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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.
While there is still time before the next tax filing season, choosing a return preparer now allows more time for taxpayers to consider appropriate options and to find and talk with prospective tax preparers rather than during tax season when they're most busy. Furthermore, it enables taxpayers to do some wise tax planning for the rest of the year. If a taxpayer prefers to pay someone to prepare their return, the Internal Revenue Service encourages them to choose that person wisely as the taxpayer is legally responsible for all the information included on the return.
Below are some tips taxpayers can keep in mind when selecting a tax professional:
• Select an ethical preparer. Taxpayers entrust some of their most vital personal data with the person preparing their tax return, including income, investments and Social Security numbers.
• Ask about service fees. Avoid preparers who base their fee on a percentage of the refund or those who say they can get larger refunds than others. Taxpayers need to ensure that any refund due is sent to them or deposited into their bank account, not into a preparer's account.
• Be sure to use a preparer with a preparer tax identification number (PTIN). Paid tax return preparers must have a current PTIN to prepare a tax return. It is also a good idea to ask the preparer if they belong to a professional organization and attend continuing education classes.
• Research the preparer's history. Check with the Better Business Bureau to see if the preparer has a questionable history. For the status of an enrolled agent's license, check with the IRS Office of Enrollment (enrolled agents are licensed by the IRS and are specifically trained in federal tax planning, preparation and representation). For certified public accountants, verify with the state board of accountancy; for attorneys, check with the state bar association.
• Ask for e-file. Any paid preparer who prepares and files more than 10 returns for clients generally must file the returns electronically.
• Provide tax records. A good preparer will ask to see records and receipts. Do not use a preparer who is willing to e-file a return using the latest pay stub instead of the Form W-2. This is against IRS e-file rules.
• Make sure the preparer is available after the filing due date. This may be helpful if questions come up about the tax return. Taxpayers can designate their paid tax return preparer or another third party to speak to the IRS concerning the preparation of their return, payment/refund issues and mathematical errors. The third party authorization checkbox on Form 1040, Form 1040A and Form 1040EZ gives the designated party the authority to receive and inspect returns and return information for one year from the original due date of the return (without regard to extensions).
• Review the tax return and ask questions before signing. Taxpayers are legally responsible for what's on their return, regardless of whether someone else prepared it. Make sure it's accurate before signing it.
• Never sign a blank tax return. If a taxpayer signs a blank return the preparer could then put anything they want on the return — even their own bank account number for the tax refund.
• Preparers must sign the return and include their PTIN as required by law. The preparer must also give the taxpayer a copy of the return.
Directory of Federal Tax Return Preparers with Credentials and Select Qualifications
To help taxpayers determine return preparer credentials and qualifications, the IRS launched a public directory earlier this year containing certain tax professionals. The directory is a searchable, sortable database with the name, city, state and zip code of credentialed return preparers as well as those who have completed the requirements for the new IRS Annual Filing Season Program and have a valid 2015 PTIN.
Understanding Tax Return Preparer Credentials and Qualifications
Any tax professional with an IRS PTIN is authorized to prepare federal tax returns. However, tax professionals have differing levels of skills, education and expertise.
An important difference in the types of practitioners is “representation rights.” Below is guidance on each credential and qualification:
Unlimited Representation Rights: Enrolled agents, certified public accountants and attorneys have unlimited representation rights before the IRS. Tax professionals with these credentials may represent their clients on any matters including audits, payment/collection issues, and appeals.
• Enrolled Agents – Licensed by the IRS. Enrolled agents are subject to a suitability check and must pass a three-part Special Enrollment Examination, which is a comprehensive exam that requires them to demonstrate proficiency in federal tax planning, individual and business tax return preparation and representation. They must complete 72 hours of continuing education every three years. Learn more about the Enrolled Agent Program.
• Certified Public Accountants – Licensed by state boards of accountancy, the District of Columbia and U.S. territories. Certified public accountants have passed the Uniform CPA Examination. They have completed a study in accounting at a college or university and also met experience and good character requirements established by their respective boards of accountancy. In addition, CPAs must comply with ethical requirements and complete specified levels of continuing education in order to maintain an active CPA license. CPAs may offer a range of services; some CPAs specialize in tax preparation and planning.
• Attorneys – Licensed by state courts, the District of Columbia or their designees, such as the state bar. Generally, they have earned a degree in law and passed a bar exam. Attorneys generally have on-going continuing education and professional character standards. They may also offer a range of services; some attorneys specialize in tax preparation and planning.
Limited Representation Rights: Preparers without one of these credentials (also known as unenrolled preparers) have limited practice rights. They may only represent clients whose returns they prepared and signed, but only before revenue agents, customer service representatives, and similar IRS employees, including the Taxpayer Advocate Service. They cannot represent clients whose returns they did not prepare and they cannot represent clients regarding appeals or collection issues even if they did prepare and sign the return in question.
• Annual Filing Season Program participants – This new voluntary program recognizes the efforts of return preparers who are generally not attorneys, certified public accountants, or enrolled agents. The IRS issues an Annual Filing Season Program Record of Completion to return preparers who obtain a certain number of continuing education hours in preparation for a specific tax year.
Beginning with the 2015 filing season, unenrolled return preparers could opt to participate in this IRS program, which was designed to encourage education and filing season readiness.
• PTIN holders – Tax return preparers that have an active PTIN but no professional credentials and do not participate in the annual filing season program, are authorized to prepare tax returns. In 2015, they also have limited representation rights. This is the final year that PTIN holders without another credential or qualification will have limited representation rights for returns they prepare and sign. For returns prepared beginning Jan. 1, 2016, only annual filing season program participants will have limited representation rights.
