HERE IS A UNIQUE IDEA

This is not to all inspiring but let me ask you "when is the last time you truly thanked your customers?" Not that "thank you" that you get from most workers at a cash register who, like a robot say "thank you", I mean a real from the heart show of appreciation.

I thought of this recently when I was doing some shopping and after hearing but not feeling a few "thank's" at different stores, I was at a Nordstrom and the clerk really thanked me. I have to tell you it really felt good... And here I am telling you about Nordstrom- nice plug for them.

Give it a try, a heartfelt thank you to your clients...and by the way, Thank you for following my blog!!! It means a lot to me.

WHERE THE HECK IS MY REFUND?

Here’s your obvious statistic of the tax season: most early filers do so because they are expecting a refund. And by now, many of those taxpayers want to know, “Where the heck is my refund?”

According to the IRS, 90% of taxpayers will receive a refund in 21 days or less. That’s the average taking into account all returns filed, whether e-filed or filed with traditional paper returns.

How can you speed that process up? The IRS says that if you e-file and use direct deposit, you can receive your refund in as few as ten days. I’ve heard of folks getting them as quickly as three.

Who might have to wait? The usual suspects: taxpayers who make mistakes. Submitting an error free return increases the likelihood that your refund will be processed quickly. Mistakes – sloppy returns, transposed numbers or bad math – can slow down processing and result in delays.

The IRS warns that ramped up scrutiny for fraud may slow down some refunds. If your refund is sizable or if it’s based on a credit that the IRS has identified as ripe for abuse (EITC and fuel tax credits, for example), your return might get a second look.

Other issues that can affect the timing of your refund include bankruptcy, an open audit or a balance due on a related account such as a different tax year. Your refund may also be slowed if you are subject to an offset for outstanding liabilities such as delinquent child support or unpaid student loans.

If you’ve done everything right and your refund feels slow, you can check on the status with the IRS. You’ll need to wait at least 72 hours after you e-file or three weeks after you mail your paper return before you can make an inquiry.

The fastest and best way to get the info is using the “Where’s My Refund?” tool on IRS.gov .

To check on your refund, you’ll need to have your tax return handy. You’ll need to enter:

• Your Social Security Number

• Your filing status
• The amount of your refund as shown on your tax return

Here’s a quick caveat about dates: if you’ve amended your return using a form 1040X, all bets are off. It may take 8 to 12 weeks or longer to process the return. If 8 weeks have passed after you’ve filed a form 1040X and you have not received your refund, call the IRS at (800) 829-1040. Be prepared to wait (and wait).

Finally, if your check is supposed to be in your mailbox and it’s not because it was lost, stolen, or destroyed, you can file an online claim for a replacement check. You can make the claim if it’s been more than 28 days from the date that the IRS says it mailed your refund. Head over to the “Where’s My Refund?” tool on IRS.gov for details.

1 IN 5 AMERICANS ARE DEPENDENT ON THE GOVERNMENT

The Heritage Foundation just reported that 21.8% of Americans or 67.3 million are subsidized by the government. 

PAYROLL TAX CUT EXTENDED TO THE END OF THE YEAR

The Internal Revenue Service today released revised Form941 enabling employers to properly report the newly-extended payroll tax cut benefiting nearly 160 million workers.

Under the Middle Class Tax Relief and Job Creation Act of 2012, enacted yesterday, workers will continue to receive larger paychecks for the rest of this year based on a lower social security tax withholding rate of 4.2 percent, which is two percentage points less than the 6.2 percent rate in effect prior to 2011. This reduced rate, originally in effect for all of 2011, was extended through the end of February by the Temporary Payroll Tax Cut Continuation Act of 2011, enacted Dec. 23.

No action is required by workers to continue receiving the payroll tax cut. As before, the lower rate will have no effect on workers’ future Social Security benefits. The reduction in revenues to the Social Security Trust Fund will be made up by transfers from the General Fund.

Self-employed individuals will also benefit from a comparable rate reduction in the social security portion of the self-employment tax from 12.4 percent to 10.4 percent. For 2012, the social security tax applies to the first $110,100 of wages and net self-employment income received by an individual.

The new law also repeals the two-percent recapture tax included in the December legislation that effectively capped at $18,350 the amount of wages eligible for the payroll tax cut. As a result, the now repealed recapture tax does not apply.

