The IRS offers several different ways to get tax return information or a copy of your own tax return for prior years. Here are options to help you get the information you need.

• Tax Return Transcript.  This shows most line items from your tax return as originally filed, along with any forms and schedules from your return.  This transcript does not reflect any changes made to the return after you filed it. Tax return transcripts are free. After the IRS has processed a return, transcripts are available for the current tax year and the past three tax years.

• Tax Account Transcript.  This shows any adjustments made by you or the IRS after filing your return. This transcript shows basic data, like marital status, type of return filed, adjusted gross income and taxable income. Tax account transcripts are free, and are available after the IRS has processed the return for the current tax year and the past three tax years.

• Order a Transcript.  You can request both transcript types online, by phone or by mail. To place your order online, go to IRS.gov and use the “Order a Transcript” tool. Order a transcript by phone at 800-908-9946. A recorded message will guide you through the process. You can also request your tax return transcript by mail by completing Form 4506T-EZ. Use Form 4506T to mail a request for your tax account transcript. You can get both forms online at IRS.gov.

• Tax Return Copies.  Actual copies of your tax returns are generally available for the current tax year and as far back as six years. The fee for each copy you order is $57. To request a copy of your tax return, complete Form 4506, available on IRS.gov. Mail your request to the IRS office listed on the form for your area.

• Delivery Times.  The turnaround time for online and phone orders is typically 5 to 10 days from the time the IRS receives the request. Allow 30 calendar days for delivery of a tax account transcript if you order by mail using Form 4506T-EZ or Form 4506T, and allow 60 days when ordering actual copies of your tax return by mail.

Donna H. Laubscher, CPA

Though a taxpayer often qualifies for more than one of these benefits, he or she can only claim one of them for a particular student in a particular year.  (Otherwise, this would be double dipping which is most generally disallowed in the tax law.) The benefits are available to all taxpayers – both those who itemize their deductions on Schedule A and those who claim a standard deduction. The credits are claimed on Form 8863 and the tuition and fees deduction is claimed on Form 8917.

The American Taxpayer Relief Act, enacted Jan. 2, 2013, extended the American opportunity tax credit for another five years until the end of 2017. The new law also retroactively extended the tuition and fees deduction, which had expired at the end of 2011, through 2013. The lifetime learning credit did not need to be extended because it was already a permanent part of the tax code.

For those eligible, including most undergraduate students, the American opportunity tax credit will yield the greatest tax savings.  Alternatively, the lifetime learning credit should be considered by part-time students and those attending graduate school. For others, especially those who don’t qualify for either credit, the tuition and fees deduction may be the right choice.

All three benefits are available for students enrolled in an eligible college, university or vocational school, including both nonprofit and for-profit institutions. None of them can be claimed by a nonresident alien or married person filing a separate return. In most cases, dependents cannot claim these education benefits.

Normally, a student will receive a Form 1098-T from their institution by the end of January of the following year. This form will show information about tuition paid or billed along with other information. However, amounts shown on this form may differ from amounts taxpayers are eligible to claim for these tax benefits.

Many of those eligible for the American opportunity tax credit qualify for the maximum annual credit of $2,500 per student. Here are some key features of the credit:

• The credit targets the first four years of post-secondary education, and a student must be enrolled at least half time. This means that expenses paid for a student who, as of the beginning of the tax year, has already completed the first four years of college do not qualify. Any student with a felony drug conviction also does not qualify.
• Tuition, required enrollment fees, books and other required course materials generally qualify. Other expenses, such as room and board, do not.
• The credit equals 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
• The full credit can only be claimed by taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less. For married couples filing a joint return, the limit is $160,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $180,000 or more and singles, heads of household and some widows and widowers whose MAGI is $90,000 or more.
• Forty percent of the American opportunity tax credit is refundable. This means that even people who owe no tax can get an annual payment of up to $1,000 for each eligible student. Other education-related credits and deductions do not provide a benefit to people who owe no tax.

