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It’s been a while since we issued our last newsletter. On record, this has been a bear of a tax
season due to the last minute tax laws passed in the fiscal cliff legislation early in the year. This caused
two problems for tax preparation. 1) Since the laws were passed in January, the IRS could not
reprogram their computer systems in time for the normal filing year and some forms affected by the
retroactive provisions of the legislation could not be filed till March. 2) To add insult to
injury, banks and brokerages were affected by new and evolving reporting requirements. Many 1099
forms were either issued late or corrections were issued late into the filing year. On the personal
side, adjusting to our larger family has been a challenge too. Our two “wild and sweet” boys we
adopted add a lot of entertainment to our lives, but the first year of adjusting to America, a new
school and a new language is a daunting task. Our sons have transformed in the 9 months they have
been with us. Joe is now a “Football Dad” which has its benefits in football crazy Nebraska!
***** Travelers Conference *****
For our healthcare traveling clients, do not forget the upcoming 6th annual Travelers Conference
(www.travelersconference.com ) on Oct 28-29 in Las Vegas. We are expecting over 300 attendees. The
conference is a wonderful opportunity to network with other travelers and get the lowdown on the
***** Audio Teleconferences *****
Our next Audio Teleconferences are posted on our website www.traveltax.com . This is a great
opportunity to mail down a tax question or refresh your understanding of the tax laws in the
industry. The next audio teleconferences are (all CST):
Tuesday October 8 at 2pm Saturday November 2 at 10am Tuesday December 3 at 7pm
***** Join Us in Welcoming Our Newest Staff Member *****
Many of you know our wonderful office manager Kristina. She has been the voice of TravelTax for
almost 4 years. She is leaving to take a full time bookkeeping position at a busy accounting firm in town.
Our new Office Manager is Latrice Stark. Latrice has a background in both healthcare and business
administration which fits nicely into our world. She will be with us at the Travelers Conference so
make sure to introduce yourself at our booth.
***** Affordable Care Act and Open Enrollment *****
In October, open enrollment for the health insurance exchanges will kick in and all individuals
will be required to carry “minimal essential coverage”. The requirement to carry health insurance
is essentially a head tax as ruled by the Supreme Court. To prevent the tax from causing
significant hardships, those individuals at 400% or less of the poverty rate will receive some form
of subsidy. To see if you are eligible for a subsidy, use this link and plug in your figures
If you benefit from a subsidy, it could result in a higher income tax in subsequent, higher earning
years. The amount of the subsidy will be calculated using income reported on the previous year’s
tax return. If earnings increase significantly the following year, an additional tax will be
assessed to recoup the excess subsidy. For many healthcare travelers, taking a permanent job could
trigger this. There plenty more to say about the ACA and its effect on the tax returns.
Also, individuals who earn over $200,000 will pay an additional 0.9 percent Medicare payroll tax on all income over $200,000 in addition to the 1.45% Medicare tax. For couples, the threshold is $250,000. If that is not enough, the same thresholds apply to investment income. The Net Investment Income Tax (NIIT) is a new 3.8% tax on net investment income of individuals, estates and trusts.
***** Federal Tax Treatment of Same Sex Marriages *****
Recent changes in Treasury Regulations allow same sex couples, who have been married under state statutes recognizing such unions, to file married/jointly on their Federal return. It further allows the couples to amend all open year returns to elect joint filing status. Open years include 2012, 2011, 2010 tax year returns. 2009 returns can be amended until October 15, 2013 if an extension was filed in the 2009 filing season. It is also possible to amend a return that was audited and settled within the last two years. Civil Unions, and Registered Domestic Partnerships do not fall under these rules and there are various states that restrict the filing status to the one claimed on the Federal return.
***** States Continue to Pursue Residency Assessments ******
We cannot say enough about state revenue agencies “assuming” residency with the smallest shred of evidence. Just having a W2 sent to a Missouri address will get Missouri going after you. (True story -taxpayer neither lived nor worked In the state!). Make sure your mail delivery is consistent!
***** Audits of Healthcare Staffing Agencies Still in Play *****
We are aware of 16+ healthcare staffing agencies that have been subject to audit and many are not closed out yet. These audits may impact travelers in various ways in the future.
***** IT Professionals – Beware of Telecommuting Income Sourcing *****
Individuals that telecommute for firms located in New York, Pennsylvania, New Jersey, Delaware and Nebraska are taxed as if they are physically present in that state. New York is notorious for enforcing these rules, but the others are not so aggressive. Our next research project will focus on these states, whether they are active in enforcement and if they honor the same arrangement in other states
Given the vast amount of information on the last newsletter we figured that splitting the news into two messages would be better.
**Foreign Tax Issues
US citizens are required to file a an annual tax return regardless of where they live and report any interest in foreign financial accounts of more than 10K in the aggregate. Late in 2012, the IRS began making this easier by only requiring 3-6 years of filings without penalty so long as the liability was less than $1500. This provision includes Canadians living in the US that hold RRSP’s in Canada
**Medicare and Net Investment Surtax
For singles making more than 200K or joint filers making more than 250K, the new 0.9% Medicare surtax on wages goes into effect. Utilizing pre tax deferrals increases again in value. The same thresholds apply to passive income for the new 3.8% surtax
Those working in California need to be careful about your state tax filing. CA has a “Demand for Return” penalty of $2500 that is applied to any taxpayer that receives a request for a return that does not file. This penalty is applied regardless of whether the taxpayer has a refund.
**Electronic Filing Delayed
The IRS announced that it will begin accepting returns on January 31. This is still almost a week delay from the normal cycle all due to Congressional procrastinating.
**Electronic Filing for Old Years
You can now electronically file returns from 2010 and 2011 under a new system put in service by the IRS
**New tax got you down?
Have you noticed the change in your paycheck? That’s the 2% increase in Social Security tax that ALL taxpayers are subject to (not just the rich). For those making 50K, that’s 1K less in your pocket. How do you counter? There are a few ways to do that: increase contributions to your 401K, utilize pre tax benefits, review your insurance policies etc. Sometimes, working on your spending gains more than worrying about the taxes J
**Audits of Staffing Agencies affecting travelers
Look for our article in the February edition of HealthCare Traveler concerning the audits of staffing agencies. A number of things are showing up in agencies reimbursement policies:
1) Certain agencies are auditing old tax home forms from traveler files and restating W2’s
2) Requiring work at home every 1 to 2 years
3) Requiring 45 days at home every 2 years
4) More involved tax home declarations
5) More traveler audits. Travelers misrepresenting their tax home status and trying to “stay under the radar” by filing a simple standard deduction return doesn’t change the risk any longer.
At the same time, some companies never learn the lesson. Recently, another agency began marketing its tax advantage program as a way to increase salary. Not a good sign for the healthcare staffing industry.
**Travelers Conference Date Set
Join us again this year for the 5th annual Travelers Conference October 28 and 29 at the Las Vegas Flamingo. We hope to build on the resounding success of last year’s meeting!
TravelTax Newsletter – Fiscal Cliff and new Taxes
Happy New Year!
We waited quite a while to send another newsletter due to the pending congressional stalemate. A lot of changes are in store for everyone for 2013 and after a quick read of the new 157 page bill this morning, a synopsis follows below:
First, let’s get some administrative and 2012 news out of the way.
Joe and Daina finalized their adoption in December. They spent a month overseas in Lithuania and brought home two very active boys. We appreciate all of our clients that were patient with us during Joe’s absence. All of December has been a transition period for Deividas and Laurynas. Daina speaks Lithuanian and with her constant switching back and forth between English and Lithuanian, do not be surprised that she answers the phone in Lithuanian by accident J
*** Last minute tax laws will delay IRS and state processing of tax returns
Don’t count on getting your refund earlier by filing early. With congress waiting to pass tax laws this late and new IRS security measures, refunds and some return processing will be delayed. Electronic filing may have to wait till the middle of February according to some IRS staff.
*** New Social Security Earnings Limits
This year the 6.2% Social Security tax ends after earnings of $113,700
***We are ready for your tax data at any time
The workbook is available on our website. If the year still reads 2011, just ignore it that is just a delay in changing the form
We will be broadcasting out teleconference schedules on Friday along with any live seminars. Due to Joe and Daina’s new arrivals, live seminars will be limited.
***Fiscal Cliff Averted, but tax hikes arrive for all
The following is a synopsis of the new tax bill. Most of this affects 2013, however, it changes some tax provisions that we have grown accustom to the last few years. Many of the breaks that were continued were only extended for one year, leaving us with another showdown in December 2013.
***Payroll tax increase – reverts to old rate
For the last two years, the Social Security tax has been 4.2%, 2% less than the traditional rate of 6.2%. This was part of the stimulus package ushered through by the Obama administration. Beginning January 1, 2013, the rate returns to 6.2%. Call it a tax increase if you want, but it is an access the board 2% additional amount for everyone. Incomes of 50K will see a $1K tax increase, a $2K increase for incomes of 100K and so forth. A family with spouses earning 100K a piece will see their tax rise $4K. This makes salary reduction benefits like health savings accounts, dependent care savings accounts and all pre tax benefits more valuable.
*** Tax Exclusion on foreclosures and short sales
It has been a long time since we sent out a newsletter. Almost 8 months. Immediately after tax season, Joe’s mother, who was living in South Carolina had a heart attack, and after a quick recovery made the decision to move to Nebraska. Joe and his wife spent the entire month of June and parts of July getting her moved and settled. She now lives two blocks from them and it has been a great relief to have her near. If her move was not enough, five days after she announced her desire to move, Joe and Daina received a referral on the adoption that they had been working on for many years. Lord willing, Joe and Daina will be bringing home two boys this December from Lithuania!
We have a lot to say and we will break this up into bite size newsletters
Travelers Conference is next week – Don’t miss it
The fifth annual Travelers convention will be held next week in Las Vegas the 18th and 19th of October. A link to the conference website can be found on our home page. Over 200 Travelers have registered for this year’s program and it promises to be the best ever. Joe will be bringing the annual industry update to the audience as well as some significant tax developments that affect travelers. Prior to that, Joe will be speaking and exhibiting at the Healthcare Staffing Summit.
Major tax changes in store if Congress does not act soon
A number of tax credits and deductions are set to expire at the end of the year that could cost the average middle-class taxpayer over $2000 annually in additional taxes if Congress does not act on these expiring provisions. It is incredibly difficult to help clients plan with such uncertainty and we can potentially have one of the most chaotic tax filing season’s in 2013. Any last-minute changes to the tax laws could force the IRS to reprogram their software and delay the acceptance of tax returns. This will also delay refunds. Many travelers may want to think about filing extensions in anticipation of these issues.
The Mobile Workforce State Income Tax Simplification Act of 2012 (S. 3485), was introduced in the U.S. Senate on August 2, 2012 by Senator Sherrod Brown (D-OH). The bill was referred to the Senate Finance Committee. The purpose of the bill is to limit the authority of states to tax certain income of employees for employment duties performed in other states. The Senate version of the legislation, like the version passed by the House of Representatives, provides that a state, other than the state of an employee’s residence, may only tax employees that travel to the “nonresident” state to perform employment duties if the aggregate number of days of employment in the nonresident state during the calendar year exceeds 30 days. Employees traveling to a nonresident state for fewer than 30 days would have no income tax liability in the nonresident state, nor would the employer have a withholding obligation. However, once the 30-day threshold has been reached for the calendar year, the employer would have income tax withholding and reporting obligations for wages earned during all days of presence during the tax year. Under the legislation, the term “employee” does not include a professional athlete, professional entertainer, or certain public figures.
Tax Relief for Hurricane Victims
The IRS has provided relief for those affected by hurricane Isaac in Louisiana and Mississippi
IRS Issues Revenue Ruling 2012-25 affecting Healthcare Staffing Operations
The IRS recently issued Revenue Ruling 2012-25 which addresses wage recharacterization in the staffing industry. As many of our clients know, the IRS has been auditing at least 12 healthcare staffing firms and apparently there are many more under the thumb. Staffing agencies in other industries have also been audited. The presence of extremely low wages in comparison to extremely high per diems is one of many issues of audit focus along with the due diligence that the employers exercise in assessing the tax home of the employee. One staffing agency is considering reissuing W-2s six years back for employees that are unwilling to provide receipts. The statute of limitations for audits is three years from the due date or filing a return. If the taxpayer has understated their income by 25% or more, the statute of limitations is expanded to six years. If this particular staffing agency restates the earnings of their employees in the fourth fifth and sixth previous year; and the difference in their reported income is more than 25%, these employees will have significant penalties and interest on the additional taxes that will be imposed. In the next newsletter we will be providing a comprehensive review of the current audits in the healthcare staffing industry.
