DECEMBER, 2014 TAX UPDATE

Dear Client:

I wrote this newsletter to update you on a few important matters including:

1. Scam alert
2. IRS and audit enforcement
3. Tax bill “extenders” finally passed !
4. Office alerts

I. Scam alert!

Scam Reports have surged this year! IRS warns that people pretending to be IRS or police officials are calling taxpayers demanding immediate payment for back taxes rand even refer to a warrant and threatening the taxpayer that the police will be there within 30 minutes if you don’t pay up! (There are reports of scammers even calling your local Police reporting a crime in progress- so you may see cruiser at your address) Like last year, other scams also use email. IRS is not permitted to use email for taxpayer correspondence for any reason. Agents also do not telephone taxpayers either unless letters via US Mail has been in use and you were expecting the call. Never release any personal information! Scammers are looking for social security numbers, dates of birth, and banking/credit card information. If you are concerned that the caller is really IRS, you can tell the caller that you are represented by this firm. Just contact us right away. You may also telephone IRS at 800-829-1040, but be prepared to wait on hold for a while. Please do not speak to or give any information to these crooks! Just hang up!!

II IRS and audit enforcement

The recent budget bill gave the IRS a budget of $10.945 billion for FY 2015. That’s $346 million less than the year before. Now, for every 5 employees that leave the IRS can only hire 1. These cuts will cause individual audit rates to fall in 2014 and 2015 across all levels of income. IRS’ current funding level is less than the amount appropriated in 2008. The most recent exam rate for individuals has sunk..0.24%, or 1 out of every 417 returns.

High-income taxpayers got the most scrutiny. More than 5% of filers with incomes of $1 million or more encountered a revenue agent. The face-to-face examination rate was a bit lower for filers who had incomes between $200,000 and $1 million…1.11%. Folks with incomes under $200,000 had a 1 in 519 chance of seeing a revenue agent. S Corps and Partnerships are below 1%.

But with these newest cuts those rates will drop even further and the agents have to control, run, and police the Affordable Care Act ’s 25,000 + new regulations (more each day)

Less IRS agents means less field audits and less service, but computer generated audits are significantly being increased! These can lead to less qualified examiners dragging out audits and much more communications via faxing and telephone taking longer and longer to resolve.

Corporate exams are still more likely to be examined by a field agent. But with the cuts, less will be selected. The service has 3 years from the date the tax was assessed or date due, whichever is later.

Massachusetts is cracking down on any return with the EIC (Earned Income Tax Credit) and also increasing sales or meals tax audits.

III Certain business and personal deductions finally passes House and Senate (The “extenders”)

The US Congress actually pushed through a bi-partisan bill making most of these deductions effective 01/01/14 thru 12/31/14. So in 2015 we are set back to old, smaller deductions until they fix this again.

The day before the over $1Trillion ‘omnibus’ funding agreement to keep the bloated government running into next year was signed into law by President Obama. Please contact the office if you have questions, or bring it up during this year’s tax appointment.

Here is a list of the extended tax law provisions:

Individuals:

1. Ability to deduct state sales taxes if you reside in a non-income tax state (I.e. Florida)
2. Deductible education expenses up to $4,000
3. $250 teacher deduction
4. Mortgage interest debt forgiveness on a principal residence, up to $2 Million. This targets taxpayers involved in short- sales and foreclosure. Without this change, all canceled debt would be included in income. In MA it is still income since MA does not follow the IRS here.
5. PMI (private mortgage insurance) remains deductible, subject to phase-outs.
6. Charitable deduction from IRA distribution up to $100,000 for those age 70-1/2 and up
7. Special rules for donations of real estate for conservation purposes.

Business:

1. Bonus depreciation stays. Up to 50% of the cost of the asset purchased. Luxury auto get an extra $8,000 in depreciation the first year.
2. Immediate write-off (section 179) resumes its $500,000 of assets instead of the $25,000 limit.
3. Qualified leasehold improvements and restaurant property may be treated using Section 179.
4. Research tax credit 14% to 20%
5. Work opportunity tax credit for hiring veterans and other qualified individuals.
6. Exclusion for gain on Qualified small business stock.

There are many more extended, but not as popular as the ones listed here.

Items not extended include the electric plug in vehicle credit and the energy efficient appliance credit.

IV. Office alerts and new items

1. Tax Planning– many clients have met with us during October thru December to plan either 2014 tax year results, or to look forward to 2015. The year still isn’t over! If you think 2014 company or taxable income results will differ greatly than the 2013 tax year, you still have time to email, or telephone us to see is one of our strategies will work for you. Telephone 978-514-8829 or email [email protected]. Fees start at one billable hour.
2. Need a 2015 appointment?. Please contact the office right away if you want an appointment with Henry or Matthew. Or- you can mail in your information, or use our secure on-line electronic portal. Many clients that have been with us for a while seem to like the ease of the portal or mailbox. We still call you back with questions, just like you were sitting here! ALL tax returns and accounting work are eventually reviewed, strategized and signed by Henry. No matter how you get your information to us, we will handle it carefully and make sure its triple checked for accuracy.
3. Payment plan for eligible clients. Quite a few corporate clients are requesting to pre-pay our fees monthly as opposed to making payments of a larger invoice at work completion or during interim. Any payments made in December are deductible for 2014 too! If interested, call or email the office and one of us will explain the details. If you just cannot wait to send us a payment, just start off by sending in 25% of last year’s billings. We will credit your account. Of course, this is optional and no one has to send in early payments. You can keep the present method of billing and payments. It’s your choice! We are just trying to assist those clients who requested a plan like this.
4. New website features- An electronic secure credit card processor was installed earlier this year on our website. Everyone seems to like it. Just click “Make a Payment” on the top of the home page in the blue navigation bar. If you do not have an invoice number, just use “” We immediately get the information to post to your account, and you get an immediate electronic email receipt!
5. New IRS deposit limits for refunds. In an effort to combat fraud and identity theft, new IRS procedures effective January 2015 will limit the number of refunds electronically deposited into a single financial account or pre-paid debit card to three. The fourth and subsequent refunds automatically will convert to a paper refund check and be mailed to the taxpayer.
6. Our office welcomes Ms. Marsha Lacroix from Central Mass joining our tax team during our busiest periods. Marsha graduated Assumption College in Accounting and has a wealth of knowledge in Bookkeeping systems, Individual and Payroll tax filings and Corporate returns.

Merry Christmas and Happy Holidays!

The staff at Henry C Kulik, Jr. CPA, LLC