St. Paul, MN – CPA Firm

Taxpayers with a financial interest in or signature authority over a foreign financial account, or the aggregate value of all foreign accounts exceeded $10,000 at any point in the reporting year (2012), are required to file a yearly report of that account to the IRS. This report,  TD F 90-22.1, is due by June 30^th of the following calendar year.  Taxpayers should note that they could be subject to FBAR filing requirements even if their foreign account did not generate any taxable income.  The penalties for failing to file  TD F 90-22.1 range from civil penalties of $10,000 for non-willful violation, or the greater of $100,000 or 50% of the account balance for willful violation, and criminal penalties of up to $500,000, 10 years in prison, or both. If a taxpayer failed to file this report in previous years, they could avoid these penalties by filing delinquent reports and a statement of explanation.  If you have questions as to whether these requirements apply to you, or need to file a report, contact your tax professional immediately.

If you are required to pay quarterly estimated tax payments to the IRS or state make sure that you send them on or before June 15, 2013.

If you are not sure about your need to pay in quarterly tax estimates for the current year, here is some more information.

All taxpayers must pay a "required annual payment" to the IRS as their income is earned.   This payment in total is equal to the lesser of 90% of tax shown on their current year return, or 100% of tax shown on their prior year return.  (Taxpayers with an adjusted gross income of greater than $150,000 must pay the lesser of 90% of tax shown on their current year return, or 110% of tax shown on their prior year return). It is due in 25% installments by Apr. 15, June 15, Sept 15, and Jan 15, to avoid underpayment penalties. 

Most taxpayers receiving the majority of their income through wages will satisfy these requirements through tax withheld on their paycheck by their employers.  However taxpayers involved in flow through entities such as sole proprietorships, partnerships, S corporations, or trusts and estates need to be proactive in paying these installments in full and in a timely manner.

Failure to make these required payments may result in underpayment penalties.  The penalty is the interest rate charged by the IRS (currently an approx 3.52%), multiplied by the amount underpaid. 

Penalties can be avoided if you meet specific exemptions:

The first exception to avoid penalties is Small Balance Due.  If the tax due after reducing federal withholding is less than $1,000 then no penalty will be incurred.

A taxpayer will avoid a penalty with the second exception if there was no tax liability in the prior year.

The third exception to the penalty is if the taxpayer paid, through withholding and estimated tax payments, 100% of their prior year tax liability (110% for those with an AGI above $150,000).

The fourth exception would be to pay, through withholding and estimated tax payments, 90% of the current tax liability.  This would be most commonly done with a tax projection and making estimated tax payments based on the projected liability. 

For taxpayers who do not receive their income evenly throughout the year, an annualization option is available.  This would most commonly affect taxpayers with businesses of a seasonal nature.  An annualization exception comprises of a calculation to determine what estimated tax is due by quarter based on income as earned. The calculation will still compute the total amount to be the same as the lesser of 90% of tax shown on their current year return, or 100% of tax shown on their prior year return in a more reasonable distribution.  Taxpayers that think this might apply should consult their tax preparer to calculate the appropriate payment per quarter.

Do not forget that the same rules apply to the Minnesota Department of Revenue for your state tax liability.

It is important that taxpayers make their payments to both the IRS and Minnesota Department of Revenue in full and on time.  An overpayment in a later quarter does not eliminate underpayment penalties for previous quarters.  Penalties are computed from the date the quarterly payment was due until it is paid.

If you are unsure whether or not you need to make estimated tax payments or what amount you should pay, please give us a call at (651) 332-5101 and we would be happy to help you.

Legislation was signed into law on May 23^rd revamping Minnesota's income and sales tax laws.  The legislation is projected to raise $2.1 billion dollars and eliminate the state budget deficit. The scope of the new bill is very large, and will affect almost all Minnesota taxpayers, individuals and businesses alike.  Here are the highlights…

Individual Changes

The bill added a fourth tax rate of 9.85% to higher income taxpayers.  The new income and rate brackets are:

Also the AMT (alternative minimum tax rate) for individuals, estates, and trusts will increase from 6.4% to 6.75%

It may be necessary for any taxpayers paying MN estimates based on actual income to adjust their 4^th qtr payment. No penalties will be assessed for underpayment in quarters 1-3.

Business Changes

The minimum franchise rate which is based on the sum of the entity's Minnesota property, payroll and sales has increased.  The new rates are:

Sales Tax

Currently, a purchase of a taxable item by a MN business or individual made from an out-of-state company that does not have a presence or "nexus" in the state does not include a charge for sales tax. Instead, taxpayers are expected to report these purchases on a "use tax" form which is mostly ignored and rarely enforced.  Minnesota adopted the "Amazon Rule" effective July 2013 for out-of –state retailers which requires a business to collect MN sales tax if any individual or business directly or indirectly solicits on their behalf and $10,000 of sales in MN are generated by the referrals.

Digital Tax

There will be a new digital tax on specified digital products and digital products transferred electronically. This will include music, ring tones, audio books, movies, e-books, and online video games, to name the big ones. This tax will begin in July of 2013.

