‘Tis the season. Unlike recent tax return seasons, which were plagued by government shutdowns and late-breaking legislation, this year’s season started right on time. Despite the PATH (Protecting Americans from Tax Hikes) Act retroactively extending numerous provisions for 2015, the IRS began accepting 2015 returns on Jan. 19, as originally scheduled. Returns must be filed by April 18 (Oct. 17 if you have an extension).
Up in smoke. Expect more states to puff up their tax revenue through e-cigarettes. In 2015, Kansas, Louisiana and the District of Columbia passed laws imposing tax on e-cigarettes, joining Minnesota and North Carolina. Although similar excise tax proposals have failed in almost two dozen other states, some will likely be revived, as sales of traditional cigarettes continue to decline.
Tax burden shifts. According to IRS statistics, the upper crust is paying a slightly lower portion of the federal income tax burden. The IRS says that the top 1% of filers paid 37.8% of the tax in 2013, down from 38.1% in 2012. It took an adjusted gross income (AGI) of $428,713 to make it into the top 1%.
PATH Act goes further. The new PATH Act does more than just extend tax breaks. It also addresses tax administration and other matters. For instance, the new law:
• Approves a budget of $11.235 billion for IRS operations
• Codifies the Taxpayer Bill of Rights
• Prohibits IRS employees from using personal email for work
• Amends certain Tax Court procedures
• Explains higher education information reporting
• Revises requirements for Individual Tax Identification Numbers (ITINs)
• Clarifies penalties for improperly claiming tax credits
• Postpones the "Cadillac tax" on high-cost health insurance plans from 2018 to 2020.
• Increases the penalty for reckless and willful conduct by paid tax return preparers.
All in all, the PATH Act includes more than 80 provisions unrelated to tax extenders.
IRS gets a raise. Congress opened up its wallet and gave the IRS $290 million more to work with in Fiscal Year 2016 (FY2016) as part of the new law. The extra money is expected to be used to deter taxpayer identity theft, protect vital data from cyber-based attacks and improve customer service. But it’s a mere drop in the bucket when compared to what the IRS really wanted: An extra $2 billion over the FY2015 budget. Furthermore, the new law reins in IRS spending on video productions, conferences at resort hotels, and awards and bonuses—items that have previously landed the nation’s tax collection agency in hot water.
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