IRS's 2011 data provides clues 

What are the chances of being audited? Of the 140,837,499 total individual income tax returns with a filing requirement, 1,564,690 were audited. This works out to roughly 1.1%, the same as the rate for the previous year. Of the total number of individual income tax returns audited in 2011, 483,574 (30.9%) were for returns with an earned income tax credit (EITC) claim, a slight increase from the 473,999 (30%) of all audited returns for 2010.

Sacramento accountant and auburn accountant: islip + company, tax return preparation experts with offices in sacramento and auburn california, watching out for our clients taxes and your taxes both IRS tax and FTB tax.

Only 25% of the individual audits were conducted by revenue agents, tax compliance officers, tax examiners and revenue officer examiners. That's higher than the 21.7% figure for the previous year. The 75% balance of the audits were correspondence audits, down from 77.1% for the previous year.  

The data provides valuable information about how many tax returns IRS audits and what categories of returns IRS is focusing resources on, as well as data on other enforcement activities such as collections. The figures and percentages in this article compare returns filed in calendar year 2010 and audited in 2011 to returns filed in calendar year 2009 and audited in 2010.

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Following are selected audit rates for individuals not claiming the EITC:  

• For business returns other than farm returns showing total gross receipts of $100,000 to $200,000, 4.3% of returns were audited in 2011, down from 4.7% in 2010.

• For business returns other than farm returns showing total gross receipts of $200,000 or more, 3.8% of returns were audited in 2011, an increase from 3.3% in 2010.

• Of the returns showing farm (Schedule F) income, .6% were audited in 2011 versus .4% in 2010.
• For returns showing total positive income of $200,000 to $1 million, 3.2% of returns not showing business activity were audited, and 3.6% of returns showing business activity were audited. The audit rate for such returns was higher than the 2.5% and 2.9% respective rates for the previous year.
• For2011, the audit rate for returns with total positive income of $1 million or more was 12.5%, close to forty nine percent higher than the 8.4% rate for 2010.
• For all corporate returns other than Form 1120S, 1.5%, versus 1.4% for the year before.
• For small corporations with balance sheet returns showing total assets of: $250,000 to $1 million, 1.6%; $1–$5 million, 1.9%; and $5–10 million, 2.6%. For 2010, the percentages were, respectively, 1.4%, 1.7%; and 3%.
• For large corporations with returns showing total assets of $10 million or more, the overall audit rate was 17.6%, up from 16.6% for 2010. The audit rate for these corporations increased with the size of the entity. For example, the audit rates were 13.3% for those with total assets of $10–$50 million (slight decrease from 13.4% for 2010); 17.4% for those with $250–$500 million (versus 16.1% for 2010); 50.5% for those with $5–20 billion (up from 45.3% for 2010), and 95.6% for those with $20 billion or more (down from 98% for 2010).
• For partnership and S corporation returns, the audit rate was .4%, the same as for the year before.

IRS's “other” activities 

Number of returns filed.

Number of partnership returns filed (Form 1065) increased by 1.9%, and

Number of S corporation returns (Form 1120S) grew by .8%.

Number of C or other corporation returns dropped by 1.8%.  

Number of individual income tax returns increased by 1.7%,

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Number of estate tax returns filed in FY 2011 plunged by 62.1%, reflecting recent tax law changes. (The estate tax was temporarily repealed for deaths in calendar year 2010 before being reinstated retroactively with a $5-million exemption as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. As a result of this legislation, estates of 2010 decedents could elect to file either Form 706, due Sept. 19, 2011, or Form 8939 (allocation of increase in basis for property acquired from a decedent), due Jan. 17, 2012.)

Math errors on individual returns. Of the roughly 6.6 million math error notices that IRS sent out relating to the 2010 return, 49.5% were attributable to the making work pay credit (MWPC), which was a refundable tax credit based on earned income and was available to taxpayers in 2009 and 2010.  

Of the total math error notices, 14.1% were for tax calculation/other taxes (which includes errors related to self-employment tax, alternative minimum tax, and household employment tax), 7.2% related to exemption number/amount, 6.1% related to the EITC, 6.2% related to the standard/itemized deduction(s), and 2.2% related to the child tax credit.

