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Tax news: January ’16

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in Small Business Tax

Tax debtors detained? If you owe money to the IRS, your passport may be in jeopardy. Under a new highway funding law signed by the president on Dec. 4, a U.S. taxpayer owing more than $50,000 in federal income tax could have his or her passport denied or revoked. This doesn’t include taxpayers who’ve worked out installment agreements with the IRS. The change is effective as of Jan. 1, 2016.

Tax extender law in the works. Congress reached a tentative agreement on Dec. 16 to retroactively extend dozens of tax provisions that had technically expired after 2014. The new law would also make certain tax breaks, such as the research credit, permanent and delay the “Cadillac tax” on health insurance plans. If enacted, we will have details in the next issue.  

PTIN fees lowered. The IRS is encouraging tax return preparers to obtain their Preparer Tax Identification Numbers (PTINs) before tax return season. Effective Nov. 1, 2015, the annual fee for 2016 PTINs is reduced to $50 for both new applications and renewals. (Previously, it was $64.25 for a new registration and $63 for a renewal.) The money is used for program costs and third-party vendor support.

Audits hit 11-year low. The IRS has announced that the audit rate for individual tax­­payers has dropped to its lowest level in more than a decade. For 2015, the audit rate for individual returns was 0.8%, the lowest since 2004. The decline has been attributed to budget cuts at the nation’s tax collection agency. “When you have fewer employees doing compliance work, you end up leaving tax revenue on the table,” said IRS Commissioner John Koskinen. “In cutting the IRS budget, the government is forgoing billions just to achieve budget savings of a few hundred million dollars, since we estimate that every $1 invested in the IRS produces $4 in revenue.”

Despite the low audit rate, taxpayers are still encouraged to adhere to the laws.

Jock tax is contested. The U.S. Supreme Court has refused to review a case involving a “jock tax” imposed on professional athletes entering an opponent’s municipality. In brief, the municipality taxes athletes from visiting teams on the income earned at its local venue. Currently, eight cities have jock taxes on the books. In the case that the Supreme Court spurned, two former NFL players argued that Cleveland’s method of basing the tax on the number of games played, rather than days of the season, was invalid. One player, who was injured, didn’t even make the trip. The Ohio Supreme Court ruled for the players and now the decision has been allowed to stand. Note: The same tax principle can also be applied to entertainers and other highly-paid individuals who earn big bucks from short stints away from their tax homes.

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