The 2014 Intuit...

ACCOUNTANTS

The 2014Intuit AccountantsTax Planning Guide

ACCOUNTANTS

Welcome

Dear Tax Professional,

Thank you for your interest in Intuit professional tax software. To show our appreciation, we’re extending you the Intuit® Accountants 2014 Professional Tax Planning Guide.

This Special Report is designed to help point your Tax Year 2014 research in the right direction. You’ll also find practical tips that just might help you and your team work more efficiently.

As you know, nothing can take the place of your professional expertise. Tax laws and regula-tions change frequently and the application of these laws can vary widely based up the specific facts and circumstances involved. It’s important for you to determine whether the information and interpretations provided in the following pages are accurate and how they apply to your practice—and to your clients.

Again, thank you for your interest in Intuit professional tax software. If you have any questions, don’t hesitate to contact an Intuit Professional tax consultant at 1-877-682-4254.

Sincerely,

Suzanne Neufang Chief Marketing Officer, Intuit Professional Tax Group

NOTICE—DISCLAIMER OF LIABILITY: All information in this Intuit Accountants Professional Tax Planning Guide (collectively, “Information”) is for educational and information purposes only and is not legal or tax advice or opinions on any specific matters. Tax laws and regulations change frequently and their application can vary widely based upon the specific facts and circumstances involved. You acknowledge that all decisions regarding the tax treatment of items reflected on tax returns prepared by you are made solely by you and that use of Information does not relieve you of responsibility, including those to any third party, for the preparation, content accuracy, and review of such returns. You further acknowledge that you are not relying upon Intuit for advice regarding the appropriate tax treatment of items reflected on tax returns. The provision of Information by Intuit is not intended to create, and your receipt does not constitute, any form of relationship between Intuit or the author(s) and you. You, and not Intuit, are responsible for the applicability and accuracy of Information as it relates to your practice or to your clients.

NOTICE OF RIGHTS: No part of this book may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying recording or otherwise, without the prior written permission of Intuit Inc.

ACCOUNTANTS

New Tax Law Changes for 2014 4

Key Tax Tax Facts for 2014 5

June 2014 6

Same-Sex Marriage: For Better or For Worse 7

July 2014 8

Unemployment Can Be Taxing 9

August 2014 10

Home Office Deductions Simplified 11

September 2014 12

Are Your Tax Return Preparer Credentials in Order? 13

October 2014 14

Help Your Clients Cut Their 2014 and 2015 Tax Bills 15

November 2014 16

How the Tax Law—And You—Can Help When Disaster Strikes 17

December 2014 18

Get Your Clients Ready for Tax Return Season 19

January 2015 20

Help Your Clients Handle Identity Theft 21

February 2015 22

Common Mistakes Made by Tax Pros—and How to Avoid Them 23

March 2015 24

A Taxpayer Bill of Rights—And Responsibilities 25

April 2015 26

Give Your Clients a Mid-Year Tax Checkup 27

May 2015 28

Contact Us 29

Table of Contents

Table of Contents 2014 Professional Tax Planning Guide -

ACCOUNTANTS

New Tax Law Changes for 2014 So far there has been no major legislation affecting your client’s 2014 returns. In fact, the 113th Congress is on track to be the least productive Congress in the last 40 years. Nonetheless, as usual, the tax law remains a moving target, with new rules and regulations coming from the IRS and the courts. But, perhaps, the biggest news for your clients are the many tax breaks that will no longer apply for 2014. Here’s a rundown of key tax changes for 2014.

Recognition of same-sex married couples. One of the most dramatic developments in the past year has to be the Supreme Court’s decision striking down the Defense of Marriage Act’s prohibition on recognition of same-sex marriage under federal law [U.S. v Windsor, 133 S.Ct. 2675 (2013)] followed by the IRS’s announcement that it will recognize all same-sex married couples as spouses for federal tax purposes [Rev. Rul. 2013-17]. Although the tax change took effect in 2013, same-sex couples and their tax advisors are likely to be grappling with the implications in 2014 and beyond (see p. X).

Flexible spending account carryovers. In late 2013, the IRS announced a new carryover option for flexible spending accounts (FSAs) [IRS Notice 2013-17]. Under the current FSA rules, employees can make pre-tax contributions of up to $2,500 to an FSA to be used for out-of-pocket medical expenses. When FSAs were first introduced, FSA funds were strictly a lose-it-or-lose it proposition. However, in 2005, the IRS eased the rules somewhat by allowing plans to adopt a grace period of up to 2 ½ months during which participants could use contributions from the preceding plan year. Under the new carryover option, plans may be amended to allow up to $500 of unused amounts remaining in a health FSA at year end to be carried over to the following plan year. The carryover amount may be used to pay or reimburse medical expenses incurred during the entire plan year to which it is carried over. Plans that allow a carryover may not also have a grace period for using prior year contributions. Plans may, however, continue to provide for a run-out period during which participants can submit claims for the prior year.

Individual responsibility penalties. Beginning in 2014, every individual (with certain exceptions) must maintain minimum essential health coverage or make a “shared responsibility payment” for each month in which coverage is not maintained [IRC § 5000A] A taxpayer is liable for the shared responsibility payment if any nonexempt individual who may be claimed by the taxpayer as a dependent for a tax year does not have minimum essential coverage for a month. Married taxpayers filing a joint return for any tax year are jointly liable for any shared responsibility payment imposed for the year.

For 2014, the monthly penalty amount is 1/12 of the greater of:

(1) 1 percent of household income above the filing threshold (e.g.,, or (2) A flat dollar amount of $95 for an adult or $47.50 per child, up to a maximum of $285.

Individuals will not have to owe a payment if coverage is unaffordable, if they had less than three consecutive months without coverage, or if they qualify for an exemption for one of several other reasons, including hardship and religious beliefs. A special hardship exemption applies to individuals who purchased insurance through a Health Insurance Marketplace during the initial enrollment period for 2014 but due to the enrollment process had a coverage gap at the beginning of 2014.

Taxpayers filing a tax return for 2014 will indicate which family members are exempt from the provision. For family members who are not exempt, the taxpayer will indicate whether they had insurance coverage. For each non-exempt family member who did not have coverage, the taxpayer will owe a shared responsibility payment with the return.

Premium tax credits for health coverage. Starting in 2014, some taxpayers who obtain health insurance coverage through a Marketplace will qualify for health premium tax credits to subsidize the cost of coverage [IRC §36B]. As a general rule, premium tax credits are available to taxpayer with household income household income between one and four times the federal poverty line. For a family of four, that means income from $23,550 to $94,200 for tax year 2014.

If it is determined at the time of enrollment in Marketplace coverage that a taxpayer is likely to qualify for a premium tax credit, the taxpayer can choose to have some or all of the estimated credit paid in advance directly to the insurance company to lower out-of-pocket costs for your monthly premiums during 2014. Taxpayers who choose to receive advance payment, will calculate the final credit amount on their 2014 returns. If, because of changes in income or family size, the final credit is less than the advance payments received, the taxpayer will repay an excess advance payment with the return. If the final credit is more than the advance payments received, the excess will be offset against any tax due with the return or refunded to the taxpayer.

A taxpayer who does not choose to receive advance payment of the credit, will calculate the credit amount. The credit will offset any tax due with the return or increase the taxpayer’s refund.

Gone—but not forgotten. You may want to alert your clients now that a number of tax breaks they may have used in prior years have gone off the books for 2014. These unextended “extenders” include:

• deduction for state and local sales taxes • above-the-line deduction for certain expenses of teachers • above-the-line deduction for qualified tuition and related expenses • deduction for mortgage insurance premiums deductible as qualified interest • parity for exclusion for employer-provided mass transit and parking benefits • exclusion of discharge of principal residence indebtedness from gross income

KEY POINT Legislation has been proposed to extend these and other “extenders.” However, at this writing, it appears unlikely such legislation will be enacted outside of a more comprehensive tax reform package.

