May 9, 2011
IRS Warns of Surge in Phishing and Malware Schemes Targeting Preparers and Taxpayers
February 19th, 2016

The Internal Revenue Service warned Thursday it has seen a fourfold surge this tax season in email phishing and malware incidents, targeting consumers and the tax industry.
The IRS noted the emails are designed to trick taxpayers into thinking they are official communications from the IRS or others in the tax industry, including tax software companies. The phishing schemes can ask taxpayers about a wide range of topics. E-mails can seek information related to refunds, filing status, confirming personal information, ordering transcripts and verifying PIN information.

Variations of these scams can be seen via text messages, and the communications are being reported in every section of the country.
The IRS said it has seen an increase in reported phishing and malware schemes, including 1,026 incidents reported in January, up from 254 from a year earlier.
This dramatic jump in these scams comes at the busiest time of tax season,” said IRS Commissioner John Koskinen in a statement. “Watch out for fraudsters slipping these official-looking emails into inboxes, trying to confuse people at the very time they work on their taxes. We urge people not to click on these emails.”

As the email scams increase, the IRS is working on the issue through the Security Summit initiative with state revenue departments and the tax industry. Many software companies, tax professionals and state revenue departments have seen variations in the schemes.

Tax professionals are reporting phishing scams that are seeking their online credentials to IRS services, for example the IRS Tax Professional PTIN System. Tax preparers are also reporting that many of their clients are seeing the e-mail schemes.

This tax season the IRS said it has observed fraudsters more frequently asking for personal tax information, which could be used to help file false tax returns. Taxpayers receive an official-looking email from what appears to be an official source, whether the IRS or someone in the tax industry.

Recent email examples the IRS has seen include subject lines and underlying text referencing numerous variations about people’s tax refund, demands for updating the taxpayer’s filing details, which can include references to W-2. Some emails ask taxpayers to confirm their personal information, get their IP PIN or E-file PIN (a personal identification number for tax preparers who do electronic filing on behalf of clients), order a transcript or complete their tax return information.

When people click on the email links, they are taken to sites designed to imitate an official-looking website, such as IRS.gov. The sites ask for Social Security numbers and other personal information. The sites also may carry malware, which can infect people’s computers and allow criminals to access your files or track your keystrokes to gain information.

“While more attention has focused on the continuing IRS phone scams, we are deeply worried this increase in email schemes threatens more taxpayers,” Koskinen added. “We continue to work cooperatively with our partners on this issue, and we have taken steps to strengthen our processing systems and fraud filters to watch for scam artists trying to use stolen information to file bogus tax returns.”

As part of the effort to protect taxpayers, the IRS has teamed up with state revenue departments and the tax industry to make sure taxpayers understand the dangers to their personal and financial data as part of the “Taxes. Security. Together” campaign.

If a taxpayer receives an unsolicited email that appears to be from either the IRS e-services portal or an organization closely linked to the IRS, report it by sending it to phishing@irs.gov. For more information, visit the Report Phishing and Online Scams page.

It is important to keep in mind the IRS generally does not initiate contact with taxpayers by email to request personal or financial information, the IRS noted. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information online that can help protect taxpayers from email scams.

Phishing and malware schemes again made the IRS “Dirty Dozen” tax scam list this year. The last IRS Phishing Scam news release has further information

The underlying messages frequently ask taxpayers to update important information by clicking on a web link. The links may be masked to appear to go to official pages, but they can go to a scam page designed to look like the official page. The IRS urges people not to click on these links but instead send the email to phishing@irs.gov
The trend continued in February, nearly doubling the reported number of incidents compared to a year ago. In all, 363 incidents were reported from Feb. 1-16, compared to the 201 incidents reported for the entire month of February 2015. This year’s 1,389 incidents have already topped the 2014 yearly total of 1,361, according to the IRS, and they are halfway to matching the 2015 total of 2,748.