Business-to-Business Sales Tax

Repairing electronic and precision equipment such as computer-related hardware, TVs and radios, communication equipment, scientific instruments, and medical equipment are going to be subject to sales tax starting July 2013. Repairing and maintaining commercial and industrial equipment is also subject to the new sales tax but excludes furniture and fixtures.

Effective April 2014, sales tax will be charged on warehousing and storage services of tangible personal property, excluding agricultural products, refrigerated storage, electronic data, and self-storage services.

Please contact your tax advisor if you are concerned about how these new taxes will affect you.

Though the Senate Finance Committee is always looking for new ways to reform our tax laws, they are again looking at capital gains rates to broaden the tax base in an effort to reduce individual tax rates.  It has been predicted that the tax break on dividends and capital gains will cease at the end of 2015.  Tax analysts' predictions suggest that the reform would tax dividends and capital gains as ordinary income. Additionally, it is possible that capital gains and dividend could be capped at 28%, assuming that the top individual rate continues to remain above 28%.

The reform would not give breaks to installment sales, and would increase the rate on the installments received after the rate change, although the sale was made in prior years. It is also expected that the holding period will not matter, and that there will be no break for assets held longer than one year.

An additional change worth noting….. The House of Representatives also has a draft tax reform plan that would eliminate an investor's right to the specific identification method. This method permits an investor to sell the highest-basis stock first.  If this method is eliminated, investors will be limited to using the average basis of the shares.  Analysts expect this proposal to make it into law.

Analysts' do not expect any of these proposals to take effect until after 2014, but it would be advisable for investors to consider taking capital gains this year or next, and also to carefully consider any plans for installment sales.  Investor's should be careful not to let “the tax tail wag the investment dog” but pay close attention to the coming tax reform. If you have questions on how this may affect you, please feel free to contact us.

There were a few important limit changes that taxpayers should be aware of for 2013…

Estate & Gift

1. The federal estate and gift tax exemption is now $5,250,000
2. The annual gift tax exclusion rose to $14,000 per donee

401(k)

1. The maximum contribution increased $500 to $17,500
2. Individuals 50 or older can contribute up to $23,000

IRA/Roth IRA

1. Limits for IRA's and Roth IRA's will also increase $500 to a limit of $5,500
2. Individuals 50 or older can put in an extra $1,000
3. Roth IRA contribution phaseout will now begin a AGI's of $178,000 to $188,000 for couples and $112,000 to $127,000 for singles
4. IRA deductibility phaseout will begin at AGI's of $95,000 to $115,000 for couples and $59,000 to $69,000 for singles

For those of you who are required to make quarterly estimated tax payments, there are several payment options available.

IRS Payments:

By Check:

Fill out your check using the appropriate amount and attach to completed form 1040-ES for the quarter you are paying.  It is important to use the voucher with the correct date printed in the upper right hand corner.  If you were given pre-filled vouchers by your tax preparer, then use what you were given.  If vouchers were not supplied to you, click this link for a blank copy and instructions where to send your check and completed voucher.

Electronically:

The IRS has electronic payments available to taxpayers.  You can pay your taxes by electronic fund withdrawal, credit or debit card, or a variety of other electronic options.  For a full list of your options, go to the IRS electronic payment options page.  Make sure to note that while using your credit or debit card can be beneficial, a convenience fee will most likely be charged to your card.  You will be asked to approve this fee before paying your taxes and have the option to opt out and use another method of payment.  Setting up an account through the IRS EFTPS system is a secure method of paying your liability without a fee but you will not have the option of paying by credit card.

Minnesota Department of Revenue Payments:

By Check:

To pay your state estimated tax payments by check make your check payable to Minnesota Revenue and mail your check and completed voucher M14 to: Minnesota Revenue, P.O. Box 64037, St. Paul, MN 55164-0037.  Use the prefilled M14 vouchers with the corresponding quarter due (in the upper left hand corner) given by your tax preparer. If you did not receive prefilled vouchers fill out a blank version.

Electronically:

To pay your estimated tax payments electronically login to e-file Minnesota on the e-services menu.  Follow the prompts to set up an account and pay your estimated tax by direct withdrawal.

You may also pay your estimated tax by credit or debit card by going to the Pay MN Tax website.  Remember, fees will be applied if you use your credit or debit card.

Making your estimated tax payments on time and in full is important to avoid penalties. Make sure to plan ahead, and contact your tax preparer with specific questions.

Welcome to another tax season!  To make this busy time a little easier, you can download all the necessary documents right here.

We ask all of our clients to fill out and return a signed Engagement Letter, a Yes/No Questionnaire, and an Organizer.

Engagement Letter

Yes/No Questionnaire   This is a "fill in" PDF form, but will need to be either printed to .pdf or paper to record your answers.

Organizer

If we did your return in 2011, you will receive an Organizer with your prior year information.  If you need a new Organizer, please contact Carrie to have one sent to you.

If you are a new client, please download and complete the blank Organizer that pertains to your situation.

Basic- For taxpayers without Schedule C business income or rental property.

Business Income- For taxpayers with self-employment income. Please make sure to fill out this Organizer AND the Basic Organizer.

Rental Income– For taxpayers with rental properties.  Please make sure to fill out this Organizer AND the Basic Organizer.

Complete- This is the complete version for taxpayers with multiple activities such as business, rental, or farm income.