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IRS 2014 Tax Law Update (as of December 12, 2014) & IRS Issues

Richard G. Furlong, Jr. Senior Stakeholder Liaison Small Business Self-Employed Division. IRS 2014 Tax Law Update (as of December 12, 2014) & IRS Issues. CPA Continuing Education Society of PA December 17, 2014. Tax Increase Prevention Act of 2014 (H.R. 5771. Individual extenders

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IRS 2014 Tax Law Update (as of December 12, 2014) & IRS Issues

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  1. Richard G. Furlong, Jr.Senior Stakeholder Liaison Small Business Self-Employed Division IRS 2014 Tax Law Update(as of December 12, 2014)& IRS Issues CPA Continuing Education Society of PA December 17, 2014

  2. Tax Increase Prevention Act of 2014 (H.R. 5771 • Individual extenders • Business extenders • Energy extenders

  3. TIPRA Extensions:Individual Provisions • Deductions for expenses of elementary and secondary school teachers • Mortgage debt relief • Deduction for mortgage insurance premiums • Deduction for state and local general sales taxes • Tax Free IRA Distributions to Qualified Charities • Deduction for higher education expenses

  4. TIPRA Extensions:Business Provisions • Bonus Depreciation • Enhanced Section 179 Deduction • Research and Experimentation tax credit • New Markets Tax Credit • Employer wage credit for activated military reservists • Work Opportunity Tax Credit • Exclusion of Gain on Qualified 1202 Stock Sales

  5. TIPRA Extensions:Energy Provisions • Credit for Nonbusiness Energy Property • Incentives for biodiesel and renewable diesel • Credit for construction of new energy efficient homes • Energy Efficient Commercial Buildings Deduction

  6. Net Investment Income Tax(NIIT) • Tax of 3.8% on certain net investment income to the extent modified AGI is above threshold: • Married Filing Jointly $250,000 • Married Filing Separately $125,000 • Single $200,000 • Head of Household $200,000 • Qualifying Widow(er) $250,000 • For estates and trusts -- threshold for tax year 2014 is $12,150

  7. Net Investment Income Tax(NIIT) Three critical terms associated with the 3.8% Medicare Surtax: • Net Investment Income • Threshold Amount • Modified Adjusted Gross Income (MAGI)

  8. Net Investment Income Tax(NIIT) APPLICATION TO INDIVIDUALS The Medicare Surtax is equal to: • “Net investment Income” • OR • 2. The excess (if any) of – • “Modified Adjusted Gross Income (MAGI) • “Threshold amount” • Net Investment Income • OR • 2. The excess (if any) of : • “Modified Adjusted Gross • Income (MAGI) • -- • “Threshold Amount” 3.8% X the lesser of

  9. Net Investment Income Tax(NIIT) APPLICATION TO ESTATES AND TRUSTS The NIIT is equal to: • “Net invesIncome” • OR • 2. The excess (if any) of – • “Modified Adjusted Gross Income (MAGI) • “Threshold amount” • Undistributed “net investment income” for such taxable year • OR • 2. The excess (if any) of – • “Adjusted Gross Income” (as defined in section 67) for such taxable year, over the dollar amount at which the highest tax bracket in section 1(e) begins for such a taxable year 3.8% X the lesser of

  10. Net Investment Income Tax(NIIT) “Threshold Amount:” the key factor in determining the “lesser of” formula for purposes of calculating the surtax. Threshold Amounts: • Single taxpayers - $200,000 • Married taxpayers - $250,000 • Estates/Trusts - $12,150 (i.e. top income tax bracket in 2014)

  11. Net Investment Income Tax(NIIT) “Modified adjusted gross income” (MAGI): the amount that is compared to the “threshold amount” to determine the “net investment income” that is subject to the NIIT. MAGI equals: • Adjusted gross income (i.e., Form 1040, Line 37) PLUS • Net foreign earned income exclusion (i.e. gross income excluded under the foreign earned income exclusion less certain deductions or exclusions that were disallowed due to the foreign earned income exclusion