Tax Strategies Scan: Hiring Your Kids
September 22nd, 2015

Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
See the IRS’s iOur weekly roundup of tax-related investment strategies and news your clients may be thinking about.
See the IRS’s incredibly generous tax benefits for hiring your own child: Aside from the Child Tax Credit, clients can also take advantage of another child-related tax benefit if they hire their own children in their business, according to Forbes. By hiring their children and paying them a salary, parents can reduce their business’ taxable income since the children’s wages are tax-deductible. The wage should not exceed $6,300 annually so the children will be exempt from paying taxes and filing a tax return. — Forbes
Understanding education tax credits: Clients who are looking for ways to save on taxes on their 2015 tax returns can claim the American Opportunity Tax Credit or the Lifetime Learning Credit if they incur education-related expenses this year, according to The Cincinnati Enquirer. They qualify to get one or both of these tax breaks if the expenses were for the taxpayers themselves, their spouse or a child. Education expenses qualified for the AOTC include tuition, fees and other related costs, while only tuition and other enrollment fees are eligible for the LLC. — The Cincinnati Enquirer
3 tax-efficient retirement-saver portfolios: Maintaining a tax-efficient retirement portfolio should be a goal not only of clients but also those who are in the accumulation stage, according to Morningstar. They need to minimize their trading in their portfolio for lower taxable capital gains distributions and also look for stock funds with patient, low-turnover strategies, Benz writes. “Exchange-traded funds, index funds, and tax-managed funds all tend to have very low turnover and, in turn, do a good job reducing the tax collector’s cut of their portfolios’ returns.” — Morningstar
How variable annuities are taxed: Variable annuities are subject to tax rules that also apply to fixed annuities, but the earnings from investment choices are tax-deferred, according to Investopedia. Taxes on the earnings are paid when annuity holders start collecting payments or opt to take distributions before the annuity’s starting date. Payments or distributions received before the starting date will consist of a tax-free portion and earnings which are to be taxed as an ordinary income. — Investopediancredibly generous tax benefits for hiring your own child: Aside from the Child Tax Credit, clients can also take advantage of another child-related tax benefit if they hire their own children in their business, according to Forbes. By hiring their children and paying them a salary, parents can reduce their business’ taxable income since the children’s wages are tax-deductible. The wage should not exceed $6,300 annually so the children will be exempt from paying taxes and filing a tax return. — Forbes

Understanding education tax credits: Clients who are looking for ways to save on taxes on their 2015 tax returns can claim the American Opportunity Tax Credit or the Lifetime Learning Credit if they incur education-related expenses this year, according to The Cincinnati Enquirer. They qualify to get one or both of these tax breaks if the expenses were for the taxpayers themselves, their spouse or a child. Education expenses qualified for the AOTC include tuition, fees and other related costs, while only tuition and other enrollment fees are eligible for the LLC. — The Cincinnati Enquirer
3 tax-efficient retirement-saver portfolios: Maintaining a tax-efficient retirement portfolio should be a goal not only of clients but also those who are in the accumulation stage, according to Morningstar. They need to minimize their trading in their portfolio for lower taxable capital gains distributions and also look for stock funds with patient, low-turnover strategies, Benz writes. “Exchange-traded funds, index funds, and tax-managed funds all tend to have very low turnover and, in turn, do a good job reducing the tax collector’s cut of their portfolios’ returns.” — Morningstar

How variable annuities are taxed: Variable annuities are subject to tax rules that also apply to fixed annuities, but the earnings from investment choices are tax-deferred, according to Investopedia. Taxes on the earnings are paid when annuity holders start collecting payments or opt to take distributions before the annuity’s starting date. Payments or distributions received before the starting date will consist of a tax-free portion and earnings which are to be taxed as an ordinary income. — Investopedia

IRS Phone Scam Ringleader Gets 14-Year Sentence
July 11th, 2015

Washington, D.C. (July 8, 2015)

By Michael Cohn

A scammer who organized a scheme in which taxpayers were threatened with calls purporting to come from the Internal Revenue Service and the FBI demanding payment has been sentenced to 14 years in prison.

Sahil Patel was sentenced to 175 months in prison and $1 million in forfeiture for his role in organizing the U.S. side of a massive fraud and extortion ring run through various “call centers” located in India, through which Patel and his co-conspirators impersonated American law enforcement officials and threatened victims with arrest and financial penalties unless those victims made payments to avoid purported charges.

In addition to the prison sentence, Patel, 36, of Tatamy, Pa., was sentenced to three years of supervised release.
Patel pleaded guilty in January 2015 before U.S. District Judge Alvin Hellerstein, who imposed the sentence Wednesday. “The nature of this crime robbed people of their identities and their money in a way that causes people to feel they have been almost destroyed,” said Hellerstein.

