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Tuesday
Oct222013

2014 Tax Season to Start Later Following Government Closure; IRS Sees Heavy Demand As Operations Resume

WASHINGTON–The Internal Revenue Service today announced a delay of approximately one to two weeks to the start of the 2014 filing season to allow adequate time to program and test tax processing systems following the 16-day federal government closure. 

The IRS is exploring options to shorten the expected delay and will announce a final decision on the start of the 2014 filing season in December, Acting IRS Commissioner Danny Werfel said. The original start date of the 2014 filing season was Jan. 21, and with a one- to two-week delay, the IRS would start accepting and processing 2013 individual tax returns no earlier than Jan. 28 and no later than Feb. 4. 

The government closure came during the peak period for preparing IRS systems for the 2014 filing season. Programming, testing and deployment of more than 50 IRS systems is needed to handle processing of nearly 150 million tax returns. Updating these core systems is a complex, year-round process with the majority of the work beginning in the fall of each year. 

About 90 percent of IRS operations were closed during the shutdown, with some major workstreams closed entirely during this period, putting the IRS nearly three weeks behind its tight timetable for being ready to start the 2014 filing season. There are additional training, programming and testing demands on IRS systems this year in order to provide additional refund fraud and identity theft detection and prevention.

“Readying our systems to handle the tax season is an intricate, detailed process, and we must take the time to get it right,” Werfel said. “The adjustment to the start of the filing season provides us the necessary time to program, test and validate our systems so that we can provide a smooth filing and refund process for the nation’s taxpayers. We want the public and tax professionals to know about the delay well in advance so they can prepare for a later start of the filing season.”

The IRS will not process paper tax returns before the start date, which will be announced in December. There is no advantage to filing on paper before the opening date, and taxpayers will receive their tax refunds much faster by using e-file with direct deposit. The April 15 tax deadline is set by statute and will remain in place. However, the IRS reminds taxpayers that anyone can request an automatic six-month extension to file their tax return. The request is easily done with Form 4868, which can be filed electronically or on paper.

IRS processes, applications and databases must be updated annually to reflect tax law updates, business process changes, and programming updates in time for the start of the filing season. 

The IRS continues resuming and assessing operations following the 16-day closure. The IRS is seeing heavy demand on its toll-free telephone lines, walk-in sites and other services from taxpayers and tax practitioners.

During the closure, the IRS received 400,000 pieces of correspondence, on top of the 1 million items already being processed before the shutdown. 

The IRS encourages taxpayers to wait to call or visit if their issue is not urgent, and to continue to use automated applications on IRS.gov whenever possible.

“In the days ahead, we will continue assessing the impact of the shutdown on IRS operations, and we will do everything we can to work through the backlog and pent-up demand,” Werfel said. “We greatly appreciate the patience of taxpayers and the tax professional community during this period.”

Wednesday
Oct162013

"I received this notice...CP-2100. Is it going to cost me?

A client (payer) has received notice CP-2100 for 2012 from the Internal Revenue Service. And to answer the question is this going to cost the client? No, the client will not be required to pay penalties or taxes; IF they comply with the notice.

The payer has 15 days from the date of the notice to compare a list of names and related social security numbers provided by the IRS in the notice to I-9s, W-4s and other records to verify the correct names properly spelled were matched to the correct ID numbers. The list provided by the IRS is from information forms filed by the payer (series 1099).

If the name is correct and spelled correctly and matched to the correct social security/ITIN number then the payer is to send two B notices (first and second) to inform the subcontractor Backup Withholding will be withheld from future payments. The rate for this withholding is 28% of the amount paid.

Why did the client/payer receive this notice?

The IRS has been notified of a person receiving payment for services that the service does not recognize because:

  1. The subcontractor provided the wrong information; using Bill, a nickname for the proper name William.
  2. The subcontractor provided the wrong social security or ITIN; omitted part of or altered the number.
  3. The subcontractor provided another person’s social security or ITIN number.
  4. The subcontractor failed to provide a social security or ITIN number.

Once the payer has confirmed the records sent to the IRS agree with what was provided by the contractor the payer only needs to start backup withholding at 28%, for that individual. At year end the payer prepares Forms 1099 showing total payments made to the subcontractor in Box 7: Nonemployee Compensation and the sum of back up withholding in Box 4: Federal Income Tax Withheld.