Penalties. In 2011, IRS assessed 28.75 million civil penalties against individual taxpayers, up from 27.1 million civil penalties assessed in the previous year. Of the 2011 assessments, the “top three” penalties in percentage terms were 58.6% for failure to pay, 25.6% for underpayment of estimated tax, and 13% for delinquency. On the business side, there were a total of 1,080,027 civil penalty assessments (down from 1,145,931 for the year before), and the “top three” penalties in percentage terms were 55% for delinquency, 24% for failure to pay, and 18.4% for estimated tax.  

Offers-in-compromise. In FY 2011, 59,000 offers-in-compromise were received by IRS (versus 57,000 for FY 2010), and 20,000 were accepted (14,000 for the year before).  

Criminal cases. IRS initiated 4,720 criminal investigations in FY 2011. There were 3,410 referrals for prosecution and 2,350 convictions. Of those sentenced, 81.7% were incarcerated (a term that includes imprisonment, home confinement, electronic monitoring, or a combination thereof). By way of comparison, in FY 2010, IRS initiated 4,706 criminal investigations, there were 3,034 referrals for prosecution, and there were 2,184 convictions. Of those sentenced, 81.5% were incarcerated.

The IRS Data can be viewed at http://www.irs.gov/pub/irs-soi/11databk.pdf.

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Employee Business Expenses

Some sacramento and auburn employees may be able to deduct certain work-related expenses. The following facts from the Islip + Company can help you determine which expenses are deductible as an employee business expense. You must be itemizing deductions on IRS Schedule A to qualify.

Expenses that qualify for an itemized deduction generally include:

• Business travel away from home
• Business use of your car
• Business meals and entertainment 
• Travel
• Use of your home
• Education
• Supplies
• Tools
• Miscellaneous expenses

You must keep records to prove the business expenses you deduct.

If your sacramento or auburn employer reimburses you under an accountable plan, you should not include the payments in your gross income, and you may not deduct any of the reimbursed amounts.

An accountable plan must meet three requirements:

1. You must have paid or incurred expenses that are deductible while performing services as an employee.

2. You must adequately account to your employer for these expenses within a reasonable time period.

3. You must return any excess reimbursement or allowance within a reasonable time period.

If the plan under which you are reimbursed by your employer is non-accountable, the payments you receive should be included in the wages shown on your Form W-2. You must report the income and itemize your deductions to deduct these expenses.

Generally, you report unreimbursed expenses on IRS Form 2106 and attach it to Form 1040. Deductible expenses are then reported on IRS Schedule A, as a miscellaneous itemized deduction subject to a rule that limits your employee business expenses deduction to the amount that exceeds 2 percent of your adjusted gross income.

For more information see sacramento accountants, cpa in sacramento and accountants, cpa in auburn: islip + company, tax return preparation experts with offices in sacramento and auburn california, watching out for our clients taxes and your taxes both IRS tax and FTB tax.  The well informed make better decisions...Let islip + company sacramento accountants be your tax calculator helping you to maximize your tax returns, islip + company will find every legal item and deduct it... the legal minimum tax is the maximum you will pay at islip + company...accountants, cpas in sacramento and accountants, cpas in auburn

IRS Publication 529, Miscellaneous Deductions, which is available on the IRS website at www.irs.gov, or by calling 1-800-TAX-FORM (800-829-3676).

Tax Planning for 2012 individual tax 

A number of new, changed and expired provisions that affect individuals' taxes for 2012. This Alert provides a brief overview of the tax rules for individuals and looks at the changes that impact 2012 taxes.  

Farmers and fishermen. Special estimated tax rules apply to farmers and fishermen.

New items: 

• Reduced asset purchase expensing.

Islip observation: This is big, For tax years beginning after 2012, unless Congress acts to change the rules, expensing will be further reduced to $25,000 with a $200,000 investment-based ceiling.

• No parity for exclusion from income for employer-provided mass transit and parking benefits. The exclusion for qualified parking rises from $230 to $240 due to an inflation adjustment, but falls from $230 to $125 for employer-provided transit and vanpooling benefits.

Islip observation: Not much here, On March 14, the Senate by a vote of 74 to 22 passed S. 1813, the “Moving Ahead for Progress in the 21st Century Act” or MAP-21. Among other things, the bill would increase the 2012 exclusion amount for employer-provided transit and vanpooling benefits from $125 to $240 for months after Dec. 31, 2011.