According to prosecutors, from Dec. 2011 through the day of his arrest on Dec. 18, 2013, Patel participated as a leader in a sophisticated scheme to intimidate and defraud hundreds of innocent victims of hundreds of dollars apiece. Throughout the course of the fraud, telephone call centers located in India hired English-speaking employees to place telephone calls to individuals living in the U.S.

Armed with long lists of potential victims, referred to by Patel and his co-conspirators as “lead sheets,” those India-based callers systematically placed thousands of calls to individuals in the U.S. in the hopes of intimidating the call recipients into providing a payment to the co-conspirators. To extort these victims, the India-based callers impersonated law enforcement officials of the FBI and IRS and threatened their victims with financial penalties and arrest in connection with fabricated financial crimes.

“Sahil Patel’s elaborate scheme involved impersonating law enforcement officers and using intimidation and fear to bilk over a million dollars from hundreds of unsuspecting victims,” said Manhattan U.S. Attorney Preet Bharara in a statement.

In order to receive funds in a manner that would mask the identity of Patel and his co-conspirators, the ring undertook several measures to anonymize itself, including by using anonymized voice-over-internet technology, which was subscribed under fraudulent names in order to give the appearance of being related to U.S. law enforcement agencies.

Patel and his co-conspirators also used several layers of wire transactions in order to conceal the destination and nature of the extorted payments, which totaled at least $1.2 million.

The scam has been continuing and on the rise this year despite Patel’s arrest. Taxpayers who have been targeted by the scam can report the incident to the Treasury Inspector General for Tax Administration at www.tigta.gov and clicking on the IRS Impersonation Scam Reporting tab in the upper right corner, or call the TIGTA hotline at 1-800-366-4484.

More Taxpayers Will Get Their Refunds by Mail, Like It or Not
March 10th, 2015

March 6, 2015
By Suzanne Woolley
Bloomberg Business

(Bloomberg Business) States have been pushing taxpayers to get their refunds via direct deposit for years. Now people choosing that option may be surprised with a paper check instead.
South Carolina informed residents this week that, in response to a recent spike in fraud, the state is converting some refunds for people who requested direct deposit to paper checks; Colorado announced a similar move in mid-February.

In Connecticut, all first-time filers and all refunds flagged as potentially suspicious will get paper checks. And Utah’s increase in paper checks is “dramatic,” because requests for refunds on certain types of debit cards are all being issued checks, says Charlie Roberts, a spokesman for the Utah State Tax Commission.

Those examples are “the tip of the iceberg,” says Verenda Smith, deputy director at the Federation of Tax Administrators. “We don’t have a lot of numbers, but there’s more of these conversions going on now, and more that will go on.” Smith says that while state revenue departments have always had the option of flipping a direct deposit refund to paper, it’s being done more publicly now. “It’s a minor inconvenience to taxpayers but very helpful in stopping fraud,” she says, and tax officials don’t get a lot of heat politically for doing it.

Any legitimate filer surprised with a paper check may never learn why his filing was targeted. In South Carolina, checks will come with a letter saying that the refund was flagged as potentially fraudulent, but that “for security purposes, we are unable to disclose additional details related to this determination.” Colorado’s release about its new antifraud measures, which include issuing more paper checks, notes that “sending a paper check to the taxpayer’s mailing address is intended to prevent criminals from easily diverting fraudulent refunds to their own prepaid, reloadable cards or debit cards.”

South Carolina’s release reminds taxpayers that if you get a refund check but haven’t yet filed your return—a sign that someone has filed a fraudulent return using your name—don’t cash the check. Smith says every year there are people for whom a few hundred dollars in the bank is a big deal, and they’ll cash a check that obviously wasn’t meant for them. That can get messy, she says, because it can turn into a collection issue, and interest can be levied.

The states’ actions come in the wake of reports of a spike in suspicious state income tax refund claims that started in late January. Minnesota temporarily stopped accepting e-filed returns on Jan. 30. On Feb. 5, Intuit, the maker of TurboTax, stopped transmitting e-filed state income tax returns for 24 hours. Now the FBI and the criminal division of the IRS have investigations under way.

Another Reason I do NOT like Using Turbo Tax or these type of software, Buyer beware
February 16th, 2015

TurboTax halts e-filing for state returns due to fraud, stealing of refunds
Published: Feb 6, 2015 1:12 p.m. ET (Marketwatch.com)

Intuit INTU,, the parent company of TurboTax, has stopped e-filing all state tax returns due to increased suspicion of fraud.