  12. Net Investment Income Tax(NIIT) • Does NOT Include: • Salary, wages, or bonuses • Distributions from IRAs or qualified plans • Any income taken into account for self-employment tax purposes • Gain on the sale of an active interest in a partnership or S corporation • Items which are otherwise excluded or exempt from income under the income tax law, such as interest from tax-exempt bonds, capital gain excluded under IRC 121, and veterans benefits • Includes: • Interest • Dividends • Annuity Distributions • Rents • Royalties • Income derived from passive activity • Net capital gain derived from the disposition of property

  13. Example 1: • John • Single Taxpayer • $100,000 of Salary • $50,000 net investment income • MAGI is $150,000 3.8% NIIT would NOT apply MAGI is less than threshold

  14. Example 2: 3.8% NIIT would NOT apply Wages Exempt from NIIT • Tina & Terry • Married, filing jointly • $300,000 combined salary • $0 net investment income

  15. Example 3: • Peter & Paula • Married, filing jointly • $400,000 salary income • $50,000 net investment income 3.8% NIIT would apply to $50,000

  16. Example 4: • Randy – Age 70 • Single taxpayer • $200,000 investment income • $125,000 RMD from his IRA • Excess of • MAGI • Threshold 3.8% NIIT would apply to $125,000 $325,000 - $200,000 =$125,000

  17. Example 5: • David & Veronica • Married, filing jointly • $100,000 pension income • $150,000 IRA income • $25,000 tax-exempt interest • $0 net investment income 3.8% NIIT would NOT apply

  18. Taxpayer Bill of Rights Ten broad categories: • Right to Be Informed • Right to Quality Service • Right to Pay No More than the Correct Amount of Tax • Right to Challenge the IRS’s Position and Be Heard • Right to Appeal a Decision in an Independent Forum

  19. Taxpayer Bill of Rights (cont.) Ten broad categories (cont.) • Right to Finality • Right to Privacy • Right to Confidentiality • Right to Retain Representation • Right to a Fair and Just Tax System

  20. Richard G. Furlong, Jr. Senior Stakeholder Liaison IRS Direct Pay CPA Continuing Education Society of PA December 17, 2014

  21. Welcome to Direct Pay IRS.gov/DirectPay

  22. Direct Pay Is … • e-Pay option for individual taxpayers • Free • Secure • Available 24X7

  23. Direct Pay – Step 1 Reason for payment?

  24. Direct Pay – Step 1 Select “Tax Year For Payment”

  25. Direct Pay – Step 2 Verify Identity • Select a tax year for verification • Enter filing status for selected year • Enter name – SSN – DOB – address for selected year

  26. Direct Pay – Step 3 Your Payment Information • Amount of payment • Payment date (within 30-days) • Bank routing & account number • Account type – checking or savings

  27. Direct Pay – Steps 4 & 5 • Step 4 – Review and sign • Step 5 – Print or record confirmation number • Use confirmation number to • Check status of payments • Edit or cancel payments

  28. Direct Pay Benefits • Ability to • Check payment status • Cancel payments

  29. Direct Pay Benefits • Available 24X7 • Saves time, money & effort • No waiting for a PIN to be mailed • No trips to post office • No postage • No money order or debit/credit card fees

  30. Direct Pay Benefits • Flexible payment scheduling • Immediate online confirmation • Accounts credited same day • Fewer payment posting errors

  31. IRS.gov/DirectPay Click “Pay Now” to Get Started And Follow the 5 Easy Steps

  32. Richard G. Furlong Jr. Senior Stakeholder Liaison my Social Security Account December 17, 2014

  33. my Social Security Account • Open online at www.socialsecurity.gov • Click on my Social Security • It’s quick, safe, free and easy • Must be 18-years-old and have a: • Valid email address • Social Security Number • U.S. mailing address