Changed provisions. In calculating 2012 estimated tax, an individual should consider the following changed provisions:

• Alternative minimum tax (AMT) exemption amount decreased. The AMT exemption amount is decreased to $33,750 ($45,000 if married filing jointly or a qualifying widow(er); $22,500 if married filing separately).

• Certain credits not allowed against the AMT.

Islip observation: ALT min is terrible and a form of double jeopardy,  This credit limit may reduce a taxpayer's personal credits even if he has no AMT liability.

Islip observation: In past years, Congress enacted legislation to “patch” the AMT problem by increasing exemptions and allowing use of more credits against AMT. This year, with concerns over deficits and increased needs for revenue, it is harder to predict whether a patch will be passed. Thus, this year, taxpayers should consider making estimated tax payments as if this relief will not materialize.

• Increased standard deductions.

• Standard mileage rates.

• Personal exemption increased.

• Income limits for excluding education savings bond interest increased. In order to exclude interest, the taxpayer's modified adjusted gross income (MAGI) must be less than $87,850 ($139,250 if married filing jointly or a qualifying widow(er)).

• Lifetime learning credit income limits increased. In order to claim a lifetime learning credit, the taxpayer's MAGI must be less than $62,000 ($124,000 if married filing jointly).

• Adoption credit and exclusion.

• Earned income credit.

• Foreign earned income exclusion.

• Extended health coverage tax credit.

Reminder on Roth IRAs. If the taxpayer rolled over or converted part or all of another retirement plan to a Roth IRA in 2010, or made an in-plan rollover to a designated Roth account after Sept. 27, 2010, and did not elect to include the resulting taxable amount in income for 2010, he should have reported half of that taxable amount on his 2011 return and must report the other half on his 2012 return.

Expired tax benefits. The following tax items expired or have been repealed and are not available for 2012, unless Congress acts to retroactively extend them:

• Credit for non-business energy property. 
• Plug-in electric vehicle credit. 
• Plug-in conversion credit. 
• New energy efficient home credit. 
• Energy efficient appliance credit. 
• Employer wage differential for active duty members of the uniformed services. 
• Work opportunity credit
• Deduction of expenses for schoolteachers. 
• Deduction for mortgage insurance premiums. 
• Deduction for state and local sales taxes instead of state and local income taxes. 
• Tuition and fees deduction. 
• Tax-free distribution from retirement accounts for charitable purposes. 
• Zero percent capital gains rate for DC Zones assets. 
• First-time homebuyer credit.

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Important Tax Rules Affect Your Child’s Investment Income

Sacramento and Auburn Area parents may not realize that there are tax rules that may affect their child’s investment income. The Islip + Company, sacramento accountants offers the following four facts to help parents determine whether their child’s investment income will be taxed at the parents’ rate or the child's rate.

1. Investment income Children with investment income may have part or all of this income taxed at their parents’ tax rate rather than at the child’s rate. Investment income includes interest, dividends, capital gains and other unearned income.

2. Age requirement The child’s tax must be figured using the parents’ rates if the child has investment income of more than $1,900 and meets one of three age requirements for 2011:

• Was under age 18 at the end of the year,
• Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or
• Was a full-time student over age 18 and under age 24 at the end of the year and did not have earned income that was more than half of his or her support.

3. Form 8615 To figure the child's tax using the parents’ rate for the child’s return, fill out Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, and attach it to the child's federal income tax return.

4. Form 8814 When certain conditions are met, a parent may be able to avoid having to file a tax return for the child by including the child’s income on the parent’s tax return. In this situation, the parent would file Form 8814, Parents' Election To Report Child's Interest and Dividends.

More information can be found by contacting the accountants, in sacramento and in auburn: islip + company, tax return preparation experts with offices in sacramento and auburn california, watching out for our clients taxes and your taxes both IRS tax and FTB tax.  The well informed make better decisions...Let islip + company be your tax calculator helping you to maximize your tax returns, islip + company will find every legal item and deduct it... the legal minimum tax is the maximum you will pay at islip + company...cpas in sacramento and cpas in auburn or by emailing your quick tax question to This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Links:

• Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900 and instructions
• Form 8814, Parent's Election to Report Child's Interest and Dividends
• Publication 929, Tax Rules for Children and Dependents

1.  Reliance for Contributors and Grantors

For deductibility and other purposes specified in Revenue Procedure 2011-33,  contributors and grantors can rely on the exempt status and foundation status of an organization as posted on either the Exempt Organizations Select Check Pub 78 data page or the Statistics of Income (SOI) Tax Stats - Exempt Organizations Business Master File Extract (EO BMF) (unless they have specific knowledge to the contrary).

