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Obamacare Tax Update

The Affordable Care Act, commonly known as Obamacare was enacted on March 23, 2010. Although both sides of the aisles have debated its constitutionality and long term viability, one thing is certain, it will tax consequences for each and everyone of us. Below I set out to guide you through the Affordable Care Act, devoid of any political discussion, focusing solely on its tax impact on you.

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2012 / 2013 Income Tax Planning / Tax Changes

This memo is a revision / update to our December 31, 2012 memo as Congress has concluded on some additional items. So if you haven’t read our previous one, you can delete it and read this one. The 2012 tax return process will be delayed due to these last minute changes. The law must be written, then the IRS must update the forms.

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How long to keep your income tax records?

Audits (or as the IRS calls them examinations) have been up over the past five years.  I’m sure someone in goverment has told the IRS to find more money as we all know the Federal government has a lot of debt.  So, if a taxpayer wants to prepare for an audit, how long should they keep their documents?   Our general answer is four years.  In general, the IRS as three years (regular statue of limitation) from the filing date to audit a tax return.  Most states have four years to audit as they want time to ee if the IRS audits a return.  If the IRS audits a tax return, and there are changes which require a taxpayer to pay more tax rest assured that the Federal government will tell the state(s). 

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Identity Theft with US Tax Returns

It is amazing and shocking to see how our identity can be stolen.  We have noticed over the past five years, that there has been an increase of income tax return problems because of identity theft.  Generally we as a CPA firm first notice there is a problem when try to electronically file a tax return and the government computers tell us the return has already been filed.  We immediately inform our clients, and proceed in filing out a lot of paper work with the IRS and state governments.  This can cause the taxpayers some real problems.  First if there is a refund, the refund is held up typically for six months or longer.  Yes, the IRS will pay you interest, but you don’t have your money.  Next, if the taxpayers are trying to get a loan, the mortgage company will not be able to verify the tax return with the IRS as the return is in a state of flux. 

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Tax Tips for Recently Married or Divorced Taxpayers

Most individual tax returns are electronically filed.  If your name and social security number doesn’t match, the IRS computers will not accept the electronically filed tax return.  Name mismatches cause problems with refunds also.  The Social Security Administration (SSA) should be notified of a name change resulting form marriage or divorce by filing form SS-5 which is available at www.socialsecurity.gov

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Tax Deduction for Meals

Typically business expenses for meals and entertainment are only 50% deductible for income tax purposes.  The goverment feels that the taxpayer receives some enjoyment, so only 1/2 is deductible.  However, please note that means furnished to employees can be 100% deductible persuant to Internal Revenue Sectoin 274(n).    We discuss this law all the time with our clients.  These sorts of meals should be tracked seperatly on the taxpayers general ledger.  So meals that our brought into the business or delievered and the food is for the employees would qualify as 100% deductible.  Don’t forget this one when you are preparing your tax returns.  

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Employee or Independent Contractor?

Is the person working for you an employee or independent contractor?  This question comes up often. Typically start-up businesses will want to treat as many workers as possible as independent contractors, so they don’t have to deal with payroll taxes, and other fringe benefits. However, is this approach correct?  The IRS would rather has every worker treated as an employee as they would receive more payroll taxes which include social security and medicare. Also the employer is required to withhold federal and state income taxes and remit them to the government.  Well this topic has been discussed often.  For a starting point, review the IRS website at http://www.irs.gov/businesses/small/article/0,,id=99921,00.html.  This will provide you with a brief understanding of the issue and links to other related areas.

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