Most tax return preparers are professional, honest and provide excellent service to their clients. However, dishonest and unscrupulous tax return preparers who file false income tax returns do exist. Always check any return for errors to avoid potential financial and legal problems. See information about Abusive Return Preparers on IRS.gov, and learn How to Make a Complaint About a Tax Return Preparer.
For more information about choosing a tax return preparer, see Choosing a Tax Professional and IRS Tax PRO Association Partners on IRS.gov.
Courtesy of The Bureau of National Affairs, Inc.
As an executor/personal representative, you are responsible for carrying out the terms of the decedent’s will or Trust, which includes ensuring all debts are paid and each beneficiary receives his or her designated property from the estate. The estate administration process may include estate tax filings with the IRS and state jurisdictions, probate court filings, in addition to the funeral proceedings and wrapping up any outstanding personal matters of the decedent. Often times this is not a quick process despite adequate and appropriate estate planning.
When an estate is subject to tax at the federal or state level, a return is required nine (9) months (in most cases) following the date of death. Historically, the IRS would issue an estate tax closing letter upon completed review of the estate tax return. This closing letter would take an additional four to six months of processing time by the IRS to confirm the estate tax filing is accepted. Also, this estate tax closing letter is a final piece needed to close an estate with the probate court in some jurisdictions. The estate administration period can take longer than one year before the beneficiaries receive the residual estate property. If you are the one inheriting property from an estate, time ticks away ever so slowly.
There are four (4) main questions to determine whether the Trust is subject to state income taxes as a resident trust.
A Trust may be considered a non-resident trust. Generally, if a Trust is not considered a resident trust, then it is a non-resident trust which is subject to income tax to the extent the Trust generates state sourced income from an activity earning income within the state, such as a rental activities or business interests.
President Obama signed into law the “Surface Transportation and Veterans Health Care Choice Improvement Act at the end of July. The Act implements due date changes for business tax returns beginning with 2016 tax returns.
Currently, partnership tax returns are due April 15 (or 3 ½ months after year-end). Under the new rules partnerships will be required to file by March 15 (or 2 ½ months after the close of its tax year). This is the same due date already in place for S Corporations. A six-month extension will be available. The new deadline will apply to returns to taxable years beginning after December 31, 2015.
Unfortunately, it is not uncommon to read a headline on a routine basis highlighting a private data hack (see OPM, Target, Home Depot, IRS, etc.) impacting thousands, if not millions of individuals, with each instance. More and more personal and financial data is stored electronically and this identity theft epidemic is only growing. Perhaps this is an unintended consequence to the speed and accessibility of your digital record-keeping. Although words can barely express the sense of loss when your personal and financial information is compromised or stolen. It is a frustrating experience leaving victims feeling helpless and vulnerable.
A data breach, or cybersecurity incident, as described by the Office of Personnel Management (OPM), is a different type of crime compared to tax-related identity theft. The OPM cybersecurity incident resulted in the theft of sensitive, personal information such as names, addresses, birthdates, and Social Security numbers. Even though this data was stolen, OPM has stated “there is no information to suggest misuse of the information that was stolen from OPM’s systems.” Tax-related identity theft occurs when someone ‘uses’ your stolen Social Security number to file a false return claiming a fraudulent refund.
As mentioned in our previous post, the Supreme Court recently ruled that Maryland’s tax law for income earned outside of the state is unconstitutional. Each year, Maryland residents pay a Maryland state income tax and a local income tax based on the county in which they reside. Prior to this decision, Maryland residents who earned income from states outside of Maryland were only allowed to claim a tax credit against the Maryland state tax. With the Supreme Court ruling, Maryland residents who pay taxes to other states for income earned from outside of Maryland will now be able to claim a tax credit against not only their Maryland state tax, but also the local county tax.
Should I file an amended return?
If you are a Maryland resident who has been paying taxes to states outside of Maryland, the first step to determining if you should file an amended return is to review the your previously filed returns and see if the tax credit was limited. This can be determined by looking at the Form 502CR filed for each state and comparing the allowed credit (Line 8) versus the total taxes paid to the other state (Line 7). If the allowed credit is equal to the taxes paid, your credit was not previously limited and no amended return needs to be filed. However, if the allowed credit is less than the actual taxes paid to the other state, then you may want to file an amended return as the credit will increase.
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 August 2015 are as follows:
|Short-Term: 1-3 years||0.48%||0.48%||0.48%||0.48%|
|Mid-Term: >3 & up to 9 years||1.77%||1.76%||1.76%||1.75%|
|Long-Term: >9 years||2.74%||2.72%||2.71%||2.70%|
BACKGROUND: Section 83 of the Internal Revenue Code states that you do not have to recognize income from owning equity in a company until that stock vests.
Section 83(b) refers to a special election you can make with the IRS to let them know that, despite the fact you have not yet vested your stock, you still want to recognize the income associated with ownership immediately.
If you file the 83(b) election before your stock has appreciated from it’s strike price there will be no income and therefore no tax owed. You have 30 days from the date of exercise to get your 83(b) election form to the IRS.
PROPOSED REGULATIONS: In order to remove obstacles to electronically filing individual tax returns, the IRS has issued proposed regulations which would eliminate the requirement that a copy of the §83(b) election be submitted with the taxpayer's tax return for the year the property is transferred.
This change would apply as of January 1, 2016 and would apply to property transferred on or after that date.
This proposal does not eliminate the requirement to make the §83(b) election no later than 30 days after the date the property was transferred.
We will keep you updated on any events related to this proposed regulation. Please call us at 301-272-6000 if you have any questions regarding this or any other tax matters.