ACCOUNTANTS

STANDARD DEDUCTIONMarried filing jointly/surviving spouse $12,400

Single $6,500

Head of household $9,100

Married filing separately $6,200

Dependent taxpayers $1000

ADDITIONAL STANDARD DEDUCTION

65+ or blind 65+ and blind

Married/surviving spouse $1,200 $2,400

Unmarried $1,500 $3,100

PERSONAL EXEMPTIONSPersonal exemption amount $3,950

Phaseout range

Married filing jointly/surviving spouse $305,050 - $427,550

Head of household $279,650 - $402,150

Unmarried $254,200 - $376,700

Married filing separately $152,525 - $213,775

KIDDIE TAXAmount taxed at child’s rate $1000

AMT exemption earned income + $7,250

ADOPTION CREDITMaximum credit $13,190

Phaseout range $197,880 - $237,880

EDUCATION CREDITSAmerican Opportunity—max. credit $2,500

Phaseout threshold—joint filers $160,000 - $180,000

Phaseout threshold—all other filers $80,000 - $90,000

Lifetime Learning-maximum credit $2,000

Phaseout threshold—joint filers $108,000 - $128,000

Phaseout threshold—all other filers $54,000 - $64,000

EDUCATION SAVINGS BOND EXCLUSIONPhaseout range—joint filers $113,950 - $143,950

Phaseout range—all other filers $76,000 - $91,000

STUDENT LOAN INTEREST DEDUCTIONPhaseout range—joint filers $130,000-$160,000

Phaseout range—all other filers $65,000-$80,000

LONG-TERM CARE INSURANCE DEDUCTIONAge at close of year Premiums eligible for medical expense deduction

40 or less $370

More than 40 but not more than 50 $700

More than 50 but not more than 60 $1,400

More than 60 but not more than 70 $3,720

More than 70 $4,660

FOREIGN INCOMEForeign earned income exclusion $99,200

HEALTH SAVINGS ACCOUNTSType of coverage Self-only Family

HDHP deductible $1,250 $2,500

Out-of-pocket expense cap $6,350 $12,700

Maximum contribution $3,300 $6,550

MEDICAL SAVINGS ACCOUNTS Self-only Family

HDHP deductible $2,200-$3,250 $4,350-$6,550

Out-of-pocket expense cap $4,350 $8,000

INDIVIDUAL RETIREMENT ACCOUNT DEDUCTIONMaximum deduction $5,500

Phaseout range—joint filers $96,000-$116,000

Phaseout range—single/head of household $60,000-$70,000

Phaseout range—married filing separately $0-$10,000

Phaseout range—joint filer/active participant spouse

$181,000-$191,000

ROTH IRA CONTRIBUTIONMaximum contribution $5,500

Phaseout range—joint filers $181,000-$191,000

Phaseout range—single/head of household $114,000-$129,000

Phaseout range—married filing separately $0-$10,000

RETIREMENT SAVINGS CONTRIBUTION CREDITCredit percentage 50% 20% 10%

AGI limit—joint filers $0-$36,000 $36,000-$39,000 $39,000-$60,000

AGI limit—head of household $0-27,000 $27,000-$29,250 $29,250-$45,000

AGI limit—other filers $0-$18,000 $18,000-$19,500 $19,500-$30,000

SOCIAL SECURITY TAXESMaximum net taxable self-employment earnings $117,000

“Nanny tax” threshold $1,900

ANNUAL EXCLUSION FOR GIFTSGift tax exclusion $14,000

Exclusion for gifts to a non-citizen spouse $145,000

MILEAGE ALLOWANCESStandard business mileage allowance 56¢

Medical and moving allowance 23.5¢

Charitable mileage allowance 14¢

DEPRECIATION LIMITS FOR VEHICLES PLACED IN SERVICE IN 2014

Passenger cars 1st tax year $3,160 3rd year $3,050

2nd year $5,100 Each succeeding year $1,875

Trucks and vans 1st year $3,460 3rd year $3,350

2nd year $5,500 Each succeeding year $1,975

DEPRECIATION LIMITS FOR VEHICLES PLACED IN SERVICE IN 2014Married filing jointly/surviving spouse $305,050

Head of household $279,650

Unmarried $254,200

Married filing separately $152,525

Key Tax Tax Facts for 2014


ACCOUNTANTS

June 2014

Wednesday, June 4 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on May 28–30.

Friday, June 6 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on May 31–June 3.

Tuesday, June 10 - Tipped employees who received $20 or more in tips during May report them to the employer on Form 4070. (in Publication 1244, Employee’s Daily Record of Tips and Report to Employer)

Wednesday, June 11 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on June 4–6.

Friday, June 13 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on June 7–10.

Monday, June 16 - Monthly depositors deposit FICA and withheld income tax for May. Individuals and calendar-year corporations pay second installment of 2014 estimated tax. Individual outside the U.S. file Form 1040.

Wednesday, June 18 - Semiweekly depositors deposit FICA and withheld income tax on wages paid June 11–13.

Friday, June 20- Semiweekly depositors deposit FICA and withheld income tax on wages paid June 14–17.

Wednesday, June 25 - Semiweekly depositors deposit FICA and withheld income tax on wages paid June 19–21.

Friday, June 27 - Semiweekly depositors deposit FICA and withheld income tax on wages paid June 21–24.

Key Compliance Dates

Review tax law changes for 2014.

Schedule much-needed R&R.

To-Do List

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And the cheers grew louder when the IRS announced that all same-sex marriages will be recognized for tax purposes based on the place of celebration, rather than the couple’s state of domicile [Rev. Rul. 2013-17].

However, many same-sex couples were caught by up short when it came time to file their 2013 tax returns and they discovered that their “newly wed” status actually increased their federal income tax bills.

The IRS ruling recognizing same-sex marriage officially took effect on September 16, 2013. And the ruling made it clear that same-sex couples would be required to file returns as marrieds filing jointly or separately for 2013 and later years. While some same-sex married couples will receive a “marriage bonus,” for a large number of same-sex couples, that change in filing status means higher tax bills. In fact, a report from the Congressional Research Service scores recognition of same-sex marriage as a revenue raiser, with as much as $200 to $400 million in extra tax dollars going into the federal coffers each year.

ACT NOW Coming as it did late in the year, the IRS’s ruling left little time for same-sex married couples to process or prepare for the tax implications of their new marital status. So, now is the time, with their 2013 returns in hand, to sit down with your same-sex married clients to consider changes in their financial arrangements or withholding and estimated tax payments for 2014.

According to a report from the General Accounting Office, there are more than 1,000 provisions of federal law that turn on marital status, with many of them found in the Internal Revenue Code. Therefore, each couple’s situation will be unique. But here are some common situations to watch out for when you review your clients’ returns.

Tax rates. The switch to married status may produce a marriage bonus for some couples in the form of a lower tax for couples where only one spouse works or where the spouses have a disparity in earnings. However,a “marriage penalty” in the form of a higher tax bill is more likely among couples where the spouses have similar incomes. For couples with children, marriage penal-ties are even more likely. Under prior law, couples with children typically would have one spouse claim the children as dependents and file as head of household, while the other spouse filed as single. Filing jointly, these couples will generally find themselves in a higher tax bracket since tax brackets above the 15% bracket for married couples filing jointly are less than the combined equiva-lent levels if one of the taxpayers were filing as head of household and the other as single.Standard and itemized deductions. As singles, same-sex spouses could allocate all of the couple’s itemized deductions to one spouse, while claiming the standard deduction for singles on the

other spouse’s return. If the couple files jointly, they will now have to choose between the standard deduction for marrieds filing jointly or itemized deductions. Moreover, even if the couple chooses to file separate returns, they cannot “double dip.” The tax law provides that when one spouse itemizes on a separate return, the other spouse cannot claim the standard deduction.

Tax credits. As married taxpayers, same-sex spouses may find they are ineligible for or subject to reduction of tax credits that they previously claimed. Generally, tax credits are structured so that the amount of the credit falls when income exceeds a certain threshold, ultimately phasing out to zero. When mar-riage results in a combined income that is in or above a credit’s phase-out range, the credit will be reduced or eliminated. Credits to watch include:

• The earned income credit • The child tax credit • Education credits • The adoption credit

Employee benefits. Following the Supreme Court decision and the IRS ruling, much attention focused on the impact on employer-provided health benefits for same-sex spouses. Under the IRS ruling, employer-provided health benefits for a same-sex spouse are excludable from income. The exclusion applies prospectively from the effective date of the IRS ruling. However, the ruling permits—but does not require—same sex couples to file amended returns to exclude health benefits provided for a same-sex spouse in earlier years.

KEY POINT The health benefit exclusion will benefit same-sex couples who have been receiving spousal coverage on an after-tax basis. However, two-earner couples who have each been receiving benefits through their own employers will see no tax-savings. Moreover, clients and their advisors should tread cautiously in claiming the exclusion for prior open years. The IRS makes it clear that all items required to be reported on the return or claim that are affected by the marital status of the taxpayer must be adjusted to be consistent with the marital status report-ed on the return or claim. Thus, any tax benefit from claiming the exclusion for prior years may be offset by the tax cost of filing an amended return as married.Other employer-provided benefits may be negatively affected by an employee’s new married status. IRS guidance makes it clear that same-sex married couples are now subject to joint limits for contributions to health savings accounts and dependent care flexible spending accounts.

For example, under prior law, married same-sex spouses with children could each contribute up to $5,000 to a dependent care flexible spending account. However, as a married couple they will now be limited to a total of $5,000 of contributions.

