Victoria Majors Jones, CPA - Blog

This is the first year that the IRS has asked tax preparers to register with the IRS.  It is a great first step in monitoring the almost 1 million tax preparers in this country.  However, now a report has come out saying that the IRS just doesn't have the resources or systems to collect the information for another three years.

The IRS's initiative would require competency testing and 15 hours annually of tax education for all tax preparers.   CPA's are already required to take 40 continuing education hours annually by their state boards of accountancy.  Most of my annual hours are tax related as the tax laws change almost continually.   I am amazed at the work I see on client's past returns done by some "tax preparers" that do not have adequate knowledge of the tax laws. 

According to the IRS report,  it is going to be another three years before these types of tax preparers are weeded out of the system by adequate testing of their abilities. 

Buyer beware.  I suggest that if you are looking for a tax preparer that you either use a CPA or an enrolled agent. They both have have competency tests and continuing-education requirements.  CPAs are governed by state boards of accountancy and EAs by the IRS.  Also it is fairly easy to find out whether a CPA or EA has been censured. That is not the case for paid preparers who don’t have a designation.

Currently almost anyone can start calling themselves a tax preparer and start preparing returns.  This needs to be changed and hopefully taxpayers won't have to wait until 2014.

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If you typically receive a large refund from IRS after you file your income tax return, or you owe the IRS a substantial amount at that time, you should consider adjusting your income tax withholding.

Your employer withholds income tax from your paycheck based on the number of withholding allowances you claim on Form W-4, Employee's Withholding Allowance Certificate. You must give your employer a Form W-4 when you first begin work.

If your tax circumstances change, it's up to you to give your employer a new W-4. Many employees neglect to take this step, resulting in withholding that is either too high or too low.

If your withholding is too high, you are in effect giving the government an interest-free loan. Although the overpaid tax will be refunded once you file your return, you would have been better off using the money during the year to generate income or for personal purposes. In this case, you should reduce the amount your employer withholds to increase your regular take-home pay.

At the other extreme are taxpayers who have too little withheld and who owe substantial amounts come April 15th. While they enjoy the “extra” amounts received in each paycheck, they must pay back the taxes owed in April, and will likely be tacking on extra in the form of penalties. If this is your situation, you should increase your withholding. As a rough guideline, you should owe less than 10% of your tax bill come April.

Even if you have had too little tax withheld for most of the year, you still may be able to avoid a penalty by asking your employer to withhold additional amounts for the rest of the year. This is because the increased withholding at year's end will be treated as paid equally throughout the year.  (However, Obama's current budget proposal for 2012 looks like it will end this loop hole by requiring quarterly reporting.)

You should check your withholding whenever significant personal or financial changes occur in your life, including the following:

Changes in filing status or exemptions: You get married or divorced; you have a new child; a child goes off on his or her own.

Changes in wage income: You or your spouse start or stop working, or start or stop a second job.

Changes in income not subject to withholding: You have an increase or decrease in rental income, interest income, dividends, capital gains, or IRA distributions.

Changes in deductions and credits: You take out or pay off a mortgage; you become entitled to the dependent care credit, child tax credit, or the higher education credit; you have changes in medical, alimony, or job expenses.

Changes in other taxes: You owe self-employment tax or employment taxes for your household workers.

Unfortunately, the procedures for arriving at the proper withholding amounts are among the more complex ones taxpayers confront. A wide array of factors play a role: exemptions, deductions, credits, marital status, your spouse's income, and others. The Form W-4 includes three worksheets that you may have to complete to determine the proper withholding. If you think your situation calls for a withholding adjustment (up or down), and you would like some guidance in getting through this maze, please give me a call.

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On March 4, the House of Representatives by a vote of 314 to 112 passed H.R. 4, the Small Business Paperwork Mandate Elimination Act, now it's up to the  Senate to decide its fate.  The bill would retroactively repeal the new 1099 information reporting rules that I as well as many others believe would be an extreme record keeping burden on small businesses.

H.R. 4 makes up for the lost revenue from repealing the new information reporting provision by increasing the amount of “excess advance payments” of the premium assistance credit (enacted as part of the 2010 health care reform legislation to help lower-income individuals acquire affordable health insurance coverage) that a taxpayer must repay under Code Sec. 36B(f)(2) for tax years ending after Dec. 31, 2013. The credit is available for a taxpayer who doesn't receive health insurance through his employer (or his spouse's employer) and whose income falls between 100% and 400% of the federal poverty line, based on the most recently filed income tax return.  The net effect of these changes over the 2011–2021 period is reported to be a positive $166 million.

Although the Senate is likely to agree with the repeal of the 1099 rules it is not likely to agree with how to pay for it.  President Obama's office has already said that he is in agreement with the 1099 repeal but that he does not support H. R. 4's plan for offsetting the cost of the repeal of the 1099 requirements.

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President Obama has finalized his Administration's budget proposals for fiscal year (FY) 2012 (Oct. 1, 2011 to Sept. 30, 2012). The Administration has a large agenda of tax proposals that it will push Congress to enact, including the following.

Increase in the taxable wage base for unemployment tax from $7,000 to $15,000, beginning in 2014. Federal unemployment tax (FUTA) rates would be lowered so employers' FUTA liability would not increase.

Make FUTA surtax permanent. The FUTA surtax is part of the 6.2% gross unemployment tax rate that employers pay on the first $7,000 paid annually to each employee (6% permanent tax rate, 0.2% temporary surtax). The surtax has been in effect on a temporary basis since 1976. It is scheduled to expire on June 30, 2011. A proposal in the budget would keep the 0.2% FUTA surtax in effect on a permanent basis.

Reduce improper payments of unemployment insurance (UI) benefits. The budget proposal would provide additional funding to help reduce improper unemployment benefit payments and employer tax evasion. The budget notes that over $15 billion in UI benefits were erroneously paid in 2010, and the overpayment rate increased to 11.2%, despite the efforts by States to reduce improper payments to 9.9% or less.

Quarterly W-2 reporting. The proposal would require W-2s to be reported on a quarterly basis, rather than annually.  This would presumably close up the tax planning loophole that many CPA's currently use to avoid underpayment of estimated tax payment penalties by way of having the business owner pay themselves a bonus at year end with taxes withheld in the amount needed to avoid the penalty, instead of paying quarterly as required. 

Repeal information reporting of payments to corporations. The 2010 Patient Protection and Affordable Care Act (Health Care Act, P.L. 111-148 ) included a provision that, effective for payments made after 2011, would require a person engaged in a trade or business (payors) to file an information return for all payments totaling $600 or more in a calendar year to a single payee (other than a payee that is a tax-exempt corporation). Under current law, payments to corporations, except those made for medical or health care services, are not required to be reported on an information return.

A proposal in the budget would repeal the new information reporting requirements in the Health Care Act. However, the proposal would require businesses to file an information return for payments for services or for determinable gains aggregating to $600 or more in a calendar year to a corporation (except a tax-exempt corporation).

Reduce electronic filing threshold. A proposal in the budget would give IRS regulatory authority to reduce the 250 return threshold for filing information returns electronically.

Worker classification. The Administration's budget proposal includes $46 million to combat worker misclassification, including $25 million for grants to States to identify misclassification and recover unpaid taxes, and $15 million for personnel at the Wage and Hour Division to investigate misclassification. There would be less circumstances under which service recipients would qualify for reduced penalties if they misclassify workers.

Expand work sharing. The budget proposal includes funding to encourage States to provide partial unemployment checks to workers who are part of a work-sharing arrangement. Work-sharing is a voluntary employer program that helps firms retain workers by reducing employees' weekly hours instead of laying them off.

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