Thursday, January 05, 2012
Not Much on the Tax Front, but some interesting EITC Changes
(More regular blogging after I take care of a few mega projects)
I much prefer a sleepy season when it comes to changes in tax regulations. And this year isn't delivering a ton of complicated changes on the individual front. There are some changes, but nothing that inspires a lengthy column. Gone is the 2009 and 2010 "Making Work Pay" credit which reduced taxes up to $400 singles/$800 married filing joint. Some tax payers are going to be surprised by a lower refund. The credit was replaced in 2011 with the Payroll Tax cut applicable to the employee and was far more generous. Hopefully no one spent their paycheck and more counting on a similar size refund. But I'm sure there will be a few people screaming as the Making Work Pay Credit was "refundable", adding gravy to other refundable credits.
Speaking on refundable credits, the United States-Korea Free Trade Implementation Act amended the IRS code sections re: penalties on preparers who don't exercise due diligence (asking the right questions, conducting a mini-investigation of sorts). The penalty for failure to exercise due diligence moves from $100 to $500 (per return). Additionally, the prepare's checklist must be filed along with the return, not just kept on file. One has to wonder if a client is worth taking with this sort of penalty. The $100 penalty is a good reminder to exercise due diligence. A $500 penalty is big. Certain clients require a lot of extra effort to validate the validity of their claim, from the status of the children they are claiming to the accuracy of the self-employment income they present.
There is so much commentary to offer on the penalty as well as welfare credits flowing through the 1040, but I will leave my post at that and with a plea to taxpayers to act with complete yashrut because anything less puts not just the taxpayer at risk b'olam hazeh, but the preparer and his/her livelihood too.