The IRS will issue additional guidance, as needed, to implement the newly-extended payroll tax cut, and any further updates will be posted on IRS.gov.

1099 QUESTION

Q: I have a question on 1099 forms. There are a couple people looking for their 1099’s from the place where we work, but they have never prepared them in the past. Do they need to?

A: Here are the 1099 rules:

·         First of all, all businesses are required to file 1099’s to a person or a business (that is not incorporated) for any services that are provided of $600 or greater during the calendar year. 

·         Also, the same would be true for a business paying rent to a person or a business that was not incorporated. 

Starting this year the IRS has added additional questions to all tax returns. 

They are:

1.    Are you required to file form(s) 1099’s?                   yes or no

2.    If yes, are you or will you be filing form(s) 1099’s?  yes or no

These are questions that we will need to answer every year on all returns. 

I must warn you, if you should be chosen for audit they will be looking to make sure that you filed your 1099’s.  The fine for not filing is really high.  They can fine the business $250 per 1099 that was not filed.  So for example, if a business was required to prepare 10 1099’s and did not and the auditor goes back 3 years (and the same number of 1099’s were required then),  they could actually access $2500 (10 x $250)  x 3 years or $7500 in penalties just for not filing 1099’s.

Also, it is recommended that anybody you pay as a contractor or anybody for any type of service, you are required to have the contractor / person fill out a Form W-9 and sign.  This is basically paperwork that says you do not have to withhold backup withholding.  It would be a good practice to obtain these forms and keep in your permanent records.  You do not have to file them with the IRS. 

The following is a link to the IRS website, where you can download and print the form W-9.

If you have any questions, please feel free to contact us. 

CALCULATING MILEAGE RATES

Q:  Somebody told me that the mileage rate for 2011 was 51 cents per mile and then my college son who took a tax class last semester said it was 55 cents.  Who is right?  Am I getting my monies worth for all the tuition I am paying?

A: I don’t know what grade your son received in the tax class.  I teach an income tax at our local college one semester a year.  I teach so I can say that I am a “professor emeritus,” whatever that means.  Anyway, if he would have taken my class I would be disappointed because he is wrong.

Here is the deal.  If you used an auto for business travel last year and claim the standard mileage deduction, be sure to pay attention to when you took the trips. High gasoline prices in 2011 prompted the IRS to increase the deduction rate at midyear.

The mileage rate for business use of a vehicle was 51 cents per mile from Jan. 1, 2011, through June 30, 2011. On July 1, 2011, the rate increased to 55.5 cents a mile.

This type of tax deduction change is why good tax record keeping is so important.

IRS RELEASES THE DIRTY DOZEN TAX SCAMS FOR 2012

Please check out the latest tax scams issued by the IRS: READ MORE

FEDERAL SUBSIDIES FUEL COLLEGE COSTS

Dr Gross is a professor of economics at Creighton University in Omaha, Nebraska.  He publishes a monthly Economic Trends Newsletter.  I found his comments regarding education costs quite interesting.  Note that at the end he asks at the end of the article if the government is creating another housing type bubble by their legislative actions?  

Federal Subsidies Fuel College Costs  Up 5 Times Inflation Rate

Since 1981, U.S. Bureau of Labor Statistics data show college tuition and fees have soared by 714.3 percent while all other items consumed by the average household increased by a more moderate 141.0 percent.

Reacting to this shocking trend, President Obama, in his State of the Union address, threatened higher educational institutes with sanctions if they continued to boost tuition at this alarming rate. Contrary to the President's rhetoric, the federal government, by increasing federal financial assistance by almost 20 percent since 2009, has been one of the chief culprits allowing colleges to shift a large share of rising costs to the taxpayer.

Moreover, the President boosted the federal "bailout" or subsidization of higher education by:  

1. Allowing borrowers to cap their student loan payments at 10 percent of discretionary income and waiving any loan balance remaining after 20 years.
2. Doubling the number of work-study jobs available.
3. Implementing the American Opportunity Tax Credit which provides up to $10,000 for four years of college. 
4. Asking Congress to subsidize record low student loan interest rates.  

