TallyTaxMan : Tallahassee Income Tax Service

Accounting Firm is Liable for Clients Unpaid Taxes

admin — Tue, 30 Apr 2013 11:30:16 +0000

An accounting firm is liable for its clients’ unpaid employment taxes, a court rules. A business hired the accountants to fully manage its payroll and accounts payable, such as depositing taxes, preparing returns and issuing checks to workers and vendors. When the client had financial problems and fell behind on depositing withheld taxes, it told the accounting firm to keep paying employees, creditors and owners of the business, which it did. That makes the firm responsible for the overdue taxes, along with the owners of the company (Erwin, D.C., N.C.).

Abandoning to Buy Real Estate is an Ordinary Loss

admin — Thu, 25 Apr 2013 11:30:47 +0000

A loss on abandoning an option to buy real estate is an ordinary loss, the Tax Court says in the case of a man who was in the business of buying, intending to subdivide and develop it. But after an unsuccessful search for partners, he gave up the option. Since he would of had ordinary income on his development profits, the option loss is ordinary (Sutton, TC Summ. Op. 2013-6).

A Settlement Award for Bad Tax Advice is Taxable

admin — Tue, 23 Apr 2013 11:30:20 +0000

A settlement award for bad tax advice is taxable, IRS attorneys say. A couple who participated in an abusive tax shelter sued the accounting firm that promoted the transaction to them for malpractice due to improper tax advice. The parties settles the lawsuit, and the couple excluded the payment they received, claiming the amount was a nontaxable return of capital. But the Service disagreed. In addition, any legal fees paid to get the damage award are taken on Schedule A as a miscellaneous itemization that’s deductible only to the extent it is over 2% of AGI.

Guidance is Leaking out on the Penalty Tax

admin — Thu, 18 Apr 2013 11:30:09 +0000

Guidance is leaking out on the penalty tax that uninsured people will soon owe. The levy takes effect in 2014, and will start being collected on tax returns for 2014 that are filed with IRS in 2015. The fee is the greater $95 or 1% of income above the amount that triggers the requirement to file a return. For 2014, the fee is capped at $285. The penalty is scheduled to increase sharply in subsequent years. Those who don’t pay the fine won’t be hit with IRS liens or levies. Uninsured children are subject to the mandate, and adults who claim them as dependents will owe a fee. Some are exempt from the levy. Among them: People with household incomes below the threshold for filing a tax return. Individuals who go without coverage for less than three consecutive months in a year. And those for whom insurance in unaffordable because their health premiums exceed 8% of household income. Click here for proposed regulations.

Don’t Believe The 2013 Tax Talk

admin — Tue, 16 Apr 2013 11:30:01 +0000

Don’t believe the talk that the 2013 tax hikes nail only the highest earners. Lower- and middle-incomers are hit because of the payroll tax cut’s repeal. The effect of the expiration of the two-percentage-point drop in employees’ share of Social Security tax is being felt this month, as many workers see lower paychecks. An employee making $50,000 this year owes an additional $1,000 in payroll taxes, lowering his or her paycheck by about $19 a week. Individuals making under $100,000 wind up bearing more than 60% of the burden of this year’s payroll tax increase.

Filers Will Have a Simplified Option

admin — Thu, 11 Apr 2013 11:30:46 +0000

Filers will have a simplified option for claiming the home office deduction, beginning with returns for 2013, which will e filed in 2014. Their write-off can be based on a standard rate of $5 per square foot of space used for business, with a maximum deduction of $1,500. This way, they avoid allocating actual costs and figuring depreciation on the 43-line Form 8829. Of course, the requirement that the office be used exclusively for business still applies, no matter which method is used.

Form 8829:

Replacing Private Disability Pay with Social Security is Bad

admin — Thu, 04 Apr 2013 11:30:38 +0000

Replacing private disability pay with social security is bad for you tax health. A disabled worker got tax free benefits under an insurance policy. However, he also was required to apply for Social Security disability and turn over the benefits to the insurer. The Tax Court ruled that he owes tax on the Social Security benefits, even though they are a substitute for nontaxable payments (Brady, TC Memo. 2013-1).

An IRS Attempt to Reclassify is Partially Rebuffed

admin — Tue, 02 Apr 2013 11:30:50 +0000

An IRS attempt to reclassify payments to an S firm owner is partially rebuffed. An S corporation paid its co-owner $60,000, but treated only $2,400 of it as wages. The balance was ostensibly reimbursement for cash advances he made to employees to cover their business expenses. IRS classified $55,000 as salary subject to FICA. The Tax Court agreed that $2,400 was too low a salary. But, because part of his pay was used to reimburse workers, the Court said his average pay for the past five years… $30,000 …was appropriate for payroll tax purposes (Herbert, TC Summ. Op. 2012-124).

A Worker Can be Both an Employee and an Independant Contractor

admin — Thu, 28 Mar 2013 11:30:56 +0000

A worker can be both an employee and an independent contractor of a firm, the IRS says privately in the case of a consultant who is engaged on separate projects. In such cases, the Service will examine each role independently, and FICA taxes apply only to the portion of pay attributable to an employer-employee relationship.

IRS Loses Again on Levying FICA Taxes

admin — Tue, 26 Mar 2013 11:30:38 +0000

IRS loses again on levying FICA taxes on severance pay for laid off workers. The 6^th Circuit Court of Appeals has refused to reconsider a 2012 decision that payments made in conjunction with a reduction in force aren’t subject to FICA.

Odds favor a Supreme Court appeal. A different Appeals Court OK’d the tax. And IRS estimates refund claims could top $1 billion if it doesn’t ultimately prevail.