IRS Paid $13B to $15B In Improper Tax Credits In 2013

By: Don Thomas

In a recent report from the Treasury inspector general in Washington the IRS paid between $13.3B to $15.6B in improper Earned Income Tax Credits in 2013 to people, who may not have qualified. The Earned Income Credit is supposed to go to low income working families.
The inspector general, J. Russell George also stated, “ The IRS can and must do more to protect tax payer dollars from waste, fraud and abuse.”
The IRS said it is aggressively fighting tax fraud and is improving its efforts to police EITC payments. The agency said it has stopped nearly 15 million suspicious returns since 2011 blocking more that $50 billion in fraudulent refunds.
According to the government the Earned Income Credit is one of the nation’s largest anti-poverty programs. In 2011 there was more than 27 million families receiving nearly $62 billion in credits.
As part of this program a low income family with 1 to 3 children can receive refunds on average of $1,000 to $6,000 even if they had not federal withholding or estimated payments made to the IRS in a year. The size of the credit depends on the family income and number of children.
The interesting part of this report by the inspector general is that the estimated range of improper EITC payments from 2003 through 2013 is at least $124.1 billion to as much as $148.2 billion during this period.
Based on a statement from the IRS, “The IRS remains deeply concerned about the level of improper payments and a major review is currently underway in exploring a wide range of options to distinguish valid claims from excessive ones.”
Stay tuned for more information in future blogs on items of interest with the IRS and taxes.

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Orlando Florida Tax Preparation Services for Individuals & Small Businesses

Orlando, FL Tax Preparation

Orlando Tax Preparation

Photo Credit: Boundless.com

By: Don Thomas

Preparing your own income tax return can be a task that leaves you with more questions than answers. According to a study released by the US Government‘s General Accounting Office last year, most taxpayers (77% of 71 million taxpayers) believe they benefited from using a professional tax preparer.

Whether we like it or not, today’s tax laws are so complicated that filing a relatively simple return can be confusing. It is just too easy to overlook deductions and credits to which you are entitled. Even if you use a computer software program there’s no substitute for the assistance of an experienced tax professional.

How we make your tax preparation seamless and low stress.

•Your tax return will be checked and rechecked by our computer software identifying potential problems the IRS may look at more closely and reviewing the math to limit IRS contacts.

•Your tax return can be filed electronically so you will get a refund back quicker.

•Our staff will show you how to adjust your payroll withholding to get more money back each week. Why give the IRS an interest free loan for up to 16 months.

•We will show you potential deductions to limit your tax liability for next year. In addition, we will give you a sheet of commonly overlooked deductions to limit the following year’s tax liability.

Books a Mess: No Problem!
If you own a small business and haven’t kept up your bookkeeping, don’t worry. We can help you. We’ll prepare your bookkeeping for the year, prepare a full Schedule C, as well as your personal income tax return. Then we’ll help you set up an easy system that allows you to keep your books in tip-top shape next year.

If you have any unanswered questions, please let us know. There are five easy ways to contact us. Simply call, email, fax, write or just stop by.

Don Thomas CPA, P.A. 668 N. Orlando Ave. Suite 211 Maitland, FL, 32751

don@donthomascpa.com

Phone: (407)599-4411

Fax: (407)599-4413

Helpful Resources:

IRS Tax Forms & Publications

Online Tax Organizer

Tax Calculators

Orlando CPA Orlando Tax Preparation

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Orlando Business Taxes & The Affordable Healthcare Act 2013 (Part 3)

THE HEALTHCARE ACT AND NEW TAXES IN 2013 BLOG – PART 3

By: Don Thomas
In my recent Blog – Part 1 I was discussing that there are new taxes in 2013 and in later years. Are you aware that this Affordable Care Act or Obamacare contains 20 new taxes or tax hikes starting in 2013 and future years? There are actually five new taxes that occur in 2013. Those five new taxes are listed below:
A. Medicare Surtax on Earned Income
B. Net Investment Income Tax
C. Increased Threshold for Medical Expenses
D. Limit on Flexible Spending Accounts
E. Medical Device Tax