Same-Sex Marriage: For Better or For Worse

Same-sex married couples cheered on June 26th of last year when the Supreme Court struck down Section 3 of the Defense of Marriage Act, paving the way for federal recognition of same-sex married couples as spouses [U.S. v Windsor, 133 S.Ct. 2675 (2013)].


ACCOUNTANTS

July 2014

Wednesday, July 2 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on June 25–27.

Monday, July 7 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on June 28–July 1.

Wednesday, July 9 Semiweekly depositors deposit FICA and withheld income tax on wages paid on July 2–4.

Tipped employees who received $20 or more in tips during June report them to the employer on Form 4070.

Friday, July 11 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on July 5–8.

Tuesday, July 15 - Monthly depositors deposit FICA and withheld income tax for June.

Wednesday, July 16 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on July 9–11.

Friday, July 18 - Semiweekly depositors deposit FICA and withheld income tax on wages paid July 12–15..

Wednesday, July 23 - Semiweekly depositors deposit FICA and withheld income tax on wages paid July 16–18.

Friday, July 25 - Semiweekly depositors deposit FICA and withheld income tax on wages paid uly 19–22.

Wednesday, July 30 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on July 23–25.

Thursday, July 31 - Deposit FUTA tax owed through June if more than $500.

File Form 941 for the second quarter of 2014 (if tax deposited in full and on time file by August 12).

File 2012 Form 5500 or 5500-EZ for calendar-year retirement and benefit plans.


Alert clients to 2014 mid-year tax planning opportunities.

Schedule Continuing Professional Education for 2014.

Notes

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Unemployment Can Be TaxingWhile unemployment rates a dropping, they are still at unacceptably high levels. And, unfortunately, some of your clients will find themselves on the unemployment rolls in 2014. Unemployment can be taxing on the individuals who lose their jobs and on their families. The search for a new job and worries about how to make ends meet can take its toll. Unfortunately, unemployment can be “taxing” in another way. Unemployed individuals must grapple with unfamiliar tax rules—and often face unexpected tax bills.

Unemployment sticker shock. It often comes as a shock to newly unemployed individuals that the unemploy-ment benefits they receive are subject to income tax [IRC Sec. 85]. In effect, it seems like what the government gives with one hand it takes away with the other. And, unfortunately, this surprise often comes with a “sticker shock” in the form of an unexpected tax bill at tax return time.

Although unemployment benefits are not automatically subject to income tax withholding, benefit recipients can opt to have income tax withheld from their benefits by filing a voluntary withholding request (on Form W-4V) with the unemployment benefits office [IRC Sec. 3402(p)(2)]. However, many unemployeds forgo withholding because they need every dollar of benefits to make ends meet. Moreover, even those individuals who opt for withholding get caught short at tax time. The withholding rate is just 10%, which may not cover the full amount of tax due if the unemployed had significant earnings before being laid off or income from other sources which will put them above the lowest 10% bracket.

Severance pay received from a former employer is also subject to tax since it considered compensation for the former employee’s services to the employer [Reg. §1.61-2(a)(1)]. Unlike unemployment benefits, severance pay is automatically subject to income tax withholding. However, here again, the amount withheld may or may not cover the tax due. Severance pay is treated as supplemental wages for withholding purposes. Consequently, the employer can elect to combine the severance pay with the most recent wages payment to the former employee or to withhold at a flat 25% rate.

Other benefits received from a former employer may or may not be taxable. For example, outplacement services can qualify for tax-free treatment if they are de minimis (e.g. use of a secretary to type letters or resumes or the use of the employer’s telephone to contact prospective employers). On the other hand, more substantial services such as career counseling or employment agency services are tax-free only if they qualify as working condition fringe benefits. To meet that test, the IRS says the services must be provided to the employee on the basis of need and the employer must derive a substantial business benefit (such as promoting a positive business image, maintaining employee morale, and avoiding wrongful termination lawsuits) distinct from the payment of additional wages. Moreover, outplacement services will not qualify for tax-free treatment if the former employee can choose to receive cash or taxable benefits in place of the services. For example, if an employer’s severance plan permits employees to receive outplacement services with reduced

severance pay, the amount of the reduced severance pay is included in wages.

Cutting the sticker shock. On the plus side, there may be deductions available to unemployed individuals that can reduce the tax bite. For example: Job-search expenses are deductible as business expenses—subject to some ifs, ands, or buts. An unemployed can deduct ordinary and necessary expenses of a job search if he or she is seeking employment in a trade or business in which he or she was formerly employed and there was no lack of continuity since the last job. But expenses of looking for a job in a new line of work are not deductible. Moreover, a break between jobs—for example, to get a college degree—will KO the deduction. Job-hunting expenses are treated as miscellaneous itemized deductions subject to the 2%-of-AGI deduction floor [Reg. §1.67-1T(a)(1)(i)]. While for some individuals the deduction floor may be insurmountable, for others the drop in income resulting from unemployment may put the deduction within reach. In that case, the key to nailing down a deduction is keeping careful track of deductible expenses, such as:

• Employment agency fees • Job counseling and referral services. • Resume expenses (e.g., typing, printing, and postage) • Travel expenses to look for a new job. • Long-distance phone calls to prospective employers. • Subscriptions to daily newspapers with classified ads, Internet job-search sites and professional magazines and newsletters.

Bear in mind, however, a job-hunting expense deduction can be claimed only by individuals who itemize deductions. Individuals claiming the standard deduction get tax no benefit from their job-search costs.

Moving expenses, on the other hand, are deductible above-the-line in computing AGI. To be deductible, the expenses must be incurred in connection with a new job at a new location. The costs of moving to look for a job are not deductible if the job hunt is unsuccessful.

To qualify for a moving expenses deduction, the distance between the individual’s new job and former home must be at least 50 miles further then the distance from between the old job and the former home. In addition, the individual must work as an employee at the new job location for at least 39 weeks in the 12 months following the move.

Education expenses can generate tax credits when a client is laid off. For example, if an unemployed individual takes a brush-up course to improve his or her job skills, the costs may qualify for a Lifetime Learning credit [IRC Sec. 25A].

The bottom line: Unemployeds should do some advance planning to reduce the taxes they will owe come tax return time. This will involve both a projection of taxable income and of deductible expenses, as well as a plan for pre-payment of the anticipated tax liability through withholding and/or estimated tax payments.


ACCOUNTANTS

August 2014

Friday, August 1 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on July 26–29.

Wednesday, August 6 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on July 30–August 1.

Friday, August 8 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on August 2–5.

Monday, August 11 - Tipped employees who received $20 or more in tips during July report them to the employer on Form 4070.

Wednesday, August 13 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on August 6–8.

Friday, August 15 - Monthly depositors deposit FICA and withheld income tax for July.

Semiweekly depositors deposit FICA and withheld income tax on wages paid on August 9–12.

Wednesday, August 20 - Semiweekly depositors deposit FICA and withheld income tax on wages paid August 13–15.

Friday, August 22 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on August 16–19.

Wednesday, August 27 - Semiweekly depositors deposit FICA and withheld income tax on wages paid August 20–22.

Friday, August 29 - Semiweekly depositors deposit FICA and withheld income tax on wages paid August 23–26.


Remind clients of September 15 estimated tax payment for individuals and calendar-year corporations.

Remind calendar-year corporations with returns on extension of September 15 filing deadline.

Alert clients who are parents of first-year college students of the American Opportunity tax credit.

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ACCOUNTANTS

Home Office Deductions Simplified

Under Section 280A, a taxpayer can claim deductions for mortgage interest, property taxes, utilities, maintenance, insurance and depreciation for a qualifying business use of the home. (Mortgage interest and property taxes are, of course, also deductible by itemizers regardless of business use.) To qualify for the deductions: 1. A portion of the home must be used regularly and exclusively in a trade or business, and 2. The business portion of the home must be (a) the homeowner’s principal place of business, (b) a place to meet with clients and customers in the normal course of business, or (c) a separate structure (not attached to the home) that is used in connection with a trade or business [IRC §280A(c)(1)].

A home will be considered the taxpayer’s principal place of business if (1) a portion of the home is used exclusively and regularly for administrative or management activities of the taxpayer’s trade or business; and (2) the taxpayer has no other fixed location where substantial administrative or management activities are conducted [IRC § 280A(c)(1)]. So, even if the taxpayer’s “real work” is done at customers’ or clients locations, a home office will qualify if that’s where all the paperwork and prep work are done.

The deduction is allowed only for a separately identifiable portion of a residence that’s dedicated to business use. The home office area need not be marked off by a permanent partition, but it must be used exclusively for business. Playing a few computer games or surfing the web during work time won’t necessarily KO the deduction. But office space that’s also used regularly by other family members for homework or paying personal bills won’t qualify.