Despite rapidly rising federal support, colleges have increased the share of courses taught by part-time faculty to 49 percent in 2009 from 34 percent in 1981. Furthermore, colleges raised average faculty salaries by a scant 2.7 percent per year over the past six years.  

During this same period of time, the growth rate in outlays for student services (e.g. athletics, counseling) was almost double that of expenditures for instruction.  

Data show that colleges have used federal government support to underwrite a disproportionate growth in funds for non-academic spending and a sharp increase in tuition and fees.There is a strong correlation over time between student and parent loan availability and rapidly rising tuitions.  

Similar to housing, the federal government is putting air in another bubble - this time it is higher education.  

LATEST ON PAYROLL TAX CUTS

(The Hill) -- TheHill.com reports House Speaker John Boehner said yesterday "that lawmakers have 'an agreement in principle' to extend the payroll tax cuts, unemployment benefits and the Medicare 'doc fix,' but cautioned that 'there are a lot of details that have yet to be worked out.'"  GOP leaders hope for "a House vote by the end of the week," but "some rank-and-file Republicans have decried the idea of adding $100 billion to the deficit."

To read more on this article: CLICK HERE

CHANGES IN THE TAX CODE

Several years ago one of my son’s said that he was thinking about becoming an accountant.  I told him that it was a good profession and listed the advantages and disadvantages.  One of the advantages was that you have to keep learning because things keep changing all the time. 

Here is an example:
I just read a report stating that there have been 4,428 changes have been made to the 3.8 million-word code over the past 10 years, including an estimated 579 changes in 2010 alone.  See why the tax structure is so confusing?  That is why Kopsa Otte spends thousands of dollars and hundreds of hours each year reeducating ourselves.

By the way, my son decided to open a Arby’s restaurant.  Roast beef does not change every year.

MY DAD WAS WRONG

I remember when I was a high school student my dad told me that I had a choice as I selected a career.  I could work for the private sector or I could work for the government.  He said that the government workers were pretty much guaranteed that they would not lose their job and they had a really good pension plan but that was offset by the fact that they were not paid as well. 

Little did he know how things would change.  Now they have job security, a good pension and are paid better.

TheHill.com reports that "the Congressional Budget Office found Monday that federal workers are compensated 16% more than comparable private-sector workers on average. ... For those with only a high-school degree, workers earned 21% more and were given benefits worth 72% more than in the private sector."  For federal workers with a college degree, "wages were about the same but benefits were 46% better in the government."  According to the story, "President Obama's 2013 budget request, due to be sent to Congress on Feb. 13, will ask for a 0.5% cost-of-living raise for workers."

To read more of this article: READ MORE

STATUTORY EMPLOYEE

Q: Hello, I am a sales consultant and I am on the road calling on customers. The company I worked for the last few years was bought out by a larger company. Prior to being bought out I was always treated as a statutory employee. When receiving our w2’s just a few days ago, we are not statutory employees. Does this mean we will owe a lot more in taxes? I really appreciate some information. Thank you.

A: This certainly is an issue for you. To give you the simple answer to your question: if you have a considerable amount of unreimbursed employee business expenses you are most likely going to pay significantly more in taxes. Having said that, all situations are different so to give you an accurate answer I would have to see your numbers.

Here is the deal. If you are a “statutory employee” your business deductions are deducted in determining your Adjusted Gross Income (bottom of page one of the 1040). You have been most likely filing a Schedule C to report those deductions. As an regular employee (non statutory) your employee business expenses are considered itemized deductions reported on schedule A.

What’s the difference you might ask? Well there are two differences. First employee business expenses are considered miscellaneous itemized deductions and therefore are only the amount greater than 2% of Adjusted Gross Income is deductible for regular tax calculations. Secondly, and the big thing, is that Miscellaneous Itemized Deductions are not deducted for Alternative Minimum Tax purposes. In other words, most people in that situation get no tax advantage from their employee business expenses.

I hope that this was helpful.

With normal disclaimers because I do not know your particular situation. Contact your tax advisor in order to determine how this impacts you personally

I WON A $55,000 FORD MUSTANG

Recently I was talking to an acquaintance of mine who’s tax work I am not involved with. I congratulated him on the hole in one that he had and the $55,000 Ford Mustang that went along with the ace. He said he talked to his tax guy and he realizes this will be taxable to him.

