Firm Happenings and Financial News

Sep 6

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9/6/2016 12:25 PM  RssIcon

The Final Tax Deadlines of the Year are Approaching

The final deadline for extended 2015 Partnership, Trust, and Corporate tax returns with fiscal year-end dates is Thursday, September 15th. Extended individual tax returns are due on Monday, October 17th.

If you need to send us tax information, we encourage you to use our secure, online client portal, which can be accessed from the Client Tools page of our website. In addition to transferring information to us, you can also access your past tax returns and financial statements through your portal. If you need your portal account information, please contact us for help.

As always, please do not hesitate to contact us if you have any questions about your 2015 tax return.

IRS Urges Taxpayers to Check Their Withholding; New Factors Increase Importance of Mid-Year Check Up

The Internal Revenue Service today encouraged taxpayers to consider a mid-year tax withholding checkup following several new factors that could affect their refunds in 2017. Taking a closer look at the taxes being withheld can help ensure the right amount is withheld, either for tax refund purposes or to avoid an unexpected tax bill next year.

The withholding review takes on even more importance this year given a new tax law change that requires the IRS to hold refunds a few weeks for some early filers in 2017 claiming the Earned Income Tax Credit and the Additional Child Tax Credit. In addition, the IRS and state tax administrators continue to strengthen identity theft and refund fraud protections, which means some tax returns could again face additional review time next year to protect against fraud.

"With these changes, it makes good sense on many different levels to check on your withholding and plan ahead for next tax season," said IRS Commissioner John Koskinen. "It's a personal choice if you want to have extra money withheld to get a bigger tax refund, but you have options available if you prefer to have a smaller refund next year and more take-home money now." So far in 2016, the IRS has issued more than 102 million tax refunds out of 140 million total individual returns processed, with the average refund well over $2,700. Historically, the refund figure has increased over time in size.

By adjusting the Form W-4, Employee’s Withholding Allowance Certificate, taxpayers can ensure that the right amount is taken out of their pay throughout the year so that they don’t pay too much tax and have to wait until they file their tax return to get any refund. Employers use the form to figure the amount of federal income tax to be withheld from pay.

Some Refunds Delayed in 2017

When considering refund issues, the IRS wants taxpayers to be aware several factors could affect the timing of their tax refunds next year. A major change will affect some early tax filers claiming two key credits who won't see their refunds until after Feb. 15.

Beginning in 2017, a new law requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) until mid-February. Under the change required by Congress in the Protecting Americans from Tax Hikes (PATH) Act, the IRS must hold the entire refund – even the portion not associated with the EITC and ACTC -- until at least Feb. 15. This change helps ensure that taxpayers get the refund they are owed by giving the agency more time to help detect and prevent fraud.

As in past years, the IRS will begin accepting and processing tax returns once the filing season begins. All taxpayers should file as usual, and tax return preparers should also submit returns as they normally do. Even though the IRS cannot issue refunds for some early filers until at least Feb. 15, the IRS reminds taxpayers that most refunds will still be issued within the normal tim

''This is an important change to be aware of for some taxpayers used to getting an early refund," Koskinen said. "We'll be focusing on awareness of this change throughout the fall, but it's important for taxpayers who might be affected by this to be aware of the change for their planning purposes. Although we still expect to issue most refunds within 21 days, we don't want people caught by surprise if they get their refund a few weeks later than previous years."

Stronger Security Filters and Tax Refund Processing

As the IRS steps up its efforts to combat identity theft and tax refund fraud through its many processing filters, legitimate refund returns sometimes get delayed. While the IRS is working diligently to stop fraudulent refunds from being issued, it is also focused on releasing legitimate refunds as quickly as possible.

The IRS, state tax agencies and the private sector tax industry continue to work together to fight fraud through their unprecedented Security Summit partnership. Additional safeguards will be set in place for the upcoming 2017 filing season.

"These increased security screenings are invisible to most taxpayers," Koskinen said. "But we want people to be aware we are taking additional steps to protect taxpayers from identity theft, and that sometimes means the real taxpayers face a slight delay in their refunds. As we continue improving our processes and working with the states and the tax industry, we will stop more fraud while also fine-tuning our tools to reduce the number of innocent taxpayers who might see a refund delay. "

The agency encourages taxpayers to check their tax withholding now. Whether they prefer more earned money during the year or a large refund, checking withholding can ensure people don’t receive an unexpected tax bill next year. Making these checks in the late summer or early fall can give taxpayers enough time to adjust their withholdings before the tax year ends in December.

Changes in Circumstances and Advance Premium Tax Credits

There are also some important reminders for taxpayers who receive advance payments of the Premium Tax Credit under the Affordable Care Act.

People who have advance payments of the premium tax credit made to their insurance company on their behalf should report life changes to their Marketplace. Changes in circumstances that should be reported include moving to a new address and changes to income or family size. Reporting these changes will help individuals avoid large differences between the advance credit payments and the amount of the premium tax credit allowed on their tax return, which may affect their refund or balance due.

People Working in the Shared Economy

The IRS encourages people in the shared economy who also have a job with an employer to take a close look at their withholding, which can help avoid unexpected tax issues with their income from such things as driving a car or renting a home.

