New IRS Filing Season Program Unveiled for Tax Return Preparers

The Internal Revenue Service announced that guidance will soon be issued outlining a new voluntary program designed to encourage education and filing season readiness for paid tax return preparers. The program will be in place to help taxpayers during the 2015 filing season.

Read the remarks of Commissioner John Koskinen on the new Voluntary Return Preparer Education Program.

Questions relating to Per Diem

I get a lot of questions from individuals regarding per diem payments received from their employers, with the per diem amounts showing up in their income on their W-2s. Excess per diem is considered to be taxable wages to the employee. The specific rules are very long, and I will not go into them here. However, I will point you to the proper IRS publication where the rules are spelled out in detail. The publication is IRS Publication 463 (dated 2013), and can be found here: http://www.irs.gov/publications/p463/ch06.html.

The above link covers accountable plans but also covers per diem payments and when these payments may be taxable to the employee.

It’s never too early! Make plans now for next year’s tax return

Most people stop thinking about taxes after they file their tax return. But, there’s no better time to start tax planning than right now. And, it’s never too early to set up a smart recordkeeping system. Here are six IRS tips to help you start to plan for next year’s taxes:

• Take action when life changes occur — Some life events, like a change in marital status, the birth of a child or buying a home, can change the amount of taxes you owe. When such events occur during the year, you may need to change the amount of tax withheld from your pay. To do that, you must file a new Form W-4, Employee's Withholding Allowance Certificate, with your employer. You can use the IRS Withholding Calculator on IRS.gov to help you fill out the form. If you receive advance payments of the premium tax credit, it’s important to report changes in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace.

• Keep records safe — Put your 2013 tax return and supporting records in a safe place. That way, if you ever need to refer to your return, you’ll know where to find it. For example, you may need a copy of your return if you apply for a home loan or financial aid. You can also use it as a guide when you do next year's tax return.

• Stay organized — Make sure your family puts tax records in the same place throughout the year. This will avoid a search for misplaced records next year.

• Shop for a tax preparer — If you want to hire a tax preparer to help you with tax planning, start your search now. Choose a tax preparer wisely. You are responsible for the accuracy of your tax return no matter who prepares it. Find tips for choosing a preparer at IRS.gov.

• Think about itemizing — If you usually claim a standard deduction on your tax return, you may be able to lower your taxes if you itemize deductions instead. A donation to charity could mean some tax savings. See the instructions for Schedule A (Form 1040), Itemized Deductions, for a list of deductions.

• Keep up with changes — Subscribe to IRS Tax Tips to get emails about tax law changes, how to save money and much more. You can also get Tax Tips on IRS.gov or IRS2Go, the IRS’s mobile app. The IRS issues tips each weekday during the tax filing season and three days a week during summer.

A little planning now can pay off big at tax time next year.

Keep Your Records Safe in Case Disaster Strikes

Some natural disasters are more common in the summer. But major events like hurricanes, tornadoes and fires can strike any time. It’s a good idea to plan for what to do in case of a disaster. You can help make your recovery easier by keeping your tax and financial records safe. Here are some basic steps you can take now to prepare:

1. Backup Records Electronically.  Many people receive bank statements by email. This is a good way to secure your records. You can also scan tax records and insurance policies onto an electronic format. You can use an external hard drive, CD or DVD to store important records. Be sure you back up your files and keep them in a safe place. If a disaster strikes your home, it may also affect a wide area. If that happens you may not be able to retrieve your records.

2. Document Valuables.  Take photos or videos of the contents of your home or business. These visual records can help you prove the value of your lost items. They may help with insurance claims or casualty loss deductions on your tax return. You should store them with a friend or relative who lives out of the area.

3. Update Emergency Plans.  Review your emergency plans every year. Update them when your situation changes. Make sure you have a way to get severe weather information. Have a plan for what to do if threatening weather approaches.

4. Get Copies of Tax Returns or Transcripts.  Visit IRS.gov to get Form 4506, Request for Copy of Tax Return, to replace lost or destroyed tax returns. If you just need information from your return, you can order a free transcript online or by calling 800-908-9946. You can also file Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript or Form 4506-T, Request for Transcript of Tax Return.

5. Count on the IRS.  If you fall victim to a disaster, know that the IRS stands ready to help. You can call the IRS disaster hotline at 866-562-5227 for special help with disaster-related tax issues.

Visit IRS.gov to get more about IRS disaster assistance. Click on the ‘Disaster Relief’ link in the lower left of the home page. You can also get forms and publications anytime on IRS.gov. To get them in the mail, call 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

• Preparing for a Disaster
• Publication 584, Casualty, Disaster and Theft Loss Workbook 
• Publication 583, Starting a Business and Keeping Records

IRS Adopts "Taxpayer Bill of Rights;" 10 Provisions to be Highlighted on IRS.gov, in Publication 1

WASHINGTON ― The Internal Revenue Service today announced the adoption of a "Taxpayer Bill of Rights" that will become a cornerstone document to provide the nation's taxpayers with a better understanding of their rights.