General deduction rules. As a general rule, taxpayers must track and allocate expenses between personal and business use of the home. For example if the rooms in the home are of approximately equal size, the taxpayer may allocate expenses according to the number of rooms used for the business purpose. The taxpayer may also allocate general expenses according to the percentage of the total floor space in the home that is used for the business purpose. [Reg. §1.280A-2(i)(3)].

Expenses allocable to the business use of the home are deductible only to the extent of the gross income derived from the business activity. Any deduction not allowed by this limitation may be carried forward to a succeeding year and used to offset income from the business activity in that year [IRC § 280A(c)(5)].

Simpler option. Tracking and allocated expenses for the home can be cumbersome. To address that issue, the IRS has created a brand new safe-harbor rule that allows taxpayers with home-based business to deduct up to $1,500 per year without the

hassle of substantiating and allocating actual expenses [Rev. Proc. 2013-13]. To use the safe-harbor method, a taxpayer must satisfy all the otherwise applicable requirements for claiming a home office deduction. The safe-harbor method can be elected on a year by year basis. However, an election to use the safe-harbor method for a given year is irrevocable.

Under the safe-harbor method the amount of deductible expenses for a home office is calculated by multiplying the allowable square footage of the home office by a prescribed rate of $5 per square foot. The allowable square footage taken into account cannot exceed 300 square feet. A taxpayer who itemizes deductions and uses the safe harbor method for a tax year may deduct any expenses related to the home that are deductible without regard to business use. For example, deductions for mortgage interest, real property taxes, and casualty losses can be claimed in full as itemized deduction. Those expenses cannot be deducted from the gross income derived from business use of the home.

A taxpayer using the safe harbor method may also deduct any allowable trade or business expenses that are unrelated to the use of the home. For example, a taxpayer may claim business expense deductions for expenses such as advertising, wages, and supplies.

The safe-harbor deduction cannot exceed the gross income from the business use of the home reduced by any allowable business expense deductions unrelated to the home. Any amount in excess of this gross income limitation is disallowed and cannot be carried over and deducted in a later tax year. Moreover, disallowed amounts carried over from a year in which the taxpayer calculated actual expenses cannot be claimed as a deduction in a year the taxpayer uses the safe-harbor method. Those amounts can, however, can continue to be carried over and deducted in the next year in which the taxpayer calculates actual expenses.

A taxpayer using the safe-harbor method cannot claim depreciation or a Section 179 expensing deduction for the portion of the home that is used for business for the tax year. The depreciation deduction allowable for that portion of the home is deemed to be zero. If a taxpayer elects to calculate actual expenses for a later year, the depreciation deduction for the home office must be figured using the IRS’ optional depreciation tables.

KEY POINT The safe-harbor method has a lot going for it. It is easy to compute. Moreover, it may reduce (but not eliminate) the chances of an IRS examination of a taxpayer’s home office deduction. However, a taxpayer whose home office comprises a large portion of his or her home or whose home-related expenses are high may be well-advised to compute their actual expenses deductions before electing the safe-harbor method.

In today’s economy, many workers who have been downsized or whose jobs have been outsourced have decided to go solo, providing services as independent contractors or setting up small home-based business operations. Unfortunately, many of these workers lose out on valuable tax savings because they are unfamiliar with the tax deductions that may be available. For example, many taxpayers forgo writeoffs for a home office because they are daunted by the complex tax rules.


ACCOUNTANTS

September 2014

Thursday, September 4 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on August 27–29.

Friday, September 5 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on August 30–September 2.

Wednesday, September 10 - Tipped employees who received $20 or more in tips during August report them to the employer on Form 4070. Semiweekly depositors deposit FICA and withheld income tax on wages paid on September 3–5.

Friday, September 12 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on September 6–9.

Monday, September 15 - Monthly depositors deposit FICA and withheld income tax for August.

Individuals and calendar-year corporations pay third installment of 2014 estimated tax.

Calendar-year corporations file 2013 income tax return (Form 1120 for C corporations; 1120S for S corporations) if automatic six-month extension was obtained.

Partnerships file 2013 Form 1065 if automatic five-month extension was obtained.

Wednesday, September 17 - Semiweekly depositors deposit FICA and withheld income tax on wages paid September 10–12.

Friday, September 19 - Semiweekly depositors deposit FICA and withheld income tax on wages paid September 14–17.

Wednesday, September 24 - Semiweekly depositors deposit FICA and withheld income tax on wages paid September 17–19.

Friday, September 26 - Semiweekly depositors deposit FICA and withheld income tax on wages paid September 20–23.


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Schedule appointments with individual clients for year-end tax planning sessions.

Remind individual clients on automatic six-month extensions of October 15 filing deadline for 2012 returns.

File returns for calendar-year corporations and partnerships that obtained automatic extensions.

To-Do List

Notes


ACCOUNTANTS

Are Your Tax Return Preparer Credentials in Order?

Background. In early 2010, the IRS announced plans for regulation of the tax preparation industry, including mandatory use of preparer tax identification numbers (PTINs), competency testing, continuing education rules, and imposition of ethical standards under IRS Circular 230 for all preparers. The IRS began implementation of the new requirements in 2011. However, in early 2013, a court threw a monkey wrench into the IRS’s plan. In a lawsuit filed by a group of non-attorney/non-CPA return preparers, the U.S. District Court for the District of Columbia concluded that the IRS lacked statutory authority to promulgate or enforce the requirement that all preparers register with the IRS. The court permanently enjoined the IRS from enforcing the regulatory requirements for taxpayers to complete competency testing or secure continuing education. [Loving v. IRS, 917 F.Supp.2d 67 (Jan. 18, 2013)]

In early 2014, the U.S. Court of Appeals for the District of Columbia Circuit upheld the lower court’s decision. The court found that there is no legal authority for the IRS’s regulation of hundreds of thousands of non-attorney, non-CPA tax return preparers who prepare and file tax returns for compensation. The Appeals Court decision continue the permanent injunction on IRS’s enforcement of the requirements for testing and registration of return preparers as well as the continuing education and ethical requirements [Loving v. IRS, U.S. Ct. App. (DC Cir., Feb. 11, 2014)]

KEY POINT One key return preparer requirement remains in effect after the court rulings. Following its initial decision, the District Court clarified that its ruling and injunction do the affect the requirement for all paid tax return preparers to obtain a preparer tax identification number (PTIN). The court modified its injunction to make it clear that IRS could continue to oper-ate its preparer tax identification number (PTIN) program and offer testing and continuing education to tax return preparers on a voluntary basis [Loving v. IRS, 920 F. Supp. 2d 108 (Feb. 1, 2013)]. .In addition, the ongoing court battle does not affect the long-standing regulatory practice requirements for CPAs, attor-neys, enrolled agents, enrolled retirement plan agents or enrolled actuaries.

PTIN Requirements. Virtually all individuals who prepare tax returns for compensation must have a preparer tax identification number (PTIN). This requirement generally applies to all attorneys, accountants, and enrolled agents who prepare returns, as well as to non-attorney, non-CPA preparers who are authorized by the IRS to prepare returns.

The PTIN requirement also applies to “supervised preparers” who do not and are not required to sign returns, but who are employed by an attorney or CPA firm and who prepare returns under supervision. To obtain a PTIN, a supervised preparer must provide the PTIN of his or her supervisor. The supervisor’s PTIN must be a valid and active PTIN. PTINs can be obtained or renewed using the IRS’s online application or by submitting a paper application on Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application, and paying the required fee (currently $64.25 for a new PTIN or $63 for a renewal PTIN).

The PTIN application process will require the following information:

• Personal information (name, mailing address) • Business information (name, mailing address) • Explanations for felony convictions (if any) • Explanations for problems with your U.S. individual or business tax obligations (if any) • Credit or debit card for the $63.00 PTIN user fee • If applicable, your supervisor’s PTIN • If applicable, any U.S.-based professional certification information (CPA, attorney, enrolled agent, enrolled retirement plan agent, enrolled actuary, certified acceptance agent, or state license) including certification number, jurisdiction of issuance, and expiration date

Note: Felony convictions or delinquencies in federal tax obligations may affect an individual’s ability to obtain a PTIN

Individuals generally are required to provide a Social Security Number (SSN) when they obtain a PTIN. However, U.S. citizens who have a conscientious objection to obtaining an SSN for religious reasons and foreign persons who are not eligible to obtain an SSN and have a permanent non-U.S. address may obtain a PTIN without a social security number. Individuals who have an Individual Taxpayer Identification Number (ITIN) are not eligible for a PTIN unless they are foreign persons with a permanent non-U.S. address, and can provide documentation to support that status.

Renew now. All PTINs must be renewed on a calendar year basis. Holders of valid PTINs can renew for 2015 start-ing this October 15. Renewed PTINs are valid from January 1 through December 31 of the following calendar year. PTINs obtained or renewed during a calendar year expire on December 31 of that year.