Video training sessions for recruiters and staffing agency staff to be released
TravelTax and Joseph C Smith Tax Consultants are developing video training presentations for recruiters and staffing agency employees. These training videos will address the basic tax laws as they apply for industry to help staffing agencies bolster their compliance initiatives in administering their reimbursement/per diem policies. The sessions will have a quiz at the end provide a certification for the individual staff. Call us if you’re interested in these presentations.
The tax filing season is in full swing now. Just a few news items to pass on.
*** Federal News
A reminder that the due date for Federal tax returns and many state tax returns is April 17 this year.
Some staffing agencies are disguising corporate housing as a tax free per diem lodging payment.
When the traveler is provided lodging per diem but the staffing agency is also providing the accommodations, the excess over the agencies housing cost is in effect, a meal allowance since it is paid under the per diem reimbursement method. The traveler could potentially receive an excess reimbursement that is taxable especially if they are already receiving a payment categorized as meals.
*** State News
State tax reciprocity rules do not always include business income
A recent West Virginia tax case involving Locum CRNA highlighted the limits of some state tax reciprocity rules. The CRNA was a resident of Virginia and worked a temporary engagement in West Virginia. The two states have a tax reciprocity agreement; however, it is limited to wages and not business income. Since many Locums are paid as independent contractors, the reciprocity agreement had no force.
States find another way to assert residency - addresses on W2's
A client received a notice from the Missouri Department of Revenue asserting full year tax residency on their earnings as reported on their federal tax return for the year in question. The client had never worked in Missouri, but during a long distance move in the beginning of the tax year, requested that their W2 to be sent to a relative's home in Missouri. This prompted the Missouri notice.
Louisiana has clarified its deduction for private school tuition.
Louisiana currently offers a deduction for tuition paid to private schools and for homeschool expenses.
Beginning this year, Pennsylvania no longer accepts the federal per diem meal rates as a deduction for meal expenses incurred during away from home business travel. Deductions for meals must be made by using actual receipts. Pennsylvania is the only state that decouples from the Internal Revenue Code in this area and every other state follows the federal per diem regulations. In reality, this has always been the rule for Pennsylvania though it has never been enforced. It also extends to truckers who are very likely to be surprised by the audit notices that will certainly come forth.
*** Other news
Remember to keep October 18 and 19th free to attend the fifth annual Travelers Conference in Las Vegas. Details can be found at www.travelersconference.com
TravelTax News for January 2012
Hope each of you had a wonderful Christmas and New Year. 2012 is underway and that means yet another tax season.
Our annual tax workbooks are ready for your download. If you have not been to our website in the last few months, you’ll notice a fresh look and much better organization thanks to my wife who is officially working full-time in the office. An added benefit of the workbook will be a fill-in Adobe version which should be posted by the 13th of January. This will allow you to enter information and save it randomly as you assemble your material. As always, if you have any questions along the way any of our helpful staff will be able to assist you.
***Upcoming Seminars and Workshops
A reminder about our January tax workshops and teleconferences. Our live workshops will be held in
San Francisco, January 6th and 7th
Seattle, January 8th and 9th
Fairbanks Alaska, January 10
Los Angeles, January 13th and 14th
Phoenix, January 15
Dallas, January 23
Our teleconferences will be scattered throughout January and the remainder of the tax season.
Details including times, registration and locations can be found on the first page of our website www.traveltax.com
***Federal Tax News
Presidential election campaigns no longer financed through tax returns
Have you ever noticed the little checkbox on the first page of a tax return asking whether you want to fund the presidential election campaign? That question is now a thing of the past with recent legislation.
Standard mileage rates
For 2012, the standard mileage allowance for business expenses remains the same at 55.5 cents a mile. Medical/moving expenses are $.23 a mile and charitable mileage at $.14 a mile.
Assistance for returning veterans
Employers that hire returning veterans have an expanded list of incentives and tax credits to encourage their employment. If you are returning veteran or an employer and want to find out more about these programs, the free to contact us
***State Tax News
Professional practice licenses targeted more
It all started in California-the practice of pulling a list of active professional practice licenses including nurses and physicians, and cross-referencing the list with state tax return filings. Any non-filer, regardless of whether they earned income in the state, was sent a letter asking for a tax return. If there was no reply within a certain period, a tax lien was filed based on the amount of income reported on the federal return. This practice is now extended to almost every state. We are encouraging clients to file what is known as “zero” returns in states in which they hold licenses, but do not have income. Since the “possibility” of earning income still exists, state tax agencies hungry for additional revenue are pursuing this.
New York no longer accepting federal extensions
Most states will typically accept a federal filing extension in place of their own form. Only a few states require separate extension to be filed. New York is now among those requiring a separate extension.
***Other Tax News
Staffing firms under exam
As we mentioned in our last newsletter, there are over a dozen staffing firms under audit by the IRS. We may see some additional changes in the way agencies construct their tax residence statements. One possibility is that some may require proof of mortgage payments or rent for those travelers claiming to have a tax home. A problem that industries employing mobile professionals have had all along is the lack of consistency with screening traveler’s tax homes.
State residency Issues
We have mentioned in previous newsletters that state tax departments have become very aggressive in asserting residency on anybody remotely tied to a state. States are particularly targeting those who have moved to another state but have lingering ties to the former state. It is important to note that most states assume that your residency continues until you have not only established a residence in the new state AND shut the door behind you in regards to the former state. It’s not enough simply to move but it’s equally important to sever all ties to the former residence. Otherwise the former state of residence will have adequate justification to assert residency under their domestic laws spreading their tax net over your worldwide income.
Receiving per diem for housing while the company provides the housing
One issue that is arising frequently in industries employing mobile professionals is when an employer or staffing agency provides the housing for the traveler AND pays lodging per diem, taking out their costs, and then paying the remainder the traveler tax free. This is not kosher in the eyes of the IRS. A per diem given to an employee as a reimbursement for lodging should be free of any employer involvement in the lodging cost. In other words, per diem is for the employee to use not the employer to dictate its use. When the employer is involved in the cost of lodging and pays a per diem or stipend in excess, the amount that exceeds the cost is taxable to the employee and subject to employment tax to the employer.
Another issue that is common among staffing agencies is the practice of paying a blanket per diem or allowance without allocating a portion to meals. Under the regulations, when an allowance, stipend or per diem is less than the published rates, 60% of the payment is deemed to be for lodging and 40% for meals. Since meals are only 50% deductible to the individual and employer (absent rare exceptions), allowances cannot be held out as 100% deductible payments. An employee’s tax return is also required to reflect this allocation.
Would you like to work as a state tax auditor in California?
There on a hiring binge right now. The qualifications are listed below- notice, no experience is required
The California State Auditor is seeking motivated candidates who already have or are within a year of graduating with a degree in accounting, business, finance, economics, or MPA/MPP/MBA/JD graduate degrees. Candidates must have strong analytical and writing skills and a desire to be challenged. No experience is required; we will train you”
Remember to mark your calendars for October 18 and 19th, 2012 and attend the fifth annual Travelers Conference in Las Vegas. Details can be found at www.travelersconference.com
The filing deadline for the 2011 tax year is April 16, 2012 since the 15th falls on a Sunday.
With the emergence of 2012 a number of tax provisions have expired. Congress will be quite busy this year deciding which one of these to keep as many of them are popular tax deductions. A list of these can be found at http://schweikert.house.gov/News/DocumentSingle.aspx?DocumentID=273435
**Federal Tax News
IRS to expand audits to include additional years
When the IRS exams a return, they most often focus on one tax year. A recent review by the Treasury Inspector General suggested that the IRS should be more diligent and expanding audits to multiyear examinations to allow the examiners to pick up on patterns of noncompliance that are better found over a multiyear period than an isolated one.
High/low method of per diem payments spared
Previously, the IRS declared its intention to end the alternative per diem payment system known as the high/low method. This method allowed employers to use two rates of per diem payments for lodging and meals as opposed to the multiple rates presented in the per diem tables. Due to input from various business organizations the IRS decided to keep the alternative method in late September. Reference Revenue Procedure 2010 - 39
Will health clubs receive tax breaks?
A bill presented before the House of Representatives would allow employers to deduct the cost of health clubs for their employees.
Construction of storm shelters may get a tax break
A recent bill introduced in the House of Representatives would provide a $2500 tax break to individuals who build storm shelters. With the rash of tornadoes and violent weather this is become a concern of some legislators.
**State Tax News
State residency issues
As a reminder, when moving from one state to another or to another country, it is a very important not only to establish the new residence but also to close the door behind you. Any legal ties such as a driver’s license, car registration or a professional practice license where the addresses listed is in the old state can trigger a tax audit, or an assessment asserting residency and tax liability on worldwide earnings.
Healthcare, IT and other staffing agencies under audit
We are aware of over a dozen staffing agencies that currently are undergoing an IRS exam. The focus of these exams are centered on the due diligence that staffing agencies exercise when evaluating the tax home status of the employee. Many of these tax home declarations are not objective enough to pass IRS muster and often have suggested statements regarding 50 mile rules, or break in service rules that have no foundation in the tax code. Auditors are also looking at many of the low wages in the industry.
The IRS is also aggressively pursuing employee classification issues regarding independent contractors. This is a huge problem in staffing industries especially regarding certain professions that clearly cannot work as independent contractors. For many professions the only legitimate way to work for oneself in similar substances to a self-employed individual and independent contractor is to incorporate. This provides a layer between the payer and payee allowing the transaction to be treated as a Corp. to Corp. payment.
**Recent Tax Court case favors travelers
A recent Tax Court decision (Lyseng v Commissioner TC Memo 2011-226) involving a nuclear reactor maintenance temporary, was not only favorable to travelers but shed light on the basic rules regarding tax homes for temporary/traveling employees. The case involved a gentleman who was a contract laborer working maintenance jobs at various nuclear power plants across the nation. The individual did not have a primary place of income and went from job site to job site based on availability. He kept a home in northern Minnesota where his family resided and he had significant expenses in maintaining this home. The IRS attempted to label him as an itinerant without a tax home but since he had significant expenses in keeping his primary residence during the time in which he was away on temporary jobs, his tax home was deemed to be his principal residence. This is a good reminder of how tax home determinations affect mobile professionals across all industries. A tax home by definition is where you earn your money, not where you live. For the vast majority of individuals this is very easy determination. Whether you drive 1 mile or 100 miles to get to a main, permanent job, the location of that job is the tax residence. However, there is an exception to this rule that allows an individual’s tax home to default to the place where they maintain a home provided they meet 2 out of 3 of the following criteria:
The vast majority of travelers will qualify by meeting criteria two and three since few travelers actually maintain jobs at home. Even though they meet these criteria, the facts and circumstances of the remainder of their activity are critical. If the permanent residency times, i.e. driver’s license, car registration etc., are not consistent with the tax home claim, chances are this would result in adverse audit. In the Lyseng case, the individual was very diligent in maintaining these ties. Although the taxpayer in the Lyseng case won his tax home claim, the majority of his deductions were disallowed because he did not keep any records or receipts.
Let me extend my apologies for the lateness of this newsletter. My father died in May. Being an only child and having a mother with stage 5 Alzheimer’s makes for the perfect storm of planning and settling of affairs. Getting mother into an environment appropriate for her condition and taking care of their home will take most of the summer. My thanks to each client that extended their patience during this time.
Upcoming Travelers Conference
For traveling medical professionals, remember to mark your calendars for September 26 and 27 to attend the 4th annual Travel Medical Professionals Conference in Las Vegas. Details can be found on their website at www.travelersconference.com
Our website has been updated to include our summer and fall teleconferences. During the tax off-season, these are held monthly. These teleconferences are great opportunities for new or relatively new travelers trying to clarify the tax laws that apply to their situation. The teleconferences cover the basics of tax homes, multi state taxation, and per diems (tax advantage). There is plenty of time for questions during these presentations. The next teleconferences will be held on July 6, August 2, September 6, and October 4.
