In case you missed the memo, the government shutdown sometime back in October. They shutdown for a period of about 2 to 3 weeks, but who can remember the exact amount of time. During that shutdown, the Internal Revenue Service shutdown as well. There used to be a saying “it’ll take an act of Congress…” So typically, in October and November Internal Revenue Service spends its time creating forms for the upcoming filing season. Well, they couldn’t work. So as a consequence, forms were delayed, E file systems couldn’t be checked, and pretty much anything else that had to do tax season could not be done. For the second year in a row, our filing season has been delayed.
The good news is that Friday we can begin filing. The bad news is, there’s a lot of new taxes. One tax in particular is the Net Investment Income Tax (NIIT). NIIT, is what is supposed to pay for the Affordable Care Act. This is a tax on net investment income, but only if it was that simple. Net investment income is defined as interest, dividends, rents, royalties, and a bunch of other stuff. NIIT is a 3.8% additional tax on taxpayers with incomes over $250,000. Now $250,000 seems like a big threshold. I’m here to tell you it’s not. You can reach $250,000 pretty quickly these days. It is estimated that 35% of the taxpayers of file a return will have to pay NIIT. Even trusts are subject to this tax.
Just like any new tax, there’s ways around it. If it is Tuesday, and it is raining, then you may be able to skirt this new tax. Seriously though, there are exceptions to the rule. That’s how the tax laws work, and what keeps me employed.
Another new tax is the Hospital Insurance Tax. This is just a fancy name for additional Medicare tax. It is 0.9% on incomes of over $250,000. There’s really no way around this tax, as it was supposed to be withheld with your wages this year. If it wasn’t, guess what? There’s a nice big worksheet in your future. You’ll be subtracting, adding, and dividing all the way to an additional tax.
The bigger tax-preparation companies have started their advertising campaigns late this year. I think one of my favorite ads is for a tax-preparation software. Apparently this particular software asks you a bunch of questions. One of the questions that was in the commercial was a guy who donated his old clothes to a friend of his. According to the commercial you can take a deduction for us. I find this particularly interesting. I don’t know how commercial software works, but apparently you’re asked questions. Based on these questions the program fills out a tax return for you. So I guess the big question here is what if you don’t understand the question? What if the question is sort of vague? What happens then? If I were the Internal Revenue Service, I would look for returns that were prepared by software like this, and audit every one of them.
Another commercial, by one of the biggest tax-preparation companies talks about billions of dollars being left on the table by taxpayers every year. The commercial invites you to get your share. I find this kind of interesting how this company would know all of that. The only statistics that are reported are people that don’t file returns, and are due refunds. That comes up to billions of dollars every year. These aren’t people that are missing tax deductions, these are people that just haven’t filed a return. So it is a little misleading.
I for one am welcoming the beginning of the filing season. On your marks…get set…GO!
If you have any questions you can email Craig W. Smalley, E.A., C.E.P.®, C.T.R.S.®
Craig Smalley is the managing partner of CWSEAPA®, LLP. CWSEAPA®, LLP is a nationally recognized brand of accounting and financial services. CWSEAPA®, LLP is headquartered in Wilmington, DE with offices in Florida and Nevada. You can visit them on their website at www.cwseapa.com