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2015This is NOT the 7th inning stretch that we are so familiar with in baseball. We are rounding third base and running home in the last month of the last quarter of this calendar year.   Will you be the winner in this tax game for 2014?  Will the IRS be the winner when they select tax returns for examination? Did you realize that the returns the IRS will be selecting in 2015 will not be the 2014 tax returns. Most of the tax returns they will be selecting tax in 2015 will be tax returns for the year 2013.   Do you know where your 2013 tax return is? Do you have a method for saving the records you used for that prior year’s return? Do you know how long to keep those records? The answer to these big questions is just one of the areas I cover in my Audit Proofing Coaching program available in January. First enjoy your holidays. Then we can get to work to protect you from a tax audit. Your 2013 tax return is also the starting point for preparing your 2014 tax return. What do you want to make sure you finish before December 31st? Here are THREE TIPS direct from the Internal Revenue Service for Individual Retirement Accounts.1.  Know the limits. You can contribute up to a maximum of $5,500 ($6,500 if you are age 50 or older) to a traditional or Roth IRA. If you file a joint return, you and your spouse can each contribute to an IRA even if only one of you has taxable compensation. In some cases, you may need to reduce your deduction for traditional IRA contributions. This rule applies if you or your spouse has a retirement plan at work and your income is above a certain level. You have until April 15, 2015, to make an IRA contribution for 2014. “2.  Avoid excess contributions.  If you contribute more than the IRA limits for 2014, you are subject to a six percent tax (emphasis, mine) on the excess amount. The tax applies each year that the excess amounts remain in your account. You can avoid the tax if you withdraw the excess amounts from your account by the due date of your 2014 tax return, including extensions. “3.  Take required distributions.  If you’re at least age 70½, you MUST take a required minimum distribution, or RMD, from your traditional IRA. You are not required to take a RMD from your Roth IRA. You normally must take your RMD by Dec. 31, 2014. That deadline is April 1, 2015, if you turned 70½ in 2014. If you have more than one traditional IRA, you figure the RMD separately for each IRA. However, you can withdraw the total amount from one or more of them. If you don’t take your RMD on time you face a 50 percent excise tax (emphasis, mine) on the RMD amount you failed to take out. If you turned 70½ in 2014 and delay your first annual RMD until the year AFTER you turn 70½, you must take that first RMD by April FIRST, 2015  (not the fifteenth) PLUS you must take the 2015 annual RMD before December 31, 2015. Watch the timeline to avoid the penalties and make the most of your retirement savings.

Young Woman On The Telephone And ComputerToday I will finish the second half of what we might call the IRS Taxpayer Bill of Rights. They call it the Declaration of Taxpayer Rights. If you want to see the IRS Mission Statement, go back to the earlier two articles on this topic. I became The IRS Insider based on my personal experience as an income tax auditor. The IRS is a BIG organization. My perspective is limited to the Examination and Appeals Divisions.  I have colleagues who help me and help you with the Collections side of the big tax machine. Remember, every employee of the government is a person, an individual with a job to do. Are they just like you? Does one of you throw your weight around? Can you follow the Golden Rule and still protect yourself? Yes, I believe you can. The Golden Rule is NOT “He who has the gold, rules.” The Golden Rule is NOT “Do unto others before they do unto you.” The Golden Rule is  “Treat others the way you would like to be treated.” You can always catch more flies with honey than you can with vinegar. The very next right is all about the gold, IRS Collections.

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 you special help if you have a significant hardship as a result of a tax problem. For more information, call toll free 1-877-777-4778 (1-800-829-4059 for TTY/TDD) or write to he 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.”

Often I quote Justice Learned Hand, judge of the US Court of Appeals, who said,

“Anyone may arrange his affairs so that his taxes shall be as low as

possible; he is not bound to choose that pattern which best pays the

treasury. There is not even a patriotic duty to increase one’s taxes.

Over and over again the Courts have said that there is nothing sinister

in so arranging affairs as to keep taxes as low as possible. Everyone

does it, rich and poor alike and all do right, for nobody owes any

public duty to pay more than the law demands.”


