IRS Announces 2013 Standard Mileage Rates

The IRS announced today the standard mileage rates for 2013:

  • 56.5 cents per mile for business miles (up 1 cent per mile)
  • 24 cents per mile for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

Source: e-News for Small Businesses; Issue Number 2012-24; 11/21/12

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Thanks to Sally Stuart

TAX HELP FOR WRITERS

    “As we approach the end of the year, it’s a reminder that we need to give some thought to taxes. I’m happy to announce that there is now online help specifically for writers. Gary Hensley, a long-time tax consultant, has a new blog at www.taxsolutionsforwriters.comto offer free tax advice to writers/authors.  There are 29 posts on it so far and he is trying to add something to it each week. You will want to check this out, whether you are new to writing or more experienced and just want to keep up with the latest changes that may affect your tax status.”
Sally Stuart
Monday, November 19, 2012

Taxation on those Out-of-State Speaking Fees

States Hungry for More Revenue

If part of your income derives from speaking engagements around the country, listen up!   Those states in which you physically appear and which have a state income tax want to hear from you.  Yes, they really do!  And, if they don’t, they are more likely than ever to contact you.   Most states’ revenue statutes require anyone who earns income in their state to file a state income tax return with them.  This includes residents, part-year residents and nonresidents.

When you live (or reside) in one state and perform services in another state, you are a nonresident in that state subject to the requirements of their revenue act.  Some states have a minimum income filing threshold; others do not.  For instance, Colorado (randomly selected) states on their Division of Taxation website: “There is no minimum income threshold for filing a Colorado income tax return.”  It also states: “You must file a Colorado income tax return if during the year you were: A nonresident of Colorado with Colorado source income and you were required to file a federal income tax return, or you have a Colorado income tax liability for the year.”   Colorado source income includes “payments received for work performed in Colorado either as an independent contractor or as an employee.”

The Colorado requirements are similar to most other states in the country, which is to say, “if you earned income in our state, you need to file a return and pay any tax due.”    Many states have done a poor job of enforcement in this area, but with a lagging economy and shrinking state revenues, I think that is about to change.

No Statute of Limitations

The states are not too worried.  Once they identify you, they will generally ask you to file returns for all years you earned income in their state (unless they have an amnesty “special” going on).  You see, there is no statute of limitations on returns that have not been filed yet!  The statute cannot run until a return is received.  Once you are compelled to file late returns, you will owe the tax plus late-filing penalty and interest.  You may get a break if they are currently offering an “amnesty period” or have a voluntary disclosure program but these programs just reduce penalty and interest, not the tax.

Income Allocation at State Level Only

Your federal return is not affected by where you work because your federal return covers all sources of income from whatever source (and location) derived.  The allocation of income and related expenses takes place at the state return level.   If you live in a state with a state income tax, you would file your resident state income tax return with that state.  However, if you have earned income in other (nonresident) states, you must file a nonresident tax return in each of those states where you meet the filing requirements.   In order to prevent double-taxation on the same earnings at the state level, you prepare and file your nonresident state returns first and then reduce your resident state return by those amounts.  Your resident state will often require you to show an allocation of your resident and nonresident income in order to compute your tax only on your resident income or they may allow you a tax credit for the amounts paid to the nonresident states.

IRS-State Information Sharing

Each state has an information sharing agreement with the IRS.  They look at each other’s information to check for tax compliance.  At some point, if it’s not happening already, each state will ask the IRS for a magnetic tape for all Form 1099-MISC’s issued by all businesses within their borders.  The 1099-MISC has the payee’s name, address and Social Security Number (SSN) on it.  They will then cross-reference (match) this with the returns filed in their state and “pop out” those that have not filed a nonresident return in their state.  The states may start with 2008 (or earlier) and come forward since they have no statute restriction.   From a state revenue compliance standpoint, this is “easy” money (like catching fish in a barrel).   You will be sent a letter and asked to file and pay.  If you don’t respond, the state revenue division will prepare a return for you and bill you.  Ignore the bill and the next step is to garnish your wages or levy your bank account.