The Taxpayer Bill of Rights takes the multiple existing rights embedded in the tax code and groups them into 10 broad categories, making them more visible and easier for taxpayers to find on IRS.gov.
Publication 1, "Your Rights as a Taxpayer," has been updated with the 10 rights and will be sent to millions of taxpayers this year when they receive IRS notices on issues ranging from audits to collection. The rights will also be publicly visible in all IRS facilities for taxpayers and employees to see.

"The Taxpayer Bill of Rights contains fundamental information to help taxpayers," said IRS Commissioner John A. Koskinen. "These are core concepts about which taxpayers should be aware. Respecting taxpayer rights continues to be a top priority for IRS employees, and the new Taxpayer Bill of Rights summarizes these important protections in a clearer, more understandable format than ever before.”

The IRS released the Taxpayer Bill of Rights following extensive discussions with the Taxpayer Advocate Service, an independent office inside the IRS that represents the interests of U.S. taxpayers. Since 2007, adopting a Taxpayer Bill of Rights has been a goal of National Taxpayer Advocate Nina E. Olson, and it was listed as the Advocate’s top priority in her most recent Annual Report to Congress.

“Congress has passed multiple pieces of legislation with the title of ‘Taxpayer Bill of Rights,’” Olson said. “However, taxpayer surveys conducted by my office have found that most taxpayers do not believe they have rights before the IRS and even fewer can name their rights. I believe the list of core taxpayer rights the IRS is announcing today will help taxpayers better understand their rights in dealing with the tax system.”

The tax code includes numerous taxpayer rights, but they are scattered throughout the code, making it difficult for people to track and understand. Similar to the U.S. Constitution’s Bill of Rights, the Taxpayer Bill of Rights contains 10 provisions. They are:

1. The Right to Be Informed

2. The Right to Quality Service

3. The Right to Pay No More than the Correct Amount of Tax

4. The Right to Challenge the IRS’s Position and Be Heard

5. The Right to Appeal an IRS Decision in an Independent Forum

6. The Right to Finality

7. The Right to Privacy

8. The Right to Confidentiality

9. The Right to Retain Representation

10. The Right to a Fair and Just Tax System

The rights have been incorporated into a redesigned version of Publication 1, a document that is routinely included in IRS correspondence with taxpayers. Millions of these mailings go out each year. The new version has been added to IRS.gov, and print copies will start being included in IRS correspondence in the near future.

The timing of the updated Publication 1 with the Taxpayer Bill of Rights is critical because the IRS is in the peak of its correspondence mailing season as taxpayers start to receive follow-up correspondence from the 2014 filing season. The publication initially will be available in English and Spanish, and updated versions will soon be available in Chinese, Korean, Russian and Vietnamese.

The IRS has also created a special section of IRS.gov to highlight the 10 rights. The web site will continue to be updated with information as it becomes available, and taxpayers will be able to easily find the Bill of Rights from the front page. The IRS internal web site for employees is adding a special section so people inside the IRS have easy access as well.

As part of this effort, the IRS will add posters and signs in coming months to its public offices so taxpayers visiting the IRS can easily see and read the information.

"This information is critically important for taxpayers to read and understand,” Koskinen said. “We encourage people to take a moment to read the Taxpayer Bill of Rights, especially when they are interacting with the IRS. While these rights have always been there for taxpayers, we think the time is right to highlight and showcase these rights for people to plainly see.”

“I also want to emphasize that the concept of taxpayer rights is not a new one for IRS employees; they embrace it in their work every day,” Koskinen added. “But our establishment of the Taxpayer Bill of Rights is also a clear reminder that all of the IRS takes seriously our responsibility to treat taxpayers fairly.

Koskinen added, "The Taxpayer Bill of Rights will serve as an important education tool, and we plan to highlight it in many different forums and venues."

When Does the Workday Begin ... and End?

Technology now allows employees to do small amounts of work at remote locations. When is this considered compensable time? These two questions dive into that question:

Computer log-in time: Paid or not?

Question: We ditched out time-clock, so now nonexempt employees clock in on their computers. What about the few minutes it takes for them to boot up their computer each morning? Is that compensable?

Answer: Technically, yes. The Fair Labor Standards Act (FLSA) considers this time compensable, since employees are engaged to wait. However, regulations (29 CFR 785.47) allow employers to disregard insubstantial or insignificant periods of time beyond employees' regular work day if, as a practical matter, this time can't be precisely recorded for payroll purposes.

Warning: This rule applies only when there are uncertain and identifiable periods of time of a few seconds or minutes, and where the failure to count the time is justified by business realities. The Department of Labor makes these determinations on a case-by-case basis, so check with the company's attorney before deciding not to pay employees for this time.

How to handle disparity for after-hours meetings?