Here is the latest tax news…………
*** Federal Income Tax
Starting with 2010 tax returns, taxpayers must submit documentation with their tax return to claim the adoption credit. Copies of adoption-related documents must be attached to the tax return and mailed to the IRS for processing
Multi state Income Tax Act
Senator Coble of North Carolina has introduced a bill entitled the ‘‘Mobile Workforce State Income Tax Simplification Act of 2011”. This bill would directly affect travelers and individuals who work in more than one state preventing the work state (versus the state of the residence) from taxing wages earned within its borders if that individual spent less than 30 days in that state.
President Signs 1099 Repeal Bill President Obama signed a bill repealing the Form 1099 reporting requirement (part of the 2010 health care reform bill) as well as the rental property Form 1099 reporting requirement (part of the 2010 small business jobs act
IRS to consider giving Innocent Spouses more time to file claims
Many Innocent Spouses are unaware of their spouse’s fraudulent activity till well beyond two years. If this were to change it would bring a lot of fairness to rule
The annual caps on deductible contributions to HSAs will inch up in 2012. The ceilings will increase slightly to $6,250 for an individual with family coverage and to $3,100 for self-only coverage. Folks born before 1958 can put in $1,000 more. Limits on out-of-pocket costs, such as deductibles and copayments, will also rise to $12,100 for persons with family coverage and to $6,050 for individual coverage. Minimum policy deductibles will remain at $2,400 for families and $1,200 for singles
The IRS will increase its scrutiny on rental properties in the coming years. A random audit revealed a plethora of abuses in deductions and depreciation
*** State Income Tax
Federal courts have upheld an Arizona tax credit for contributions to school tuition organizations. These organizations included church related educational institutions
Arizona House Passes Flat Personal Income Tax Bill On March 14, the Arizona House passed H.2636, a bill that would incrementally reduce Arizona individual income tax rates beginning in tax year 2013 and provide a flat 2.08% tax rate for all filers beginning in tax year 2015
Colorado Tax Amnesty Bill Introduced
A new bill establishes a tax amnesty program that is similar to the tax amnesty program the state conducted in June 2003. The tax amnesty program would be conducted during August and September, 2011, and apply to taxes for which a return was required to be filed before December 31, 2010. Eligible taxpayers who owe specified taxes are able to report the taxes owed and pay such amount plus half of the interest owed thereon or enter into an agreement with the Department of Revenue to pay the taxes and all interest owed. A taxpayer who pays the full amount owed pursuant to the tax amnesty program would not be subject to any fines or civil or criminal penalties.
In a press release, the Louisiana Department of Revenue reminds taxpayers of the personal income tax deduction for the cost of eligible school-related expenses. The deduction is for 50% of the cost of eligible expenses, with a maximum of $5,000 per student. The deduction, also allowed for home-schooled children, can be claimed on the taxpayer’s tax return. The department adds that additional information can be found on its website at www.revenue.louisiana.gov/schooldeduction.
Minnesota Gov. Mark Dayton announced that he will propose asking wealthy Minnesotans to pay higher taxes in order to help solve the state's current fiscal crisis.
A bill, introduced in the Minnesota Senate, requires the commissioner of revenue to establish a period of two months in duration, ending no later than October 31, 2011, to administer a tax amnesty program.
New York Tax Amnesty Bill Introduced
A bill has been referred to the New York Assembly Ways & Means Committee. The bill authorizes the Department of Tax and Finance to implement a tax amnesty program to bring in delinquent taxes more quickly and to provide needed revenues for the state. The amnesty program is generally applicable to tax liabilities for taxable periods ending or transactions or uses occurring on or before December 31, 2007.
Legislation introduced in the North Dakota Senate that would reduce personal income tax rates has passed the Senate and has been referred to the House of Representatives.
The Governor announced that the revenue estimates certified by the State Board of Equalization (Board) for the 2012 fiscal year were enough to enact the income tax trigger under 68 O.S. §2355.1A, meaning that the top Oklahoma personal income tax rate will drop from 5.50% to 5.25
Oregon Tax Amnesty Extension Bill Signed into Law On April 14, Oregon Governor John Kitzhaber signed S.305. This law allows the Department of Revenue to extend beyond May 31, 2011, the time for a taxpayer to make payments under an installment payment agreement in accordance with the state's tax amnesty program.
The Wisconsin Senate has passed a bill that would generally require a super majority for passage of tax rate increases under the sales and use, personal income, and corporation franchise and income taxes.
*** Corporate Income Tax
Florida Gov. Rick Scott has announced his budget recommendations for fiscal years 2011-12 and 2012-13, which include the elimination of the corporate income tax by 2018 as well as property tax reductions.
Washington A bill was referred to the Ways & Means Committee in the Washington House of Representatives on March 23. The bill would replace the state business and occupation (B&O) tax with a flat-rate corporate income tax of 7%, beginning January 1, 2013. Combined reporting would be required under the proposal, which would also eliminate local B&O taxes.
As always, if you have any questions on these or other topics, feel free to call us
Since our last newsletter, we have received a number of messages asking for clarification on the payback provisions of The Home Buyers Credit.
When the First Time Home Buyer Credit program started in 2008, it was crafted as an interest-free loan of $7500 to be paid back over 15 years in installments of $500 a year through an additional tax applied to the tax return. These conditions apply to any home purchased in 2008. Subsequently, Congress changed the law to allow an $8000 credit for first-time home buyers and a $6500 credit for long-term homeowners who bought another principal residence. Neither of these subsequent credits are required to be paid back except for early dispositions. The new provisions applied to homes purchased in 2009 and 2010.
There are additional provisions for payback should you sell or dispose the home. These are as follows:
***The $7500 Credit for Homes Purchased in 2008
The payback provisions apply to the entire 15 year period in which payback is required. If you sell the home at a gain, you are required to repay the credit up to the amount of gain. If you sell the home at a loss, no repayment is required. If the home was destroyed and you purchase a replacement home within two years, you simply continue to repay the credit for the remaining part of the 15 years. Additionally, if the home ceases to be your primary residence – say it’s converted to a rental or you purchase another one as your primary residence, then the credit must be paid back.
Below is a link to the IRS web site addressing the credit for 2008 purchases.
****The $8000/6500 Credit for Homes Purchased in 2009 and 2010
For homes purchased in 2009 and 2010 the payback rules are slightly different. A repayment of the credit is not required if you continue to use the home at least 36 months after purchase. For involuntary conversions such as death, no repayment is required.
Tax reporting season is now in full gear yet the IRS continues to tweak its computers for itemizes and others affected by Congress’ last-minute tax changes. As mentioned in the last newsletter, those returns will be stockpiled until the IRS is ready to receive them.
*** Company News
Rest from Our Journeys
We concluded our whirlwind tour of the west with our workshops in Dallas, Austin, Phoenix, Los Angeles, San Francisco, Seattle, and Anchorage. Thanks to each of you that came out and saw us!
Our Do-It-Yourself Online Tax Filing Is Available
On the left side of our homepage is a link to our completely online filing site. This is for do-it-yourself ers who do not require assistance or any technical support. The program does guide you through a question and answer series.
*** Federal Tax News:
Reporting of Capital Gains and Losses
This affects the 2011 reporting season (when we file returns and 2012), but brokerage firms will now have to report actual gains and losses on certain trades of securities to the IRS. This can create some misreporting if some of the securities were transferred from another brokerage firm, when one sells partial lots of securities purchased at different prices, and with other situations. Many will receive letters from their current brokerage firms outlining their procedures for these types of situations.
Worker Classification and Fringe Benefit Audits
The IRS is in the midst of a three-year program auditing worker classification. The term “worker classification” refers to the practice of treating a worker as either an employee or an independent contractor. The IRS estimates that a large amount of tax revenue is lost in these misclassifications. They are also looking into fringe benefits and the entire spectrum of payroll items.
It's Payback Time for the First-Time Home Buyers Credit
The IRS is notifying taxpayers who purchased homes in 2008, 2009 and 2010 about the first-time home buyer credit. There are different IRS letters depending on when the taxpayer purchased the home. For taxpayers who purchased a home in 2008, the letter will include the repayment schedule for the credit and instructions on how to fill out Form 5405. The letters will also discuss what happens in the event of a sale or a change in the use of the home.
The IRS Has an App for That!
The IRS released IRS2GO, its first Smart phone application that lets taxpayers check on the status of their tax refund and obtain helpful tax information. This application is available for download on Phones and Androids.
The 1099 Mandate Continues to Survive
Congress has an entire year to get rid of this ridiculous provision in the healthcare law. The provision requires any payments of $600 or more to be reported to the IRS absent some exclusions. This means anybody owning a business will have to provide a 1099 to people like snowplowers, landscapers and others that they pay more than $600 to in the year.
Consider Investing in Small Business Stock
The zero capital gains tax is currently applicable to qualified small business stock issued after December 31, 2010, and before January 1, 2012, and that is held for more than five years. The temporary tax cut was established by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.
New Web site for Downloading IRS Transcripts
The IRS has added a page to its web site for individuals wishing to obtain free return transcripts and account statements for the last three years. This can be found at:
House Votes to End Taxpayer Funding of Presidential Elections
Remember those little checkboxes on your tax return authorizing three dollars of your tax liability to fund presidential elections? Under a new House bill, that will be eliminated. It's estimated that only 7% of the population actually check the box. The cost savings from the federal government getting out of campaign financing for presidential elections is estimated to be 617 million.
Tax Credits for Electrical Vehicles May Become Rebates at Purchase
President Obama will propose to replace the existing $7,500 tax credit for electric vehicles with a rebate immediately available to consumers at the time of purchase. The consumer rebate proposal is similar to the "Cash for Clunkers" program and will be included in the president’s fiscal year 2012 budget, noted Vice President Biden in announcing the incentive on January 26.
The proposal aims to spur the purchase of electric vehicles because "you don’t have to wait until tax time" to receive the rebate, Biden said in remarks at Ener1, Inc., an advanced electric battery manufacturer in Greenfield, Indiana.
State Tax News:
Illinois Legislature Passes Tax Increase
The Illinois legislature approved a 66 percent increase to the state personal income tax less than 12 hours before the new legislature was set to be sworn in. Individual income rates will temporarily increase from 3 percent to 5 percent. The corporate income tax rate will increase from 4.9 percent to 7 percent. Both changes are effective immediately and are estimated to bring in more than $6.8 billion annually to the state. The tax increase will be coupled with a strict 2 percent limit on spending growth. If state officials spend above those limits, the tax increase will automatically be cancelled. The extra revenue will be used to help aid the state budget deficit, which is approaching $15 billion this year. The bill now moves to Governor Pat Quinn's (D) desk for his signature, where it is likely to be signed. The massive tax increase has prompted the Wisconsin governor to publicly encourage Illinois companies to relocate north to Wisconsin. The last-minute law on the last day before the new representatives were sworn in was not well received.
Meanwhile in New Jersey…
In his first "State of the State" address, New Jersey Governor Chris Christie (R) called for "comprehensive tax reform" for business and personal income taxes, and said his 2012 fiscal year budget would not include any tax increases. The Governor said that the state needs to reform the taxes placed on businesses and individuals and begin to roll them back. Governor Christie said he will propose the initial installment of a reform package in his budget, which will be presented next month.
California Decouples from the Healthcare Law
The Patient Protection and Affordable Care Act signed by the President in March of 2010, requires employee benefit plans that provide coverage for family members to cover the employee’s adult children under the age 27 whether or not they qualify as dependents for tax purposes. The requirement is effective for plan renewals beginning on or after September 23, 2010. The Act also amended federal income tax laws to exclude the value of an eligible adult child’s medical coverage from the taxable income of the parent-employee.
California law has not been amended to conform to the federal income tax rules that exclude the value of the medical coverage provided to adult children from California gross income. For California income tax purposes, any amount paid on behalf of an employee for such added coverage is excluded from federal, but not California taxable wages.
More state tax increases:
Idaho Considers Taxing Services
A new Idaho bill would extend imposition of sales tax to categories of services that have always been excluded in the state, including professional, personal, business, construction, transportation and repairs. The bill would lower the sales tax rate from 6% to 5%.
Nebraska Bill Goes after Non-filers, Under-reporters, and Non-payers of Taxes
A new bill in Nebraska would allow the Department of Revenue to procure products and services to develop, deploy or administer systems or programs that identify non-filers of returns and under-reporters or non-payers of taxes administered by the department.
Until the next newsletter, stay warm!
*** General news
We have posted three additional in- person tax workshops on our web site.