The IRS’s plans for wholesale testing and registration of professional tax return preparers are currently on hold. However, some IRS requirements for tax return preparers remain intact.


ACCOUNTANTS

October 2014

Wednesday, October 1 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on September 24–26.

Friday, October 2 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on September 27–30.

Wednesday, October 8 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on October 1–3.

Friday, October 10 - Tipped employees who received $20 or more in tips during September report them to the employer on Form 4070. Semiweekly depositors deposit FICA and withheld income tax on wages paid on October 4–7.

Wednesday, October 15 - Monthly depositors deposit FICA and withheld income tax for September. Individuals file 2012 income tax return if automatic six-month extension was obtained.

Thursday, October 16 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on October 8–10.

Friday, October 17 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on October 11–14.


Friday, October 24 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on October 18–21.


Friday, October 31 - Employers file Form 941 for the third quarter of 2014 (if tax was deposited tax in full and on time file by November 10). Deposit federal unemployment tax owed through September if more than $500. Semiweekly depositors deposit FICA and withheld income tax on wages paid on October 25–28.


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Conduct year-end tax planning sessions with individual clients.

Remind individual clients to use flexible spending account funds before year end unless plan provides post year-end grace period.

File returns for individual clients who obtained automatic six-month extensions.

Renew Preparer Tax Identification Number (PTIN) for 2015.

To-Do List

Notes


ACCOUNTANTS

Help Your Clients Cut Their 2014 and 2015 Tax Bills

For example, let’s say a client’s taxable income for 2014 is $220,000, putting him in the 28% bracket (for joint filers). However, his estimated taxable income for 2015 is $235,000—in the 33% bracket. Shifting a few thousand dollars of income from 2015 to 2014 will cut the tax on that income by 5 cents on the dollar. But there’s a limit on this strategy. If too much income is shifted into 2014, the client will be pushed into the 33% bracket for 2014. So all that will be accomplished is paying tax sooner rather than later.

Your clients may routinely accelerate spending at year-end to increase their tax deductions—for example, by making year-end charitable contributions and prepaying other deductible expenses, such as state or local taxes and mortgage interest. However, for clients whose income is on the rise, those deductions may be more valuable in 2015. On the other hand, even for these clients, smart year-end spending can generate deductions that would not be available if the expenses were spread out over two years. Here are two examples:

Miscellaneous deductions: Miscellaneous itemized expenses are deductible only to the extent they exceed 2% of a taxpayer’s adjusted gross income. The 2% deduction floor applies to a long list of items including unre-imbursed employee business expenses, investment counsel-ing fees, custodial fees on property held to produce income, safe deposit rentals, job hunting expenses—and, of course, tax return preparation fees.If a client’s miscellaneous expenses are already at or surpass 2% of adjusted gross income, your client should be on the lookout for ways to accelerate other miscellaneous expenses from early 2015 into this year. That way, the client will be sure to get a deduction on this year’s return, while the same expenses may not be deductible at all in 2015 if miscellaneous expenses don’t top the 2% mark.

Medical expenses: Medical expenses are also sub-ject to a deduction floor. Therefore, here again, accelerating expenses can salvage deductions that might otherwise be lost. For most taxpayers, unreimbursed medical expenses are deductible only to the extent they exceed 10% of adjusted gross income. Therefore, even “bunching” expenses into one year may not push the total over the deduction thresh-old. However, this strategy may work well for older clients whose out-of-pocket medical expenses may be higher and whose deduction threshold is lower for 2014. For tax years

2013 through 2016, if either the taxpayer or the taxpayer’s spouse has reached age 65 before the end of the tax year, the deduction threshold is 7.5 percent. Accelerating medical payments is only half the story. Clients should examine their bills for often-overlooked deductions. For example, the extra cost of orthopedic shoes or a special mattress for an arthritic condition, Medicare B premiums, room and board for a live-in nurse, the cost of medical travel, and the portion of a child’s tuition bill that covers medical care all qualify for deductions. Be sure to alert your clients that the cost of medical procedures can be deducted even if they are not prescribed by a doctor. The IRS has ruled that in determining whether an expense is for medical reasons, the recommendation of a physician is important—but it’s not crucial. Where expenses are for items that are wholly medi-cal in nature, a deduction can be claimed even if no doctor was involved. The IRS specifically approved deductions for the costs of annual physicals, full body scans, and home-pregnancy tests.

Use It Or Lose It There’s one case in which your clients may have do some spending or lose a valuable tax break—and their hard-earned dollars as well. Employees whose companies sponsor a reimbursement or flexible spending arrangement can make up to $2,500 of contribu-tions over the course of the year to cover medical bills with pre-tax dollars. However, employees may forfeit any funds not used by a set deadline. As a general rule, the deadline is the end of the calendar year. However, IRS regulations allow company plans to give employees a grace period of up to 2 ½ months after year end to use up their contributions. More-over, under a new option, company plans can provide for a carryover of up to $500 of unused contributions from one year to the next. A grace period or the new carryover option applies only if the company plan specifically provides for it. Therefore, employees should check with the plan administra-tor to determine the deadline for their particular plan. Clients who are in danger of losing any money that was deposited in a company plan should make arrangements now to use up the funds by the plan deadline. If a year-end deadline applies, clients can accelerate as many medical, dental, and child care expenses into 2014 as possible. If the plan allows for a grace period, clients should take action now to schedule planned expenses for early 2015.

There are a number of strategies your clients can employ to shift income and deductions at year-end. However, the first step in deciding which year-end moves will actually save tax dollars is to make some basic tax estimates and determinations.

• Make a rough estimate of the client’s income and deductions for this year and for 2015. • Based on the taxable income estimates, determine the client’s tax bracket for both years. • Determine the amount by which income must change to move from one bracket to another.


ACCOUNTANTS

November 2014

Wednesday, November 5 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on October 29–31.

Friday, November 7 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on November 1–4.

Monday, November 10 - File Form 941 for the third quarter if all third quarter of 2014 if tax for the quarter was deposited in full and on time.

Tipped employees who received $20 or more in tips during October report them to the employer on Form 4070.

Thursday, November 13 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on November 5–7.

Friday, November 14 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on November 8–11.

Wednesday, November 19 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on November 12–14.

Friday, November 21- Semiweekly depositors deposit FICA and withheld income tax on wages paid on November 15–18.

Wednesday, November 26 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on November 19–21.


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Remind individual clients whose withholding status will change in 2015 to submit new W-4 forms to their employers.

Remind individual clients who may have underpaid estimated taxes to increase withholding from salary and wages to make up for shortfall.

Renew PTIN

Register online to use IRS e-services. Preparers who anticipate filing 11 or more 1040, 1040A, 1040EZ and 1041 during the year must file electronically.

Set up tax preparation software and test e-filing. Download IRS e-file logo and order IRS e-file marketing materials. See the EFTPS Tool Kit at http://www.irs.gov/pub/irs-pdf/p4320.pdf

To-Do List

Notes

http://www.irs.gov/pub/irs-pdf/p4320.pdf


ACCOUNTANTS

How the Tax Law—And You—Can Help When Disaster Strikes

Deadline extensions. Under current rules, the IRS has authority to extend tax deadlines in the wake of a federally declared disaster. The law authorizes the extension of “any act” for a period of up to one year. Moreover, the law specifically provides that late filing penalties and interest on underpayments may be waived or abated. In the past, the IRS concluded that the law did not permit the waiver of interest charges.Tax deadlines that may be postponed include:

• Filing returns • Paying tax • Making IRA contributions • Completing IRA or plan rollovers • Filing a refund or credit claim • Filing a Tax Court petition or a suit for a refund

In addition, an IRS Revenue Procedure contains a lengthy list of other tax actions that can be put on hold [Rev. Proc2007-56].

These deadline extensions do not apply automatically, however. IRS announces the length and scope of any postponements for each disaster. (See ttp://www.irs.gov/uac/Tax-Relief-in-Disaster-Situations for the most recent disaster-related deadline extensions).

Bear in mind, that disaster postponements are not limited to individuals and businesses physically located in affected areas. An individual or business whose records are located in a disaster area can also qualify for a deadline extension.

HOW YOU CAN HELP Where the IRS has granted a postponement of time to file returns and make payments in response to a federally declared disaster, practitioners located in the covered disaster area who maintain records necessary to meet a filing or payment deadline for taxpayers located outside the disaster area may elect to contact the IRS to identify such clients. A practitioner may contact the IRS at 1-866-562-5227 Alternatively, a practitioner who maintains the records of ten or more clients located outside the disaster area, can submit a bulk request for relief by send the IRS a CD with identifying information for the affected clients. (For information on how to submit a bulk request see www.irs.gov/Tax-Professionals/Bulk-Requests-from-Practitioners-for-Disaster-Relief.)