To assist you in your searches, the IRS is now publishing the date the data was posted to each of the three applications on EO Select Check, as well as on EO BMF.

For further information, read this FAQ and review the Select Check Search Tips.

2.  Removing an Organization from the Auto-Revocation List

Some organizations have asked why their name has not been deleted from the auto-revocation list after they have reapplied and their tax-exempt status has been reinstated.  The auto-revocation list is the official IRS record of organizations that have lost their exempt status for failing to file for three consecutive years.  Organizations will not be deleted from the list – even if they subsequently reapply for exemption and are reinstated.  See FAQ.

If, however, an organization provides documentation to show that it is listed erroneously, either because the organization filed or had an IRS determination of no filing requirement, its name will be deleted.  For additional information, see these FAQs newly reorganized into helpful categories.

3.  Select Check Data Alerts

A new feature, Data Alerts, provides additional details for power download users on the EO Select Check page. If you notice any data inconsistencies, contact Customer Account Services (CAS) at 1-877-829-5500.

Related Link:

• IR-2012-34, IRS Creates Online Search Tool for Easier Check On Information About Exempt Organizations

4.  IRS Encourages Employers to Check Out the Small Business Health Care Tax Credit

With the calendar year 990 filing due date and business tax filing deadlines fast approaching, the Internal Revenue Service  encourages small employers that provide health insurance coverage to their employees to check out the small business health care tax credit and then claim it if they qualify.

The recently-revamped Small Business Health Care Tax Credit page on IRS.gov is packed with information and resources designed to help small employers see if they qualify for the credit and then figure it correctly. These include a step-by-step guide for determining eligibility, examples of typical tax savings under various scenarios, answers to frequently-asked questions, a YouTube video and a webinar.

New online search tool for checking tax and filing status of exempt organizations

The new online tool called “Exempt Organizations Select Check” consolidates three former search sites into one and provides expanded search capability and more efficiency in searching for information about eligibility to receive tax deductible contributions, organizations whose exempt status has been revoked for not filing Form 990, or about small exempt organizations that have filed a Form 990-N (e-Postcard).

The IRS “Exempt Organizations Select Check” webpage...  http://www.irs.gov/charities/article/0,,id=249767,00.html.

For more info contact the auditors, accountants, cpas in sacramento and auditors, accountants, cpas in auburn: islip + company, tax return preparation experts with offices in sacramento and auburn california, watching out for our clients taxes and your taxes both IRS tax and FTB tax.  

The well informed make better decisions...

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Health Insurance Tax Breaks for the Self-Employed

If you're self-employed and paying for medical, dental or long-term care insurance in the sacramento or auburn area, the sacramento accountants of Islip + company want to remind you about a special tax deduction for some insurance premiums paid for you, your spouse, and your dependents.

Starting in tax year 2011, this deduction is no longer allowed on Schedule SE (Form 1040), but you can still take it on Form 1040, line 29.

You must be one of the following to qualify:

• A self-employed individual with a net profit reported on Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ (Form 1040), Net Profit From Business, or Schedule F (Form 1040), Profit or Loss From Farming.
• A partner with net earnings from self-employment reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc., box 14, code A.
• A shareholder owning more than 2 percent of the outstanding stock of an S corporation with wages from the corporation reported on Form W-2, Wage and Tax Statement.

The insurance plan must be established under your business.

• For self-employed individuals filing a Schedule C, C-EZ, or F, the policy can be either in the name of the business or in the name of the individual.
• For partners, the policy can be either in the name of the partnership or in the name of the partner. You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.
• For more-than-2-percent shareholders, the policy can be either in the name of the S corporation or in the name of the shareholder. You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.