Dallas, January 26
Austin, January 27
Phoenix, January 28 and 29
This adds to the existing schedule of workshops in San Francisco, Seattle, Los Angeles, and Anchorage for January 2011. Whether you are a current / prospective client or simply want additional information, we would love to see you in our meetings.
*** Federal news
More nuances of the recent tax legislation:
As tax professionals wade through the lengthy bill passed at the end of December, there were some surprises to note:
1) Marriage penalty relief was extended through 2012, however this is not true for the 25% tax bracket though the standard deduction is still double that of a single individual.
2) The additional deduction for new car purchase sales tax was not renewed
3) The additional standard deduction for real estate taxes was also not renewed. A taxpayer can still itemize real estate taxes when they have sufficient deductions. However, if a taxpayer does not have enough deductions to itemize they cannot add real estate taxes paid to the standard deduction like they could in the 2009 tax year.
This will be a late tax year:
Since the recent tax legislation was passed so late in December, the IRS will not have time to tweak its computers before the traditional electronic filing commencement date of January 17. Anyone who itemizes deductions, claims The Higher Education Tuition and Fees Deduction; or Educator Expense Deduction will have to wait until mid-February to late February to file their returns. Additionally, the filing deadline will be April 18 due to local holidays and the subsequent weekend occurring on April 15.
One very good break for self-employed individuals
The deduction for health insurance premiums for self-employed individuals will no longer be separated from normal business expenses. Self-employed individuals who buy health insurance for themselves, spouse or their dependents will be able to deduct the premiums directly from business expenses. This will save approximately 15.3% in taxes on the amount of the premiums. In the past, these premiums simply reduced taxable gross income but now they reduce income for self-employment tax as well.
*** State news
Has initiated a filing requirement for small, nonprofit, tax exempt entities. “Small” is defined as any entity with gross revenues of $25,000 or less a year. These operations will be required to file a very short version of a tax return but more importantly, failure to file returns for three consecutive years will result in the loss of tax-exempt statue
Congress has finally passed the tax legislation so long awaited which extends the Bush era tax cuts of 2001. The following are highlights of the bill.
1) Popular tax cuts that have been extended for two years include marriage penalty relief, the election to itemize state/local sales tax, the deduction for mortgage insurance premiums, the $250 deduction for teacher’s expenses, and the $1000 per child tax credit.
2) Residential energy credits are extended for one year. This includes credits for exterior windows, interior windows, skylights, advanced circulating fans, hot water heaters and other items.
3) The favorable capital gains rates have been extended for two years keeping the 0% capital gains tax for certain taxpayers.
4) In place of the Making Work Pay credit which expires, this legislation will reduce the employee's share of the Social Security tax (OASDI) from 6.2% to 4.2%. A self-employed individual will only pay 10.4% versus the normal 12.4%. This is a significant tax cut and will only last for one year. For every $10,000 earned there will be $200 less tax. This benefit will be seen immediately with the first paycheck issued in the 2011 year and will affect the first estimated tax payment for self-employed individuals in April.
5) The relatively new American Opportunity tax credit is extended for an additional two years as well as the student loan interest deduction of up to $2500. Employer-provided educational assistance can now include graduate courses.
6) The Adoption Credit is refundable for the next two years.
7) The Federal Estate tax has been revived but includes a $5 million exclusion
8) Much more including business incentives
If you would like a full briefing of the entire legislation, feel free to contact us and we will send you a PDF version for your reading enjoyment over the holidays :-)
**Other Federal Tax News
Standard Mileage Allowance
Beginning January 1, the new standard mileage rates are 51c for business miles, 19c a mile for medical or moving expenses, and 14c a mile for charity. The portion of this allowance attributed to depreciation is now 22c a mile.
The IRS Learns to Tweet
The IRS has began using Twitter to share information with taxpayers and the tax professional community. Who knows if one day, they will start sending tax notices through Twitter J.
The IRS Fouls up their Use of Rebate Cards
The IRS uses Citibank travel cards that provide rebates and is supposed to allocate the rewards among the varying departments. An audit by the Treasury Inspector General found a misallocation of those rebates.
The Home Buyers Credit Renewal
On December 8, a bill to extend the home buyers credit for another year was proposed. In the current environment it has doubtful prospects.
Tax Return Deadlines
This year's tax return due date is little odd. April 15 falls on a Friday which coincides with local holiday observances in certain parts of the country. To avert confusion, the IRS has made Monday, April 18 the deadline for tax returns. However, the deadline for filing extensions remains April 15 and most state tax returns will also be due April 15. .
**State Tax News
Forbes State Tax Rankings
Forbes magazine came out with the top 10 highest tax states in the nation. Hawaii came in the worst, followed by Oregon, California, Iowa, New Jersey, New York, Vermont, Maine, Washington DC, and Minnesota. One limitation to this survey is that it focused more on upper income individuals. For lower income's, California and Iowa should be absent from this list replaced by Massachusetts and Utah.
**2011 tax season
WE ARE READY FOR YOUR RETURNS!
Our workbooks are always ready for your download and you can get started on your 2010 tax returns.
**January 2011 Seminars
We will be in San Francisco, Seattle, Los Angeles, Anchorage, Dallas, and Phoenix in January of 2011 presenting our mini-workshops on taxes for travelers. Even if your are a current client, it will be great to meet you at one of our sessions. To register, visit our web site at www.TravelTax.com . Additionally, we will hold our biweekly teleconferences starting in January through March.
**Hope each of you have a Merry Christmas and Happy New Year!
**Federal Tax News- The Coming Tsunami of Tax Legislation
Unless Congress passes some amendments to recently enacted laws, taxpayers should brace for the following:
If you pay over $600 to any one person or entity in 2011, be prepared to issue them a 1099. This potentially can include people who mow your lawn, a painter who works in a rental home or even an attorney. Efforts to repeal this in the current lame-duck Congress have failed
New Standard Mileage
Standard Mileage Rates for 2011 Announced
Beginning January 1, 2011 the standard mileage rates are:
For automobiles a taxpayer uses for business purposes, the portion of the standard mileage rate treated as depreciation is 22 cents per mile for 2011.
The full text of Rev. Proc. 2010-51 is available on NATP’s web site.
State Tax News
Chief Counsel in the New Jersey Division of Taxation published a reminder that vehicle donations are a federal deduction, but disallowed in New Jersey. New Jersey does not recognize deductions for charity.
Is starting an amnesty program for various business taxes including the Business and Occupation Tax. The “BO” Tax is a gross receipts tax on business operating within the state.
Starting in the 2010 tax year, a self employed individual can deduct the full amount of health insurance from their self employment income. This offsets the self employment tax. Wisconsin is decoupling from this provision only allowing the old deduction of half of the insurance costs.
Hope your Thanksgiving was pleasant and relaxing. After a relatively warm holiday weekend, we just got hit with our first snow of the season. You may be a lot warmer where you are today!
Our seminars for the remainder of 2010 have been posted on our web site. As usual we continue to offer monthly teleconferences with the next one scheduled for December 7.
We will be doing live and in-person workshops at the following locations:
Waikoloa HI, December 7
Manchester New Hampshire, December 13 and 14
Greenville South Carolina, December 17
In the near future, we will post our January workshops which will be held on the West Coast in San Francisco, Los Angeles, Seattle and Phoenix. We may also visit Anchorage Alaska. Later in January, we plan to hold meetings in Dallas and San Antonio. As always, the Seminars are free and there is plenty of time to ask questions. Go to our web site, www.traveltax.com and look at the bottom of the page for a listing of seminars and workshops coming up.
**Federal Tax News
Open Enrollment Periods and Health Insurance.
Most employers are going through the annual open enrollment ritual for benefits. One of the most overlooked tax breaks is the failure to use Flexible Spending Accounts (FSA’s) for health care / child care and for those with high deductible health plans, overlooking Health Savings Accounts (HSA’s) . These are accounts allow you to place pretax wages and a reimbursement account to pay out-of-pocket health-care expenditures. The average taxpayer can save anywhere from 20 to 40% owner healthcare expenditures. Often times those with Flexible Spending Accounts worry about the “use it or lose it” rules-if you spend at least 80% of the amounts in the account he will still come out better so don't worry if about a few dollars left in the account if you cannot find additional expenditures to use the funds for.
The IRS is ramping up examinations of sole proprietors looking especially at cash flows in bank accounts. A great number of sole proprietors/self-employed individuals fail to report all of their gross receipts and using this analysis of bank accounts helps to track down additional tax dollars.
Want some insomniac reading?
Check out the following web site which contains a number of recommendations for improvement in the IRS operations
The Coming Congressional Catastrophe
With the expiration of the Bush tax cuts either the lame duck Congress or the new Congress that convenes in 2011 will have to decide whether to extend them, let them expire, or modify them. If they are not extended the average taxpayer will potentially see a very large spike in their taxes. Even if they are extended there is one other tax credit set to expire-the Making Work Pay Credit which has provided $400 per person in 2009 and 2010. In reality, it's an illusion. The last two years, taxpayers have seen an average of $15 a month less in withholding (equaling approximately $400 a year on a biweekly paycheck) only to have a credit of $400 on the tax return to make up for the difference. The underlying tax has never changed. J Also, since Congress has not finished its work many employers do not know how much to withhold from paychecks so we may see some additional tinkering even into the new year.
Federal Refunds Go Unclaimed.
The IRS has $164.6 million in undelivered refund checks belonging to 111,893 taxpayers; the checks could not be delivered because of mailing address errors. Taxpayers missing a refund check should update their address using the IRS’s "Where’s My Refund?" tool on http://www. irs.gov.
**State Tax News.
New York is created their own version of the home buyers credit for middle income individuals. You may want to take a look at the web site to see whether you qualify if there is a possibility you will buy a home in New York soon
New York again.
A recent court case has clarified what the definition of “a day in New York” is. This is very important in dealing with residency issues as New York has some of the strictest laws governing tax home status
State Tax Hodgepodge.
Numerous states had ballot initiatives regarding tax policy. The list is long but enlightening. You can find it on the first page of our web site www.traveltax.com under the “News” heading.
TravelTax News for September 2010
September 6, 2010
School has started again and where did summer go?
We are now on Facebook and Twitter!
We will have various news items and discussions available and would love your input!
You can use the link from our web site or go to:
A last minute reminder of the annual Travelers Convention in Las Vegas set for September 27 and 28. We will be presenting an update form the Healthcare Staffing Summit and timely tax topics. David Feiler, a financial planner from Phoenix will be discussing retirement planning and how to get started late. Other presentations include CEU’s for medical professionals and roundtable discussions on topics of interest to travelers. The website for the conference is http://www.travelersconference.com/index.html
New teleconferences are posted for the rest of 2010. These live conferences help clear the confusion about the tax implications of mobile work for any industry that you are in.
See www.traveltax.com for details
General Tax News
Mandatory withdraws of retirement accounts resume
Now that the market has recovered from its lows in the spring of 2009, lawmakers won’t extend 2009’s waiver of mandatory withdrawals for those age 70½ and up.
Job search expenses
Job search expenses are deductible only if you are already established in your line of work. Search expenses for new college graduates are generally non-deductible according a an IRS private letter ruling
The IRS will be doing more correspondence exams and limited scope audits by mail that typically focus on a small number of issues. Agency officials believe that correspondence audits deliver more bang for the buck than office audits or face-to-face examinations, so they are a key part of its plan to hike audit coverage. Correspondence exams of employee business expenses are bearing fruit as most taxpayers who are challenged agree that they overstated their deductions. Several other tax issues are ripe for mail audits as well, IRS officials say. They include claims for the earned income tax credit, large charitable deductions and the tax credits for home buyers. Deductions claimed by self-employed taxpayers also are being eyed. A pilot program will check advertising expenses on Schedule C, supplementing projects covering vehicle expenses and meals and entertainment.
One-Time Special Filing Relief Program for Small Charities
The IRS is offering a one-time relief program for certain nonprofit organizations that are at risk of losing their tax-exempt status because they failed to file required forms for 2007, 2008, and 2009. Details about the program and a list of charities at risk can be found at the IRS website. Call us if you are concerned that your non-profit may be in danger of losing its status.