The company says it is investigating criminal attempts to use stolen data to file fraudulent returns and claim refunds, after hearing concerns from a handful of states, Intuit spokeswoman Diane Carlini told MarketWatch. After a preliminary examination with security experts, Intuit believes its systems weren’t breached, but crooks may have used TurboTax software to file fraudulent returns after stealing identities, she said.

Intuit said in a release that “the information used to file fraudulent returns was obtained from other sources outside the tax preparation process.” The company called pausing e-filings to states a “precautionary step.”

Utah, the first state to reach out to Intuit, issued a notice Thursday saying the state tax commission has discovered 28 fraud attempts that “originate from data compromised through a third-party commercial tax preparation software process,” as well as 8,000 returns flagged as potentially fraudulent.

Minnesota’s Department of Revenue also said in an online notice that it has stopped accepting returns from TurboTax. The Alabama Department of Revenue posted a similar warning after flagging 16,000 potentially fraudulent returns sourced back to tax preparation software.

“We understand the role we play in this important industry issue and continuously monitor our systems in search of suspicious activity,” Brad Smith, Intuit president and chief executive officer, said in the release. “We’ve identified specific patterns of behavior where fraud is more likely to occur. We’re working with the states to share that information and remedy the situation quickly.”

TurboTax customers “do not need to take further action” and returns that have been filed and put on pause will be submitted when the company resumes filing. Federal tax return filing has not been affected, according to the release.

Carlini, the Intuit spokeswoman, told MarketWatch Friday afternoon that TurboTax has not yet resumed filing in any states but hopes to begin lifting the freeze later in the day.

Intuit’s claim that fraudsters are using TurboTax to quickly file fraudulent returns after stealing identities elsewhere comes at a time of heightened concern about data breaches. On Wednesday, Anthem Inc., the second-biggest health insurer in the U.S., said hackers cracked into a database with the Social Security numbers, names and other personal information of about 80 million customers.

In the hands of a criminal, this kind of personal data makes filing a fraudulent tax return easy. Intuit is considering additional authentication methods to its tax software to ensure the individual using TurboTax is in fact the taxpayer whose name is on the documents, Carlini said.

CCH Predicts Tax Relief from 2015 Inflation Adjustments – Part 3
October 28th, 2014
Riverwoods, Ill. (September 18, 2014) By

AMT Exemptions Indexed
Jones observed that ATRA provided for annual inflation adjustments to the exemptions from the alternative minimum tax. Previously, Congress was required to explicitly increase the amounts by statute every time the so-called “AMT patch” was set to expire.

Before ATRA, Congress relied on one- or two-year AMT patches to account for inflation from the initially set amounts of $33,750 and $45,000, respectively. However, the new law now provides for base exemption amounts of $78,750 for married joint filers and surviving spouses, $50,600 for single taxpayers, and $56,000 for heads of households.

Wolters Kluwer, CCH projects that for 2015, the AMT exemption for married joint filers and surviving spouses will be adjusted upward to $83,400, up from $82,100 for 2014. For unmarried single filers and heads of households, the 2015 exemption will be $53,600, up from $52,800 for 2014. For married single filers, the exemption will increase to $41,700, up from $41,050 in 2014.

Standard Deduction, Personal Exemption Rise
The standard deduction and personal exemption amounts are also subject to indexing. Projections for 2015 indicate that the trend will continue, with increases across the board. The standard deduction for single taxpayers, heads of households and married couples filing jointly will all show increases for 2015, by $100, $150 and $200, respectively.

The standard deduction for joint filers, for example, would rise from $12,400 to $12,600 in 2015. Any increase in the standard deduction, of course, can produce lower taxes by decreasing the taxpayer’s taxable income.

The additional standard deduction for those aged 65 years old and older or who are blind will increase to $1,250 for 2015, up from $1,200 in 2014 for married individuals and surviving spouses, but the $1,550 additional amount for single aged 65 or older or blind filers will remain the same. The personal exemption amount gets bumped up by inflation by $50, to $4,000 in 2015, up from $3,950 in 2014 after having increased $100 between 2012 and 2013.

Taxpayers for many years have had to lose a good portion of the value of personal exemptions and itemized deductions when their incomes rise above certain levels, which have also been adjusted for inflation. Starting in 2010, these “phase outs” disappeared from the Tax Code, but ATRA reintroduced them starting last year for certain higher-income taxpayers. ATRA set forth base amounts for the phase-out ranges, which represented increases from their pre-2010 levels, even before inflation adjustments.

