New Tax Enforcement Efforts
To bolster their sagging revenues, both the IRS and state agencies are ratcheting up their enforcement efforts, focusing especially on certain items. (And in case you were wondering, they do communicate with each other!)
When you're dealing with tax liability issues, ignorance is no excuse! So to avoid being caught by surprise, refer to our new Taxes in 2012 page, which describes the major upcoming changes.
Mileage Matters
Mileage deductions for business, moving expenses and charitable activities are right at the top of the enforcement list with the IRS and California Frachise Tax Board. In a nutshell, if you cannot substantiate your mileage deduction, it WILL be disallowed. The ONLY acceptable form of substantiation is a written mileage log.
Mileage Deduction Rates, July 1—Dec. 31, 2011:
- Business — 55.5 cents per mile
(Up from 50 cents in 2010) - Medical / Moving — 23.5 cents per mile
(Up from 16.5 cents in 2010) - Charitable — 14 cents per mile
(No change)
There are multiple ways to maintain mileage logs (yes, there are apps for that!) but whatever method you use must include certain minimum information:
- Date
- Location
- Beginning/ending odometer reading
- Total miles
- The purpose for the trip
One word of caution: The IRS changed the mileage rate midyear AGAIN in 2011 (at least the fourth time they’ve done this) so you should total your mileage on a monthly basis. To comply with this midyear shift, you'll need a log that separates your mileage total for January 1 through June 30, and July 1 through December 31.
(By the way, the rate for business miles remains unchanged for 2012, but medical and moving rates have changed. See our Taxes in 2012 page.)
S-Corporation Basis Statement Required
For the first time, S-Corp shareholders will be required to include a basis schedule with their 2011 personal tax return. The basis schedule must report both their stock basis and debt basis in the S-Corp . An S-corp shareholder's basis changes every year based on income, loss, loans to or from the corporation, and a number of other factors. We calculate the shareholders basis for all S-Corps as part of preparing the S-Corp return. If your S-Corp return is prepared by someone else, you need to verify that you receive an accurate basis statement as part of your S-Corp 2011 return.
Form 1099 MISC filing requirements
Did you file your 2011 1099’s on time? The deadline was January 31, 2012.
If you're not sure what we're talking about: Businesses and landlords were required to file Form 1099-Misc for all payments of $600 or more during 2011, specifically for:
- Services (including parts and materials) to an individual or partnership
- Rent to an individual or partnership
- Attorney fees
Failure to file—or filing late—will result in fines and penalties that start at $30 per 1099 and increase if the 1099 is more than 30 days late. Of course, for future reference—we could take care of it for you.
Use tax for sales and purchases on Craigslist, eBay, Amazon, etc.
The California State Board of Equalization is increasing enforcement efforts aimed at collecting use tax from e-commerce transactions. Uncollected use (sales) tax represents a significant amount of lost revenue to the state. With the current fiscal crisis, increasing revenue collection is priority number one. For more information visit our Getting Ready page.
So, what is the Use Tax? First, it's not a tax on USING items. And it’s not really new, having been in effect since 2003. It is simply the way California collects sales tax on items purchased from out-of-state vendors—or from those who do not properly collect (and pay) their sales tax.
A quote from the California State Board of Equalization (SBOE) puts it pretty clearly:
You generally owe California use tax when you use, consume, give away or store tangible personal property (i.e., products you can see, weigh, feel or touch, such as clothing, books, computers, DVDs or CDs) in California that you purchased from an out-of-state vendor. If the out-of-state vendor does not collect the California tax on your purchase, you must pay the tax.
Yes, they’re talking about Amazon, eBay, etc.
Any use tax owed should be reported on California 540 as part of your annual income tax return filing. There is a form on which you report your total purchases subject to the tax and compute the total amount due.
For more info, call or email us, or visit the SBOE website.
Where's My Refund?
The IRS has provided a convenient webpage to help you track the status of your tax refund.
Check it out here.
Debt Forgiveness
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When debt (such as the balance on a mortgage loan) is forgiven (as in foreclosure or a short sale) it may be regarded as taxable income. Federal tax law has provided an exception to this through the Mortgage Forgiveness Debt Relief Act of 2007. But what about state law? With passage of the Conformity Act of 2010, California now conforms, with exceptions and modification, to the federal rules regarding foreclosure, short sale and debt cancellation income.
This is a welcome change which can simplify the process, allowing for the same tax treatment on both federal and state returns. However, the rules regarding debt forgiveness remain extremely complex and the potential tax implications can place a huge burden on taxpayers who are already suffering.
If this applies to you or someone you know, call Karen or Gary for a consultation before making any further decisions. We'll determine the exact nature of your situation, explain the options to you, and work with you to find the best way to limit or eliminate any negative tax consequences. We'll also provide you with record-keeping tools to make sure you have the necessary information properly assembled.
Find out more here.
Tax laws are always changing.
We can keep you up to date.