In my previous Blog – Part 1 I discussed the Medicare Surtax on Earned Income and in Blog – Part 2 I discussed the Net Investment Income Tax. In this Blog #3 I will review the three other 2013 taxes listed above.
The next tax is the Increased Threshold for Medical Expenses. For 2013 medical expenses shown on the 1040 Schedule A must exceed 10% of adjusted gross income to qualify for a deduction. If a taxpayer is over 65 years old the 7.5% of adjusted gross income rate will remain until 2016. This change will negatively impact those close to age 65, retirement age and those other taxpayers with modest incomes but high medical bills. A question I get often is are the payments for medical insurance included in medical expenses? The answer is yes unless it is a self employed person filing Schedule C or reporting their insurance on the W-2 Box 1 as wages from an S corporation.
The next tax deals with the limits on Flexible Spending Accounts. A maximum of $2500 is allowed as contributions to Flexible Spending Accounts (FSA) in 2013. This amount reduces Box 1 of the W-2. Prior to 2013 these accounts were allowed unlimited contributions and the employer was allowed to impose a contribution limit. This change results in a $13 billion tax increase each year to taxpayers. There are 30 to 35 million taxpayers that make contributions to FSA’s each year. The FSA has been used to help families with special needs children who will be impacted the hardest due to the fact that tuition rates for these special needs children that can exceed $14,000 each year.
The final tax shown above is the Medical Device Tax. This is an Internal Revenue Code 2.3% excise tax on the sale of certain medical devices by the manufacturer or importer of the device. This is reported on IRS Form 720. This tax applies to taxable medical devices after December 31, 2012. The manufacturer, producer or importer of the device is subject to the excise tax when the product is sold. A key issue with this tax is that the manufacture or importation of these medical devices will likely raise the cost of hip and knee replacements and other medical procedures. The good news is that retail items generally purchased by consumers are exempt from this tax such as eyeglasses, contact lenses and hearing aids.
Due to the different tax situations you or others may experience I recommend that you talk with a tax professional that understands these laws and your tax situation to provide the professional guidance you might need in your situation.
I will be discussing the additional 2013 and future taxes and penalties resulting from the Healthcare Act in my next blogs. Thanks.
(Information provided courtesy of Health Care Taxes By Hasselback)

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Orlando Business Taxes & The Affordable Healthcare Act 2013 (Part 2)

The Healthcare Act & New Taxes in 2013 (Part 2)

THE HEALTHCARE ACT AND NEW TAXES IN 2013

By:  Don Thomas

In my recent Blog – Part 1 I was discussing that there are new taxes in 2013 and in later years. Are you aware that this Healthcare Act or Obamacare contains 20 new taxes or tax hikes starting in 2013 and future years?

There are actually five new taxes that occur in 2013. Those five new taxes are listed below:

A.      Medicare Surtax on Earned Income

B.      Net Investment Income Tax

C.      Increased Threshold for Medical Expenses

D.     Limit on Flexible Spending Accounts

E.      Medical Device Tax

In my previous Blog – Part 1 I discussed the Medicare Surtax on Earned Income and in this Blog – Part 2 we will discuss the second 2013 tax at this time and will send out other blogs to discuss the other taxes later.

The next tax is the Net Investment Income Tax which starts in 2013 and is a 3.8% Net Investment Income Tax that is imposed on individuals, estate and trusts. It is expected that this tax will raise $123 billion to fund the new Healthcare Act.

Net Investment Income is defined as gross income from interest, dividends, annuities, royalties, passive trade or business income such as limited partnerships. Also rental income is included unless the rents are the ordinary income from a business such as a  property management business. For individuals the tax is the lesser of the individual’s net investment income for the year or any excess of this tax term “modified adjusted gross income, MAGI” for the year over a threshold amount. What are the threshold amounts? The threshold amount is $200,000 for single taxpayers and head of households and $250,000 for married filing joint taxpayers.