The 2014 phase-out range for personal exemptions under ATRA begins at $309,900 for joint filers and $258,250 for single filers. The phase-out is complete once these levels reach, respectively, $432,400 and $380,750. The same income ranges apply to the phase out of itemized deductions.
For a complete look at how income ranges for each tax bracket are projected to shift next, see the Wolters Kluwer, CCH tables below.

“Kiddie” Deduction, Gift Tax Exemption
In general, inflation adjustments are rounded to the next-lower multiple of $50, so if the adjustment produces an increase of less than $50, no increase is made. The “kiddie” deduction, used on the returns of children claimed as dependents on their parents’ returns, increased only six times in the years 2001 through 2014 because of rounding. It last rose for the 2013 tax year. For 2015 the deduction will increase again, to $1,050.

The Tax Code only allows the gift tax exemption to rise when the inflation adjustment would produce an increase of $1,000 or more. The last increase occurred in 2013, when it rose to $14,000. It remains unchanged for 2015.

TO BE CONTINUED>>>>>>>>

Contact Custom Tax Services for all of your Bookkeeping/Payroll/Tax needs in Utah, North Carolina or any state.

CCH Predicts Tax Relief from 2015 Inflation Adjustments – Part 2
September 25th, 2014

Riverwoods, Ill. (September 18, 2014) By

Higher-income Taxpayers Also Benefit
The 2015 year represents the third year that the 39.6-percent tax bracket for higher-income taxpayers, enacted by the American Taxpayer Relief Act of 2012, also known as ATRA, will be imposed. For 2015, Wolters Kluwer, CCH projects that the minimum income amounts at which this top tax rate will kick in will rise to $464,850 (from $457,600) for married joint filers, $439,000 (from $432,200) for heads of households, $413,200 (from $406,750) for unmarried filers, and $232,425 (from $228,800) for married separate filers. These inflation-adjusted amounts also trigger a 20-percent tax on that portion of taxable income attributable to net capital gains and qualified dividends that exceed these bracket amounts.

“Higher-income” taxpayers also must face the new “Medicare” taxes that started in 2013, CCH noted. They are the 3.8-percent surtax on net investment income and a 0.9-percent Medicare contributions tax on earned income. The net investment income tax is triggered when adjusted gross income exceeds: $250,000 (married joint filers and qualifying widowers), $200,000 (for heads of households and single filers), and $125,000 (for married single filers). The additional Medicare contributions tax is triggered when a taxpayer’s wages, compensation, or self-employment income exceed these same threshold amounts. These amounts, however, are not adjusted for inflation and therefore remain the same for 2015.

Inflation Adjustments
Since the late 1980s, the U.S. Tax Code has required that federal income tax brackets be adjusted for inflation annually, and inflation adjustments have been inserted into the Internal Revenue Code in recent years with increasing frequency.

For example, the Code now requires over 50 other inflation-driven computations to determine deduction, exemption and exclusion amounts in addition to the 40 separate computations needed to inflation-adjust the tax bracket tables each year. In fact, the Patient Protection and Affordable Care Act added an even greater number of inflation adjustments to the tax code, including figures affecting the Code Sec. 36B premium assistance tax credit, the income level under which an individual may not be penalized for failure to comply with the individual mandate, and the amount of salary reductions that can be made through a flexible spending arrangement. Some of these health-related inflation adjustments, however, have been delayed for tax years after 2014 or beyond.

Notable as one of the provisions that ATRA now requires to be permanently adjusted for annual inflation is the estate and gift tax applicable exemption. Set at a $5 million level for 2011, the amount has been adjusted for inflation by Congress to $5,120,000 for 2012, $5,250,000 for 2013, $5,340,000 for 2014, and now projected at $5,430,000 for 2015. A spousal portability election can now effectively protect double that amount against estate and gift tax ($10,860,000 for 2015).

Most of the adjustments are based on the Consumer Price Index for all urban consumers’ figures for September through August immediately prior to the adjusted year. However, some inflation-adjusted figures are computed earlier and some later. For example, amounts such as the 2015 vehicle depreciation limits won’t be available until later in 2014, while the 2015 standard business mileage rate (that is currently set at 56 cents for 2014) isn’t expected to be computed and released until December 2014.