For more information see Islip + company, sacramento and auburn accountants, available by calling 916-488-1900, accountants, cpa in sacramento and accountants, cpa in auburn: islip + company, tax return preparation experts with offices in sacramento and auburn california, watching out for our clients taxes and your taxes both IRS tax and FTB tax.  The well informed make better decisions...Let islip + company sacramento accountants be your tax calculator helping you to maximize your tax returns, islip + company will find every legal item and deduct it... the legal minimum tax is the maximum you will pay at islip + company...accountants, cpas in sacramento and accountants, cpas in auburn.

or email us This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Links:

Publication 535, Business Expenses

Ten Tips on a Tax Credit for Child and Dependent Care Expenses

If you paid someone to care for your child, spouse, or dependent in sacramento or auburn last year, you may qualify to claim the Child and Dependent Care Credit when you file your federal income tax return. Below are 10 things the sacramento accountant islip + company wants you to know about claiming the credit for child and dependent care expenses.

1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.

2. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.

3. You – and your spouse if you file jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or were physically or mentally unable to care for themselves.

4. The payments for care cannot be paid to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return.

5. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.

6. The qualifying person must have lived with you for more than half of 2011. There are exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents. See Publication 503, Child and Dependent Care Expenses.

7. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.

8. For 2011, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit. 

9. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income, such as a flexible spending account for daycare expenses.

10. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay Social Security and Medicare tax and pay federal unemployment tax. See Publication 926, Household Employer's Tax Guide.

For more information on the Child and Dependent Care Credit, see the sacramento cpas islip + company accountants and tax return experts for sacramento tax help and expertise for your tax returns This e-mail address is being protected from spambots. You need JavaScript enabled to view it   Also see the auburn cpas islip + company accountants and tax return experts for auburn tax help and expertise for your tax returns  This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Links:

• Publication 503, Child and Dependent Care Expenses
• Publication 926, Household Employer's Tax Guide

Tax Credits Available for Certain Type of Energy Efficient Home Improvements

Islip + Company, CPAs would like you to get some credit for qualified home energy improvements this year. Perhaps you installed solar equipment or recently insulated your sacramento or auburn home? Here are two tax credits that may be available to you:

1. The Non-business Energy Property Credit Sacramento and Auburn homeowners who install energy efficient improvements may qualify for this credit. The 2011 credit is 10 percent of the cost of qualified energy-efficient improvements, up to $500. Qualifying improvements includeadding insulation, energy-efficient exterior windows and doors and certain roofs. The cost of installing these items does not count. You can also claim a credit including installation costs, for certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass fuel. The credit has a lifetime limit of $500, of which only $200 may be used for windows. If you've claimed more than $500 of non-business energy property credits since 2005, you can not claim the credit for 2011. Qualifying improvements must have been placed into service in the taxpayer’s principal residence located in the United States before Jan. 1, 2012.

2. Residential Energy Efficient Property Credit This tax credit helps sacramento and auburn individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, solar electricity equipment and wind turbines. The credit, which runs through 2016, is 30 percent of the cost of qualified property. There is no cap on the amount of credit available, except for fuel cell property. Generally, you may include labor costs when figuring the credit and you can carry forward any unused portions of this credit. Qualifying equipment must have been installed on or in connection with your home located in the United States; geothermal heat pumps qualify only when installed on or in connection with your main home located in the United States.

Not all energy-efficient improvements qualify so be sure you have the manufacturer’s tax credit certification statement, which can usually be found on the manufacturer’s website or with the product packaging.

If you're eligible, cpa in sacramento and cpa in auburn: islip + company, tax return preparation experts with offices in sacramento and auburn california, will help  you can claim both of these credits on Form 5695, Residential Energy Credits when you file your 2011 federal income tax return. Also, note these are tax credits and not deductions, so they will generally reduce the amount of tax owed dollar for dollar. Finally, you may claim these credits regardless of whether you itemize deductions on IRS Schedule A.  Islip + Company watching out for our clients taxes and your taxes both IRS tax and FTB tax.  The well informed make better decisions...Let islip + company be your tax calculator helping you to maximize your tax returns, islip + company will find every legal item and deduct it... the legal minimum tax is the maximum you will pay at islip + company...cpas in sacramento and cpas in auburn

You can find out more by contacting This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Link:

Form 5695, Residential Energy Credits