Lost tax records. Clients located in a disaster area may have lost tax records and other important tax information. While in some cases you may have copies of some of the documents a client needs, but in other cases clients will need to obtain copies through the IRS. The IRS normally charges $50 for a copy of a prior year’s return. However, the IRS will waive the usual fees and expedite requests for copies of previously filed returns for taxpayers affected by a disaster. In addition, the IRS will provide W-2 or Form 1099 data, expedite current year return processing, expedite issuance of replacement checks, delay notices, waive penalties, or delay collection or examination matters on an as-needed basis. Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacted them so that the IRS can consider appropriate relief.

HOW YOU CAN HELP You can assist your clients in reconstructing their tax records otherwise dealing with the IRS. However, it will generally be necessary for a client to complete and sign form 2848, Power of Attorney and Declaration of Representative, to authorize you to act on his or her behalf.

FYI For additional disaster-related resources for you and your clients, visit the IRS’s Disaster Relief Resource Center for Tax Professionals at www.irs.gov/Tax-Professionals/Disaster-Relief-Resource-Center-for-Tax-Professionals.

Disaster can strike anywhere at any time. In 2013, the Federal Emergency Management Agency (FEMA) has issued 62 major disaster declarations affecting virtually every area of the country. Tax obligations often fall by the wayside when an individual or business is trying to recover from a disaster. Fortunately, the tax law provides some relief.

http://www.irs.gov/Tax-Professionals/Disaster-Relief-Resource-Center-for-Tax-Professionals

http://www.irs.gov/Tax-Professionals/Disaster-Relief-Resource-Center-for-Tax-Professionals


ACCOUNTANTS

December 2014

December - Employees whose withholding status will change in 2015 should submit a new Form W-4 to the employer. The new form should be submitted as early as possible to guarantee implementation of the withholding change in January.

Monday, December 1 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on November 22–25.

Wednesday, December 3 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on November 26–28.

Friday, December 5 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on November 29–December 2.

Wednesday, December 10 - Tipped employees who received $20 or more in tips during November report them to the employer on Semiweekly depositors deposit FICA and withheld income tax on wages paid on December 3–5.

Friday, December 12 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on December 6–9.

Monday, December 15 - Monthly depositors deposit FICA and withheld income tax for November. Calendar-year corporations pay fourth installment of 2014 estimated tax.

Wednesday, December 17 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on December 10–12.

Friday, December 19 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on December 13–16.

Wednesday, December 24 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on December 17–19

Monday, December 29 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on December 20–23.

Wednesday, December 31 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on December 24–26.


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Establish tax return preparation procedures.

Develop tax preparation docket sheet.

Analyze tax season staffing needs.

Prepare tax season work assignments.

Prepare tax preparation packets for clients

Review new tax developments.

Remind individual clients of January 15 due date for final 2014 estimated tax payment.

To-Do List

Notes


ACCOUNTANTS

Get Your Clients Ready for Tax Return Season

Get Clients OrganizedNow is the time to provide your clients with tax return preparation packets and tax data organizers. Send them out early, so that clients have time to complete them properly. As part of this process, explain to clients when you need to see actual source documents and when it is acceptable for them to simply provide you with lists and schedules of tax data. Impress upon your clients that the more preparatory work they do before submitting their return for preparation, the smaller their bills will be. After all, time is money.

You may also want to consider developing a checklist for clients of the types of documentation they should be accumulating throughout the year. By giving clients this checklist along with their completed 2014 returns, you can get a jumpstart on the next go-round. Stress to clients that it is much easier to compile tax records on an ongoing basis than to scramble to collect everything at year end—and they are much less likely to overlook something that could save them tax dollars.

Set Firm DeadlinesEstablish deadlines for when you will accept client data—and clearly communicate those deadlines to your clients. Stick to your guns by putting returns on extension if documentation is submitted after the deadline. There will, of course, be extenuating circumstances in which clients deserve some leeway. However, perennial procrastinators will get the message if you set and stick to your cut-off dates.

Schedule RemindersAs your deadlines approach, send out reminder notices or call those clients who have not yet submitted their 2014 tax data or who have not submitted all the information necessary to complete their returns. Emphasize once again that a client’s return cannot be prepared by the original return due date if tax information is not received in a timely fashion. This is a good time to get clients to commit one way or another. Explain the rules for obtaining an automatic filing extension and advise clients that a filing extension may be appropriate if they are having difficulty gathering the necessary tax information. In fact, you may want to send this type of reminder early on to those clients whose returns have typically required an extension—for example, clients who have to apply for an extension every year because of habitually late K-1 information from partnership investments. By identifying extended returns as soon as possible, you and your staff won’t waste limited busy season time working on returns that will not be ready by the original return due date.

Establish Procedures for Missing InfoIt’s always preferable to get information from clients in writing, but it’s not always possible when the tax return deadline is fast approaching. You may have had instances where you or a staff member obtained client information over the telephone only to have the client later dispute the accuracy of that information. To avoid such disputes, develop procedures now to ensure the accuracy of last-minute data submissions. Whenever possible, have clients submit any additional information in writing by fax or e-mail. If you must obtain information verbally, make it a practice to follow up with a written memo. Make sure your clients understand that you will assume the information is accurate unless you are promptly notified of any changes.

Estimate Your BillMost tax return preparers have had experience with clients who are outraged when they receive their bills. You can avoid this type of confrontation by providing clients with up-front estimates of their return preparation costs. Stress, however, that these figures are estimates only. Midway through the return preparation process, send an interim bill along with an explanation of any changes from your original estimate.

Cut Off DeadbeatsYou may have clients who are habitually late paying their bills, who always contest—and refuse to pay—part of the bill, or who have owed you significant amounts of money for quite some time. Take a long, hard look at your outstanding accounts receivable. Now is the time to bite the bullet and decide which clients you ought to write off and refuse to serve any longer.

Your office may be geared up and ready for tax return season. However, the most streamlined office procedures will not guarantee a successful tax return season without the cooperation of one key element: your clients. If clients are habitually late in submitting tax return information or supply you with incomplete or disorganized information, the time spent sifting and sorting and contacting clients for missing data will throw a monkey wrench into the most well-oiled machine.

Here are some tips for getting your clients ready for the upcoming tax return season.


ACCOUNTANTS

January 2015

Monday, January 5 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on December 27–03.

Wednesday, January 7 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on December 31–January 2.

Friday, January 9 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on January 3–6.

Monday, January 12 - Tipped employees who received $20 or more in tips during December report them to their employers on Form 4070.

Wednesday, January 14 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on January 7–9.

Thursday, January 15 - Monthly depositors deposit FICA and withheld income tax for December. Individuals pay final installment of 2014 estimated tax.


Thursday, January 22 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on January 14–16.


Wednesday, January 28 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on January 21–23.


Furnish copies of Form W-2 for 2012 to employees.

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Send tax preparation packets and tax data organizers to individual clients.

Alert individual clients to the option of filing the 2014 return by February 2 in lieu of making final 2014 estimated tax payment.

Remind business clients of information reporting requirements.

To-Do List

Key Compliance Dates Notes


ACCOUNTANTS

Help Your Clients Handle Identity Theft

In one common scheme, an identity thief will use a stolen Social Security number (SSN) to file a forged tax return claiming a fraudulent refund early in the filing season. The real taxpayer may not be aware that this has happened until the taxpayer’s legitimate return is filed later in the season and discovers that two returns have been filed using the taxpayer’s SSN. In another scheme, an identity thief may use a stolen SSN to get a job. When wages from the employer are reported to the IRS using the taxpayer’s SSN, but are not shown on the taxpayer’s return, the taxpayer will receive an underreporting notice.

Identity theft should be suspected if a client receives a letter or notice from the IRS indicating that:

• More than one tax return was filed under the client’s SSN; • A balance due, refund offset, or collection actions for a year the client did not file a return; or • IRS records show the client received wages from an unknown employer.

Bear in mind, however, that the IRS does not contact taxpayers by email or other electronic communications, such as text messages or social media. A client who receives an email or other communication purporting to be from the IRS, should forward it to the IRS at [email protected].

What to do. If a client receives a suspect notice, respond immediately to the name and number printed on the notice or letter. The client will need to complete Form 14039, Identity Theft Affidavit, to explain the problem. If that doesn’t resolve the prob-lem, contact the IRS Identity Protection Specialized Unit, toll-free at 1-800-908-4490.

Once a case of identity theft is resolved, the IRS has begun a process of issuing Identity Protection PIN (IP PIN) numbers to victims of identity theft for use in filing their returns. An IP PIN is a unique six digit number that verifies that the taxpayer is the rightful filer of the return. During this 2014 filing season, the IRS expects to provide more than 1.2 million victims with an IP PIN, up from more than 770,000 the year before. The IP PIN will allow these taxpayers to avoid delays in filing returns and receiving refunds

Protecting tax records. A client who believes his or her tax records may be at risk due to lost or stolen identifying documents, questionable credit card activity, or an unusual credit report can take proactive steps to those records. The client should contact the IRS Identity Protection Specialized Unit at the above phone number. The client will be asked to provide a copy of any police report to complete Form 14039.