Donating a home to the fire department must have an acceptable appraisal
A couple was denied a deduction for having a fire department torch their house. Wanting to demolish their current home and construct a new one, they donated the house to the local fire department to let firefighters burn it for practice. Once that was done, construction on the replacement residence started. They got an appraisal saying the home was worth $287,000 when it was donated. Their deduction was denied on procedural grounds by a district court. The couple’s appraisal was defective, in the court’s view. It didn't’t list the expected date of the donation, the terms of the agreement with the fire company or the appraiser’s professional qualifications. Nor did it state that the appraisal was prepared for income tax purposes. All of these requirements must be met for claiming a deduction for donations of more than $5,000
More problems for Home Buyers Credits
The IRS is asking for all sorts of documentation for the Home Buyers Credits. They now require at least tow of the following:
--A copy of your current driver's license or other state-issued identification showing your home address.
--A copy of a recent pay statement (within the last 2 months) showing your name and home address.
--A copy of a recent bank statement (within the last 2 months) showing your name and home address.
--A copy of a current automobile registration showing your name and home address.
--Confirmation of change of address from the U.S. Post Office showing your former and new address.
--Contract from moving company for your receipt of transported household items, showing points of origination and destination.
-Woe to the home buyer who has all his business mail and other documentation going to a PO Box!
Want a good place to estimate your taxes?
http://www.moneychimp.com/features/tax_brackets.htm is a good site to estimate your total taxes for the year based on income.
State Tax News
Idaho Tax Commission to Close Field Offices
The Idaho Tax Commission will close five field offices in Coeur d'Alene, Lewiston, Pocatello, Idaho Falls and Twin Falls beginning on August 2, 2010. These offices provide taxpayers with face-to-face assistance, but the Tax Commission, like other Idaho state agencies, has faced funding cuts.
New York expands their tax net to include any earnings from a New York based company even if the individual lives in another state unless that state does business in other states as well. In a blow to telecommuting, many professionals employed by NY firms but working elsewhere are subject to NY income tax on those earnings.
The Illinois Department of Revenue (DOR) will establish an amnesty for all taxpayers for taxes due for any taxable period ending after June 30, 2002, and prior to July 1, 2009. The amnesty period will run from October 1, 2010, through November 8, 2010.
July 2010 news from TravelTax
Note of thanks to Clients during Family Emergency
The last two plus months have been incredibly stressful for us. Joe’s father had an unchecked gangrenous gallbladder that led to sepsis, dehydration and a hypotensive episode where he was unconscious for almost 6 hours. He initially showed stroke like symptoms during the first part of his recovery but made remarkable improvements toward the end. Joe’s mother on the other hand has early Alzheimer’s and needed a safe place to stay. Add the fact that Joe is an only child living 1200 miles away from his parents and you have the perfect storm. More than 9000 miles of driving were logged during this period and our resources were stretched as you would imagine. We are thankful to many of you that patiently waited for us to complete your work and were understanding of our dilemma.
Many things have happened on the tax scene since our last letter, so this month’s will be longer than normal.
For Travelers and Staffing Agencies
Wage Recharacterization gets another twist
A common issue in industries that employ “travelers” is the interplay between wages and per diems often resulting in a low wage to accommodate the necessary reimbursements for transportation, lodging and meals. Many have asked us if the low wages are illegal and whether the IRS frowns upon the practice. In Gagnon v United Technisource Inc filed in the 5th circuit Court of Appeals, per diem payments were included in overtime calculations due to the fact that the wage plus the per diem approximated the fair market wage for similar professionals. The per diem arrangement was viewed as a scheme to recharacterize wages. The employer lost this case due to the fact that the per diem was treated on an hourly basis, increased as a longevity raise and offered as an optional structure of pay to the employee. We have always urged staffing agencies to avoid treating per diems this way.
More States Cross Reference Practice Licenses and Tax Returns
Oregon has now joined the ranks of states that are using professional practice license databases to cross reference tax returns. If you have a Oregon nurses license or other professional license, better to file a return even if it has all zero’s
Home Buyers Credit Closing Date Extended
Congress recently extended the time necessary to close on a home that qualifies for the Credit. You still must have entered into a binding contract on or before April 30 but now, you have till September 30 to close on the transaction. If you have not already done so.
Snails beat the IRS on Home Buyers Payments. Expect audits
A Treasury review of home buyer’s credit payments uncovered lots of abuse. The review showed that 4600 inmates filed tax returns claiming the credit and 1295 of them were approved. This also means that return processing for these claims will slow even more. Expect some audits in the next few years as well.
Getting a Tan- Pay the Tax
Tanning salons are now subject to a 10% federal tax. Good looking people with artificial tans now get to pay for healthcare reform. We may explore a new business line and form a subsidiary called TravelTax.
Haiti Relief Workers Get automatic Extensions for Filing and Paying
The law extends the deadline to October 15
Health Care Students with Loan Forgiveness Get a Break
Normally, loan forgiveness programs constitute income. But now, state loan forgiveness programs that are contingent on the graduate working in underserved environments are free of tax.
Same Sex Couples now Subject to Community Property Rules
States that practice a “community property” scheme in their tax and legal provisions for marriage are now applying the same policy to same sex couples. The IRS is acknowledging this treatment.
New HSA Contribution limits for 2011
The contribution limits for these reimbursement plans (for high deductible health plans) will rise to $3050 for singles and $6150 for couples
Community Service May be required for Education Credits
The American Recovery and Reinvestment Act contained a provision that requires the Treasury Department to study the feasibility of requiring community service as a prerequisite for receiving education credits. This is currently a study, but watch for it in the future.
Start up Expenses
The Small Business Jobs Act of 2010 is currently snaking through congress. One particular provision allows up to 10K of start up costs to be deducted phasing out after 60K of deductions. Current law allows 5K is start up expenditures with a 50K phase-out.
1099’s for everyone
The Healthcare Reform act contained a provision that requires 1099’s for most all payments between businesses that are not already recorded in credit/debit card transactions. The IRS is looking for help in how to implement this. Soon, credit card issues will have to report transaction amounts above a soon to be determined threshold to the IRS.
Hold on to that S Corp Filing
Tucked in that Healthcare Reform Bill was a revamp of S Corp taxation for “Personal Service Firms” where the principal asset is the reputation and skill or three or few workers. Under new provisions, S Corp profits with a focus in accounting, law, health etc will be subject to self employment tax on ALL profits and wages, eliminating the popular technique of selecting a modest salary and paying the rest in dividends. This tax is also extended to employee owners and their family members who are partners or shareholders in businesses that are not personal service firms. Just goes to show that politicians can’t run businesses
The IRS Wants your Quick Books Files
The IRS now have the authority to request your Quick Books files if they deem it helpful to the audit. The IRS purchased a large number of licenses from Intuit in ramping this up.
The Council on State Taxation released its ranking of states tax administration. This is not a ranking of how much tax residents paid, but how effective their system is in resolving disputes and ensuring compliance. The top 10 best? In order, AK, DE, ID, MN, MT, AZ, MS and WY (note that AK and WY do not have income taxes). The worst? From the bottom up, CA, LA, FL, RI, AL, IL, NM and PA
Continues to crack down on residency issues. If you have an Alabama driver’s license, beware. You are still a resident for tax purposes despite not having a tax home there
Now recognizes the Mortgage Forgiveness Debt Relief provisions passed by congress.
California also started their own First Time Home Buyers program that began May 2010
Now allows deductions for 529 college savings contributions for adult students
The MA Department of Revenue has determined that garage sale income is not taxable. That is not likely to stop people from hoarding junk in their garages.
New York is considering the Sugar Sweetened Beverage Tax which would eliminate sales tax on diet drinks, but add taxes on sodas, beverages with syrups (Lemonade?) and any coffee/tea product with more than 10 calories per 8 ounces.
Congratulations to Rhode Island which recently overhauled their personal income tax system. Tax brackets dropped from 5 to 3 and the highest tax rate dropped from 9.9 to 5.99. Honk your horn when you drive through on I-95!
Canadian / International News
Ontario provides tax relief for new sales tax
Ontario residents will receive 3 installments to offset new income taxes imposed under the revamped Harmonized Sales Tax.
US Treasury and Foreign Banks
The US Treasury is now starting to require foreign banks and investment houses issue statements to the IRS to report distributions and sales on behalf of US Citizens. This is reducing the number of foreign banks that will serve US Citizens
Up next month- we will provide a timeline for the changes implemented under the Health Reform Act
Have a Great Summer
Current State Refunds Delays
Hawaii, Alabama, North Carolina, Kansas, Idaho, and New York
Interest Rules Apply to Refundable First-time Home buyer Credit
The IRS has concluded that when a taxpayer makes the election under §36(g) to treat a 2009 new home purchase as having been made on December 31, 2008, the §6611 general interest rules apply and the taxpayer is entitled to interest on the refundable credit subject to some §6611 provisions. Generally this means that the IRS will pay interest on the refund if the refund is not issued to the taxpayer within 45 days of the claim for refund.
The passage of the Healthcare reform bill included some of the most drastic changes to 1099 information reporting in over a decade. The bill included revenue raising provisions meant to seek greater compliance of the tax code via 1099 information reporting. General provisions included:
Ø The elimination of the corporate exemption from 1099-MISC reporting. (Public Law 111-148)
Ø The requirement to report payments for property (goods, materials, merchandise, supplies, etc.). (Public Law 111-148)
Ø A six-fold increase in penalties from $250,000 to 1.5 million. (H.R.4213, H.R.4849)
Ø A doubling of penalties per record from $50 to $100. (H.R.4213, H.R.4849)
Beginning for payments made after December 31, 2011, companies will be required to furnish and file form 1099-MISC for payments made to all for-profit companies regardless of corporate status. In addition all payments for goods, materials, merchandise, supplies, and other property will need to be reported as well. Early indications reveal that these changes will likely cause the 1099 reporting volume to increase significantly for most companies as well as the associated B-Notices. [You think?????]
While the law applies to payments made after December 31, 2011 companies need to make broad changes to:
1) W-9 procedures to include all vendors.
2) Solicit W-9's for corporate vendors.
3) Prepare for larger 1099 year-end printing, mailing, and filing.
4) Make the appropriate budgetary and system updates to accommodate these changes.
Good afternoon! Exciting news.
California lawmakers have passed SB 401, a bill to exempt borrowers who lost homes
to foreclosure or short sales in 2009 from state taxes. Gov. Arnold Schwarzenegger
said he will sign the bill.
An FTB spokesperson said, "Once the governor signs this into law, California
taxpayers will not have to do anything. If they qualify for federal relief on the
mortgage debt forgiven, then they will also qualify for state income tax purposes.
California Form 540 starts with federal adjusted gross income so there will be no
adjustment necessary to properly reflect the state adjusted gross income amount for
State Tax Day - Current,S.22Wisconsin—Miscellaneous Tax: Hospital Assessment Imposed on Critical Access Hospitals, (Apr. 22, 2010)
A hospital assessment equal to a uniform percentage of the hospital's gross inpatient revenues is imposed on each critical access hospital each state fiscal year in Wisconsin. Previously, critical access hospitals were not included in the definition of "eligible hospitals" subject to the hospital assessment. The assessments will be deposited in the critical access hospital assessment fund. On June 30 of each year, the Department of Health Services will refund to critical access hospitals any unencumbered moneys in the fund.
From July 1, 2010, through June 30, 2013, an Iowa hospital health care access assessment may be imposed on each participating hospital at the rate of 1.26% of net patient revenue as specified in the hospital's fiscal year 2008 Medicare cost report. "Participating hospital" means a non state-owned licensed hospital that is paid on a prospective payment system basis by Medicare and the medical assistance program for inpatient and outpatient services. The assessment will not be collected until the Department of Human Services has received approval of the assessment from the centers for Medicare and Medicaid services of the United States Department of Health and Human Services. In addition, the Department of Human Services will only implement the assessment if the Department receives approval of the requests relating to waivers and medical assistance state plan amendments necessary to implement the program.
Illinois Amnesty Bill Ready for Governor's Signature
Receiving only one "no" vote, S. 377 passed the Illinois Senate on May 27 (it had previously passed the House by an overwhelming margin). The bill calls for a tax amnesty period that will run for a very short stretch--from October 1, 2010 through November 8, 2010. The bill supporters expect the amnesty will bring in $250 million for the state. Unlike many other amnesty programs, eligible taxpayers who do not participate in the Illinois amnesty program face interest and penalties at a rate of 200% higher than otherwise would be imposed. The bill has been sent to Governor Pat Quinn for his signature.
March 2010 TravelTax News
Tax filing season is half way done and the snow is beginning to melt!
