The North Carolina Department of Revenue has released a corporation income tax directive that addresses the Department’s authority to require corporate taxpayers to eliminate...
The South Carolina Department of Revenue has issued a sales and use tax notice to remind real estate agents, brokers, and listing services that it is their responsibility to notify...
The fate of the employee-side payroll tax cut along with a host of tax extenders and other expired provisions could be decided in coming weeks. A conference committee of House and Senate members is negotiating a full-year extension of the payroll tax cut and could add some or all of the tax extenders to a final package. Lawmakers also could extend the payroll tax cut without acting on any tax incentives.
Payroll tax cut
The Temporary Payroll Tax Cut Continuation Act of 2011 extended the employee-side OASDI tax cut through the end of February 2012. The employee-share of OASDI taxes is 4.2 percent for the two-month period, rather than 6.2 percent. The employer-share of OASDI taxes remains at 6.2 percent for the two month period. Self-employed individuals also benefit from a two percentage point reduction in OASDI taxes.
Unless extended, the employee-share of OASDI taxes is scheduled to revert to 6.2 percent after February 29, 2012. The White House and the leaders of the two parties in Congress agree that the payroll tax cut should be extended a full-year. They disagree, however, how to pay for the extension; even if it should be paid for at all.
Congress could extend the two-month payroll tax cut through the end of 2012 without paying for it. The 2011 payroll tax cut was unfunded. Congress appropriated to the Social Security trust funds amounts equal to the reduction in payroll tax revenues. The 2011 payroll tax cut was estimated by the Congressional Budget Office cost approximately $111 billion. Extending it through the end of 2012 is estimated to cost just as much if not more.
House Republicans reportedly have proposed a number of revenue raisers to offset the cost of extending the payroll tax cut through the end of 2012. One GOP proposal would extend the current pay freeze for employees of the federal government. Another GOP proposal would require higher-income individuals to pay increased Medicare premiums.
One possible revenue raiser, increasingly under discussion by Democrats, is a change in the taxation of so-called carried interest. Current law generally taxes carried interest as capital gains and not as ordinary income. Past efforts to change the tax treatment of carried interest have failed to pass Congress.
Extenders
The so-called tax extenders, popular but temporary tax provisions, expired at the end of 2011. Many taxpayers are surprised to learn that their particular tax break, whether it be the state or local sales tax deduction, the teachers’ classroom expense deduction, or the research tax credit, are temporary. The extenders have been routinely revived many times in the past. This year, however, could be different. Faced with record federal budget deficits, lawmakers may decide to extend only some of the expired provisions.
President Obama’s FY 2013 proposals
President Obama is expected to release his fiscal year (FY) 2013 federal budget proposals in early February, which will reignite debate over the Bush-era tax cuts. President Obama is expected to urge Congress to allow the Bush-era tax cuts to expire after 2012 for higher-income taxpayers, which President Obama defines as individuals earning more than $200,000 or families earning more than $250,000. In recent weeks, there has been speculation that President Obama may revisit those definitions in his FY 2013 budget, possibly raising the amounts.
Few Capitol Hill observers expect Congress to take any action on the Bush-era tax cuts before the November elections. Instead, Congress may take up some of President Obama’s other proposals. As in past budgets, President Obama will likely propose to extend some energy tax breaks for individuals and businesses, extend tax incentives for education and provide some targeted-tax breaks to businesses. President Obama has also promised to introduce proposals to encourage U.S. companies to “insource” jobs at home.
On some issues, such as energy and education, lawmakers may find common ground but negotiations are likely to go down to the wire. Our office will keep you posted of developments.
If you have any questions about the payroll tax cut, tax extenders or the various tax proposals under discussion, please contact our office.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
The Treasury Department is authorized to offset a taxpayer’s tax refund to satisfy certain debts. A spouse who believes that his or her portion of the refund should not be used to offset the debt that the other spouse owes may request a refund from the IRS.
Offset
If an individual owes money to the federal government because of a delinquent debt, the Treasury Department’s Financial Management Service (FMS) can offset that individual's tax refund (and certain other federal payments) to satisfy the debt. The debtor will be notified in advance of the offset.
A taxpayer’s refund may be reduced by FMS and offset to pay:
- Past-due child support
- Federal agency non-tax debts
- State income tax obligations, or
- Certain unemployment compensation debts owed a state.
FMS advises taxpayers by written notice of an offset. FMS has explained that the notice will reflect the original refund amount, the taxpayer’s offset amount, the agency receiving the payment, and the address and telephone number of the agency. FMS will notify the IRS of the amount taken from your refund.
Form 8379
If a taxpayer filed a joint return and is not responsible for the debt of his or her spouse, the taxpayer may request his or her portion of the refund by filing Form 8379, Injured Spouse Allocation, with the IRS. Form 8379 may be filed with the original return or by itself after the taxpayer is aware of the offset.
The IRS has instructed taxpayers filing Form 8379 by itself to attach a copy of all Forms W-2 and W-2G for both spouses, and any Forms 1099 showing federal income tax withholding to Form 8379. Failure to attach these items may result in a delay in processing by the IRS.
The IRS has reported on its website that it generally processes Forms 8379 that are filed after a joint return has been filed in approximately eight weeks. The timeframe for processing a Form 8379 that is attached to a joint return is approximately 11 weeks (14 weeks if the joint return is filed on paper).