The lifetime learning credit of up to $2,000 per tax return is available for both graduate and undergraduate students. Unlike the American opportunity tax credit, the limit on the lifetime learning credit applies to each tax return, rather than to each student. Though the half-time student requirement does not apply, the course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. Other features of the credit include:

• Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.
• The credit equals 20 percent of the amount spent on eligible expenses across all students on the return. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more in qualifying tuition and fees and has sufficient tax liability.
• Income limits are lower than under the American opportunity tax credit. For 2012, the full credit can be claimed by taxpayers whose MAGI is $52,000 or less. For married couples filing a joint return, the limit is $104,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $124,000 or more and singles, heads of household and some widows and widowers whose MAGI is $62,000 or more.

Like the lifetime learning credit, the tuition and fees deduction is available for all levels of post-secondary education, and the cost of one or more courses can qualify. The annual deduction limit is $4,000 for joint filers whose MAGI is $130,000 or less and other taxpayers whose MAGI is $65,000 or less. The deduction limit drops to $2,000 for couples whose MAGI exceeds $130,000 but is no more than $160,000, and other taxpayers whose MAGI exceeds $65,000 but is no more than $80,000.

There are a variety of other education-related tax benefits that can help many taxpayers. They include:

• Scholarship and fellowship grants—generally tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
• Student loan interest deduction of up to $2,500 per year.
• Savings bonds used to pay for college—though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years old.
• Qualified tuition programs, also called 529 plans, used by many families to prepay or save for a child’s college education.

Taxpayers with qualifying children who are students up to age 24 may be able to claim a dependent exemption and the earned income tax credit.

There are some opportunities for planning when preparing the returns for both parents and students.  See Six Important Facts about Dependents and Exemptions.

Donna H. Laubscher, CPA

Per the IRS, there are special tax rules that affect how parents report a child’s investment income. Some parents can include their child’s investment income on their tax return on Form 8814 (Parents’ Election to Report Child’s Interest and Dividends). Other children may have to file their own tax return.

Here are four facts from the IRS about the taxability of your child’s investment income.

1. Investment income normally includes interest, dividends, capital gains and other unearned income, such as from a trust.

2. Special rules apply if your child’s total investment income is more than $1,900. The parent’s tax rate may apply to part of that income instead of the child’s tax rate.

3. If your child’s total interest and dividend income is less than $9,500, you may be able to include the income on your tax return.

4. Your child must file their own tax return if they received investment income of $9,500 or more. File Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, with the child’s federal tax return.

If you have any questions, please contact our office.

Danette Hefty, EA

Scam artists use a variety of tactics. Some operate bogus charities that contact people by telephone to solicit money or financial information. Others use emails to steer people to bogus websites to solicit funds, allegedly for the benefit of tragedy victims. The fraudulent websites often mimic the sites of legitimate charities or use names similar to legitimate charities. They may claim affiliation with legitimate charities to persuade members of the public to send money or provide personal financial information. Scammers then use that information to steal the identities or money of their victims.

The IRS offers the following tips to help taxpayers who wish to donate to victims of the recent tragedies at the Boston Marathon and a Texas fertilizer plant:

• Donate to qualified charities.  Use the Exempt Organizations Select Check tool at IRS.gov to find qualified charities. Only donations to qualified charitable organizations are tax-deductible. You can also find legitimate charities on the Federal Emergency Management Agency (FEMA) Web site at fema.gov.
• Be wary of charities with similar names.  Some phony charities use names that are similar to familiar or nationally known organizations. They may use names or websites that sound or look like those of legitimate organizations.
• Don’t give out personal financial information.  Do not give your Social Security number, credit card and bank account numbers and passwords to anyone who solicits a contribution from you. Scam artists use this information to steal your identity and money.
• Don’t give or send cash.  For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the donation.
• Report suspected fraud.  Taxpayers suspecting tax or charity-related fraud should visit IRS.gov and perform a search using the keywords “Report Phishing.”

More information about tax scams and schemes is available at IRS.gov using the keywords “scams and schemes.”

Donna H. Laubscher, CPA

Acknowledging the problem faced on April 15, 2013, California has announced that they will waive the mandatory e-pay penalty for taxpayers that paid their tax, extension, or estimated tax payment by check.

