Tag Archives: IRS

The Scoop on Educational Tax Credits

Pam WilliamsOctober 15, 20140 Comment

by Taylor Elliott

books There are several educational tax credits and deductions available, but how and when do they apply? The IRS recently published the article “IRS Summertime Tax Tip 2014-23” to help taxpayers understand the tax benefits that are available when educational expenses have been incurred during the year. The following excerpt from that article outlines some key factors:

American Opportunity Tax Credit. The AOTC can be up to $2,500 annually for an eligible student. This credit applies for the first four years of higher education. Forty percent of the AOTC is refundable. That means that you may be able to get up to $1,000 of the credit as a refund, even if you don’t owe any taxes.
Lifetime Learning Credit. With the LLC, you may be able to claim a tax credit of up to $2,000 on your federal tax return. There is no limit on the number of years you can claim this credit for an eligible student.
One credit per student. You can claim only one type of education credit per student on your federal tax return each year. If more than one student qualifies for a credit in the same year, you can claim a different credit for each student. For example, you can claim the AOTC for one student and claim the LLC for the other student.
Qualified expenses. You may include qualified expenses to figure your credit. This may include amounts you pay for tuition, fees and other related expenses for an eligible student. Refer to IRS.gov for more about the additional rules that apply to each credit.
Eligible educational institutions. Eligible schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify.
Form 1098-T. In most cases, you should receive Form 1098-T, Tuition Statement, from your school. This form reports your qualified expenses to the IRS and to you. You may notice that the amount shown on the form is different than the amount you actually paid. That’s because some of your related costs may not appear on Form 1098-T. For example, the cost of your textbooks may not appear on the form, but you still may be able to claim your textbook costs as part of the credit. Remember, you can only claim an education credit for the qualified expenses that you paid in that same tax year.

The article also points out that income limitations as well as residence status must be considered. If you, a family member, or dependent has recently started college or gone back to school, please contact our office so that our dedicated tax professionals can help you navigate your particular facts and circumstances to determine what educational benefits are best for you.

Taylor Elliott is a tax manager with Langdon & Company LLP. She specializes in tax compliance and planning.

Affordable Care Act: Additional Taxes – Effective 2013

Pam WilliamsOctober 6, 20140 Comment

by Lee Bowman

In addition to the healthcare mandates that become effective in 2013, there are two new taxes within the Act that begin in 2013 to help offset the costs of the healthcare act. They are the 3.8% Net Investment Income Tax and the .9% Medicare Tax on wages and self-employment income.

Net Investment Income Tax: The 3.8% net investment income tax will only affect taxpayers when their modified adjusted gross income (AGI) exceeds $250,000 for married filing jointly taxpayers and surviving spouses; $200,000 for single taxpayers and head of household filers, and $125,000 for married taxpayers filing separately. If you claim the foreign earned income exclusion, the excluded amount will be added back to your AGI to arrive at your modified adjusted gross income.

Net investment income includes interest, dividends, royalties, annuities, rents and net gains from property sales. Wages and net income from an active trade or business are not included in net investment income. Tax-exempt bond interest is excluded from the 3.8% net investment income tax. If your modified AGI exceeds the above amounts, you will be subject to the 3.8% tax which will be applied to the lesser of 1) your net investment income for the year or 2) the excess of your modified AGI for the tax year over your threshold amount. This tax will be in addition to the income tax that applies to that same income.

When selling your primary residence, you may be able to exclude up to $250,000 of net gain or up to $500,000 for MFJ taxpayers. This excluded gain will not be taxed. Gain in excess of those exclusions may be taxed. Distributions from Roth IRAs are excluded, however distributions from regular IRAs will be included in your modified AGI but is not subject to the 3.8% net investment tax, ut could cause other income to be subject to the 3.8% tax. When making estimated income tax payments, taxpayers must include the 3.8% net investment income tax in their estimated payments in order to avoid a penalty.

Please note that the modified AGI amounts listed above will NOT be adjusted for inflation.

0.9% Tax on Wage and Self-employment Income: The 0.9% additional Medicare Tax applies only to employees and self-employed individuals, not employers. The tax applies to wages in excess of $250,000 for MFJ taxpayers; $125,000 for MFS, and $200,000 for all other filers.

Once an employee’s wages exceed $200,000, employers must withhold the additional 0.9% tax from their wages. This may not be enough if the employee has another job, or if his spouse has wage or self-employment income. The taxpayer may file a new Form W-4 with his employer to have additional taxes withheld.

Self-employed taxpayers will pay the additional 0.9% tax on their self-employment income using the same wage brackets listed above. The 0.9% tax is in addition to the 2.9% Medicare tax on self-employment income; however, the taxpayer will not be allowed to deduct 50% of this additional Medicare tax on the front page of their return.

Because these new taxes are not inflation adjusted, more taxpayers will pay these taxes in the future. The current Federal tax schedules can be found here. 2013 NC Income tax rate is 5.7% on all NC taxable income.

Langdon & Company LLP is full of knowledgeable tax staff that would be happy to assist you with your tax needs. Please contact our office to get more information.

Lee Bowman ([email protected]) is a Manager in our Accounting Services practice at Langdon & Company LLP. She has over 25 years of experience in taxation and also specializes in multi-dimensional corporate accounting across various states.