TO BE CONTINUED>>>>>>>>

Contact Custom Tax Services for all of your Bookkeeping/Payroll/Tax needs in Utah, North Carolina or any state.

CCH Predicts Tax Relief from 2015 Inflation Adjustments – part 4
September 24th, 2014

Riverwoods, Ill. (September 18, 2014) By

CCH cautioned that its projections should be used for illustrative purposes only and should not be used for federal tax returns or other tax-related purposes.

Married Filing Jointly (& Surviving Spouse)

Tax Rate

2015 Taxable Income

2014 Taxable Income

10%

$0 – $18,450

$0 – $18,150

15%

$18,450 – $74,900

$18,150 – $73,800

25%

$74,900 – $151,200

$73,800 – $148,850

28%

$151,200 – $230,450

$148,850 – $226,850

33%

$230,450 – $411,500

$226,850 – $405,100

35%

$411,500 – $464,850

$405,100 – $457,600

39.6%

$464,850+

$457,600+

 

Unmarried Individuals (Other Than Surviving Spouses and Heads of Households)

Tax Rate

2015 Taxable Income

2014 Taxable Income

10%

$0 – $9,225

$0 – $9,075

15%

$9,225 – $37,450

$9,075 – $36,900

25%

$37,450 – $90,750

$36,900 – $89,350

28%

$90,750 – $189,300

$89,350 – $186,350

33%

$189,300 – $411,500

$186,350 – $405,100

35%

$411,500 – $413,200

$405,100 – $406,750

39.6%

$413,200+

$406,750+

 

Head of Household

Tax Rate

2015 Taxable Income

2014 Taxable Income

10%

$0 – $13,150

$0 – $12,950

15%

$13,150 – $50,200

$12,950 – $49,400

25%

$50,200 – $129,600

$49,400 – $127,550

28%

$129,600 – $209,850

$127,550 – $206,600

33%

$209,850 – $411,500

$206,600 – $405,100

35%

$411,500 – $439,000

$405,100 – $432,200

39.6%

$439,000+

$432,200+

 

 

Married Individuals Filing Separate Returns

Tax Rate

2015 Taxable Income

2014 Taxable Income

10%

$0 – $9,225

$0 – $9,075

15%

$9,225 – $37,450

$9,075 – $36,900

25%

$37,450 – $75,600

$36,900 – $74,425

28%

$75,600 – $115,225

$74,425 – $113,425

33%

$115,225 – $205,750

$113,425 – $202,550

35%

$205,750 – $232,425

$202,550 – $228,800

39.6%

$232,425+

$228,800

 

Standard Deduction Amounts

Filing Status

2015

2014

Increase

Married Filing Jointly (& Surviving Spouse)

$12,600

$12,400

$200

Married Filing Separately

$6,300

$6,200

$100

Single

$6,300

$6,200

$100

Head of Household

$9,250

$9,100

$150

 

Standard Deduction for Dependents (“Kiddie” Standard Deduction)

2015

2014

Increase

$1,050

$1,000

$50

 

Personal Exemption Amounts

2015

2014

Increase

$4,000

$3,950

$50

 

Gift Tax Exclusion

2015

2014

Increase

$14,000

$14,000

$0

CCH Predicts Tax Relief from 2015 Inflation Adjustments -Part 1
September 24th, 2014

Riverwoods, Ill. (September 18, 2014)

By Michael Cohn

Taxpayers are expected to receive a modest amount of tax relief in 2015, thanks to the annual inflation adjustments provided under the Tax Code.

Wolters Kluwer, CCH released estimated ranges Thursday for each 2015 tax bracket, along with projections for a growing number of inflation-sensitive tax figures, such as the personal exemption and the standard deduction. Bloomberg BNA separately released its own set of estimates Wednesday (see Bloomberg BNA Forecasts 2015 Tax Rates).

“Indexing effectively provides an automatic tax cut for most individuals, without the need for Congress to agree on legislation each year to make it happen,” said CCH senior federal tax analyst George Jones in a statement. “Most taxpayers benefit from inflation adjustments since the adjustments tend to preserve the value of most, but not all, of the dollar-based benefits under the Tax Code year after year.”