1) Later filings this year
Banks have been given extra time to send interest, dividend and investment account statements this year. Many taxpayers will be filing later than normal. If this is your situation, call us about filing an extension so you do not find yourself trapped by a deadline that is extendable. Extensions do not increase the chance of an audit.
2) Good reasons for filing extensions!
An extension allows you more time to convert taxable Individual Retirement Accounts to tax-free
The Home Buyers Credit
It takes longer to receive your refund through an amendment than it does an original return. If you are purchasing a home soon before the deadline, file an extension so you can receive the refund earlier.
Self Employed with Retirement Accounts
Filing an extension gives you till Oct 15 to contribute to your SEP or similar retirement arrangement
Note: Filing an extension gives you till October 15 to file BUT does not extend the time to pay any tax due. If you have anticipate a balance due, make an payment with the extension
3) Congress mulls extending popular tax breaks
Still in limbo are deductions for state property taxes for non – itemizers and other popular tax breaks that expired on December 31 of 2009. Along with this dilemma are more flat tax proposals.
4) FICA and Medicare for Medical Residents
The IRS has made an administrative determination to accept the position that medical residents are excepted from FICA taxes based on the student exception for tax periods ending before April 1, 2005, when new IRS regulations went into effect. The student exception means that FICA (social security and Medicare) taxes do not apply to service performed by students employed by a school, college, or university where the student is pursuing a course of study. Whether the organization is a school, college, or university depends on the organization’s primary function. In addition, whether employees are students for this purpose requires examining the individual’s employment relationship with the employer to determine if employment or education is predominant in the relationship. Within 90 days, the IRS will begin contacting hospitals, universities, and medical residents who filed FICA refund claims for these periods with more information and procedures. Employers and individuals with pending claims do not need to take any action at this time
1) New York Governor wants to hold state tax refunds
Under the Governor’s plan, the state’s current cap on income-tax refunds paid out before March 31st would be lowered from $1.75 billion to just $1.25 billion, resulting in a nearly two-month delay for thousands of taxpayers awaiting lawful refunds. Additionally, taxpayers will not be paid interest on their funds until June 1 while businesses would be denied any interest until the second half of March. Fortunately, the New York Senate is formally opposed to the proposal
As we mentioned before, many state revenue agencies are doing their own audits of employee business expenses focusing on traveling professionals. Among the most active states are:
Additionally, more states are challenging residency claims attempting to put their tax net over all the taxpayers’ income.
1) Philadelphia City
Philadelphia Mayor Michael Decker has signed an ordinance that was passed by the city council in December 2009 providing a tax amnesty period that will occur over 45 days in May and June 2010 and overlap with the state amnesty program. The amnesty measure applies to 17 different taxes administered by the city and applies to debts originally due and payable from February 1986 through June 2009. Taxpayers that are either under criminal investigation or have been named in a criminal complaint related to the delinquency or who have participated in any prior tax amnesty program are ineligible to participate in the program. Under the terms of the amnesty bill, 100% of accrued penalties and 50% of accrued interest due on delinquencies are waived after the taxpayer makes all required payments.
2) New Mexico
A bill making its way through the New Mexico Legislature would authorize the Tax and Revenue Department to conduct a 90-day tax amnesty program in fiscal year 2011. The department would be able to waive interest and penalties for taxes owed prior to the tax amnesty period. The proposed amnesty program provisions would be repealed effective July 1, 2011. The bill passed the Senate last week and is currently being considered by the House Revenue and Tax Committee.
Office and Firm News
We are restructuring our operations to separate our tax preparation division from our consulting, representation and pre litigation services. We have formed a new parent company, Cullen & Adele LLC that will own TravelTax LLC, Joseph C Smith Tax Consultants LLC and a soon to be named Canadian operation as wholly owned subsidiaries. Nothing has changed, the staff is the same and we will continue the same personalized services that we always have. The restructuring allows us to expand in other areas locally and nationally. After the tax season is over, you will see a more streamlined website which Daina (the wife) will be working on.
Daina (my wife) underwent an emergency open Cholecystectomy the first of February. We are thankful that her condition was addressed in a timely fashion as she was in the first stages of jaundice and the Lord has blessed with a good recovery period so far. We thank each of you for your patience during this time and are also thankful for the many expressions of concern and prayers we have received.
We will soon announce the details of the September 27-28 Travelers Convention that will be held in Las Vegas. Look for a special newsletter release!
Looking forward to a great spring!
February 2010 News from TravelTax
49 of 50 states have white stuff on the ground which apparently is a record never achieved since these events were recorded. Citizens of Hawaii are inspecting their mountains to be sure it isn’t 50 out of 50.
Tax news to note
1) Banks and brokerages have been given till February 15 to issue 1099’s for interest, dividends and stock trades. Be sure you have all of these before sending in your materials.
2) If you are taking advantage of the one of the home buyer’s credits, you cannot file electronically. A copy of the settlement state must be sent with the return. Oddly enough, the IRS requires this to be signed but most states do not require this summary document to contain a signature. For that matter, the IRS wants the taxpayer to sign the sheet anyway according to a notice issued on February 12 of 2010. Even with this documentation, the IRS will not process returns with home purchase credits until mid February and will not issue the refunds until late March.
3) Required minimum distributions from IRAs and plans resume this year because Congress did not extend the waiver of payouts beyond 2009. Taxpayers who turned 70½ in 2009 need’t take any payout for 2009 by April 1, 2010, but they must take a distribution for 2010 by Dec. 31, 2010.
4) As noted in our deduction alert recently, contributions to Haitian earthquake relief operations made between January 11 and March 11 can be deducted on the 2009 tax return.
5) IRS Publication 4303 clarifies the confusing rules regarding vehicle donations. One interesting item to note, if you donate a car that the charity sells for less than $500, you get to deduct $500 regardless of the proceeds. For travelers working assignments in Hawaii, St Thomas or some of the other island territories, this can be a great way to deduct the costs of a those clunkers you purchase to use during your assignment.
6) 2010 promises to be an active year for tax laws. Many of the popular tax breaks enacted during the first Bush administration are set to expire this year and congress will have to make decisions on keeping them, pairing them back or abandoning them. With an administration committed to higher taxes for all citizens, this is going to be quite a hurdle to jump.
7) If you have not filed your 2006 tax return, do so by April 15 of this year (October 15 if you filed an extension for the 2006 tax year) or you will lose any refunds that you have. Taxpayers have 3 years to file an original return and receive any refunds due to them.
8) A reminder that you do not have to be a traveler to use our services. We have many non- traveling clients and even give discounts on our fees since these are less complicated returns.
9) We posted a staff photo on our website. Since we have never seen many of you in person, we figured it was time you saw what we looked like! http://www.traveltax.com/About%20Us/About%20Us%20Home.htm
10) The 3rd annual Travel Medical Professionals Convention will be held in Las Vegas on Monday September 27 and Tuesday September 28. Look for this newsletter for details and we will have a website with information forthcoming.
1) New Jersey Governor Jon Corzine apparently realizes that taxes are too high (duh). In his final State of the State address he stipulated that property taxes are too high and went on to say that "until we reform our state's antiquated structure for providing local government services, a home-rule system dating back to the 17th century, we're never going to get the job done." He added, however, that there is only so much that can be done without structural reform, meaning constitutional change.
2) Arizona taxes on non residents increase for 2010 as the standard deduction, given in full to anyone who filed a return, will now be prorated between in state income and out of state income for non residents.
Hope your holidays were pleasant and relaxing. With the new decade, it’s hard to believe that 10 years ago we were worried about Y2K!
1) Our workbooks have been updated and are posted on the website, but at the same time Congress is still tinkering with retroactive tax legislation. This is becoming an annual event and creates confusion for taxpayers.
2) Remember that the IRS allows you to save your records electronically! Scan that paperwork and get rid of your clutter. Our website has links to product discounts that can help you uncluttered your lives.
3) A bill was presented before congress to extend the Heartland Disaster Relief Act that is set to expire soon. This legislation contained a number of tax related items including enhanced educational credits for those attending schools in affected areas.
4) 1099’s for interest, dividends and other payments may be delayed again this year as late as February 15 which is the extended date that banks and brokerages have to mail these forms.
5) Two more tax workshop sites left for January. As of the mailing of this we are in Phoenix the 12th and the 13th ,then in Greenville SC the 25th-27th. Check our website for details.
1) States continue to pursue residency issues with all sorts of taxpayers. Alabama courts gave some more taxpayer friendly rulings to a cardiologist and engineer who intended to sever their ties to the state but retained a drivers license and other legal ties. These rulings are not the norm that we have seen during 2009.
2) New York continues its reckless pursuit of making anyone that makes a few bucks in the state a resident for tax purposes. The new rules that went in to affect forced all out of state college students to be taxed as residents. In December, they amended the law but NOT FOR GRADUTE STUDENTS. Hence, if you have a dorm at a NY college while pursuing a graduate degree, you are a tax resident of NY for tax purposes. (Reference TSB-M-09(15)I, December 16, 2009).
3) KY continues to give a $5000 credit for newly built or previously unoccupied homes
4) OH is delaying the mailing of their instruction booklets due to last minute tax changes
Our long time assistant, Diane Gillis will be leaving at the end of tax season due to her husband’s job transfer. Those of you that have worked with her know how conscientious and delightful she is. As the season progresses, take some time to wish her well in her future endeavors. She will be missed.
Join us in welcoming Kris Osborne to our staff. Kris will be assisting Diane during the tax season and transitioning into her role.
We look forward to hearing from you this tax season and welcome your comments and referrals!
December 2009 News from TravelTax
Before I list the latest news on the tax front, let me wish all of you a fantastic Christmas and New Year. Our office will be closed from the 22nd through the 30th in observance of the holidays.
1) January seminars
The dates, times and locations are set for our annual west coast workshops in Seattle, San Francisco, LA and Phoenix. We will also be in Greenville SC the end of January. Our 2 hour workshops have helped many travelers unravel the confusion about the tax laws as they affect our jobs. Go to our website for more information www.traveltax.com .
2) Post Doctoral Fellows
For our clients that are post-doctoral fellows working for various government agencies, the IRS released a ruling classifying income from a number of non-NRSA (National Research Service Awards) programs as wages subject to FICA (Social Security). Call us for more information if this affects you
3) What does health care reform have to do with the IRS?
Guess who gets to administer it? As the current Senate version stands, the IRS will go on one of the largest hiring binges of their existence to keep up with the new mandates that they will have to enforce.
4) Standard Mileage rates for 2010 were released.
50c per mile for business
16.5c per mile for medical and moving expenses
14c per mile for charity
5) Cash for Caulkers
Congress will debate various measures to give rebates and tax credits to those that renovate or remodel their houses. The current proposals allow up to 12K of relief in one year.
6) RN deducts costs towards MBA
A recent tax court decision overturned an IRS ruling against a RN who deducted the entire costs of her MBA in Healthcare Management. The RN was already functioning in an administrative capacity even though her educational credentials were not sufficient in many facilities to perform the job she held. The fact that she was not qualifying for a new line of work was key.
Illinois- Ruled that an individual that lived in Nigeria but returned regularly to Illinois, kept a bank account and driver’s license there was still required to file a IL tax return as a resident
New York – Continuing to enforce the some of the strictest legal and tax domicile laws, the NY Division of Tax Appeals determined that an individual who lived in Connecticut and kept a vacation home in NY was a NY tax resident since they spent more than 183 days working in New York City as a commuter. This case will be appealed.
*** We have maintained in previous newsletters that clients should avoid working more than 183 days AND maintaining a dwelling within NY more than 11 months. In this ruling, simply having a vacation home was sufficient.
Oregon – Oregon residents will soon vote to increase income taxes making their highest marginal rate 11% retroactive to the beginning of 2009. This is one of the highest rates in the nation.
Wisconsin: Reminded residents that Wisconsin does not follow the federal exclusion of tax rebates and the $30 per month tax free allowances that are allowed to be paid to volunteer firefighters and EMS personnel.