Simplified Option for Home Office Deduction

Pam WilliamsSeptember 30, 20140 Comment

by Kendall Tyson

Many individuals who have a home office will be happy to know that taxpayers may use a simplified option when figuring their home office deduction. Under the regular method, taxpayers must track their actual expenses, including mortgage interest, real estate taxes, insurance, utilities, repairs and depreciation. The taxpayer is then allowed a percentage of those deductions based on percentage of the taxpayer’s home devoted to business use. home office2

However, under the simplified option, the taxpayer’s deduction is $5 per square foot of home used for business, with a maximum of 300 square feet. Mortgage interest and real estate taxes are then claimed in full on Schedule A. There is no deduction for depreciation expense, but there is also no recapture of depreciation upon the sale of the home.

The taxpayer’s record keeping is greatly reduced under the simplified option, but the criteria for who may claim the home office deduction has not changed. The two basic requirements for your home to qualify as a deduction still include:

Regular and Exclusive Use – You must regularly use part of your home exclusively for conducting business.
Principal Place of Your Business – You must use your home as your principal place of business. If you use both your home office and another location outside of your home, but your home office is substantially and regularly used to conduct business, you may still qualify for the deduction.

The IRS began allowing the simplified option in tax year 2013 (returns filed in 2014). A taxpayer may use the simplified option for one year and then use the regular option the next year, but once a taxpayer has chosen a method for a taxable year, the taxpayer cannot later change to the other method for that same year.

Langdon & Company LLP has helped several clients determine which home office deduction method is most tax advantageous for them. For questions about which method would be best for you, please contact our office.

Kendall ([email protected]) is a Tax Manager at Langdon & Company LLP. She specializes in physician/dentist practices, multi-state and nonprofit returns.

Identifying Identity Theft

Pam WilliamsAugust 19, 20140 Comment

by Susan Dean

Identity theft is one of the fastest growing crimes nationwide, and refund fraud caused by identity theft is one of the biggest challenges facing the Internal Revenue Service (IRS). At the end of fiscal 2013, the IRS had almost 600,000 identity theft cases in its inventory. With more than 3,000 employees working on identity theft cases, the IRS is focused on preventing, detecting and resolving identity theft issues as soon as possible. identity_theft

There are several ways taxpayers can experience identity theft involving their tax returns. One of the most frequent encounters occur when identity thieves trying to file fraudulent refund claims using another person’s identifying information, such as their name and social security number. By filing early in the tax-filing season, thieves have a lower chance of being detected and a higher chance of receiving fraudulent refunds. More often than not, taxpayers are unaware identity theft has even occurred until they try to file their own personal income tax return. A rejection from an attempt to electronically file or a notice from the IRS stating that “more than one tax return was filed” may be a good indicator that the taxpayer has been a victim of identity theft.

A delay in receiving an expected tax refund is also an indicator of possible identity theft. Tax return identity theft delays legitimate taxpayer refunds because the return appears to be a duplicate return and therefore may be a sign of other fraud or identity problems. If a duplicate return has been filed, the taxpayer may receive notice from the IRS. A notice received from the IRS may indicate a duplicate filing, assess the taxpayer for additional tax due or indicate that an expected refund was used to offset a prior tax liability. If a taxpayer receives a notice from the IRS and suspects the possibility of identity theft they should contact the IRS Identity Protections Specialized Unit at 800-908-4490. It is also recommended that you contact a tax professional for assistance in resolving the matter as soon as possible.

Langdon & Company LLP has helped several clients in the Triangle with identity theft matters relating to filing their tax returns and receiving their income tax refunds. For questions about identity theft or assistance with resolving an identity theft issue, please contact our office.

Susan is a tax manager at Langdon & Company LLP. As an Enrolled Agent, she focuses primarily on the non-profit industry, trust income tax reporting and multi-state filings.

IRS Unveils New Form for Organizations Applying for 501(c)(3) Tax-Exempt Status

Pam WilliamsJuly 18, 20140 Comment

by Taylor Elliott

On July 1, 2014, the Internal Revenue Service (IRS) released Form 1023-EZ as part of its efforts to streamline the application process for organizations seeking tax-exempt status. The form is specifically designed for charities who wish to be classified as exempt under section 501(c)(3). An organization must meet several criteria in order to be eligible to apply using the form, including a gross receipts test of $50,000 or less as well as an assets test of $250,000 or less. The form instructions outline additional criteria, including an eligibility worksheet that helps charities determine whether the form is right for them through a series of yes and no questions.

The IRS has indicated that the overall goal in developing Form 1023-EZ is to reduce the time and paperwork associated with providing a charity a determination as to its tax-exempt status. Previously, the IRS has been intensely criticized for a lengthy and cumbersome 1023 application process that includes an application backlog that is many months behind. Until now, all organizations, regardless of size, have been subject to the same 23-page form filled with a seemingly endless list of tedious questions, many of which are not relevant to smaller, simpler charities. After soliciting feedback from impacted parties, the IRS was able to whittle down to Form 1023-EZ, a three-page form containing only the most essential questions pertaining to determination of tax-exempt status of smaller organizations. According to IR-2014-77, as many as 70% of applicants are expected to be eligible to use this form, not only slashing the time spent by those charities in completing the application but also minimizing the time spent by the IRS in reviewing their files. The electronic filing requirement is also expected to increase the efficiency of the process. An application fee of $400 must be electronically submitted with the application as well.

For questions about this form or the tax-exempt application process in general, please contact our office. We would love to discuss with you the ways that Langdon and Company LLP can help your organization obtain and maintain a tax-exempt status.

Taylor Elliott is a tax manager with Langdon & Company LLP. She specializes in tax compliance and planning, working with several not-for-profit organizations in the Triangle area.