Cut the risk of identity theft. Over the past year, the news media has been full of reports of high-tech schemes to obtain individual’s identifying information, including a massive data breach at Target stores. However, identity thieves can employ far more low-tech means of obtaining personal information, ranging from simply stealing a purse or wallet to dumpster diving for carelessly discarded documents.

You may want to alert your clients to these suggestions from the IRS for minimizing the chances of becoming an identity theft victim:

• Don’t carry your Social Security card or any document containing your SSN. • Don’t give businesses your SSN just because they ask— question why it is needed and how it will be used. • Protect your financial information. • Check your credit reports at least every 12 months. • Secure your personal information at home. • Protect your personal computers by installing firewalls, antispam/virus software, updated security patches, and new passwords for Internet accounts. • Don’t give personal information over the phone, through the mail, or on the Internet unless you have initiated the contact and are sure you know who is asking.

WATCH OUT FOR W-2s Advise your clients not to carelessly discard copies of W-2 forms, even if they no longer need to be retained for tax purposes. Under current rules, W-2 forms must contain an employee’s complete SSN [IRC §6051(a)(2)]. The Obama administration and Congressional lawmakers have proposed changes to the tax Code that would allow the use of truncated SSNs on W-2 forms. Under IRS regulations, truncated identifying numbers are currently permitted to be used on 1099 information returns.

Identity theft is a fact of life. Clients who are victimized by identity theft are likely to be on the lookout for unauthorized credit card charges or erosion of their credit scores. Unfortunately, however, the client’s tax records can also be at risk.

mailto:[email protected]


ACCOUNTANTS

February 2015

Monday, February 2 - Furnish copies of Form W-2 for 2014 to employees. Furnish information returns to retired employees (Form 1099-R) and noncorporate independent contractors who were paid $600 or more (Form 1099-MISC). Employers file Form 941 for the fourth quarter of 2014 (If tax was deposited in full and on time, file by February 10). Qualifying small employers file annual Form 944 for 2014 (in lieu of quarterly Form 941s). Employers file Form 940 for 2014 (if tax was deposited in full and on time, file by February 10). Individuals file individual income tax return for 2014 in lieu of January 15 estimated tax payment. File Form 945 for 2014 to report income tax withheld on nonpayroll items.

Wednesday, February 4 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on January 28–30.

Friday, February 6 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on January 31–February 3.

Wednesday, February 11 - Employers file Form 941 for the fourth quarter of 2014 if tax for the quarter was deposited in full and on time.

Tipped employees who received $20 or more in tips during January report them to the employer on Form 4070.

Employers file Form 940 for 2014 if tax for the year was deposited in full and on time.


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Send reminders to individual clients who have not returned tax preparation packets or scheduled appointments.

Review pros and cons of S corporation election with eligible corporate clients.

Remind calendar year corporate clients of March 17 income tax return filing deadline.

To-Do List

Wednesday, February 11 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on February 4–6.

Friday, February 13 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on February 7–10.

Tuesday, February 17 - Monthly depositors deposit FICA and withheld income tax for January.

Claims for 2014 exemption from income tax withholding expire; employers must begin withholding tax unless employee has submitted a new W-4 to continue exemption for 2015.

Thursday, February 19 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on February 11–13.


Wednesday, February 25 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on February 18–20.



ACCOUNTANTS

Common Mistakes Made by Tax Pros—and How to Avoid Them

Names and numbers. Surprisingly, one of the most common mistakes on both professionally and self-prepared returns are names and taxpayer identification numbers that do not match up with the IRS’s or Social Security Administration’s records. These errors can have a number of consequences. For example, if a taxpayer’s or spouse’s Social Security number is missing or entered incorrectly, the IRS will deny the personal exemption for the taxpayer or spouse. An error in a dependent child’s name or number can have more far reaching affects. In addition to denying a dependency exemption for the child, the IRS will also disallow the child tax credit for that child and will reduce or disallow taxpayer’s earned income credit if the child is a qualifying child for purposes of the credit.

The best way to avoid name and Social Security number mismatches is to ask new clients for a photocopy of each family member’s Social Security card. With this information in your files, you can be sure that the information you enter on the client’s return is 100% accurate. In addition, make sure that your return review procedures include verification that all names and numbers have been entered correctly on the return.

Tax return tip: Watch the calendar when e-filing a return for a newlywed or other client who recently filed a name change with the Social Security Administration. According to the IRS, it takes two weeks after a name changed is filed before the IRS’s records are updated. If the return due date is fast approaching and it’s impossible to wait out the two weeks, the return should be filed on paper.

Earned income credit. As in prior years, the earned income credit was a prime source of errors on both professionally prepared and self-prepared returns. A significant number of these errors included credit claims by taxpayers who were either too young (under age 25) or too old (over age 65) to qualify for the credit.

Tax return tip: Check birth dates carefully. For 2014, the EIC cannot be claimed by clients born before 1950 or after 1990.

Capital gains taxes. Improper calculation of capital gains taxes was among the top errors on individual returns. These errors stemmed from failure to take into account the lower tax rates of qualified dividends and capital gains.

Tax return tip: The tax rate on qualified dividends and capital gains is 15% for most taxpayers for 2014. However, the rate drops to 0% for taxpayers whose regular marginal rate is below 25% and rises to 20% for taxpayers in the top 39.6% bracket.

Social Security income. Miscalculations of the taxable amount of Social Security benefits also cropped up on paid preparer returns.

Tax return tip: A common source of these miscalculations is failure to take into account tax-exempt interest and other excludable income in determining the amount of taxable benefits. Be sure to double-check your calculations to make sure you have “added-back” the appropriate income items and one-half the client’s Social Security benefits to adjusted gross income before comparing the client’s income to the Social Security benefits tax thresholds.

Self-employment tax. A significant number of Form 1040 returns contained errors in adjusted gross income due to failure to claim a deduction for a self-employed taxpayer’s self-employment tax.

Tax return tip: A self-employed individual is entitled to deduct one-half of his or her self-employment tax liability as a business expense in arriving at adjusted gross income. In effect, this deduction represents the “employer share” of the tax.

Health savings account deductions. With the number of taxpayers with health savings accounts (HSAs) growing each year, it is not surprising that errors in computing the deduction for HSA contributions have begun to show up on taxpayer’s returns.

Tax return tip: For 2014, the annual limitation on HSA deductions for a taxpayer with self-only coverage under a high-deductible health plan is $3,300. The annual limit on deductions for a taxpayer with family coverage is $6,550.

Let’s face it, mistakes happen—and it’s unlikely that you will conclude the upcoming tax return season with an error-free record. However, there are some common mistakes that crop up year after year—and that can be easily avoided by a thorough review of your clients’ returns. Here are some examples culled from the IRS’s recently released data on the top errors made paid preparers on recently filed returns.


ACCOUNTANTS

March 2015

Wednesday, March 5 - File Form 1099 information returns (reports of payments of $600 or more, $10 dividend and interest payments) for 2014. Electronic filers see March 31.

Large food and beverage establishment employers file Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips; use Form 8027-T if reporting for more than one establishment. Electronic filers see March 31.

Employers file Copy A of all Forms W-2 issued for 2014 with the Social Security Administration (SSA). Paper Forms W-2 should be accompanied by a Form W-3. Electronic filers see March 31.

Wednesday, March 4 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on February 25–27.

Friday, March 6 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on February 28–March 3.

Monday, March 10 - Tipped employees who received $20 or more in tips during February report them to the employer on Form 4070.

Wednesday, March 11 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on March 4–6.

Friday, March 13 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on March 7–10.

Monday, March16 - Monthly depositors deposit FICA and withheld income tax for February.

Calendar-year corporations file 2014 income tax return (Form 1120 for C corporations; 1120S for S corporations; alternatively, file for an automatic six-month extension.


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File extensions for individuals who have not met deadline for return preparation.

Remind individual clients of April 15 estimated tax payment.

File extensions for corporate clients that will not meet March 16 filing deadline.

To-Do List

Notes





Tuesday, March 31 - Form 1099 information returns, Copy A of Form W-2, or Form 8027 for 2014 must be filed if filing electronically.


ACCOUNTANTS

A Taxpayer Bill of Rights—And Responsibilities

1. The Right to Be Informed Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the law and IRS procedures in all tax forms, instructions, pub¬lications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.

2. The Right to Quality Service Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to have a way to file complaints about inadequate service.

3. The Right to Pay No More than the Correct Amount of Tax Taxpayers have the right to pay only the amount of tax legally due and to have the IRS apply all tax payments properly.

