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Warning: It's a New Tax Season

Red warning flagThe 2014 tax processing season has launched amid criticism over IRS customer service declines, proliferate tax scams, and new taxes that will surprise many taxpayers.

IRS Customer Service Decline
In the new Annual Report to Congress, National Taxpayer Advocate Nina E. Olson has detailed concerns that the IRS cannot keep up with taxpayer requests.  The report says in 2013 taxpayers made more than 100 million requests to the IRS using its toll free telephone service.  The IRS only responded to 61% of the calls and, for those taxpayers who were lucky enough to speak to a customer service representative, their average wait time on hold was more than 17 minutes.

On top of that, the report reveals the IRS received nearly 8.5 million letters from taxpayers requesting an adjustment to their tax liabilities.  At last count, 53% of the requests had not yet been processed and were considered “over age” in IRS terms, because the letters had been sitting for more than 45 days.

Olson blames the lack of resources and insufficient funding for IRS troubles.  Many in Congress have blamed the IRS budget problems on irresponsible spending.  They point to the scandal over the $50 million in expenses paid for IRS employee conferences in the past 3 years as one example.  Meanwhile, needy taxpayers who anticipated receiving free assistance to prepare their tax returns may be surprised to learn that the IRS has announced it will no longer prepare returns at all.

All of this also follows a report that during the 2013 tax filing season, 49% of returns prepared by IRS-trained volunteers were prepared incorrectly and customer service complaints are at the highest level ever recorded.

Increase in Tax-Related Scams
Reports say as more taxpayers grow desperate for help or discouraged this will only add to an increase in the number of victims of tax scams that use the IRS name.  Tax-related scams are showing up in every kind of form imaginable including phone calls, emails, social networking sites, websites, and even text messages.

The bottom line, the IRS never makes requests of taxpayers by email or phone.  The IRS never initiates a communication through electronic means to request your PIN numbers, passwords, personal bank account information, credit card information, and financial statements.  We’ll provide more information on tax-related scams in next week’s The ReSourceeNewsletter.

New Tax Rates Begin
Tax increases that went into effect in 2013 may surprise many taxpayers.  Even with continued debate, monumental questions remain about the Affordable Care Act tax penalties concerning who must pay and how much and when.  Obamacare-related rules are expected to cost both individuals and businesses, and are set to be enforced by the IRS through 2013 tax returns.

An employee’s share of the payroll tax is returning to 6.2% of the Social Security wage base, ending the two year temporary 2% rate relief.  This increased withholding likely is showing up on withholding statements already, but employers have until February 15th to implement the new rate.

Most taxpayers with modified gross income (MAGI) under $200,000 are not affected by other tax increases, but several deductions and tax credits have expired, so, in effect, tax obligations will increase.

For taxpayers with income greater than $200,000 ($250,000 married filing jointly), 2013 adds new taxes and new tax rates.  For example, Obamacare included two new taxes; including an increased Medicare payroll tax rate of 0.9% and an additional 3.8% Medicare surtax on either net investment income or the amount for which MAGI exceeds income thresholds.

Upper-income taxpayers may be subject to a new 39.6% marginal income tax rate on taxable income over $400,000 ($450,000 for married couples filing jointly). Likewise, they may also be subject to a capital gains and qualified dividends tax rate that can be as high as 20%---or 23.8% if the new Medicare surtax on net investment income applies.  Additionally, there are new taxes and regulations (thereby, more fees and penalties) impacting corporation dollars invested overseas.

If you are unsure about your tax obligations, or have a question about these new taxes, contact us at McRuer CPAs to schedule an appointment to determine the best tax strategy for you. As tax laws grow more complex, having a CPA on your side is a good plan. 


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