State Tax Amnesty programs:
New York- runs from January 15, 2010 to March 15, 2010 – If you have a vacation home, may want to pay now J
Pennsylvania – Begins April 26, 2010 and ends June 18, 2010
That’s all for now! See you in 2010 and look forward to serving you again this tax season
Cash for Caulkers- up to 12K in rebates
News from TravelTax, Thanksgiving 2009
Lots of Tax news yet again to report
OUR ANNUAL WEST COAST SEMINARS WILL BE ANNOUNCED SHORTLY
We will conduct our travelers workshops in January 2010 in Phoenix, Seattle, Los Angeles and San Francisco. An announcement will come in a special newsletter
2009 TAX REFUNDS WILL BE DOWN AND SOME TAXPAYERS MAY EVEN OWE
The “Making Work Pay” credit that is included on the 2009 tax return but reflected in the withholding tables will potentially lower refunds and cause some to owe tax when filing their return in 2010. During the year, the rates of withholding were adjusted downward to reflect the $400 per person tax credit passed in the “Making Work Pay” legislation. For those taxpayers working 2 or more jobs simultaneously, the adjustment reflects on both paychecks creating a potential deficit in the taxpayers withholding.
ANOTHER NEW SCHEDULE TO COMPLETE
Non itemizers can still itemize! To do so requires the new Schedule L which will allow the taxpayer to itemize their property taxes, taxes on new car purchases and disaster losses
NEW AUDIT PROJECTS
The IRS is focusing on employee benefits and individual tax returns of railroad employees. Both of these target aspects of returns that are often important to travelers and their agencies.
MILITARY SPOUSES GET SAME TAX RESIDENCE TREATMENT AS ENLISTEE
A member of the military retains the tax residency of the state they were domiciled when they entered the service. For their spouses that joined them, that was not the case. With the new law effective January 1, 2009, military spouses that are present with the service member solely to accompany them as a result of their call to duty are allowed to retain their tax domicile. Even if they take a job, they will only be taxed by their home state of record.
NON ITEMIZERS CAN BENEFIT FROM SALES TAX DEDUCTION ON NEW CARS
But only until the end of the year unless congress extends the provision
WAIT TILL 2010 TO CONVERT IRA’S TO ROTHS
The tax on the conversion can be deferred and spread out over two years if it occurs in 2010
UNTILIZE YOUR STOCK LOSSES NOW BY SELLING ANY GAINS
With the recent rebound in the stock market, some taxpayers have significant gains that they can lock in. Utilizing losses on other securities will take the edge off the tax bill
GAMBLING WINNINGS AND LOSSES CAN BE NETTED PER VISIT
In a recent tax court case, the attorney for the IRS conceded that netting wins and losses per visit rather than an aggregate annual amount is the preferred way to report Gambling proceeds. Gains are not realized until the tokens are cashed in. This can be an important strategy for the casual gambler.
*********** STATE NEWS **************
CONNECTICUT AMNESTY PROGRAM
The program runs from October 15, 2009, to December 15, 2009.
NEW YORK TAX AMNESTY
The program will run from January 15 to March 15, 2010.
PENNSYLVANIA TAX AMNESTY
The program will run from April 26 to June 18, 2010
MORE STATES ARE CLAMPING DOWN ON RESIDENCY CLAIMS AND DOING UNILATERAL AUDITS
They are all money hungry!
First Time Homebuyers Credit gets another life
The $8000 credit for first time home buyers is extending through April 2010. For those of you close to buying a new home, you can breathe easier and maybe look for a house you really like instead of settling for one you might like.
That’s Not All
A credit of $6,500 is now available for homeowners who have lived in their current residence for five years or more and are buying a new home.
The legislation would extend the $8,000 tax credit through June of next year as long as the buyer enters into a binding contract before April 30. It doubles the income ceiling for qualification to $125,000 for individuals. The credit is available for homes purchased at under $800,000.
The measure also strengthens the ability of the IRS to stop people who are not eligible for the program from filing fraudulent claims.
The new $6,500 credit for existing homeowners, said Sen. Johnny Isakson, R-Ga., a cosponsor of the measure, "is going to help us boost what is the problem in the U.S. housing market today and that is what is called the move-up market."
American Opportunity Credit
October News from TravelTax
Workshops, states crack down and Canadians can pay electronically
1) Upcoming Workshops
We will be holding tax workshops in the following cities in November
Manchester HN, November 9-11,
New York, November 11-13
Baltimore/Washington DC, November 17-19
Check our website www.traveltax.com for registration, printable flyers and locations
In January, we will be in Seattle, LA, San Francisco, Phoenix and maybe… Anchorage!
2) The first time home buyers credit ends November 30
There are efforts underway to extend the credit at least through the end of the year, but don’t assume that they will pass with the current budget deficit
3) There was a good turnout at the annual travel medical professionals “meet n greet” in LAS Vegas last month. Another one is planned next year
4) We said this last month, but audits are on the increase. Be diligent to keep good records.
State Tax News
1) State residency cases
Alabama and Illinois both had cases regarding residence reviewed by their courts recently. Legal residence is not the same as tax residence however; a legal domicile can require an individual to be taxed on income from all sources, even when the tax home is in another state. In both cases, the concept of legal residence that is common in most states was highlighted. In general, when you establish a legal residence, that residence will continue to be valid unless significant efforts are made to move or change residency. Working away from the state for 1 or even 2 years does not change the assumption that the residence is still valid. This can be very important for those that have mailing addresses at relatives homes yet do not have significant ties in the state.
2) Minnesota and Wisconsin end their 41 year old tax reciprocity agreement
As of the 2010 tax year, Minnesota and Wisconsin will no longer continue their tax reciprocity agreements. In the past a resident of Wisconsin who worked in Minnesota was taxed as a Wisconsin resident and owed no tax to Minnesota. The same held true for a Minnesota resident working in Wisconsin- they were taxed as a Minnesota resident and owed no tax to Wisconsin. As of 2010, any person in this situation will have to file state tax returns in both states. It might take a few years for most tax preparers and payroll departments to pick up on this.
3) New York Tax Preparer Registration
The New York legislature is close to passing a law that requires any person or firm that prepares a NY state income tax return to register and pay a fee. This will be challenged in courts for sure. Earlier this year, New York passed the strictest law in the nation regarding state tax residency. This bill follows the general scheme of New York clamping down on enforcement despite the fact that congress is close to passing a tax preparer licensing bill. TravelTax is a multi state / multinational tax practice and will always be licensed in any state that requires it
1) Canada Revenue finally allows online tax payments
Finally joining other industrialized nations in the 21st century world of commerce, those needing to pay income and business taxes to the Canada Revenue Agency can do it on-line. The participating banks comprise a short list, but it is huge convenience to Canadians working abroad. For more info, see the link below:
September 18 2009
News from TravelTax News
Hard to believe that summer is over and we are headed to fall. There is a lot of tax news to share.
1) The First Time Homebuyers Credit will expire on November 30 unless congress passes an extension. There are two bills floating around congress that would do that, but we may not find out till the last minute
2) Just a reminder about the Travelers Meet and Greet in Las Vegas this coming Monday the 21st through Wed the 23rd. We will be there to discuss the latest from the Healthcare Staffing Summit, how to read your contracts, tax news and more. CEUS are offered for other sessions. Information can be found on our website.
3) A number of travelers have been victims of tax preparer fraud. One such preparer has been put out of business and the link below will give you the details. We represented travelers that were audited in the IRS’s investigation of this preparer and are glad to see him brought to justice
4) The new Per Diem rates have been released. Most notable is the increase in the base meal allowance to 46$/day and the average maximum for larger communities has been increased to 71$/day. The link to the new rates is found below
5) IRS to “simplify” notices.
Ever get an IRS notice that just didn’t make sense? The IRS has promised to simplify them over the next 5 years.
1) Maryland tax amnesty
Maryland is offering to waive penalties and reduce interest for taxpayers with delinquent amounts. This offer is only good for September and October of 2009.
2) Kentucky New Home Credit
In addition to the Federal Home Buyer Credit, KY is offering their own credit to qualified buyers till July 26 2010.
3) Jefferson County Kentucky declared a Federal disaster area due to recent storms
4) New Jersey to tax gambling winnings
Any one time prize greater than $10,000 will be subject to NJ taxation
5) Hawaii eliminates deduction for gambling losses
Normally, one can offset gambling winnings with the losses, but not for Hawaii state tax purposes. Win $2000, but play $5000? You still get taxed on $2000.
AUDITS AND OTHER ACTIONS
Audits have dramatically increased for even mundane items, especially at the state level. Enforcement actions are also stronger. Massachusetts is now revoking driver’s licenses’ for tax delinquency and many states will review professional practice licenses. One common target of the state audits is residency issues
If you have any questions about these or other tax issues, feel free to call or email us.
Delaware – Tax Amnesty Program Established
Delaware's Department of Revenue is gearing up for its "Voluntary Tax Compliance Initiative" or more informally known as a tax amnesty program. The initiative/program runs from September 1, 2009 through October 30, 2009. Any taxpayer who has a current outstanding liability for tax periods before January 1, 2009 and makes payment during the Initiative period or enters into a payment plan and makes payment before June 30, 2010 will have penalty and interest for late filing the return waived. Any non filer who files returns will have any tax, penalty and interest for non filed returns for any period prior to January 1, 2004 waived.
Georgia – DoR Releases Timeline for refunds, Makes Personnel Cuts in Processing
Georgia's Department of Revenue appears to have terminated 155 personnel in its processing center only to hire 70 individuals in the same division. The Department offers some interesting information on the expected time in processing returns. E-filed returns are current and refunds are being mailed/deposited within six days of receipt. Those taxpayers that filed paper returns are currently being processed and refunds will be mailed by July 21, 2009. Any paper returns filed prior to April 10, will complete processing within 10-14 weeks, those filed after will take 14-20 to be completed. More information can be found here.
Unemployment not taxable:
>Not sure about Tennessee.
TN doesn't have an income tax. They do tax investments.
Docket No. 14031-07S. Filed July 20, 2009.
Tax Court: Summary opinion: Unreported income: Joint bank account: Income earned by another person.–
[ Code Sec. 61]
An individual was not required to include in income interest paid to a savings account held jointly with her father. The taxpayer testified credibly that the money in the account, including interest, was her father's and that the sole reason she had access to the account was to pay her father's bills.—CCH.
Tax Court: Summary opinion: Meal and travel expense deductions: Expenses incurred away from home.–
[ Code Sec. 162]
An individual was not entitled to deductions for meals and travel expenses incurred when she was temporarily employed in another state. Although the taxpayer's employment was clearly temporary, her previous residence did not continue to be her tax home during the course of the temporary employment. Prior to accepting the temporary employment, the taxpayer resided with her boyfriend at his home and she did not pay rent or utilities. Therefore, she did not incur substantial continuing living expenses at a permanent place of abode and did not incur additional and duplicate living expenses during her temporary employment.—CCH.
PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b), THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE.
Susan D. Thompson, pro se. Blake W. Ferguson and Olivia Hyatt, for respondent.
JACOBS, Judge: This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect when the petition was filed. Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case.
Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference.
A. Interest Income
As noted above, respondent contends that petitioner received, and should have included in gross income, the aforementioned $50 of interest. At trial petitioner credibly testified that the money in the account, including interest, was her father's and that the sole reason petitioner had access to the money was to pay her father's bills. We are satisfied with this explanation and thus hold that, contrary to respondent's determination, no part of the $50 of interest is taxable to petitioner.
B. Meal and Travel Expense Deductions
Section 162(a) allows a deduction for all ordinary and necessary expenses paid or incurred in carrying on a trade or business. Section 162(a)(2) allows a taxpayer to deduct traveling expenses, including amounts expended for meals, if such expenses are: (1) Ordinary and necessary, (2) incurred while away from home, and (3) incurred in the pursuit of a trade or business. Commissioner v. Flowers, 326 U.S. 465, 470 (1946). Services performed by an employee constitute a trade or business for this purpose. O'Malley v. Commissioner, 91 T.C. 352, 363-364 (1988).
Susan D. Thompson v. Commissioner.
Case: Susan D. Thompson v. Commissioner., U.S. Tax Court, T.C. Summary Opinion 2009-111, (Jul. 20, 2009)
United States [http://wk-us.com/meta/regions/#US]
©2009 Wolters Kluwer. All Rights Reserved.
Gov. Ted Kulongoski has signed legislation that, as previously reported (TAXDAY, 2009/06/16, S.20), increases the Oregon personal income tax rate and phases out the deduction for federal income taxes paid for high-income taxpayers. The legislation also allows a subtraction from federal AGI of up to $2,400 of unemployment compensation received in the 2009 tax year. In effect, Oregon incorporates the exclusion enacted under the federal American Recovery and Reinvestment Act of 2009 (P.L. 111-5).
