Six Overlooked Tax Breaks for Individuals

Confused about which credits and deductions you can claim on your 2015 tax return? You’re not alone. Here are six tax breaks that you won’t want to overlook. Read more

IRS Issues Proposed Reg 1.83-2 on the IRC 83(b) Election

The IRS has issued proposed regulation 1.83-2 on 7/16/15 which eliminates the requirement to submit an original copy of the approved 83(b) election with a taxpayer’s originally filed income tax return beginning with the 2015 tax year.

Internal Revenue Code Section 83(b) requires the taxpayer to submit an election to the IRS within 30 days of the receipt of property received in exchange for services that is subject to a substantial risk of forfeiture. The election is made to include the excess of the fair market value of property received over the amount paid, if any, into income in the year of receipt. Absent a valid election the taxpayer is required to include the value of the property in income at the time the risk of forfeiture is lifted. For most taxpayers, especially in Silicon Valley, 83(b) elections are common when founder’s stock or other early stage company stock is received in exchange for services being performed. At grant the shares are typically worth very little and there is no downside to making the 83(b) election as all future gains are capital gain after the date of receipt with a valid election. Without the election, under a normal four year vesting cycle, for instance, the taxpayer would be required to report income each month as the stock vested at the then current market value or 409A valuation amount, possibly triggering large ordinary income amounts to be recognized and substantial tax liabilities to be incurred.

This is a welcome move as the IRS and many tax software providers have no mechanism in place to submit an original stamped copy of the 83(b) election with a taxpayer’s return without resorting to paper filing. There has been debate in the tax preparer community in the past whether an election “statement” included in the electronically filed return is considered meeting this requirement rather than submitting an actual copy of the election with a paper filing. This move appears to support the notion that a simple statement with the electronically filed return is adequate. The original requirement is redundant as the taxpayer is already required to submit an 83(b) election to the IRS within 30 days of the receipt of qualifying property. The proposed regulation is effective for property received after 1/1/16 but taxpayers can rely on the new proposed regulation for the 2015 tax year. Keep in mind the regulation does not relieve the taxpayer of any other record keeping responsibilities related to the receipt of 83(b) property, but nonetheless it appears the IRS has got this one right at least!

Tax Related Identity Theft – A Growing Problem

In the past several years there have been a proliferation of high profile incidents involving theft of personal information at major businesses (and government!) in the US. A recent NPR story pegs the estimated number of people who have had their Social Security Number (SSN) stolen at up to 60-80 percent of all Americans! In other words, unless you are a hermit or recluse or wear a tin foil hat then chances are good your personal information is out there and exposed. This is big business for criminal enterprises and an ever increasing problem. The Government Accountability Office (GAO) recently released a report for tax year 2013 indicating approximately $30 Billion in ID theft related fraud was attempted with $24.2 Billion being “prevented or recovered”, leaving $5.8 Billion actually paid out to fraudsters. Read more

Eight Facts on Late Filing and Payment Penalties

April 15 is the annual deadline for most people to file their federal income tax return and pay any taxes they owe. If, for whatever reason, you missed the deadline you may be assessed penalties for both failing to file a tax return and for failing to pay taxes they owe by the deadline. Here are eight important facts every taxpayer should know about penalties for filing or paying late:

1. Two penalties may apply. A failure-to-file penalty may apply if you did not file by the tax filing deadline. A failure-to-pay penalty may apply if you did not pay all of the taxes you owe by the tax filing deadline. Read more

Eight Facts to Know if You Receive an IRS Letter

The IRS sends millions of letters and notices to taxpayers for a variety of reasons. Many of these letters and notices can be easily dealt with without having to call or visit an IRS office. Here are eight things you should know about if you receive a notice or letter from the IRS. Read more