A CPA's Shirt Pocket Notes - Tax News & Commentary

Year-end Section 179 Deduction Trap: The current $500,000 Section 179 deduction limit applies to tax years beginning in 2013. Under current law, the limit will be a much lower $25,000 for tax years beginning in 2014. This presents a tax trap for fiscal year pass-through entities (e.g., partnerships and S corporations) with calendar tax year owners. Assets acquired and placed in service during the year beginning in 2013 and ending in 2014 will qualify for the larger limit, but the amount passed through to the owners will be reported on their 2014 tax return, when the much lower limit applies. In this scenario the excess amount will be wasted—it cannot be deducted nor can it be carried over. Although Congress may increase the Section 179 deduction limit for tax years beginning in 2014, there's no guarantee that it will equal (or even come close to) the current $500,000 deduction limit.

2014 Filing Season Delayed: The IRS has announced that the start of the 2014 tax season will be delayed by approximately one to two weeks to allow for adequate time needed to program and test tax processing systems following the 16-day government closure. The original tax season start date was set for 1/21/14, but the IRS now plans to start accepting and processing 2013 tax returns no earlier than 1/28/14 and no later than 2/4/14. Acting IRS Commissioner Werfel said the agency is exploring options to shorten the delay and will announce the final decision on the start of the 2014 filing season in December. However, the 4/15/14 tax deadline will not be affected (i.e., extended) by the delay. 

Speaking of Social Security (See yesterday's post), a new report from the Congressional Research Service ("CRS") projects exhaustion of Social Security trust funds in 2033. At that time, it is projected the program would have enough income from taxes to pay 77% of scheduled benefits until 2087, when that number would fall to 72% of benefits. The CRS reports that the Social Security Act does not stipulate what would happen to benefit payments when the funds run out, but anticipates that either full benefit payments would be delayed or reduced benefits would be paid on time. See www.fas.org/sgp/crs/misc/RL33514.pdf for the full report.

IRS Contractors Owe Millions: Employees of the IRS are required to file tax returns on time and pay any federal income tax owed. A recent report from the Treasury Inspector General for Tax Administration ("TIGTA") points out that contract employees are not being held to the same standard. TIGTA found that as of 6/14/12, 691 (5%) of the 13,591 IRS contract employees reviewed had $5.4 million in Federal tax debt. Of these, 319 still had staff-like access to IRS facilities even though they were not on a payment plan. Weaknesses in the IRS's existing practices were cited as allowing occurrences of noncompliance to go undetected after access was initially granted. The IRS only reviews contractor compliance every five years, whereas employees are continuously monitored. Recommendations in the report include further evaluation of contractor employees that TIGTA identifies as potentially noncompliant and bringing those individuals into compliance or removing their IRS contracts. 

IRS Paying Fraudulent Tax Refunds: In 2012, TIGTA reported that its analysis of Tax Year 2010 returns identified almost 1.5 million tax returns that were not detected by the IRS as potentially fraudulent. These tax returns were not detected despite having the same characteristics as identity theft fraudulent tax returns, and represented the payment of potentially fraudulent tax refunds totaling more than $5.2 billion. The common characteristic of these tax returns was that the income and withholding reported on the tax returns were false. A new TIGTA report concludes that the current income and withholding verification process "is not always effective in stopping the issuance of fraudulent refunds." However, the IRS is developing a new system, the Return Review Program, which is scheduled to be phased in beginning in 2015.

IRS Paying Improper Earned Income Credits: TIGTA also reports that the IRS is NOT in compliance with an executive order requiring a reduction in the number of improper Earned Income Tax Credit (EITC) payments. The TIGTA reported that an estimated 21%–25% of the EITC payments made in fiscal year 2012 were paid in error and that, between fiscal years 2003–2012, over $110.8 billion in improper EITC payments have been made. Main factors cited in the report for the number of incorrect payments are the "complexity of the EITC program as well as the need to balance the reduction in improper payments while still encouraging individuals to use the credit." The report recommends that the IRS develop processes to identify improper payments of high-dollar amounts and report that information quarterly to the TIGTA.

News You Can Use - 2014 Social Security & Medicare Stuff

The Social Security wage base will increase in 2014 to $117,000, a $3,300 bump over the current level of $113,700.  The OASDI tax rate, or FICA tax rate, paid by both employers and employees will stay at 6.2%.  The Medicare tax rate will also remain stable in 2014 at 1.45% (paid both by employers and employees); there is no cap on the medicare tax (it's paid on all employee wages).

In addition, the 0.9% Medicare surtax kicks in on single taxpayers with wages exceeding $200,000 and married wage earners with compensation over $250,000.  While the surtax is not matched by employers it is required to be paid by self-employed persons with earnings at the above limits.

Social Security benefits will be increases by 1.5% in 2014; the increase is slightly less than the bump that Social Security recipients saw for 2013.