For tax years beginning after 2008 and before 2012, the personal income tax rate is 10.8% on taxable income over $125,000 but not over $250,000 and 11% on taxable income over $250,000. For tax years beginning after 2011, the highest tax rate will be 9.9% on taxable income over $125,000.
For tax years beginning after 2008, federal income taxes paid in excess of a specified limit, less refunds for which a tax benefit was received, must be added back to federal taxable income. The specified limit is reduced for high-income taxpayers to effectively phase out the amount of the federal income tax deduction allowed for Oregon personal income tax purposes.
Applicable to the 2009 tax year, the Oregon Department of Revenue will waive any penalty or interest that would otherwise apply to taxes due if the penalty or interest is based on underpayment or underreporting that results solely from the above-described law changes.
H.B. 2649, Laws 2009, effective September 28, 2009, applicable as noted
Oregon – Tax Amnesty Program Authorized for Fall 2009
Oregon Governor Ted Kulongoski signed S.880 that authorizes the Oregon Department of Revenue to develop and administer a tax amnesty program (with several qualifiers) for taxpayers subject to the corporation excise (income) tax, the personal income tax, the inheritance tax, and the mass transit district tax on self-employment. The program will begin on October 1, 2009, and end on November 19, 2009. All penalties and 50% of the interest due will be waived for all taxpayers who participate in the program, including those who enter into installment agreements with the DOR. However, 25% of the total amount of unpaid tax that would otherwise be due will be added to the amount of outstanding tax liability for any tax year or reporting period for which amnesty could have been sought if the taxpayer failed to apply for amnesty. A taxpayer who participates in the amnesty program is prohibited from requesting a refund of any tax paid under the program and waives the right to appeal any such tax.
Medfinders to lend a hand to Texas
Texas Health Resources and Medfinders Inc. have formed a joint venture designed to help Texas Health hospitals improve patient care by recruiting and retaining quality nurses and allied healthcare professionals. Medfinders, the parent company of Nursefinders.
The joint venture, operating as Texas Health SingleSource Staffing (THSSS), oversees the staffing of all per-diem, local-contract and travelling nurses and allied healthcare professionals for Texas Health's system of 14 hospitals across North Texas.
"This unique approach to staffing will provide nurses and allied health professionals with the flexibility and mobility that many of them desire," said Joan Clark, chief nursing executive and senior vice president of Texas Health Resources. "At the same time, it provides them with more stability and a familiar environment. That combination of flexibility, mobility, stability and familiarity is only possible within a large, established healthcare system like Texas Health."
News - State Taxday - Year to Date,S.4Georgia—Personal Income Tax: 60-Day Delay Announced for Interest on Refunds,(Jul. 27, 2009)
The Georgia Department of Revenue has issued a notice informing taxpayers to allow an additional 60 days for receipt of interest due on individual income tax refunds. The delay is attributable to a system update in the department. For taxpayers who have already received their refund checks, a separate check for interest will be mailed. In the future, the department's systems will be modified so that a single check is issued that includes both the tax refund and any applicable interest due.
Subscribers can view the notice.
HR 3333111th Congress
H. R. 3333
To amend the Internal Revenue Code of 1986 to repeal the reduction in the deductible portion of expenses for business meals and entertainment.
IN THE HOUSE OF REPRESENTATIVES
July 24, 2009
Mr. ABERCROMBIE (for himself, Mr. FARR, Mr. PUTNAM, and Ms. BERKLEY) introduced the following bill; which was referred to the Committee on Ways and Means
To amend the Internal Revenue Code of 1986 to repeal the reduction in the deductible portion of expenses for business meals and entertainment.
SECTION 1. REPEAL OF REDUCTION IN BUSINESS MEALS AND ENTERTAINMENT TAX DEDUCTION.
(a) In General- Section 274(n)(1) of the Internal Revenue Code of 1986 (relating to only 50 percent of meal and entertainment expenses allowed as deduction) is amended by striking ‘50 percent’ and inserting ‘the applicable percentage’.
(c) Conforming Amendment- The heading for section 274(n) of the Internal Revenue Code of 1986 is amended by striking ‘Only 50 Percent’ and inserting ‘Portion’.
Legislation to Repeal the Reduction in the Deductible Portion of Expenses for Business Meals and Entertainment
Pending Law: Legislation to Repeal the Reduction in the Deductible Portion of Expenses for Business Meals and Entertainment, (Jul. 28, 2009)
United States [http://wk-us.com/meta/regions/#US]
©2009 Wolters Kluwer. All Rights Reserved.
Subject: Memo from Deputy Commissioner
The attached memo from the Deputy Commissioner, Services & Enforcement, outlines new procedures for taxpayer correspondence that are effective immediately. Please distribute this memo throughout your organization. Thanks.
July 24, 2009
MEMORANDUM FOR ALL EXECUTIVES
FROM: Linda E. Stiff, Deputy Commissioner for Services and Enforcement
SUBJECT: New Taxpayer Notice Procedure
Taxpayer notices and letters are created independently within different business functions, and have become one of our most inconsistent faces to the public. Through
the taxpayer notice Iifecycle, one taxpayer can receive notices or letters with many different looks, many different messages and inconsistent language, often creating conflict and confusion for the taxpayer, which could ultimately lead to noncompliance.
The Taxpayer Communications Taskgroup (TACT) is working to resolve these issues by implementing what is essentially a complete overhaul of all taxpayer notices and letters [emphasis added]. Building a library of modular, reusable text and implementing one single design for all notices and letters will go a long way to providing a seamless experience for taxpayers who receive notices and letters from us.
Nine notices will feature the new design format beginning in January. By the following January, nearly 100 notices representing more than 60% of the volume we send out will be in the new format. The new format will take several years to implement across all of the nearly 1,000 notices and letters. To sustain the progress TACT has made, effective immediately, no business function should undertake independent taxpayer notice improvement without review and concurrence by the TACT office.
To this end, any changes to taxpayer notices or letters should be routed through the TACT office, including:
• Discretionary wording changes;
• New notice or letter creation;
• Legislative or other regulatory changes that require new wording; and
• Addition or elimination of inserts to notice mail outs.
To ensure this requirement reaches all business units and taxpayer notice authors, TACT is developing a Servicewide Electronic Research Program (SERP) alert giving specific directions for submission of notice Unified Work Requests (UWRs), which will be distributed through the SERP website. Please distribute this throughout your organization.
If you or your staff has any questions, please contact Jodi Patterson, Director, TACT or Denise Fayne, Project Advisor, TACT at (202) 927-9400.
Las Vegas Meet and Greet
First home. Even if you are under age 59½, you do not have to pay the 10% additional tax on up to $10,000 of distributions you receive to buy, build, or rebuild a first home. To qualify for treatment as a first-time homebuyer distribution, the distribution must meet all the following requirements.
If both you and your spouse are first-time homebuyers (defined later), each of you can receive distributions up to $10,000 for a first home without having to pay the 10% additional tax.
Qualified acquisition costs. Qualified acquisition costs include the following items.
First-time homebuyer. Generally, you are a first-time homebuyer if you had no present interest in a main home during the 2-year period ending on the date of acquisition of the home which the distribution is being used to buy, build, or rebuild. If you are married, your spouse must also meet this no-ownership requirement.
HR 3354111th Congress
H. R. 3354
To amend the Internal Revenue Code of 1986 to repeal the 7.5 percent threshold on the deduction for medical expenses.
IN THE HOUSE OF REPRESENTATIVES
July 27, 2009
Mr. SENSENBRENNER introduced the following bill; which was referred to the Committee on Ways and Means
To amend the Internal Revenue Code of 1986 to repeal the 7.5 percent threshold on the deduction for medical expenses.
SECTION 1. REPEAL OF 7.5 PERCENT THRESHOLD ON DEDUCTION FOR MEDICAL EXPENSES.
(a) In General- Subsection (a) of section 213 of the Internal Revenue Code of 1986 (relating to deduction for medical expenses) is amended by striking `to the extent that such expenses exceed 7.5 percent of adjusted gross income'.
Legislation to Repeal the 7.5 Percent Threshold on the Deduction for Medical Expenses
Pending Law: Legislation to Repeal the 7.5 Percent Threshold on the Deduction for Medical Expenses, (Jul. 29, 2009)
United States [http://wk-us.com/meta/regions/#US]
©2009 Wolters Kluwer. All Rights Reserved.
July 2009 News from TravelTax
Hope your summer is going great. There is a lot of tax news to share but before we start, we would like to remind our travel healthcare clients about the Travel Medical Professionals Convention coming up September 21-23 in Las Vegas. Please register early. With the financial crisis there are potential sponsors and exhibitors sitting on the sideline until a sufficient number of registrations are received. Follow the link for more information.
First Time Home Buyers Credit
This 8000$ freebie for first time home buyers expires the last day in November. If you are thinking of buying a home soon, this might be a great incentive to take advantage of, but act quickly. There are two bills before the House that would extend this credit for another 2 years, but there are way too many other spending bills to make this feasible.
Sales Tax Deduction for New Cars
This continues to be a popular deduction that is available this year
Cash for Clunkers
Eligible individuals can receive tax free a voucher of up to $4,500 to offset the purchase price or lease price of a new car or truck when they trade in their current vehicle for a more fuel-efficient one. The program runs through November 1, 2009, and is designed to remove gas-guzzling, environmentally outdated automobiles from the roads, as well as boost sales for financially struggling automobile dealers. Under the program, the voucher is provided through registered dealers but is only available if the trade-in vehicle is in drivable condition, has been continuously insured under State law, was manufactured within the past 25 years, and has a combined fuel economy of less than 18 miles per gallon. Only one voucher per person is allowed. One caveat- though the rebate is not taxable at the Federal level, it may be subject to state taxation.
A Reminder about Deductions for Work Clothing
Clothing is a deductible expense only if it is required for the taxpayer's employment, is unsuitable for general or personal wear, and is not so worn. (Hynes v. Commissioner, 74 T.C. 1266, 1290 (1980); Yeomans v. Commissioner, 30 T.C. 757, 767 (1958)).
State Tax News
Louisiana Tax Amnesty
The 2009 Louisiana Tax Amnesty Program is set to run from September 1, 2009, through October 31, 2009. The program allows taxpayers to settle account balances, overdue audit assessments, and certain tax disputes with no penalties and only half of the interest on what they owe. It applies to resident and nonresident individuals and in-state and multi-state businesses. The news release regarding the amnesty program can be viewed at
Indiana Adds New Taxes
California LLC fees now limited to CA gross receipts only and retroactively to 2007. A recent court decision has ruled these fees to be in violation of FTC laws.
Nova Scotia has a new one-time tax rebate on new home construction. The 4% rebate, equivalent to 50% of the provincial portion of the harmonized sales tax, will be available to homeowners who have a municipal construction permit dated May 1, 2009 or later. The rebate will be limited to a maximum of $7,000 and only 1,500 rebates will be available (on a first-come, first served basis) for construction or purchases completed by March 31, 2010.
Practical Tax Bulletin,“Cash for Clunker ” Vouchers Excluded from Income,(Jul. 7, 2009)
Legislation has been enacted that would allow eligible individuals to receive tax free a voucher of up to $4,500 to offset the purchase price or lease price of a new car or truck when they trade in their current vehicle for a more fuel-efficient one (P.L. 111-32). A voucher issued under the "Cash for Clunkers”" program or any payments made for a voucher are not to be included in the gross income of the purchaser of the vehicle for federal tax purposes. However, the voucher or payments might be included in gross income for state tax purposes depending on state law.
The program, which runs through November 1, 2009, is designed to remove gas-guzzling, environmentally outdated automobiles from the roads, as well as boost sales for financially struggling automobile dealers. Under the program, the voucher is provided through registered dealers but is only available if the trade-in vehicle is in drivable condition, has been continuously insured under State law, was manufactured within the past 25 years, and has a combined fuel economy of less than 18 miles per gallon. The bill limits the number of vouchers to one per customer, including joint, registered owners of a single eligible trade-in vehicle.
Clothing is a deductible expense only if it is required for the taxpayer's employment, is unsuitable for general or personal wear, and is not so worn. See Hynes v. Commissioner, 74 T.C. 1266, 1290 (1980); Yeomans v. Commissioner, 30 T.C. 757, 767 (1958).