Question: Our company often holds meetings after office hours. Full-time nonexempts are paid at their overtime rates, but part-time nonexempts are paid straight-time wages, since they never work longer than 40 hours in a workweek. Hard feelings have arisen among the part-timers about this disparity. Can we pay everyone at the same rate so that everyone is paid equally?

Answer: Not really. An expensive option would allow you to pay part-timers at their overtime rates, but you couldn't pay full-timers at their straight-time rates unless you knew that they wouldn't be working overtime during that week. A less expensive option would be to convert after-hours mandatory meetings into voluntary meetings. Under FLSA, meetings are voluntary if they're conducted after work, attendance is voluntary, meetings aren't directly related to employees' work and employees don't perform any productive work during that time.

Secrets of the IRS Payroll Audit Program

The IRS is in the middle of intensive, line-by-line audits of payroll returns conducted under the auspices of the IRS' National Research Program (NRP). The two-year-old NRP audits program will randomly target 2,000 employers in 2014/

We know more than you think we know. NRP audits focus on worker classification, fringe benefits, officer compensation and Form 1099-MISC. Auditors aren't coming into your business blind. For example, if the source return is Form 1120S, prior and subsequent 1120S forms, W-2 forms, 1099-MISC forms and CP2100 notices will be included in auditors' files. Auditors will also have learned about your business by surfing your website.

Keep cool under pressure. The IRS kicks off each NRP audit with a 3851-B letter. While your Forms 941 and 1120 may be in order, it's not what's on those forms that most interests auditors. The IRS is keen to determine items that could be fringe benefits that aren't on those returns.

With that in mind, here are four tips for handling the NRP process:

1. Assess your liability for hidden fringes by examining every payment rank-and-file employees receive. If the tax code doesn't specifically exclude a payment from income, it's taxable. Hidden fringes can lurk in employer-provided meals, tax-free fringes that exceed their ceiling (e.g., $5,000 a year for dependent care) and reimbursed expenses that aren't paid under an accountable plan.

2. Go through the same process for executive compensation, but also include executive compensation agreements, loan agreements, and non-qualified deferred compensation plans. Additional hidden fringe benefits may lurk in executive dining rooms, country club dues, sky boxes, and chauffeur services.

3. To determine the status of independent contractors, apply the safe harbor factors of Section 530 of the Revenue Act of 1978: You treat all independent contractors consistently by filing Forms 1099-MISC, if necessary; you treat all similar independent contractors similarly; and you have a reasonable basis for your actions.

4. Forms 1099-MISC must be provided to non-corporate service providers to whom you pay $600 or more a year. Service providers' Taxpayer Identification Numbers (TINs) must be reported on the form. Auditors will look through your accounts payable books to assess compliance. Warning: If you don't have service providers' TINs prior to payment, you must backup withhold at the 28% rate.

Tax Information for Students Who Take a Summer Job

Many students take a job in the summer after school lets out. If it’s your first job it gives you a chance to learn about the working world. That includes taxes we pay to support the place where we live, our state and our nation. Here are eight things that students who take a summer job should know about taxes:

1. Don’t be surprised when your employer withholds taxes from your paychecks. That’s how you pay your taxes when you’re an employee. If you’re self-employed, you may have to pay estimated taxes directly to the IRS on certain dates during the year. This is how our pay-as-you-go tax system works.

2. As a new employee, you’ll need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Your employer will use it to figure how much federal income tax to withhold from your pay. The IRS Withholding Calculator tool on IRS.gov can help you fill out the form.

3. Keep in mind that all tip income is taxable. If you get tips, you must keep a daily log so you can report them. You must report $20 or more in cash tips in any one month to your employer. And you must report all of your yearly tips on your tax return.

4. Money you earn doing work for others is taxable. Some work you do may count as self-employment. This can include jobs like baby-sitting and lawn mowing. Keep good records of expenses related to your work. You may be able to deduct (subtract) those costs from your income on your tax return. A deduction may help lower your taxes.

5. If you’re in ROTC, your active duty pay, such as pay you get for summer camp, is taxable. A subsistence allowance you get while in advanced training isn’t taxable.

6. You may not earn enough from your summer job to owe income tax. But your employer usually must withhold Social Security and Medicare taxes from your pay. If you’re self-employed, you may have to pay them yourself. They count toward your coverage under the Social Security system.

7. If you’re a newspaper carrier or distributor, special rules apply. If you meet certain conditions, you’re considered self-employed. If you don’t meet those conditions and are under age 18, you are usually exempt from Social Security and Medicare taxes.

8. You may not earn enough money from your summer job to be required to file a tax return. Even if that’s true, you may still want to file. For example, if your employer withheld income tax from your pay, you’ll have to file a return to get your taxes refunded. You can prepare and e-file your tax return for free using IRS Free File. It’s available exclusively on IRS.gov.

Visit IRS.gov for more about the tax rules for students.

Additional IRS Resources:

• Student's Page - High School
• Student's Page - Higher Education