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Your Virtual Business Law Office
CCBA SEMINAR
MATERIALS
Start by doing what's necessary;
then do what's possible; and suddenly you are doing the
impossible.
St. Francis of
Assisi
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Safeguard
Records in Case of Disaster
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little planning can help protect important paperwork in the event of
a hurricane, wildfire, tornado or other disaster this summer. The
IRS has released some tips for individuals and businesses on
preserving financial and tax records.
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Stiffer Tax
Preparer Penalties:
How You Might Be
Affected
A new
law passed in May establishes much stricter penalties on tax
return preparers. It was designed to make preparers even more
careful than they were in the past about signing tax returns
with entries that are problematic or
aggressive.
Under the new law, a
preparer can face penalties for problematic estate and gift
tax returns, employment and excise tax returns, and exempt
organization returns. Prior to the new law, these penalties
applied only to the preparers of income tax returns.
Under the old law, a tax preparer could argue there was a
"realistic possibility" of success on items on a return. Now,
a preparer must meet a stricter "more likely than not"
standard.
In addition, the basic
preparer penalty has been increased from $250 to the greater
of: $1,000 or 50 percent of the income derived from the
preparation of the return involved. (The penalties are higher
for cases of "willful or reckless preparer
conduct.")
How could these
changes affect the filing of your future tax
returns?
The American Institute
of Certified Public Accountants (AICPA) stated in a press
release:
1. The new
rules "will likely cause an increase in preparer fees for
taxpayers." The reason: More research will
be required for tax preparers to feel secure that the "more
likely than not" standard is
satisfied.
2. Tax
advisers could ask clients to disclose more information than
necessary. "Preparers, in order to protect themselves from
penalties, may feel they must ask their clients to include
disclosures for virtually every item on their tax returns for
which there is the slightest uncertainty regarding the proper
treatment," according to the AICPA.
The professional CPA association is urging Congress to
modify the provision so that preparers are not subjected to a
more rigorous standard than taxpayers.
Effective Date: Congress made the law
effective in May. But the IRS recently announced that the new
standards will generally become effective on returns filed
beginning in January 2008.
| First, try to keep
recordkeeping paperless. Many people now receive bank statements and
documents by e-mail or over the Web. Paper records such as W-2s, tax
returns and other documents can be scanned into an electronic
format.
With documents in electronic form, taxpayers can copy them onto a
USB drive as a backup, which can be sent to a relative in another
city for safe-keeping in case computer and paper files are
destroyed. Other options include copying files onto a CD or DVD.
Many retail stores also sell computer software packages to use for
recordkeeping.
Another way to prepare for disaster is to
photograph or videotape the contents of your home, especially items
of greater value. The IRS has a disaster loss workbook, Publication 584, which can help you
compile a room-by-room list.
This can help prove the market
value of items for insurance and casualty loss claims. Photos should
be stored with a friend or family member who lives outside the
area.
Employers: Check on Fiduciary
Bonds. If your organization uses a payroll service
provider, ask if the provider has a fiduciary bond in place. The
bond could protect an employer in the event of default by the
payroll service provider.
Finally, review your emergency
plans annually. Personal and business situations and preparedness
needs change over time. Individual taxpayers should make sure they
are saving documents such as W-2s, home closing statements and
insurance records. When employers hire new employees or when an
organization changes functions, plans should be updated accordingly
and employees should be informed of the changes.
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Tax
Break for Summer Camp
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working parents must arrange for care of their children under 13
years of age during the school vacation period. One popular
solution -- with a tax benefit -- is a day camp program.
The cost of day camp can count as an expense towards the child
and dependent care credit. (Overnight camps do not qualify.) If your
childcare provider is a sitter at your home, you'll get some tax
benefit if you qualify for the credit.
The credit is generally 20 to 35 percent of non-reimbursed
expenses, up to $3,000 for one child and up to $6,000 for two or
more children. The actual credit is also based on your income.
The 35 percent rate applies if income is under $15,000. The
20 percent rate applies when income is more
than $43,000.
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Innocent
Spouse
Paperwork
Streamlined
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When a married
taxpayer files a joint tax return, both spouses are jointly and
individually responsible for the tax even if they later divorce.
This
is true regardless of whether a divorce decree states that a former
spouse will be responsible for amounts due on previously filed joint
returns. One spouse can still be held responsible for all the tax
due.
"Innocent spouse"
relief provides an opportunity for one of the parties to be
relieved of the joint debt under certain circumstances. Relief
can be requested when a taxpayer believes that only his or her
spouse (or former spouse) should be responsible for the tax.
In order to
qualify, innocent spouses must meet several requirements. For
example, they must establish that at the time they signed
the joint returns, they did not know, and had no reason to know,
that there was an understatement of tax.
The IRS
recently announced that it has redesigned the form used to request
innocent spouse relief in order to "reduce follow-up questions and
reduce the burden on taxpayers," as well as save the government
money.
The revamped Form
8857, Request for Innocent Spouse Relief, asks more questions
initially, but the IRS states that "collecting critical information
early in the process will mean faster processing."
Previously,
Form 12510, Questionnaire for the Requesting Spouse, was
separate from Form 8857. The redesign combines and streamlines
the two forms and eliminates an estimated 30,000 follow-up letters
annually. According to the IRS, the redesigned four-page form is
easier to understand and helps educate taxpayers about the
process.
In addition to asking
for basic information such as the taxpayer's name, spouse, tax years
involved, marital status and income, the questions
include:
- How were you
involved with preparing the returns?
- When the
returns were signed, were you concerned that they were incorrect
or missing information?
- Were you a
victim of spousal abuse or domestic violence during any of the tax
years you want relief?
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Taxability
of Gambling Winnings
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your summer vacation include a trip to the casino or the racetrack?
What will you owe Uncle Sam if you win?
Gambling winnings are taxable and must be reported on your tax
return. This type of income includes lottery receipts, raffles,
horse races, casino winnings, cash jackpots and the fair market
value of prizes such as cars and trips.
Anyone who pays you
winnings or awards you a prize is required to issue a Form W-2G if
the item is subject to Federal income tax withholding or if the
amount goes over a certain level.
However, all gambling
winnings must be reported regardless of whether any portion is
subject to withholding. In addition, you may be required to pay
estimated tax on gambling winnings.
If your luck isn't
always so good, you may be able to deduct gambling losses. Losses
may be deducted only if you itemize deductions and only if you have
gambling winnings. The loss deductions cannot be more than the
gambling income reported on your return.
If you want to deduct losses when filing your return next spring,
keep an accurate diary or similar record of your gambling winnings
and losses. To deduct your losses, you must be able to provide
receipts, tickets, statements or other records that show both your
winnings and losses.
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