 709) is a function of the overall Federal transfer tax system. Excluding any discussion on the Generation-Skipping Transfer tax for now, the rules just to report gifts on a gift tax return are very complex. All gifts are not reportable on a Federal gift tax return, however it is important to understand what the IRS considers a gift:

A gift is the transfer of a beneficial interest in certain property in exchange for something less than full and adequate consideration. Common examples would include cash gifts for life events (i.e. - weddings, graduations), funding trusts with beneficiaries other than yourself, creating below-market loans, and countless other scenarios. The IRS does not even need to prove donative intent when considering a transaction a gift.

Gifts are typically classified as either a gift of a “present interest” or a gift of a “future interest.” On the surface these terms are self-explanatory. Present interest meaning the donee has a right to use the property now and future interest meaning the donee has a right to the property later. A gift of a present interest made to one person is eligible for an annual exclusion, which is currently at $14,000 in 2015. You can check our blog here for more information on annual exclusions. The annual exclusion amounts, which are adjusted for inflation every few years, provide extra incentive for a taxpayer to qualify gifts as a present interest. The present interest is often easier to identify especially when gifts are made of cash or securities directly to the donee without involving a trust.

New Guidance from IRS is Great News for Small Businesses

The IRS Provides New Guidance on Tangible Property Regulations

The New Repair Rules have been a hot topic in the tax community since their release. While they provided much needed guidance regarding the capitalization and disposal of tangible property, they also required businesses to file numerous change of accounting method forms (3115) in order to adopt them. This put a significant burden on businesses.

Fortunately, the IRS released Rev. Proc. 2015-20 a few days ago. This revenue procedure eases the process of adopting the new regulations for small business. Essentially, the IRS will now allow small business taxpayers to change a method of accounting under the tangible regulations on a prospective basis for the first taxable year beginning on or after January 1, 2014. The IRS is also waiving the requirement to file Form 3115 for small businesses that choose to use this simplified procedure for 2014.

New Applicable Federal Rates Released for March by IRS

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 March 2015 are as follows:

Annual Semi-Annual Quarterly Monthly
Short-Term: 1-3 years 0.40% 0.40% 0.40% 0.40%
Mid-Term: >3 & up to 9 years 1.47% 1.46% 1.46% 1.46%
Long-Term: >9 years 2.19% 2.18% 2.17% 2.17%

Dirty Dozen Tax Schemes: Scam Phone Calls

Posting by John Merchant

The Internal Revenue Service (IRS) recently released its annual “dirty dozen” tax related scams that they find are being perpetrated on unsuspecting victims. This year phone scams were at the top of the list. According to the IRS, scam artists will call on the telephone pretending to be IRS collection agents and demanding payment on an outstanding tax bill that is totally phony. They may demand that the taxpayer give them a credit card number to be used for payment or suggest that the taxpayer mail a prepaid debit card to some address. If the taxpayer is hesitant, they will often resort to various threats such as arrest, deportation and license revocation.

In a twist on this scheme, the scammer may announce that the taxpayer is due a refund and ask for bank account information and a social security number to verify that they have the right person so that they can wire transfer the refund to the taxpayer. Or, they may send an e-mail requesting personal information in regard to a tax matter. The IRS emphasizes that its first contact about a tax matter is never by telephone or e-mail. Rather, it is by letter.

If you receive a call or an e-mail from a person claiming to be from the IRS and wanting to discuss a tax matter that you have never heard of, do not give them any information. Instead, call the IRS at 1-800-829-1040 and ask them for confirmation of any outstanding bill or refund.

For more information on this and other tax scams, check the IRS website at www.irs.gov.

Qualified Charitable Distributions in 2015 Uncertain, but There is an Option!

Capitol Hill provided an excellent holiday gift in late-December 2014 with the Tax Extenders Package, otherwise known as The Tax Increase Prevention Act. One of the most talked about provisions of the Act was the extension of tax-free distributions from an Individual Retirement Account (IRA) for charitable purposes through December 31, 2014. This is called a Qualified Charitable Distribution (QCD) in tax terms.

A QCD is a very common tax savings strategy. Essentially, a taxpayer who is 70 ½ is subject to required minimum distribution rules and must take at least a specific and calculated distribution from their IRA each year. A QCD allows a taxpayer to satisfy the required distribution rules if they elect to donate their distribution, up to $100,000 per taxpayer, directly to a qualified charity. The benefit to the taxpayer is the amount donated to charity through the IRA distribution is not included in his or her gross income. Generally, amounts that can be excluded from gross income rather than as an itemized tax deduction on Schedule A result in a better tax benefit to the taxpayer, especially given the current environment of the Pease limitations on itemized deductions. For QCDs purposes qualified charities do not include community foundations, private foundations or other donor-advised funds.

Virginia Adopts a First Time Home Buyer's Savings Program

Beginning in 2014, Virginia has adopted a program (FHSP) that allows a taxpayer to designate an account as a first time homebuyer savings account and subtract the income from that account from their VA taxable income. (Section 58.1-322) The account can only be used to pay the down payment or closing costs for a single family home (includes condos and co-ops, but not a multi-family building or land) in VA for someone who has never owned a home before. This can include a couple where one person was a prior homeowner but one was not. VA law allows you to designate an existing account, or set up a new one as an FHSP account.

No formal paperwork is required at the financial institution; it must only be disclosed on the taxpayer’s tax return along with the income subtraction. The initial account can contain a maximum of $50,000, and the account value can grow to a maximum of $150,000. Cash or marketable securities may be contributed to or in the account that is designated as the FHSP account. A single taxpayer may set up more than one FHSP account and the contribution and maximum value limitation apply separately to each account. Most any financial institution account will qualify under the law including banks, mutual funds, insurance companies or brokerage accounts.

IRS Releases New Applicable Federal Rates

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 February 2015 are as follows:

Annual Semi-Annual Quarterly Monthly
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 2.41% 2.40% 2.39% 2.39%

 

Please click here to see the complete revenue ruling.

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