ID-100266473Last week I began the conversation saying, “When you are being audited you might not realize that you do have rights as a taxpayer.”  And You DO!  We all do. The mission of the Internal Revenue Service is to “provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.” I became The IRS Insider based on my personal experience as an income tax auditor. The IRS is a BIG organization. My perspective is limited to the Examination and Appeals Divisions.  I have colleagues who help me and help you with the Collections side of the big tax machine. When you are in the audit “hot seat” you may not feel it is fair for you to be there, but the IRS just has unanswered questions based on the tax return you filed. Below, is the IRS Declaration of Taxpayer Rights, I may comment on one or more of these rights, but will not paraphrase or condense them.  I have so much to say about your right to representation that this article is limited to only this one item, Taxpayer Right Number Four.
 “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.”
Based on my own experience, when a taxpayer wanted to record our interview, it made me even more cautious about what I was saying. That is not to say that I wasn’t careful to speak the truth or to act in a courteous manner without the recording. It meant that as IRS employees, we were less spontaneous. We were more guarded in what we said. Every case that is worked by any IRS employee is subject to review by their division’s review staff. If the reviewer has questions about determinations made, the case can be “kicked back” to the auditor for explanation. If the review staff feels the case has not been developed fully, or worked properly, it will not be closed until the auditor addresses the concern of the reviewer. As the auditor gains experience on the job, the better judgment they develop and the fewer cases are returned by the reviewer. But a random case will still be subject to review at any time in the examiner’s career. When the taxpayer wants to record the interview, they must request this 10 days in advance of the appointment so that the auditor can arrange for their own recording device. The auditor will also have their supervisor, or another auditor, present during this recording. Will you have someone accompany you? Or will you feel outnumbered? Do you want this interview to be the most formal or the most comfortable? I know, it is never comfortable in the audit “hot seat.” Next post I’ll talk about the remaining four taxpayer rights.

bookkeeping irs auditThe last day of the month of October is the day that 3rd Quarter Employer’s Payroll Tax reports are due. The third quarter covers the payroll months of July, August and September. If you are an employer, you are expected to deposit the taxes you withhold from your employees on a timely basis. If you owe less than $2,500 total for the quarter, you may make this payment with your Form 941 report. This report includes both Federal Income Taxes withheld AND the combination of social security and medicare taxes withheld (known as FICA) from the employees’ paychecks PLUS the employer’s matching FICA amount. If you owe less than $2,500, you could be a business with a small number of employees. If you are a business that will owe more than $2,500 for the three months in the quarter, you must pay your “trust fund” taxes on a monthly basis. The taxes you withhold from your employees are called “trust fund” taxes because your employees are trusting you to pay the taxes withheld from their checks to the Internal Revenue service for their individual tax benefit. If you do NOT withhold the proper amount of social security or medicare taxes from your employees’ checks, you could be responsible to pay what should have been withheld. If you do not pay what you are responsible for paying, you could (you probably will) be charged with penalties. Those penalties can be substantial and they can be BIG. Do not run your business on your employee’s monies. That decision can put you out of business. If you are trusting one of your employees to make these deposits, make sure they are being made. Trusting an employee who is not trustworthy can also put you out of business. If an employee seems so dedicated to their job that they do not take any time off this could be a warning sign to you. The employee who refuses vacation and sick leave could feel they must be there every minute of every day to make sure their deception, their theft from you, remains undetected. Yes, we must trust our employees, but we must also be vigilant in conducting our businesses. The newspapers are full of stories of big-hearted people who are taken advantage of by people with self-centered ulterior motives. Are YOU are the one to sign the reports, to sign the checks, to decide who gets paid this month and who must wait if there is not enough money to pay all of the bills? Do not decide to make the IRS wait for these taxes. The IRS could decide to give you (the decision maker) more time, jail time that is. That can put you out of business, too. It is not always easy being the business owner. You are the one that can put “The Buck Stops Here” sign on your desk. I wish you only the best in your business. I wish you only the best when it comes to your tax situation. If you need help, consult your tax professional.

