The US government and all its citizens recognize veterans on Memorial Day.  The other 364 days of the year, the IRS at the direction of the Congress has multiple special cases for Veterans, people currently serving in the military and disabled veterans.

Members of the US Forces, especially those serving in combat zones, get a number of special tax considerations.  First, Military personnel serve in all the major branches of the military including the US Coast Guard.  The Red Cross and US Merchant Marines are not considered military personnel by the IRS even if they are supporting the military.  The most commonly used provision is a tax extension if serving in combat zones.  But there is also a special first time home owners tax credit, economic stimulus payments for family members of those serving, additional tax breaks and several other special cases which may be retroactive and require an amended tax return.  

Ongoing, most military personnel qualify for free online tax filing, tax assistance and access to additional resources and help.

If you are unsure if you or a serving family member qualify for these special veteran and currently serving tax rulings, contact us and we can help guide you through this labyrinth.  If you want to dive into this yourself, the IRS has specially dedicated web pages to support taxes and the Military.

Not all IRS audits are the same. Not all tax return issues involve the same complexity or require the same level of scrutiny.

The IRS, in its effort to enforce the income tax laws of the Unites States, has three different types of audit examinations in its arsenal:

1. Correspondence examinations
2. Office examinations
3. Field examinations

Correspondence examinations are conducted entirely through the mail. (The IRS NEVER uses e-mail to correspond with taxpayers.) Since this audit requires less involvement from IRS examiners it is being used more frequently by the budget strapped IRS. This method is considered the ‘work horse’ of the IRS’s tools.

Office examinations involve small businesses or individual income tax returns that predominantly include sole proprietorships. Office examinations generally take place at the IRS office located nearest to where the taxpayer maintains its financial records. Once the IRS has selected a tax return for office examination, the return is assigned to an examiner and scheduled. Office examinations are conducted primarily by interview. The taxpayer will provide certain records to support the items on the tax return. During this process, an examiner might ask a taxpayer to explain certain items such as insufficiently substantiated charitable contributions or itemized deductions which appear to be disproportionate to the taxpayers reported gross income.

Field examinations are initiated by sending a letter 2205 or 3572 which lays out the issues to be examined and lists a specific IRS agent as the point of contact. Sometimes the taxpayer will receive a telephone call from the field agent prior to receiving the letter. The taxpayer has 10 days to schedule an interview.

It is advisable to have your CPA represent you with any IRS interaction. This will ensure that the audit will be conducted in an efficient manner and that any adjustments are verified and agreed to by your CPA representative.

Things to remember: There is a 3 year statute of limitations on all tax returns filed with the IRS. (beginning with the date of filing)

Buy things online? If the seller did not collect a State of Minnesota sales tax, the state wants you to know you still owe a “Use Tax” for those items that are taxable. Use tax is described by the Department of Revenue as a “complement” to sales tax.  If you buy a taxable item for your own use without paying sales tax, you probably owe use tax. The use tax rate is the same as the sales tax rate (6.875%) and the same exemptions apply.

Phil Mickelson has apologized for saying that he was considering “drastic changes”  because of tax increases on the wealthy.

“Finances and taxes are a personal matter and I should not have made my opinions on them public,” he said in a statement . “I apologize to those I have upset or insulted and assure you I intend to not let it happen again.”

Mickelson, who lives in San Diego area, had hinted at changes that left people wondering whether he might move to Florida or, perhaps, even consider semi-retirement at 42. He’d promised further details Wednesday, before the Farmers Insurance Open at Torrey Pines. Although he issued the statement recently, it still figures to be a hot topic when he addresses the media. Here’s his full statement:

“I know I have my usual pre-tournament press conference scheduled this week but I felt I needed to address the comments I made following the Humana Challenge now.

“I absolutely love what I do. I love and appreciate the game of golf and the people who surround it. I’m as motivated as I’ve ever been to work on my game, to compete and to win championships.

“Right now, I’m like many Americans who are trying to understand the new tax laws. I’ve been learning a lot over the last few months and talking with people who are trying to help me make intelligent and informed decisions. I certainly don’t have a definitive plan at this time, but like everyone else I want to make decisions that are best for my future and my family.

“Finances and taxes are a personal matter and I should not have made my opinions on them public. I apologize to those I have upset or insulted and assure you I intend to not let it happen again.”

At Foreman & Airhart, we hear a lot of people with the same concerns as Phil.  Let’s face it – you work hard for your money and it is always hard to give it up in taxes to fund programs you may not always believe in.  And while it is hard to feel sorry for a guy who makes his living by golfing on the world’s most beautiful courses, at the heart of it, we would all like to pay as little taxes as we legally have to.  That’s where we come in.  No, we’re not Phil’s accounting firm.  But we do have world-class accountants who know how to find every possible incentive for you to limit your tax liability.  Why not call us – because when you spend less time on your taxes, you can spend more time on the links!

With our phones starting to ring with clients asking how they can reduce their tax liabilities, here is a light-hearted look at Strange BUT TRUE tax deductions.

1) Whaling ship repairs - Yes! you can deduct up to $10,000 for whaling ship repairs according to a 2004 law.  However, everyone except Native Americans are banned from whaling…and we live in Minnesota.