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important tax reporting and filing data for individuals, businesses and other taxpayers for the month of February 2012.
February 1
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates January 25–27.
February 3
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates January 28–31.
February 8
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 1–3.
February 10
Employees who work for tips. Employees who received $20 or more in tips during November must report them to their employer using Form 4070.
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 4–7.
February 15
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 8–10.
Monthly depositors. Monthly depositors must deposit employment taxes for payments in January.
February 17
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 11–14.
February 23
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 15–17.
February 24
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 18–21.
February 29
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 22–24.
March 2
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 25–28.
March 7
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 29–March 2.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
- A will. The executor should know where it is and how to get it.
- Some people may need a revocable living trust instead of a simple will. This document allows you to avoid the cost and delay of probate court.- Durable financial power of attorney. This lets someone manage finances when the signer can't. The document can be written so it's immediately active or so it goes into effect if the person is incapacitated.
- Health care power of attorney. It gives someone the authority to make medical decisions on the parents' behalf if he or she can't.- Declaration of desire for a natural death, or living will. This document spells out how the person wants to be medically treated in the event they have a terminal condition or are in a persistent vegetative state.
- A document listing financial advisors and the places the person has money - banks, brokerage accounts, insurance policies - along with contact names, phone numbers and account numbers. A copy should be with the will, and the executor of the estate should know where it is.- A description of wishes for burial and a funeral.
- A list of personal possessions and who should get what. If want this to be binding, include it in the will.Note the retention period begins after the original or amended tax return is filed.
FOR BUSINESSES
Accounting Records
• Accounts payable ledgers - 7 years• Accounts receivable ledgers - 7 years
• Audit reports - Permanent
• Chart of accounts - Permanent
• Depreciation schedules - Permanent
• Expense records - 7 years
• Financial statements (annual) - Permanent
• Fixed asset purchases - Permanent
• General ledger - Permanent
• Inventory records - 7 years
• Invoices paid - 7 years
• Loan payment schedules - 7 years
• Purchase orders (1 copy) - 7 years
• Sales records - 7 years
• Tax returns - Permanent
• Trial Balance - Permanent
Bank Records and Business Records
• Bank reconciliations - 7 years• Bank statements - 7 years
• Board minutes - Permanent
• Business licenses - Permanent
• Bylaws - Permanent
• Canceled checks - 7 years
• Contracts (major ) - Permanent
• Contracts (minor) - Life + 4 years
• Electronic payment records - 7 years
• Insurance policies - Life + 3 years
• Leases / notes payable / mortgages - Life + 7 years
• Member / LLC transaction records - Permanent
• Partner / partnership transaction records - Permanent
• Patents / trademarks - Permanent
• Shareholder / company transaction records - Permanent
• Shareholder records - Permanent
• Stock registers & transactions - Permanent
Employee Records
• Accident reports / claims (settled cases) - 7 years• Benefit plans - Permanent
• Employee files - 7 years after employment ends
• Employment applications - 4 years
• Employment taxes - 7 years
• Payroll records (incl. withholding information) - 7 years
• Pension / profit sharing plans - Permanent
• Time sheets / cards - 7 years
Real Property Records
• Construction records - Permanent• Leasehold improvements - Permanent
• Lease payment records - Life + 4 years
• Real estate purchases - Permanent
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FOR INDIVIDUALS
If you did not file a return or filed a fraudulent return, all records should be kept indefinitely.
Accounting Records
• 1099s - 7 years• Bank deposit slips - 7 years
• Bank statements - 7 years
• Canceled checks supporting tax deductions - 7 years
• Charitable contribution documentation - 7 years
• Credit card statements - 3 years
• Dividend reinvestment records - Ownership period + 7 years
• Divorce Documents - Permanent
• Estate planning documents - Permanent
• Home improvement receipts and canceled checks - Ownership period + 7 years
• Home purchase documents - Ownership period + 7 years
• Home repairs receipts and canceled checks - Ownership period + 7 years
• Insurance policies - Life of policy + 3 years (** Check with your agent - liability can vary)
• Investment property purchase - Ownership period + 7 years
• Investment purchase and sales slips - Ownership period + 7 years
• IRA annual reports - Permanent
• IRA nondeductible contributions Form 8606 - Permanent
• Loans - Term of loan + 7 years
• Member / LLC transaction records - Permanent
• Mutual fund annual statements - Ownership period + 7 years
• Partner / partnership transaction records - Permanent
• Receipts, diaries, logs pertaining to tax return - 7 years
• Retirement plan annual report - Permanent
• Shareholder / company transaction records - Permanent
• Tax returns (all others) - Permanent
• Tax returns (uncomplicated) - 7 years
• W-2s - 7 years
• Year-end brokerage statements - Ownership period + 7 years
__________________________________________________________________________________________________
COMPUTERIZED RECORDS
Generally, record retention periods are the same for computerized records as for hard copy documents. However, computerized records should be stored in a format that can be easily accessed. Since technology changes rapidly, this may require upgrading these records to a more current media. Preserving the records so the data cannot be changed should also be considered. For example, store the records as a PDF file instead of a Word or Excel file.
Keep off-site backups of all important computer files and update those frequently. Otherwise, any disaster that damages your computer will damage your backups as well.