Remember, just a few years ago Uncle Sam was telling us all about the new, friendly IRS? Well, now there’s a new buzz word, The Tax Gap, and it is not some new shopping experience! Uncle Sam introduced this new term to describe the difference in tax revenue received compared to the amount taxpayers should be paying. The Tax Gap is estimated to be huge.
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Roger and Nedra of Eichlers Tax Service report The Tax Gap issue was given lots of attention at all of the tax seminars and new law update schools they attended this year. For an example, at the IRS Nationwide Tax Forum in Chicago they learned the IRS is increasing various procedures and introducing new guidelines, all aimed at closing The Gap. The number and frequency of audits is sure to increase as well as various mail notifications. Business travel, expenses and other deductions will certainly receive more attention. Taxpayer record keeping and documentation will become even more important.
Congress enacted new legislation earlier in the year and then struggled with several changes at the very end of the year. The Alternative Minimum Tax (AMT) made headlines often. Some last minute changes will cause delays in filing certain returns.
While some revisions may have an adverse effect, others will be beneficial. Taxpayers with Health Savings Accounts will be allowed higher contributions that are no longer tied to the deducible amount. Business mileage rates increase in 2008 but the rate for medical and moving decreased. Standard Deduction and Personal Exemption amounts are higher.
This so-called “Kiddie-Tax” has been in the news recently and will affect more families now and even more in the near future. Children with unearned income, usually from investments, will now be subject to the Kiddi-Tax even to the age of 18 and beyond.
Home mortgage insurance is a new deduction for those tax payers who qualify and elect to itemize instead of using the standard deduction. Mortgage insurance premiums paid in connection with the purchase of your home, if certain conditions are met, may be deductible along with mortgage interest.
Over the last several years tax law changes have flourished. Many of these changes have provided beneficial deductions. However, most of all of the revisions have so-called “sunset” clauses that will revert the code back to the original law or be eliminated after 2010.
Some forecasters are already predicting tax increases on the horizon. The new Tax Gap buzz word may be just a hint of the trend we can expect from congress and the IRS.