Complete Form 945 Annual Return of Withheld Federal Income Tax and submit payment of the withheld taxes to the IRS by February 28th using Form 945-V. Be aware of how much withholding you have collected, if you exceed $2500 in one quarter you may face penalties.

If the subcontractor is no longer used by the payer and the information agreed with the forms provided then the payer has met their obligation to comply with the law and further action is needed.

Backup Withholding can be applied to any of the 1099 series including rent, royalties, interest, attorney payments, dividends, proceeds from broker and barter exchanges.

There are additional tracking requirements such as record retention, returned B notices being held and other actions that are common sense for the payer to do.

 

Monday
Oct072013

Shoe Boxs and Envelopes...

As the final 2012 tax filing deadline approaches on Tuesday, October 15 there are two boxes sitting on top of the filing cabinet waiting to be opened. Inside are the receipts and deposits from a client who shipped out overseas on a contract, before completing his tax information. And it has fallen to me to organize and summarize the data into tax information. Shoebox accounting. His return will cost far more to prepare, my irritation with him and a return filed after April 15th.

If you cannot use QuickBooks or prepare the journal described in a prior posting then use the envelope method. Sort your receipts into envelopes by the expense it paid. In one envelope fuel pump receipts, meals in a second, tools receipts in a third, and so on until you have sort your expenses.

Take one envelope and add up the receipts. Write a description on the outside of the envelope; ‘FUEL’ and the total of the receipts ‘375.58’. Place the receipts in the envelope and seal it.  Write the expense and amount down and start the next envelope.  Once you have finished the envelopes record each expense and the related amount on single sheet of paper.

For income total your bank deposits and write the total on the above list. Give this list to your tax preparer.

If this is too much work then give the receipts to your tax preparer along with a hefty payment for his services.

Friday
Mar082013

See original article at AccountingToday

Saturday
Feb232013

Shoe Box Bookkeeping...Can it work?

It is tax time and part of the annual cycle of tax preparation is the resolution to start keeping better records. Usually uttered in embarrassement as one delivers the plastic sack or shoe box of receipts, scribbled napkin notes, tax documents and IRS notices in thick rubber banded bundles of unopened envelopes to a tax preparer.

And if YOU are a business owner you should be embarrased. To quote the father of accounting Luca Pacioli

Ubi non est ordo. ibi est confusion (Where there is no order, there is confusion). 
Poor organization is the cause of most business problems; missed opportunities, uncollectable receivables, lost assets, increased taxes, partner arguments and loss of the business. Every CPA has their share of horror stories resulting from disorganization. Many tax preparers refuse to prepare returns for the shoe box client, other's charge appropriately higher fees and attempt to train the client to keep better records. That goes one of two ways. One the client is rewarded with lower fees or the ex-client will seek a new tax preparer. Annual bookkeeping is useful only to the taxing authority and a money looser and waste of time for the tax preparer.
Business associates who see a shoe box record system know not to trust what the show box owner says. Would you trust a bank that recorded you deposit on a used napkin and dropped it into a bag marked This Year?
I will not waste more time persuading you to organize, you should know now or accept that your business and life will be confusing.
So, how should you keep your records? QuickBooks, Bookkeeper or other accounting software could be used. And unless you know what your doing the ease of use can make a bigger mess. If you have only a few transactions each month the cost and frustration of software is not worth it. 
For ten to twenty transactions a month a spiral bound note book and twelve envelopes works well - if you record the transactions the day they occure. Waiting until the end of the year will defeat the purpose of bookkeeping. Review the day's transactions each day recording the expense or deposit. One transaction to a line; noting the date, the payee, invoice number, the amount and the purpose. Be consistant in purpose. Use a short descriptive for the purpose, Cost of Goods Sold, Insurance, Meals. Reserve the first few lines of each page to record deposits and the lower lines for expenses. Ideally one page will record one month's activity, two pages consistantly shows the need for a little more sophistication. At year end total each month's amounts for like purposes; total Cost of Goods Sold for January thru December and record it on a page after the final month of activity. Do the same for other expenses, one line per expense. If you purchase a computer then just use Computer for the purpose. Same with Furniture. The idea is to create a useable summary, not an itemized list of every transaction.
To determine income or loss just subtract each month's total expenses from deposits.
The result of all this work will be an understanding of where you are really spending your business money and an opportunity to change spending before forced to. Also less stress and embarasment at tax time and a sense of professionalism. You will also be prepared when business takes off to upgrade your accounting to a more appropriate system.