Making a Withholding Adjustment

In many cases, a new Form W-4, Employee’s Withholding Allowance Certificate, is all that is needed to make an adjustment. Taxpayers submit it to their employer, and the employer uses the form to figure the amount of federal income tax to be withheld from pay.

The IRS offers several online resources to help taxpayers bring taxes paid closer to what is owed. They are available anytime on IRS.gov. They include:

  • IRS Withholding Calculator – Online tool helps determine the correct amount of tax to withhold.
  • IRS Publication 505 – Tax Withholding and Estimated Tax.
  • Tax Withholding – Complete information on withholding, estimated taxes, FAQs, more.

Self-employed taxpayers, including those involved in the sharing economy, can use the Form 1040-ES worksheet to correctly figure their estimated tax payments. If they also work for an employer, they can often forgo making these quarterly payments by instead having more tax taken out of their pay.

Source: IRS Newswire Issue Number: IR-2016-117

The Tax Return is Only a Summary

By Dante J. Driver, CPA, MBA, JD, PFS, Manager, Falco Sult

When most people think about tax compliance, they think about tax returns, but a tax return is only a summary of the information on the underlying records of taxable income and deductible expenses. Those records are more important than the return itself for several reasons.

First of all, a complete and accurate tax return can’t be drafted without complete and accurate records. IRS rules generally permit paid tax return preparers to rely on representations of a taxpayer; however, paper or electronic records are preferable to the taxpayer’s recollections and representations. The return can’t even be reviewed for completeness and accuracy without those records. Ideally, the reviewer should be able to trace each amount entered in the tax return back to a supporting record.

Second, federal and state tax statutes and regulations require each taxpayer to keep records sufficient to show whether or not he or she is liable for tax. For example, Internal Revenue Code Section 6001 says, "Every person liable for any tax imposed by this title shall keep such records as the Secretary may from time to time subscribe. Whenever in the judgment of the Secretary it is necessary, he may require any person, by notice upon such person or by regulations, to keep such records as the Secretary deems sufficient to show whether or not such person is liable for tax under this title."

Federal regulations require wage earners and individual farmers to “keep such records as will enable the district director to determine the correct amount of income subject to tax.”

Other persons must, "Keep such permanent books of account or records, including inventories, as are sufficient to establish the amount of gross income, deduction, credits or other matters required to be shown by such person in any return of such tax or information."

The federal regulations also say, "The books or records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees, and shall be retained so long as the contents thereof may become material in the administration of any internal revenue law."

Recordkeeping becomes especially crucial in the event of an audit.

According to the IRS Manual — Auditing includes the accumulation of evidence for evaluating the accuracy of the tax return(s). Evidence takes many forms, including the taxpayer’s testimony, the taxpayer’s books and records, the examiner’s own observations and documents from third parties.

The taxpayer’s testimony is often discounted as “self-serving” and the examiner’s observation are also biased. The best evidence by far is books, records and third party documents that support the tax return.

If a taxpayer has records to support the amounts reported on the tax return, then he or she has little to fear from an audit. Any audit costs the taxpayer time, and may cost money if he or she hires someone to represent him or her before the taxing authority. However, those costs are minimized along with the risk of an adverse outcome if the taxpayer has records that support the amounts reported on the return.

If a taxpayer has no records to support the amounts reported on the return, the audit may be over quickly, and with minimal representation costs, but the auditor is likely to propose changes that will result in additional tax, and possibly penalties and interest.

The worst-case scenario is where the taxpayer has records, but they are incomplete and/or inaccurate. Where the records are subject to interpretation and argument, the audits are longer and more costly and the risk of an adverse outcome is greatly increased.

In the past three years, I have represented half a dozen taxpayers in IRS audits. In four cases, the taxpayers had good records to support their returns, and the audits were quickly and economically and concluded in the taxpayer’s favor (no change). The other two cases took longer, cost more and resulted in additional tax and penalties because the taxpayers could not produce records to support amounts reported on their tax returns.

As Gerry pointed out in his last Voices of Carlson post, “Your Chances of an IRS Audit”, April 18, 2012—“Our recommendation on this is that all taxpayers should approach their annual tax returns assuming that their return will be audited. . .” That’s how we approach preparing tax returns. That means you must keep records that support your income, adjustments, exemptions, deductions, credits and payments, and give your tax return preparer the information he or she requests to support your tax return. That way, if you are audited, you can minimize the time, cost and risk of an adverse result.

We understand it can be difficult for taxpayers to determine which records to keep to support their tax returns, and for how long. If in doubt, please ask. That’s what we’re here for.

Save the Date: Seattle Humane's Walk for the Animals, Sunday, October 2nd

Join nearly 1,000 other pet lovers from around the Greater Seattle area and their dogs at 9am on Sunday, October 2 as we walk around Green Lake and help fundraise for the cats, dogs, and critters at Seattle Humane!

The event also features local celebrities, adoptable pets, great vendor booths to visit, a photobooth sponsored by Mud Bay, breakfast treats and coffee, and contests!

Register now and start fundraising to provide food, shelter and veterinary care for orphaned pets in our community.

Register today!

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