2) Pet Moving Expenses – While most taxpayers know that their moving expenses are deductible when moving for a job, they may not know that the cost of moving your pets can be included in the deduction.

3) Quit Smoking, Lose Weight! -Check with us – and your doctor! The money you spend to drop pounds or quit smoking may be deductible under certain situations. This may even extend to a backyard swimming pool!

4) Guard dogs – If you use a dog to secure your business property, you may be able to deduct the expenses for the dog each year.

5) Childcare – If you are a volunteer for an approved charity, you may be able to deduct childcare expenses while you are volunteering. You may get no pay for volunteering – but you can get a tax write off on your 1040!

We rarely employ these tax “loopholes.”  But don’t you want to work with an accountant that knows ALL of the rules?

With the economy sputtering back to life, Americans are returning to their nomadic ways.  Back in 1985, 20.5% of Americans moved according to the US Census Bureau.  But with the economy at a stand still only 11.6% moved in 2010-2011. Now, however, those numbers are creeping up along with new home sales and median home prices.

Americans move out of state primarily for employment, while they move within 50 miles primarily for new housing requirements (up sizing, downsizing and life transitions.)

If you are considering moving AND you have some choice over where your next abode will be, take a look at this simple to use Taxes by State page. It concisely provides an overview of each state’s sales tax, gas taxes, income tax, property tax, inheritance and estate taxes. Very handy – and useful for reviewing with parents or grandparents who are considering a move as well.

Even if it has been a rough year, many businesses will offer some kind of holiday recognition to their employees.  44% will gift food, 13% will gift cash and 37% will provide a retailer gift card.  From an accounting perspective, holiday bonuses or “gifts” are treated as a taxable event subject to both income and payroll tax. Ebeneezer IRS does not see these as “gifts” so much as another payment to an employee.

The only exception? “de minimis” fringe benefits that cannot be easily valued.  Since cash, food  or gift cards can all be easily valued and entered onto the books what is left?  A gift must be of “nominal value” to be excluded from income. The IRS does not define “nominal value,” but it is clear an item with value over $100 is not considered de minimis. However, many experts advise “nominal” is much lower, either $25 or $50.  Think of something like a tote bag,ornament or other gewgaw.

So with that bit of merry cheer, we sign off for our own holiday – and wish you a holiday that would never be described as de minimis.

Since the economy collapsed, one major benefactor to federal tax credits has been homeowners who have installed energy efficient upgrades to their homes.  Examples have included more energy efficient windows, doors, garage doors, insulation and any alternative energy producing units such as wind turbines or solar panels.  Those credits are about to expire and pundits expect that in the heat of the current fiscal cliff battle, they are not expected to be renewed.

To learn more about the credits, check out the energy star fact sheet here.

We are advising current clients to contact us to find out if you have already met your federal maximum levels for any energy efficient home improvements you have made to your primary OR second home location.  We can help ensure that you get full credit by moving planned upgrades into the current tax year.  We want to make sure that homeowners don’t miss out on their tax credit because they missed a deadline they were not aware of.

It’s just one more way that we do more than taxes!

The Internal Revenue Service has announced the cost-of-living adjustments applicable to dollar limitations for various qualified retirement plans and other amounts for 2013. Many of the pension plan limitations will change for 2013 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. If you are a business and a plan sponsor, verify that your administrative and payroll systems reflect the appropriate limits. Communications that specify benefit plan limits should be reviewed for accuracy before materials are given to participants.

⁽¹⁾ This table has been updated based on IRS Announcement IR-2012-77, October 18, 2012.

⁽²⁾ This applies to the total of all elective deferrals an individual makes for the year to 401(k) plans, 403(b) plans, SARSEPs and SIMPLE plans.  HOwever, deferrals to each SIMPLE plan in which the individual participates are also limited, as shown later in the table.

⁽³⁾Catch up contributions are available each year to individuals who reach age 50 by the end of the year.

As you can see, this is a lot of detail and we never expect our clients to digest this.  That’s what we are here for.  If you have any questions or for more information about the 2013 Cost-Of-Living adjustments for retirement plans, please contact us.  We do more than taxes.

After the election, probably not until December, a lame-duck session of Congress is expected to convene to address a variety of tax issues relating to 2013.  our new “lame duck” congress will need to look at  regular and capital gain tax rates and the extension of some credits like education credits.

One important issue they need to address that concerns 2012 is the so-called alternative minimum tax (AMT) patch. In calculating AMT, there is an income exemption amount that has been annually indexed for inflation since 2000. If no change is made, the exemption for 2012 will drop to 2000 levels, causing millions of taxpayers to start paying AMT for the first time and adding thousands of dollars of additional tax to those that already pay.

The good news is that even though there is much uncertainty as to what will happen in 2013, it is very likely that the patch will be made for 2012.

One tax provision that will be expiring at the end of the year is the 2% reduction in the amount of Social Security tax withholding. This began in 2011 and was extended earlier this year to cover 2012 also. There does not seem to be much interest by either party to extend this to 2013. If the rates do revert to the previous level (6.2% compared to 4.2% currently), this would mean up to $2,200 more Social Security withholding (and self-employment tax, if applicable) for individuals next year.