He said, “Because I won this car, I’m looking for all the deductions I can possibly get.”

I thought about his comment for a second and then I asked him, “Shouldn’t you always be looking for all the deductions you can get?”

He looked at me and said, “You know you’re right.”

The lesson here is the fair market value of the car that he won is going to be taxable to him. This will be ordinary income so if he’s in a 25% tax bracket plus a 7% state bracket, his income tax will be roughly $17,600. In addition to this, he has to buy license plates, pay property tax on the vehicle, plus the insurance. It’s still a good deal but at the same time there are some taxes involved.

But the real lesson to be learned is even if you don’t hit a hole in one and win a vehicle, you still should try to take all the deductions that are allowable.

S CORPORATION REASONABLE COMPENSATION

It seems that lately the IRS has been challenging owners of S corporations stating that their compensation is too low and reclassifying distributions (which are not subject to Social Security and Medicare tax) to wages. At a 15.3% rate this can get expensive. The key is to show that your wage is reasonable.

Here are the 5 factors that the courts look at:

1. The employee's role in the company
2. External comparison with other companies
3. Character and condition of the company
4. Potential conflicts of interest (The hypothetical independent investor)

5. Consistency in the compensation

DEADLINE COMING UP FOR FLEX PLANS

A deadline for many flex plan participants is coming up.  The 2011 set-asides must be used by March 15 if the plan uses IRS’ 2½-month grace period.  Any funds left over are forfeited. The deadline for other FSAs was Dec. 31, 2011.

Remember that after this year, the ceiling on FSA set-asides will drop to $2,500.

THE IRS WARNS OF REFUND DELAYS

Last week the Internal Revenue Service warned that tax refunds could be delayed a week this tax season because of new anti-fraud safeguards.

“The IRS has opened its filing season successfully this month, and refunds have started going out to many taxpayers,” the agency said in an email to tax professionals. “As with the start of any tax season, there are system validations that occur requiring some fine-tuning of our systems. As part of this, some taxpayers will receive refunds approximately one week later than initial projections they may have received, but these are still in line with historical refund delivery times.”

The IRS noted that the one-week delay is related to the fine-tuning of IRS systems to adjust for new safeguards that were put in place this tax season to provide for stronger protection against tax refund fraud. The agency has come under heavy criticism for the increasing number of identity theft cases related to tax refunds, and it recently added more stringent measures.

The IRS said it is providing additional screening for fraud this year before issuing refunds, but the vast majority of taxpayers can still continue to expect to receive their refunds in a timely fashion.

The IRS also noted that the refund time frames provided by the “Where’s My Refund” tool on its Web site are projected time frames and are subject to revision. “Many different factors can affect the timing of the refund after the IRS receives the return for processing,” said the agency. “The IRS apologizes for any inconvenience caused by the revised refund dates.”

The IRS promised that the delay only affects some early filers, and taxpayers whose returns were accepted by the IRS on or after January 26 would not experience the delay.

I CAN’T GET A W-2, NOW WHAT DO I DO?

Q.  A company that I worked for is now defunct and I don’t expect to get a W-2.  What do I do?

A. The short answer is file your return with a Form 4852, Substitute for Form W-2, Wage and Tax Statement.

Here is what is on the IRS web site dealing with your problem. 

 If you haven’t received your W-2, the IRS recommends that you follow these four steps:

1. Contact your employer  If you have not received your W-2, contact your employer to inquire if and when the W-2 was mailed.  If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address.  After contacting the employer, allow a reasonable amount of time for them to resend or issue the W-2.

2. Contact the IRS  If you do not receive your W-2 by Feb. 14, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, Social Security number, phone number and have the following information:

•  Employer’s name, address and phone number

•  Dates of employment

•  An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2011. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.

3. File your return  You still must file your tax return or request an extension to file by April 17, 2012, even if you do not receive your Form W-2. If you have not received your Form W-2 in time to file your return by the due date, and have completed steps 1 and 2, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible.  There may be a delay in any refund due while the information is verified.

4. File a Form 1040X  On occasion, you may receive your missing W-2 after you file your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

Form 4852, Form 1040X and instructions are available on this website or by calling 800-TAX-FORM (800-829-3676).