Taxpayers may request a waiver of the mandatory e-pay penalty for the 04.15.2013 payment by:

Phone (Preferred Method):
• Tax Practitioner Hotline – 916.845.7057
• Taxpayers – 800.852.5711

Fax:
Complete FTB 4107, Mandatory e-Pay Election to Discontinue or Waiver Request. In Part 1, check the second box and enter 04.15.2013 Website Problem.
• Fax your request to 916.843.0468

Mail:
Complete FTB 4107, Mandatory e-Pay Election to Discontinue or Waiver Request. In Part 1, check the second box and enter 04.15.2013 Website Problem. In red, write 04.15.2013 Website Problem. Mail your request to:
 
STATE OF CALIFORNIA
FRANCHSIE TAX BOARD
PO BOX 942840
SACRAMENTO, CA 94240-0040
 
Important: California is stressing that this is a one-time waiver of the mandatory e-pay penalty; Taxpayers are still required to make future payments electronically unless they are granted a waiver. See FTB 4107 for more information or go to the FTB website and search for mandatory e-pay.

Melinda Nelson, CPA

Here are eight important points about penalties for filing or paying late.

1. A failure-to-file penalty may apply if you did not file by the tax filing deadline. A failure-to-pay penalty may apply if you did not pay all of the taxes you owe by the tax filing deadline.

2. The failure-to-file penalty is generally more than the failure-to-pay penalty. You should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should explore other payment options such as getting a loan or making an installment agreement to make payments. The IRS will work with you.

3. The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.

4. If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.

5. If you timely requested an extension of time to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.

6. If both the 5 percent failure-to-file penalty and the ½ percent failure-to-pay penalties apply in any month, the maximum penalty that you’ll pay for both is 5 percent.

7. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

8. You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time.

Note: The IRS recently announced special penalty relief to many taxpayers who requested an extension of time to file their 2012 federal income tax returns (click here) and some victims of the recent severe storms in parts of the South and Midwest. For details about these relief provisions, see IRS news releases IR-2013-31 and IR-2013-42. The IRS has also provided individual tax filing and payment extensions to those affected by the Boston explosions tragedy. See IR-2013-43 for more information.

Donna H. Laubscher, CPA

What does this mean to you?

This means you will be paying 1% less sales tax starting on June 1, 2013.

What do you need to do?

If you are a consumer, you should verify that the rates are correct.

If you are a business that collects the Arizona TPT tax, you need to update the way you calculate sales tax when invoicing a client or processing a sale beginning on June 1, 2013. Whether you create invoices in QuickBooks, use a POS system, or hand-calculate your sales tax, you need to update your sales tax rates.

For prime contractors and owner builders, you may be able to reduce the TPT rate on preexisting contracts.  However, this is on a per-contract basis and you should consult with a tax advisor before reducing your sales tax rate by 1% on preexisting contracts.

Sales tax rates can, and do, change frequently with little or no warning; because of this, it is best practice to check sales tax rates regularly. You can do so by going to azdor.gov website and navigating to their TPT Rates page.  Here are the rates as of June 1, 2013.

Sales tax is complicated enough having to navigate the sheer number of deductions available while also having to figure out what is and isn’t subject to the tax. If you compound that complexity with the ever-changing tax rates and the little-to-no forewarning that tax rates are changing, you can quickly find yourself with a notice from a city or the state.

But – it is not often that we get to let you know of a rate reduction!

Joshua Lemman

Although smaller employers won’t be required to provide employees with health insurance, the law is likely to impact the labor market and ultimately the cost of doing business.

So what does this mean to you if you have less than 50 full-time equivalents (FTEs)? On the surface, it appears to be good news. You won’t be required to offer health insurance to your employees and you won’t be subject to penalties larger employers could face.  But not so fast you need to dig a little deeper to understand the law’s impact on you and your employees if you have less than 50 employees.

Aside from the “pay or play” requirements is the “individual mandate.”  This requires each person to have health insurance, or be subject to a penalty on his individual tax return. The penalties start out fairly mild in 2014 but increase rapidly in 2015 and 2016. In 2014 the penalty is the greater of:

• $95 for each adult plus $47.50 for each child claimed on your tax return that does not have health insurance or
• 1 percent of your modified adjusted gross income (MAGI), whichever is greater.

In 2015 the penalty increases to the greater of $325 per adult and $162.50 per child, or 2 percent of your MAGI, whichever is greater and in 2016 the penalty is $695 per adult and $347.50 per child, or 2.5 percent of your MAGI, whichever is greater.