My Personal Experience

When I worked for the Michigan Department of Treasury, in the Discovery (aptly named) Division, as an auditor, I developed a project to enforce the Michigan Revenue Act targeted at all “entertainers” that came into Michigan for shows around the state and then promptly left without paying any taxes whatsoever.  I started developing a database of entertainers and their managers and subscribing to Cash Box, Entertainment Weekly, Billboard, etc. to monitor the “stars” forthcoming appearances.   Next, I would, in advance, contact the artists management agency or business manager and appraise them of the Michigan tax requirements.  I remember calling a big-time Nashville business manager and telling him who I was and what I wanted to talk about.  He said, “What?  We’ve been coming to Michigan for 20 years and never paid taxes!”   I replied, somberly:  “Exactly.”    Needless to say, entertainers soon got the word that they needed to be in compliance in Michigan and revenues to the state shot up from this group.

Wrap-Up

You may go to most state revenue sites by typing in the 2-letter state abbreviation followed by .gov and clicking on the taxes section to review their nonresident filing requirements for income earned in their state.  Remember, you still have the opportunity to file prior year’s nonresident returns and amend your resident return to get in compliance.  This post has focused on professional services rendered out-of-state and how that affects your state income tax obligations.  A future post will address sales of product (books, DVDs) over the Internet and in-person within resident/nonresident states and your sales tax obligation for those sales.

Monthly Guest Blog by Gary Hensley at NCWA

The Northwest Christian Writers’ Association has invited me to provide a monthly guest column on “the business side of writing” for their NCWA blog.  It will appear the first Monday of every month.  To check out this month’s column, go to:  http://nwchristianwriters.wordpress.com/2012/11/05/the-giving-and-receiving-of-form-1099-misc-by-gary-hensley/

I appreciate the opportunity to share my expertise with their members and guests.  Thanks NCWA!

Webinar – Tax Solutions for Writers and Authors

On November 15, 2012, I will be making a webinar presentation to published and non-published writers and illustrators on the basics of how to manage their taxes.   The event is sponsored by New Leaf Literary and Media, Inc., New York, NY, for their clientele.

Tax

Tax (Photo credit: 401(K) 2012)

 

 

 

IRS: Your Rights as a Taxpayer

Declaration of Taxpayer Rights

Source:  IRS Publication 1 (Rev. September 2012)

  1. Protection of Your Rights.  IRS employees will explain and protect your rights as a taxpayer throughout your contact with us.
  2. Privacy and Confidentiality.  The IRS will not disclose to anyone the information you give us, except as authorized by law.  You have the right to know why we are asking you for information, how we will use it, and what happens if you do not provide requested information.
  3. Professional and Courteous Service.  If you believe that an IRS employee has not treated you in a professional, fair, and courteous manner, you should tell that employee’s supervisor.  If the supervisor’s response is not satisfactory, you should write to the IRS director for your area or the center where you file your return.
  4. Representation. You may either represent yourself or, with proper written authorization, have someone else represent you in your place.  Your representative must be a person allowed to practice before the IRS, such as an attorney, certified public accountant, or enrolled agent.  If you are in an interview and ask to consult such a person, then we must stop and reschedule the interview in most cases.  You can have someone accompany you at an interview. You may make sound recordings of any meetings with our examination, appeal, or collection personnel, provided you tell us in writing 10 days before the meeting.

    IRSlogo

    IRSlogo (Photo credit: Wikipedia)

  5. Payment of Only the Correct Amount of Tax.  You are responsible for paying only the correct amount of tax due under the law–no more, no less.  If you cannot pay all of your tax when it is due, you may be able to make monthly installment payments.
  6. Help With Unresolved Tax Problems.  The Taxpayer Advocate Service can help you if you have tried unsuccessfully to resolve a problem with the IRS.  Your local Taxpayer Advocate can offer special help if you a significant hardship as a result of a tax problem.  For more information, call toll free 1-877-777-4778 or write to the Taxpayer Advocate at the IRS office that last contacted you.
  7. Appeals and Judicial Review.  If you disagree with us about the amount of your tax liability or certain collection actions, you have the right to ask the Appeals Office to review your case.  You may also ask a court to review your case.
  8. Relief From Certain Penalties and Interest. The IRS will waive penalties when allowed by law if you can show you acted reasonably and in good faith or relied on the incorrect advice of an IRS employee.  We will waive interest that is the result of certain errors or delays caused by an IRS employee.