The Internal Revenue Service has modified its “first time abate” or (FTA) policy, which provides a one-time consideration of penalty relief, based on the taxpayer’s compliance history.

The FTA penalty relief option for failure to file, failure to pay and failure to deposit penalties, under certain conditions, does not apply if the taxpayer has not filed all returns and paid, or arranged to pay, all tax currently due. For example, the taxpayer is considered current if they have an open installment agreement and are current with their installment payments.

The FTA relief only applies to a single tax period for a taxpayer, and penalty relief under the first time abatement provision does not apply to returns with an event-based filing requirement.

Additionally the FTA relief does not apply to the following type returns if a previously filed return was late:

• Form 706 Estate tax Returns
• Form 709 Gift Tax Returns
• Form 1120 C-Corporation Returns
• Form 1120-S S-Corporation Returns

 
Feel free to contact us if you need assistance with a tax penalty abatement or proactive tax planning. 

In an attempt to reduce the administrative, recordkeeping, and compliance burdens of taxpayers, the IRS has offered a safe harbor method to compute the allowable deduction for the business-use portion of the home. The safe harbor method is effective for taxable years beginning on or after January 1, 2013. 

Under the safe harbor method, the taxpayer multiplies the allowable square footage of the home office by the prescribed rate of $5.00. The allowable square footage for business use cannot exceed 300 square feet; thus, the maximum allowable home office deduction under the safe harbor method is $1,500. The safe harbor deduction, cannot exceed the business income for the year reduced by business expenses unrelated to the dwelling unit. Any taxpayer using the safe harbor method may not carry over any disallowed safe harbor deductions to the next year.

Other Provisions

• The safe harbor method does not apply to any employee with a home office who receives advances, allowances, or reimbursements for expenses related to the business use of a home.
  
• Taxpayers may switch from the safe harbor method to actual expenses from year to year as many times as they wish.
• Taxpayers using the safe harbor method may deduct 100% of mortgage interest and real estate taxes on Schedule A, Itemized Deductions. However, if there is a rental portion, the taxpayer must allocate those expenses between Schedule E and Schedule A.
• When claiming actual expenses following a year for which the safe harbor method was used, multiply the remaining adjustable depreciable basis times the business- use percentage times the annual depreciation rate for the applicable year specified in the appropriate optional depreciation table.
• The calculation is based on whole business months. If business use begins during the year, a taxpayer takes the square footage times the number of business use months (minimum of 15 or more business days) divided by 12.
• Taxpayers sharing a home may each use the safe harbor method, but the same area (square footage) cannot be used twice.
• A taxpayer with qualified business use of more than one home for a taxable year may use the safe harbor method for only one home for that taxable year. The taxpayer may use actual expenses, if eligible, for the other home.
• A taxpayer using the same home office for more than one business must use the safe harbor method for each qualified business using that space if electing the safe harbor method. The taxpayer is limited to a maximum of 300 square feet. The taxpayer must allocate the square footage between the businesses in any reasonable manner.

It’s not time to stop thinking about taxes and strategic tax planning opportunities during the tax "off" season. Since the start of 2013, there have been many new federal tax developments, which will impact tax planning for this year and beyond. As 2013 unfolds, many changes made to the Tax Code by the American Taxpayer Relief Act of 2012 (ATRA) take effect. Additionally, there are new taxes to take into account because of the health care reform package, along with enhancements to many tax credits and deductions. Here is a brief review of the tax and health care provisions affecting taxpayers for 2013. 

Tax Provisions

• 7.5% floor for deducting medical and dental expenses climbs to 10% (for taxpayers age 65 or older, floor stays at 7.5% until 2016). 
  


• Healthcare flexible spending account contributions are capped at $2,500 per year. 
  


• Hike Medicare tax to 3.8% of earned income above $200,000 (individuals) or $250,000 (joint filers)
  


• Impose Medicare tax of 3.8% on “investment income” for filers with adjusted gross income above $200,000 (individuals) or $250,000 (joint filers)
  

Health Care Provisions


Limit deduction for health insurer’s executive compensation to $500,000


Now is a good time to revisit these developments and explore how they will affect your strategic tax plans. Planning today can help maximize your tax savings going forward. 

There will be a late start to the tax season for many taxpayers as we already know due to the fiscal cliff legislation that was past at the end of 2012. 

The IRS announced yesterday that it will begin accepting many of the tax returns that were affected by the last minute legislation by January 30th. There are however, additional forms that will need to be updated and for those taxpayers tax season may not start until late February or early March!

Want to know if you are one of the late filers???

You are if you have to file the following forms:

• Form 3800 General Business Credit
• Form 4136 Credit for Federal Tax Paid on Fuels
• Form 4562 Depreciation and Amortization (Including Information on Listed Property)
• Form 5074 Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern Mariana Islands
• Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations
• Form 5695 Residential Energy Credits
• Form 5735 American Samoa Economic Development Credit 
• Form 5884 Work Opportunity Credit
• Form 6478 Credit for Alcohol Used as Fuel
• Form 6765 Credit for Increasing Research Activities
• Form 8396 Mortgage Interest Credit
• Form 8582 Passive Activity Loss Limitations
• Form 8820 Orphan Drug Credit
• Form 8834 Qualified Plug-in Electric and Electric Vehicle Credit
• Form 8839 Qualified Adoption Expenses
• Form 8844 Empowerment Zone and Renewal Community Employment Credit
• Form 8845 Indian Employment Credit
• Form 8859 District of Columbia First-Time Homebuyer Credit
• Form 8864 Biodiesel and Renewable Diesel Fuels Credit
• Form 8874 New Markets Credits
• Form 8900 Qualified Railroad Track Maintenance Credit
• Form 8903 Domestic Production Activities Deduction
• Form 8908 Energy Efficient Home Credit
• Form 8909 Energy Efficient Appliance Credit
• Form 8910 Alternative Motor Vehicle Credit
• Form 8911 Alternative Fuel Vehicle Refueling Property Credit
• Form 8912 Credit to Holders of Tax Credit Bonds
• Form 8923 Mine Rescue Team Training Credit
• Form 8932 Credit for Employer Differential Wage Payments
• Form 8936 Qualified Plug-in Electric Drive Motor Vehicle Credit

Still unsure? Contact us.

Source: http://www.irs.gov/uac/Newsroom/List-of-IRS-forms-that-1040-filers-can-begin-filing-in-late-February-or-into-March-2013