Consider now the situation of employees whose employers don’t offer health insurance. They have two options: purchase their own health insurance or pay the above-mentioned penalties. Individuals purchasing insurance will use the soon-to-be-launched public insurance exchanges, which are in the process of being set up by the federal and several state governments. It’s important to understand that the pricing of the exchanges is income-based: the more an employee makes, the more he will have to pay for his insurance.

In the exchanges, the federal government will subsidize the health insurance premiums for anyone making less than 400 percent of the federal poverty level, with a goal of having insurance purchased through the exchanges cost approximately 9.5 percent of income plus the cost of out-of-pocket medical expenses. Individuals making more than 400 percent of the federal poverty level will not receive premium subsidies. To put this in perspective, a family of four living at 400 percent of the federal poverty level makes $94,200.

As an employer, one of the tricky things about the insurance subsidies to be offered is that the more you pay your employees, the more it will cost them to purchase insurance through the exchanges. If you don’t offer health insurance to your employees they may quickly become discouraged with their options of paying a penalty or paying out-of-pocket to purchase health care coverage through an exchange. Don’t be surprised if many of your employees look elsewhere for another job that provides health insurance benefits. This could be just one more challenge facing small employers in an already competitive labor market.

As you can see, the further implementation of the ACA regulations coming in 2014 will have an impact on employers of all sizes, even those that have less than 50 employees and aren’t required to offer health insurance will be affected. Small employers may soon find themselves in a position where they need to offer affordable health insurance in order to remain competitive in attracting great employees.

There are steps you can take now to start preparing for the changes coming in 2014. For tips of how to mitigate health care reform’s impact on your business plan to attend one of the upcoming seminars being sponsored by Henry & Horne, LLP on May 21st.   Feel free to contact Gary W. Fleming (480-839-4900) or your Henry & Horne, LLP tax advisor with any questions you have about preparing your business for health care reform.

Gary W. Fleming, CPA

The IRS has this advice for anyone who receives an email claiming to be from the IRS or directing you to an IRS site:

• Do not reply to the message;
• Do not open any attachments. Attachments may contain malicious code that will infect your computer; and
• Do not click on any links in a suspicious email or phishing website and do not enter confidential information. Visit the IRS website and click on ‘Identity Theft’ at the bottom of the page for more information.

Here are five other key points the IRS wants you to know about phishing scams.

1. The IRS does not initiate contact with taxpayers by email or social media channels to request personal or financial information;

2. The IRS never asks for detailed personal and financial information like PIN numbers, passwords or similar secret access information for credit card, bank or other financial accounts;

3. The address of the official IRS website is www.irs.gov. Do not be misled by sites claiming to be the IRS but ending in .com, .net, .org or anything other than .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on their site and report it to the IRS;

4. If you receive a phone call, fax or letter in the mail from an individual claiming to be from the IRS but you suspect they are not an IRS employee, contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Report any bogus correspondence. Forward a suspicious email to phishing@irs.gov;

5. You can help the IRS and other law enforcement agencies shut down these schemes. Visit the IRS.gov website to get details on how to report scams and helpful resources if you are the victim of a scam. Click on “Reporting Phishing” at the bottom of the page.
Donna H. Laubscher, CPA

Valid corporation soles do exist.  A valid corporation sole enables a bona fide religious leader, such as a bishop or other authorized religious official, to incorporate under state law, in his capacity as a religious official.  A corporation sole may own property and enter into contracts as a natural person, but only for the purposes of the religious entity and not for the individual office holder’s personal benefit.  A legitimate corporation sole is designed to ensure continuity of ownership of property dedicated to the benefit of a legitimate religious organization.

A taxpayer cannot avoid income tax or other financial responsibilities by purporting to be a religious leader and forming a corporation sole for tax avoidance purposes.  The claims that such a corporation sole is described in section 501 (c)(3) and that assignment of income and transfer of assets to such an entity will exempt in individual from income tax are merit-less.  Courts have repeatedly rejected such arguments as frivolous and imposed penalties (including criminal) for making them. 

I guess you can say that only an honest soul can form a corporation sole.

Dale F. Jensen, CPA