  34. my Social Security Account Use your account to: • Get an online Social Security Statement • Review lifetime earnings • See estimates of future benefits • Get an instant benefit verification letter • Change your address and phone number • Start or change direct deposit of benefit payments

  35. Begins when a return is filed without paying the debt in full Paying your taxes Options for paying in full Options if you can’t pay in full now Installment agreement Offer in compromise If you need more time to pay The Collection Process

  36. Taxpayers can appeal most collection actions. Main options: Collection Due Process Collection Appeals Program Collection Appeals Options

  37. Five basic requirements: Filed all returns Made all required estimated taxes payments Current with federal tax deposits Can’t pay full amount Not in bankruptcy Offer in Compromise

  38. IRS may accept an offer on three grounds: Doubt as to liability Doubt as to collectability Effective tax administration Offer in Compromise

  39. OIC Pre-Qualifier Tool The OIC Pre-Qualifier tool helps applicant s confirm eligibility and prepare preliminary proposals.

  40. The completed offer package must include all of the following items: Form 433A or 433B Form 656 for each taxpayer $186 non-refundable fee Non-refundable payment Offer in Compromise Components

  41. Notice of Federal Tax Lien • Claim against current and future rights to property • Once lien exists, controlled by IRC §6322 • Date of origin becomes assessment date • Exists until liability is satisfied or becomes unenforceable by lapse of time • IRS not required to file Notice of Federal Tax Lien for tax lien to attach

  42. Filing criteria: Generally, the IRS will not file a Notice of Federal Tax Lien if the unpaid balance of assessment is less than $10,000. Payoff amount: Call 800-913-6050 Appeal: Within 5 business days of filing. IRS will send a Notice of Your Right to a Collection Due Process Hearing. Notice of Federal Tax Lien

  43. Release of lien IRS has cleared both the lien for the debt and the public NFTL IRS Publication 1450 Withdraw of lien Removes NFTL from public records Does not mean federal tax lien is released or taxpayer no longer liable for amount NFTL - IRS Actions

  44. Discharge of lien Removes a lien from specific property IRS Publication 783 Subordination of lien Allows a creditor to move ahead of the government’s priority position IRS Publication 784 NFTL - IRS Actions (cont.)

  45. Process used by IRS to help taxpayers when they disagree with the results of an IRS audit of their tax returns, or returns created for them by the IRS because they did not file tax returns as authorized by the Internal Revenue Code 6020(b). Audit Reconsideration

  46. Step 1: Review examination report and attachments; determine which items you feel are incorrect Gather documentation needed to support your position Verify supporting documentation is information that has not been presented before; ensure it’s for tax year in question Audit Reconsideration Process

  47. Report of Foreign Bank and Financial Accounts (FBAR) WHO MUST FILE? • Any United States person who: • has financial interest in, or • signature authority over • financial accounts in a foreign country • If aggregate value of accounts exceeds $10,000 at any time during calendar year

  48. Report of Foreign Bank and Financial Accounts (FBAR) WHEN AND HOW TO FILE? • FinCEN Report 114 must be received on or before June 30 following year being reported • FBARs are electronically filed through the BSA E-Filing System • Extensions granted for federal tax returns do not extend due date for FBAR filing • Retain records for five years

  49. FinCEN Report 114a • New report for filers who… • submit FBARs jointly with spouses, or • who wish to have a third party preparer file on their behalf • Not submitted when filing an FBAR, kept in records maintained by filer / account holder • Must be made available to FinCEN and IRS upon request

  50. Reporting Foreign Assets(Two Reporting Regimes) FinCEN Report 114, Report of Foreign Bank and Financial Accounts(FBAR) Title 31, § 5314 Stand-alone report, must be electronically filed on or before June 30 Form 8938, Statement of Specified Foreign Financial Assets Title 26, § 6038D Attached to Income Tax Return 50

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