I have provided some examples to help you understand the impact of this tax. In this example we have a married couple who files a joint return and combined they earn $275,000 in wages and/or self employment income. They also have $25,000 of “net investment income” in 2013. Assuming that they have a total modified adjusted gross income or MAGI of $300,000, the couple will pay a 3.8% Net Investment Income Tax on the lesser of 1) $25,000 net investment income or 2) $50,000 ( $300,000 MAGI – $250,000 threshold discussed earlier.) With this example the couple will pay $950 ($25,000 net investment income x 3.8%) for the Net Investment Income Tax in 2013.

Let’s look at another quick example to help you better understand this tax. In 2013 an unmarried taxpayer received no wages or self employment income but lives only from her $1 million in “net investment income” from a stock and bond portfolio. Assuming a $1 million MAGI, she will have to pay a 3.8% Net Investment Income Tax on the lesser of her 1) $1 million net investment income or 2) $800,000 ($1 million – $200,000 threshold). As a result she will pay a $30,400 ($800,000 x 3.8%) net investment income tax in 2013.

Hopefully the examples helped you understand the tax impacts of this new tax. It seems like a small percentage but can add up based on an individual’s tax situation.

Here is some good news that may help an individual minimize the tax impact. The 3.8% Net Investment Income Tax does not include items such as interest on tax-exempt bonds, veteran benefits, and excluded gain on the sale of a principal residence that would be excluded from taxable income. Also, at the present time S corporation profits in an active trade or business are not considered as either earned income for the .9% Medicare Surtax discussed in my previous blog or for the 3.8% Net Investment Income Tax.

Due to the different tax situations you or others may experience I recommend that you talk with a tax professional that understands these laws and your tax situation to provide the professional guidance you might need in your situation.

I will be discussing the additional 2013 and future taxes and penalties resulting from the Healthcare Act in my next blogs. Thanks.

(Information provided courtesy of Health Care Taxes By Hasselback)

Orlando Tax Preparation

Orlando Tax Coach

Orlando CPA

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Orlando Business Taxes & The Affordable Healthcare Act 2013

The Healthcare Act & New Taxes in 2013 (Part 1)

THE HEALTHCARE ACT AND NEW TAXES IN 2013

By:  Don Thomas

The hot topic in the news today is the new Affordable Healthcare Act or some in the news media refer to it as “Obamacare” which is scheduled to go into effect in 2014. This legislation was originally signed on March 23, 2010 by President Obama and was called  the Patient Protection and Affordable Healthcare Act.

An interesting bit of information is that the IRS is hiring 16,500 new IRS agents to work on the tax reporting and enforcement of the various taxes and penalties associated with this Healthcare Act.

Many of you are probably not aware that the Healthcare Act or Obamacare is expected to raise about $800 billion in new revenue over the next 10 years by increasing the following taxes and imposing penalties.

B.      $111 Billion from a tax on insurers offering high cost “Cadillac Plans” starting in 2014.

D.     $102 Billion from a fee on health insurance providers, starting in 2014.

F.       $29 Billion from a 2.3% tax on manufacturers and importers of medical devises effective 2013.

H.     There are other sources of income not listed in this report.

 

Are you aware that this Healthcare Act or Obamacare contains 20 new taxes or tax hikes starting in 2013? There are actually five new taxes that occur in 2013. Those five new taxes are listed below:

B.      Net Investment Income Tax

D.     Limit on Flexible Spending Accounts

 

So you may be wondering how does this affect me if I have this income level and how will it be reported to the IRS in 2013. This information will be shown in Box 5 on a year end W-2. There are 3 tiers for reporting your Box 5 Medicare Wages as shown below:

1.      Tier 1 – From $0 to $113,700 is at 7.65% x employees earned income.

2.      Tier 2 – From $113,700 to $200,000/$250,000 is at 1.45% x employees earned income.

3.      Tier 3 – Above $200,000/$250,000 of earned income is at 2.35% x employees earned income.

Nevertheless they would still owe $450 (($175,000 + $125,000 – $250,000) x .9%) in Medicare surtax when they file their Form 1040 for 2013.

I will be discussing the additional 2013 and future taxes and penalties resulting from the Healthcare Act in my next blogs. Thanks.

Orlando Tax Preparation 

IRS Tax Problems

(Information provided courtesy of Health Care Taxes By Hasselback)

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