4. The Right to Challenge the IRS’s Position and Be Heard Taxpayers have the right to raise objections and provide additional documentation in response to IRS actions or proposed actions, to expect that the IRS will consider their objections and documentation promptly and impartially, and to receive a written response if the IRS finds them insufficient.

5. The Right to Appeal an IRS Decision in an Independent Forum Taxpayers are entitled to a prompt and impartial administrative appeal of IRS actions and have the right to receive a written response explaining the Appeals Division’s decision. Taxpayers generally have the right to take their cases to court to challenge an adverse final determination.

6. The Right to Finality Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year. Taxpayers have the right to know when the IRS has finished an audit.

7. The Right to Privacy Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and a collection due process hearing where applicable.

8. The Right to Confidentiality Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the

taxpayer or by law. Taxpayers have the right to expect the IRS to investigate and take appropriate action against its employees, return preparers, and others who wrongfully use or disclose taxpayer return information.

9. The Right to Retain Representation Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to be told that if they cannot afford to hire a representative they may be eligible for assistance from a Low Income Taxpayer Clinic.

10. The Right to a Fair and Just Tax System, Including Access to the Taxpayer Advocate Service Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.

Five Taxpayer Responsibilities 1. The Responsibility to Be Honest Taxpayers have the responsibility to be truthful in preparing their tax returns and in all other dealings with the IRS.

2. The Responsibility to Provide Accurate Information Taxpayers have the responsibility to answer all relevant questions completely and honestly, to provide all required information on a timely basis, and to explain all relevant facts and circum¬stances when seeking guidance from the IRS.

3. The Responsibility to Keep Records Taxpayers have the responsibility to maintain adequate books and records to fulfill their tax obligations, preserve them during the time they may be subject to IRS inspection, and provide the IRS with access to those books and records when asked so the IRS can examine their tax liabilities to the extent required by law.

4. The Responsibility to Pay Taxes on Time Taxpayers have the responsibility to pay the full amount of taxes they owe by the due date and to pay any legally correct additional assessments in full. If they cannot pay in full, they have the responsibility to comply with all terms of any full or partial payment plans the IRS agrees to accept.

5. The Responsibility to Be Courteous Taxpayers have the responsibility to treat IRS personnel politely and with respect.

There is—as yet—no official Taxpayer Bill of Rights. However, National Taxpayer Advocate Nina Olsen says there should be. The Taxpayer Advocate calls on Congress to take the taxpayer rights that already exist and group them into ten broad categories, modeled on the U.S. Consitution’s Bill of Rights. The Internal Revenue Code provides dozens of real, substantive taxpayer rights,” Olsen’s report says. “However, these rights are scattered throughout the Code and are not presented in a coherent way. Consequently, most taxpayers have no idea what their rights are and therefore often cannot take advantage of them.” Olsen’s report emphasizes that tax compliance is a two-way street: The proposed Taxpayer Bill of Rights also contains a section outlining taxpayer responsibilities.


ACCOUNTANTS

April 2015

Wednesday, April 1 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on March 25–27.

Friday, April 3 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on March 28–31.

Wednesday, April 8 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on April 1–3.

Friday, April 10 - Tipped employees who received $20 or more in tips during March report them to the employer on Form 4070.

Semiweekly depositors deposit FICA and withheld income tax on wages paid on April 4–7.

Wednesday, April 15 - Individuals file 2014 returns (Form 1040, Form 1040A, or Form 1040EZ); alternatively, file for an automatic six-month extension (Form 4868).

Partnerships file 2014 information return (Form 1065; alternatively, file for an automatic five-month extension (Form 7004).

Individuals and calendar-year corporations pay first installment of 2015 estimated tax.

Monthly depositors deposit FICA and withheld income tax for March.

Semiweekly depositors deposit FICA and withheld income tax on wages paid on April 8–10.

Friday, April 17 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on April 11–14.



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File extensions for individual clients who will not meet April 15 filing deadline.

Conduct reviews of clients’ prior year returns to determine need for amended returns.

To-Do List

Notes

Friday, April 24 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on April 18-21.


Thursday, April 30 - Employers file Form 941 for the first quarter of 2015 (if tax for the quarter was deposited in full and on time file by May 11)

Employers deposit federal unemployment tax owed through March if more than $500.


ACCOUNTANTS

Give Your Clients a Mid-Year Tax Checkup

You can start the process by providing clients with a checklist of events that could trigger a change in their expected tax bill for 2015.

Marriage. Clients who get married during the year may need to increase or decrease withholding or estimated tax payments, depending on their personal situations. Reason: By switching from single to joint filing, the newlyweds may face a “marriage penalty” or enjoy a “marriage bonus.”

Divorce. A client who divorces will go from joint to single filing status. Again, this may mean a tax increase or a tax decrease, depending on the client’s circumstances. For example, if the client is making deductible alimony or separate maintenance payments, that income will be shifted from the client’s return to his or her ex-spouse’s return. On the other hand, a client may face a tax increase because of the loss of dependency exemptions and child tax credits.

New baby. As long as the new addition to the family arrives before January 2016, a client will be entitled to an additional dependency exemption for 2015. The client may also qualify for a child tax credit.

Child’s graduation. A child’s high school or college graduation may mean the loss of a dependency exemption for 2015. A client can claim a dependency exemption for a child under age 24 who is a full-time student for at least five months during the year. However, the child must not provide more than one half of his or her support for the year. So, if the child lands a good-paying job after graduation, the client may lose the exemption.

Child’s wedding. A client may meet all the tests for claiming a dependency exemption for a child who marries during the year. However, the dependency exemption cannot be claimed unless the newlyweds agree not to file a joint return for 2015 (unless the joint return is filed only to get a refund of withheld tax).

Spouse returns to work. A spouse’s return to the workforce may require withholding or estimated tax changes. For example, if the client’s spouse claims a withholding allowance on his or her own Form W-4, the client will have to reduce his or her withholding allowances accordingly. Moreover, the client may need to increase withholding or estimated tax payments if the couple will face a marriage penalty as a two-earner couple. On the other hand, if the couple pays for the care of a child or children under age 13 while they work, they may qualify for a dependent care tax credit that will reduce required withholding or estimated tax for the year.

Crunch the numbers: Once a client has reviewed your checklist, sit down with the client and plug the updated facts and figures into the Form W-4 or Form 1040-ES worksheets. By making any necessary upward or downward withholding or estimated tax adjustments now, you can insure your clients of a healthy tax outcome.

Help Your Clients Sidestep Estimated Tax Penalties

Individuals are generally required to prepay at least 90% of the current year’s tax or 100% (110% for higher-income individuals) of the prior year’s tax, if that’s lower. Prepayments can be made through wage withholding or by making estimated tax payments to the IRS. Prepayments are generally required to be made in equal quarterly installments throughout the year. So, if there’s a shortfall in withholding or estimated tax payments at the end of any quarter, estimated tax penalties begin to run from that date until the shortfall is made up.

A client whose mid-year tax checkup shows that taxes will be higher than expected is likely to have prepayment shortfalls for earlier quarters in the year. One way for the client to make up a shortfall is to make or increase estimated tax payments for the remainder of the year. However, estimated tax payments aren’t credited retroactively, so they won’t wipe out penalties incurred in earlier quarters. On the other hand, if the client is a wage earner, there is a better option. The client can file a new Form W-4 to increase withholding for the remainder of the year. The IRS treats an equal part of the total withheld during the year as having been paid on each quarterly installment due date. Therefore, amounts withheld later in the year can wipe out earlier underpayments.

For example, if there has been a change in a client’s tax situation and there needs to be an upward adjustment in withholding or estimated tax payments, making the adjustment in June may be much less inconvenient from a cash flow standpoint than waiting until November. On the other hand, because of changing circumstances, a client may be paying too much. He or she may appreciate an immediate downward adjustment in withholding or estimated tax payments rather than waiting for a refund next spring.


ACCOUNTANTS

May 2015

Friday, May 1 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on April 25–28.

Wednesday, May 6 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on April 29–May 1.

Friday, May 8 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on May 2–5.

Monday, May 11 - Tipped employees who received $20 or more in tips during April report them to the employer on Form 4070.

Employers file Form 941 for the first quarter of 2015 if tax for the quarter was deposited in full and on time.

Wednesday, May 13 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on May 6–8.

Friday, May 15 - Monthly depositors deposit FICA and withheld income tax for April.

Semiweekly depositors deposit FICA and withheld income tax on wages paid on May 9–12.

Wednesday, May 20 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on May 13–15.


Thursday, May 28 - Semiweekly depositors deposit FICA and withheld income tax on wages paid on May 20–22.



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Conduct post-season review.

Evaluate tax software.

Remind individual clients of June 16 estimated tax payment.

Alert clients who need to file amended returns.

To-Do List

Notes


ACCOUNTANTS

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