ID-100234632I’m not talking vinyl music platters…I’m talking receipts. I’m talking about saving your business butt. I’m talking about saving your personal assets. I was shocked when training with the Internal Revenue Service to find out that you (and me, too), the taxpayer, are considered GUILTY until you PROVE YOURSELF innocent. That was so against what I had grown up with in this great country of America, the land of Superman and Perry Mason. Do you have what it takes to prove yourself innocent? How do you do that? Well, it’s very simple.  It can also be considered boring drudgery, but it is your best defense. It’s called record keeping. Did you know that thermal paper receipts will fade over time. It is guaranteed! That printed strip of paper showing the date, the place of purchase, the item purchased and the amount you paid is so clear when you first get it. But when you look at it later it has begun to fade. And if you need it to show the IRS one or two years later, it could be completely blank. So how do you protect yourself with this paper that you need so badly? Put it in a copy machine and make a photocopy. Or scan it into your computer. If you have a paper copy, you will want a file folder or envelope or box to organize your papers. If you use a scanner, you will want to set up a folder on your computer so you know how to go back and find what you need later. Is this necessary for everyone? Yes. If you own a business or are self-employed you have a business tax return to file. And every person who owns a business must also file a personal tax return. It is important to keep your business records separate from your personal records. It is important to keep the records for one year separate from the records for another year. Did you know that the biggest gangster in Chicago during the Roaring Twenties, the 1920s, did not go to jail for moonshining, or drug running, or gambling or prostitution? Elliott Ness of Untouchables fame, was really an IRS Agent. This famous gangster, Al Capone. went to jail for tax evasion. He did not keep track of his income and expenses. Or did he? He just didn’t put all of the right numbers on his tax return. Years ago, on the 10pm TV news they used to say, “It’s 10 o’clock. Do you know where your children are?” And today I submit to you, It’s the last quarter of this year. Do you know what your numbers are? Do you know where that receipt is? I’ll be asking my clients for all their numbers come tax season. Get a jump on it. Catch up on what you could have done earlier this year. I’ll be asking you for your true numbers and I want you to be ready. They are your best audit defense.

ID-100211198Oh Boy, Oh Brother! Holy Cow! How else can I nicely say this is not good? I am always trusting my technology. I have a technology guru that I rely on. He is my go-to guy. Right now my computer is sick. That is the nicest way to say I think I have a virus. The good news is that it can be fixed. I have Patrick and Tara to help me. What happens when your tax return has a virus? We don’t usually think of tax troubles this way. But this is just one way to understand something is wrong and needs to be fixed. Our friends at the Internal Revenue Service work all year long. Their hours are not 24/7 but it can seem like it to us. They have private parties every day. Have you gotten your personal invitation? I hope not. That personal invitation is a welcome letter to a tax audit. I have talked about tax audits before and I’ll talk about them again. I want to help you avoid that audit. Today I’m talking about AMENDED TAX RETURNS. If you find you have made an error on your original return, you can head that invite off at the pass. You can stop it in its tracks before it ever gets started. If you find you have omitted income, you certainly want to “fess up” and correct your tax return. You will owe more tax, but you can minimize interest and penalties. The IRS is required by law to assess interest. They have some discretion on whether or not they assess some penalties. If you have omitted income and wait for the IRS to notice your forgetfulness, you will pay more. More time will have elapsed from the date of your original filing and the date the IRS gets around to your perhaps negligent return. How much money did you leave off? How much “too much” deduction did you take? Either way you did not pay in enough tax and IRS wants all of their share. Did you forget to claim a deduction that was allowable? Did you not realize your expense was deductible? if this is your situation, be sure to include copies of the receipt showing what you bought, when you bought it, and how much you paid. Yes there is a time frame for submitting your amended return. A safe rule of thumb is within 3 years of the original due date or the date you filed your return, whichever is later. For example, if your return was filed March 1st, the due date is April 15th. File your amendment before 3 more April 15ths go by. If your return was filed May 1st, the due date was April 15th, but you filed late. So you must submit your amended return before 3 more May 1sts go by. The IRS must have your amended tax return in their office before the amended due date (statute expiration date) arrives. Mail your returns so they are received BEFORE the statute expiration date. Don’t forget your state return, if you live in a state that has an income tax. Most state’s tax returns begin with the information from your federal return. If you make changes to the Federal return, you will want to make changes to your state return, too. Contact me if you need help.  