Earnings limits for Social Security recipients will go up in 2014.  People who turn 66 next year will NOT lose any benefits if they earn less than $41,400. Also in 2014, Individuals between the ages of 62 and 66 can make up to $15,480 before they lose any of their Social Security benefits.  There is no earnings cap once a recipient turns 66 years of age.

The basic Medicare Part B premium will remain $104.90 per month in 2014 but upper-income seniors (defined as couples with modified adjusted gross income ("MAGI") over $170,000 or singles with MAGI over $85,000) STILL have to pay higher Part B and D premiums (I know, Bummer).

A little accounting lingo here for you, folks: MAGI is Adjusted Gross Income plus any tax exempt interest, EE Bond Interest used for educational purposes and excluded foreign earned income. Doesn't affect a lot of folks.

The Part B surcharge for 2014 won't change and the Part D charge will rise slightly.  Total surcharges on upper income earners can be as high as $300.10 per month.

Give us a call if you are concerned about these changes.  We can help!

Sung to the tune of "Mama's don't let your babies grow up to be Cowboys"

We are actively involved, both professionally and personally, with a number of local high school sports booster groups.  Accordingly, we pay attention to some of the actions taken by IRS with respect to those groups.

In a recent Tax Court ruling (Capital Gymnastics, TC Memo. 2013-193), a group lost their tax exempt status. This group permitted the individual fundraising activities of its booster members to lower their individual membership dues.

The gymnastics club encouraged the parents of its student-athletes to form a Booster Group to help pay for the Club’s entrance fees and coaches’ travel costs.  Parents of the gymnasts could also lower their dues by selling gift cards, cookie dough and gift wrap to raise funds for the Boosters, and about half of the Booster members did so (and about half did not raise funds and they paid the full membership cost).  The Club offset the fundraising parents’ dues, in whole or in part, for each parent’s fundraising effort.  

After an examination, the IRS determined that the fundraising credits each parent received were an impermissible private benefit.  The Tax Court agreed and the Booster Club’s tax exempt status was revoked.

So, Booster Groups, don’t let your Boosters offset dues by selling Hoagies.

Flash Flooding in McMurray, PA

Our thoughts go out to those affected by today's flash flooding.  Be careful, be safe and Let's all pray that the damage is minimal.

Summer Newsletter is out!

Hey Friends, out latest newsletter is available.  You can read it here:

http://www.franty.com/news/jun13.pdf

“Summer afternoon—summer afternoon; to me those have always been the two most beautiful words in the English language.” ~Henry James

Let us know what you think!!  Enjoy YOUR Summer.

Happy Valentine's Day, Friends!

It's difficult to celebrate today while we’re in the midst of a heavy tax season but here's a fun (and true) little story about love, romance, marriage & monogamy:

When President Calvin Coolidge and his wife Grace were being given simultaneous but separate tours of a prominent chicken farm, the First Lady asked her guide whether the rooster copulated more than once a day. “Dozens of times,” she was told. 

Armed with this juicy little tid-bit, Mrs. Coolidge said to her guide: “Tell that to Mr. Coolidge.” 

Feeling a bit uncomfortable, the tour guide approached the President to inform him of Mrs. Coolidge’s revelation.  When told, President Coolidge hesitated for a moment and then asked the guide:  “Same hen every time?” 

When the guide said, “No Sir. A different hen each time,” the President responded: “Tell that to Mrs. Coolidge.”

Sorry, I couldn't resist.  Hope you enjoyed that fun (and true) little story.

Voice Mail? Who needs voice mail!!

Hi All,

There was a severe storm that rolled through our area on Wednesday and, as a result, our office building has suffered some electrical damage.  Our power was out for a few hours and the internet connection was down for about 24 hours, but we’re back in business now.

It’s pretty reassuring to know that surge protectors work and, at the same time, it’s pretty alarming to learn that when surge protectors get fried they don’t protect the things that they are meant to protect!  Fortunately for us, we’ve only lost a network adapter and the voice mail component to our phone system (plus, of course, a few fried surge protectors).

The network adapter has been replaced and our voice mail system is in the process of being replaced.  If you happen to call our office, you won’t be able to leave any voice messages until the problem is fixed.  

What’s even more unfortunate for us is that it appears that our ten year old office phone number may have been someone else’s before it was assigned to us!!  If you call here and don’t get an answer, you will be confronted with the following message:

“The voice mail box for New Castle Recycling is full.  Please try your call again later.”

New Castle Recycling? Really!?! That’s not even close!  We’re trying to get the phone company to change that message but it’s been a 10 year battle and we don’t think it’ll be resolved anytime soon.

Accordingly, we wanted to let you know that your best bet to reach us after hours in the next week or so would be by email.  Here is a link to all of our email addresses:

http://www.franty.com/contact.html

Thanks very much for your patience.  Best regards,