Happy Independence Day!  With all the new 2013 tax laws a good place to start might be forecasting your 2013 income to be more prepared to handle the changes.  Ever wonder about those funny looking scan codes popping up on mail, at the store and on your computer?  This month’s article on QR Codes tells you what you need to know.  All that and a new simplified way to capture home office expenses for your federal tax return round out this month’s newsletter.

IRS Issues Report on Tax-Exempt Review Problems

A dozen tax planning triggersOn June 24th, IRS Principal Deputy Commissioner Danny Werfel issued a report outlining initial findings within the IRS’ review of problems delaying the approval of Tea Party related tax-exempt applications. The scope of the review included accountability for what went wrong, fixing the problems within the Tax Exempt Status application process, and conducting a broad review of other IRS operations.  This 83 page report served as a 30 day update into their investigation stemming from mismanagement described by the Treasury Inspector General for Tax Administration (TIGTA).Comments and observations in the report worth noting:
1 All five key executive management positions in the chain of command responsible for the review and approval of tax-exempt applications have been replaced.
2 The initial IRS review shows no signs of intentional wrongdoing by IRS personnel.
3 To date, there appears to be no involvement by parties outside the IRS involved in the mismanagement or misjudgment issues.
4 There is introduction of a voluntary fast-track approval process for pending tax-exempt entity applications (section 501(c)(4)).
5 The IRS suspended the use of their “BOLO” process for tax-exempt applications.  This “be-on the-lookout” process is where key terms and other items identify areas of IRS focus.

What’s happening next

The 30 day update report from the IRS stresses this is the starting point for a broad pursuit of reform at the IRS.  The report discusses the need for:

Check Simplified tax code.  The complexity of the code, the vast increase in code, and the lateness of law changes have challenged the operational effectiveness of the IRS.
Check Better understanding of the National Taxpayer Advocate. There is a concern that most are not aware of this taxpayer service to help solve problems.
Check Establishing an Enterprise Risk Management Program.  The purpose is to try to pro-actively identify problems within the IRS and fix them on a more timely basis.
Check Increased Transparency Commitment. With new checks and balances, the service is committing to focus on better transparency of IRS operations.

More will be forthcoming as the review continues and changes are implemented within the IRS.

Understanding QR Codes

What is that funny looking thing?

Protecting Your Kids from Identity TheftThere have been little funky squares popping up everywhere.  They are appearing on envelopes in the mail, in magazines, on menus at restaurants, on web sites and more.  All you need to do to read the code is download a free QR reader application for your phone and you can scan anything from QR stickers to QR codes on TVs or computer screens. So what should you know about them?

The QR Code Phenomena

The QR Code or “Quick Response Code” is a trademarked name to describe a two dimensional bar code introduced in 1994 and patented by a subsidiary of Toyota, Denso Wave.  The code was originally intended to hold information about parts or vehicles during manufacturing.  The patent has been made available without charge to anyone wishing to use it, and with that action the use of QR Codes has grown exponentially.

How are they being used?

From the early automotive manufacturing application, QR Code use has broadened dramatically.  Here are some common uses:

3 Contact information. Scan a QR Code from a business card and the scan automatically adds the contact information into your phone’s contact list.
3 Linking to a website. These scans bring you into a web site that tells you more about the item or service you are looking at.  This is often used in magazine ads and on products purchased at retail.
3 Payment systems.  The QR Code is beginning to be used as an additional security check when you wish to make an online payment.  Not only would you need a password and logon id, you would also need the QR Code to validate your devise as being owned by you.
4 Product information.  Some QR Codes are on packages to tell you more about the product. At restaurants it may tell you meal ingredients or nutritional facts. It is also being used by manufacturers to help provide more information about product production in case of product recall.
5 Couponing.  QR Codes are also being used to deliver coupons to interested consumers.
5 Helping you with parts and service.  QR Codes on products can help you link to a manufacturer’s website to view correct user manuals and order the correct parts or accessories.

What are the risks?

Check What is it? When you scan a QR Code you do not necessarily know what it does.  Does it bring you to a web site?  Does it give you a coupon?  The best QR Codes tell you what the scan will do.  Unless you see this, think twice about scanning the code.
Check Attagging: QR Code with malice.  Scanning a malicious QR Code (called Attaging) could put your phone and computer contents at risk.  It may take you to a bad website, it may plant a virus on your phone, steal your identity, or use your phone to send expensive premium texts.  All this could be done while you innocently watch your expected QR Code scan bringing you to the service you expected.  How to avoid this?  Never scan a QR tag that is a sticker on top of a product or service.

While wide-spread QR Code use in the United States is still not a reality, look for expansion of this service as more consumers become aware of the convenience and benefit of scanning these new codes.

Simplified Home Office Expense Deduction

Beginning in 2013 there is a simplified way to take a home office expense for a portion of your home. This new ‘safe-harbor’ option greatly simplifies how to record valid expenses for business use of your home. Here is how it works.

1 You may opt to take your office space square feet times $5 and use this as a valid home office expense up to $1,500 (300 sq. ft.). Simplified Home Office Expense Deduction
1 This replaces the cumbersome allocation of valid home expenses like electricity, heat, depreciation, and other home expenses that are allocated by a % of the home devoted to your office space.
1 You may still take property taxes, mortgage interest deductions and casualty losses as itemized deductions on your personal tax return. Better still, you no longer need to allocate these expenses between personal and business use.
3 Your home office must qualify for the deduction using current home office standards in the tax code. Foremost among these is that your home office must be used regularly and exclusively by the business.
4 The deduction may not be taken in excess of available business revenue.
5 You may still take other qualified business expenses unrelated to the home. This “safe-harbor” calculation is meant to simplify the household expense allocation process only.

What you should know

Check The IRS estimates 3.4 million taxpayers used 1.6 million hours to calculate the home office deduction’s 43 line form to allocate their home office use.
Check When the IRS reviews these returns in the future, it hopes to save a tremendous amount of time and effort required in prior years to confirm the accuracy of the old home office allocation.
Check Since 2013 is the first year of this new provision, you will probably need to conduct the home office use calculation using the old method to ensure the safe-harbor opportunity makes sense for you.

Consider 2013 Income Forecasting

With the dust finally beginning to settle on the passage of massive tax changes for 2013, now might be a good time to reduce the possibility of a bad surprise when you file next year’s taxes. An important aspect of forecasting your upcoming tax obligation is projecting your adjusted gross income at the end of the year.  Provided here are some questions that may help you assess your current situation and develop a good year-end income projection:

Important Is your year-to-date income above, at, or below last year’s equivalent income?
Important Do you have or expect to have new sources of income?
Creative Summer Jobs
Important Do you have any pre-tax deferred savings opportunities?
Important Will your filing status change this year (single, head of household, or married filing joint)?
Important Will you have income from which taxes will not be withheld?
Important Do you have new deductible expenses (new dependents, large medical bills, new mortgage interest)?
Important Can your year-to-date income be used to project your full year income?

Once you have addressed these questions, you will be better positioned to determine your estimated income at the end of the year.

Action to take

Now that you have an income forecast, what next?

Check Adjust withholdings.  Perhaps you will need to adjust your withholdings up or down to accommodate your tax obligation.
Check Estimated tax payments?  If you find yourself with a potentially large tax surprise, you may need to send in quarterly estimated tax payments.
Check Tax-saving opportunities?  If your current projection suggests a large tax bill may be looming in the future, think of ways to reduce this projected tax obligation.    Accelerating expenses or deferring income are options that should seriously be considered.  If you have concerns, please call for a review of your situation.

 

As always, should you have any questions or concerns regarding your situation please feel free to call.

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