When there is inflation, indexing of brackets lowers tax bills by including more of people’s incomes in lower brackets—in the existing 15 percent bracket, for example, rather than the existing 25 percent bracket. The formula used in indexing showed a slightly higher amount of inflation this year over last, representing a change of just under 1.58 percent. Nevertheless, so-called “rounding conventions” required under the Internal Revenue Code keep some tax amounts for 2015 the same as they are for 2014, such as the $14,000 gift tax annual exclusion and the $5,500 limit on IRA contributions, but most 2014 figures will move higher, CCH pointed out.

Most taxpayers will experience modest savings generated by indexing of the 2015 individual income tax rate brackets for taxpayers. Because of inflation adjustments, for example, a married couple filing jointly with a total taxable income of $100,000 should pay $125.50 less income taxes in 2015 than they will on the same income for 2014 because of indexing of their tax bracket for 2015. In another example, a single filer with taxable income of $50,000 should owe $62.50 less next year due to the adjustments to the income tax rate brackets between 2014 and 2015.

Add to those savings the additional tax savings realized in most cases by slightly higher 2015 standard deduction and personal exemption amounts, as well as amounts that might be claimed from an increase in the income ceilings imposed on tax benefits such as education credits, individual retirement account contributions and more. Combined, inflation-based tax savings for the 2015 tax year can become substantial.

TO BE CONTINUED>>>>>>

Contact Custom Tax Services for all of your Bookkeeping/Payroll/Tax needs in Utah, North Carolina or any state.

Are you ready to be Taxed on the $$$$ “forgiven” when you lost or Short sold your home?
August 29th, 2014

By Clea Benson (Bloomberg)

(Bloomberg) — Bank of America Corp. must set aside $490 million of its $16.7 billion settlement to cover taxes that borrowers face on forgiven mortgage debt — a step taken by the Justice Department to give homeowners relief that Congress had not provided.

The bank’s accord with U.S. and state authorities to settle claims over flawed bond sales is the first major settlement to include funds to be used in case lawmakers failed to extend forgiveness on home-loan debt reductions. The tax credit expired on December 31.

The relief is designed to avert foreclosures, particularly in areas where home values are depressed, by letting borrowers shrink mortgages or sell homes for less than the amount they owe without having to pay taxes on the difference. It’s one of many provisions that have been stalled amid disagreements between Democrats and Republicans, and the Bank of America settlement is sparking renewed calls for lawmakers to act on it.

The funds set aside in the settlement would only cover part of borrowers’ tax bills. And those getting loan reductions under earlier settlements with JPMorgan Chase & Co. and Citigroup Inc. could be required to treat that aid as income unless the law is changed.

“Until Congress acts, the hundreds of thousands of consumers we have sought to help through our settlements with JP Morgan Chase, Citigroup and now Bank of America may see a significant tax bill just as they are beginning to see the light at the end of a dark financial tunnel,” Attorney General Eric Holder said during a news conference in Washington.

Short session

Congress may take up the bipartisan Mortgage Forgiveness Tax Relief Act, which would retroactively eliminate the taxes for 2014 and extend the break through 2015, in the short session that takes place between the November elections and the end of the year.

Still, housing-industry groups say that eight months without the provision in place has already contributed to a slowdown in short sales, which enable homeowners to sell their properties for less than the outstanding balance of their mortgages. They have accounted for less than a third of distressed sales, with foreclosures making up the rest, so far this year, according to the National Association of Realtors. Short sales were nearly half of distressed sales in the second half of 2012.

“Taxing forgiven mortgage debt as income is an unfair practice that also incentivizes defaults and foreclosures, which could torpedo the housing recovery,” NAR president Steve Brown said in a statement.

 

Reduces aid

The break doesn’t create much lost tax revenue because borrowers who are at risk of losing their homes aren’t likely to be able to pay additional taxes, according to David Stevens, president of the Mortgage Bankers Association. Earmarking funds for taxes in a settlement reduces direct aid to consumers, he said.

“You’d like the dollars to stretch as much as possible for the families who are at risk,” Stevens said. “If in one of these bank settlements they not only have to cover the principal reduction but also the potential tax payment back to the IRS, those funds are being diverted from what could potentially help another family.”

A House bill to extend the provision is sponsored by Rep. Tom Reed, R-N.Y., and is co- sponsored by 78 Democrats and 59 Republicans. The companion bill in the Senate, proposed by Democrat Debbie Stabenow of Michigan has 24 cosponsors, two of whom are Republicans.

Extending the provision through Dec. 31, 2015, would save taxpayers $5.4 billion, according to the congressional Joint Committee on Taxation.

The bill is H.R. 2994.