donating“Contributions” is one of the deductions the Internal Revenue Service likes to audit, examine, or verify. Why is that? Because not everyone is honest. Some people take more of a deduction than they actually give. People ask me, what is the standard? What is the average? The only standard is the standard deduction based on your filing status and your age if you are 65 or older.. If you choose to itemize your deductions, there is no automatic deduction. You are allowed to claim a deduction for what you actually gave. BUT you need to be able to prove your deduction. You must have evidence for what you are claiming. That is not difficult when you get a receipt from the qualified charitable organization. You cannot verity the cash you leave in the donation plate or collection kettle. You can show cancelled checks and credit card statements, but those are not sufficient proof for the IRS. The Tax Auditor wants to see a receipt from the charity. Too many people have cheated on their tax returns and so the IRS tightened the rules. How can you verify what you give in the form of NON-CASH contributions? Just what is a non-cash contribution? I use the technical term “Stuff”. We all have stuff that is crowding our closets or cluttering our homes. And our “trash” is often someone else’s “treasure”. Used clothing and household items must be in good condition or better to be deductible. Charities will receive anything you want to give them. What they cannot use themselves, they will give to another organization. Give, just don’t try to deduct items in less than good condition. The fair market value of used personal items is usually much less than the original cost and depends on the condition and usefulness of the item donated.  Favorite websites I recommend to help determine the fair market values are and When you decide to give away the good stuff you no longer need or want, take these simple money saving steps to support your deduction.  1. Make a list of the items you set aside BEFORE you put them in the box or bag

            a. What are you giving away (Describe each item.)

            b. What condition is each item? (Good? Excellent? New?)

            c. What is this thing worth today? (Use garage sale or thrift store values.)

            d. How many of each type of thing are you giving away?

            e. What is the name and address of the charitable organization?

            f.  What is the date of this contribution? (Note each date you donate.)

     2. Take a photo of what you are giving away to support the list you are making. We know a picture is worth a thousand words, but you need the list, too. This list is required when your non-cash contributions are more than $500. But even if your non-cash contributions are $500 or less, the IRS can still audit your deduction. Protect yourself. Protect your wallet. Protect your deduction.  Make all the contributions you want. Don’t let the tax laws turn you into a “Grinch”. If you feel this is too much work for you, you can skip the paperwork. But if you choose to skip the paperwork, you should skip the deduction, too.

irs tax auditMarch Forth. March Fourth. Time Marches on. Beware the Ides of March. In this, the month of March, business owners must be aware of the calendar and their tax deadlines. The Internal Revenue Service made us wait until the very end of January before we could file our tax returns electronically. And our tax filing deadline is still April 15th. But there is a little “grace” period for us this week. March 15th is the Ides of March. This year it falls on a Saturday. What’s the big tax deal about March 15th? That is the day corporations, large and small, must file their tax returns or request an extension of time to file before September 15th. March 15th is also the due date for employers to pay their trust fund taxes. Trust fund taxes are those taxes withheld from their employees’ paychecks. Employees trust their employers to send their money to their tax accounts at the IRS. What’s so important about this date being on Saturday? Many businesses are open on Saturdays, but the government is closed. That means we have two extra days to meet the March 15th deadline. IRS is giving us extra days this time. The next time the 15th falls on the weekend is in June. That is another payroll deposit date. It is also the due date for second quarter estimated tax payments. When the 15th is on a weekend or other holiday observed by the federal government, we have until the next business day to meet that day’s obligation. So mark your calendars not for March 15th, but for March 17th. Before you raise too many glasses to Saint Patrick, be sure you get your 1120 returns or extensions filed. Be sure you get your payroll deposits made. If you use the electronic payment service of EFTPS, remember you need to make that payment one day before the due date. EFTPS (Electronic Federal Tax Payment System) allows you to schedule payments whenever you want, 24 hours a day, 7 days a week. You can even schedule a payment as far as 365 days in advance. But remember this: To reach the IRS on time, payments must be scheduled by 8pm ET at least one calendar day before the tax due date. Even individuals can register to receive a pin number  that will allow them to pay their individual taxes by EFTPS. Many people who owe tax to the IRS pay by  check. Did you know you can have the IRS debit the amount you owe directly from your bank account? It’s like direct deposit in reverse. And you choose the day you want this debit to happen. Taxes can also be paid by credit card. Understand that the IRS does not pay the merchant fee that most other businesses who accept credit card payments do. The taxpayer pays what is called a convenience fee. If you choose to pay your taxes by credit card (maybe you get airline miles or some other benefit) you will know how much the convenience fee is before you actually pull the trigger on your credit card payment.

25159487_sWhat does this have to do with taxes? You’d be surprised. .. Here in the United States, we have four time zones: Eastern, Central, Mountain and Pacific. Living in Arizona, we are one of the few places that does NOT observe Daylight Saving Time.  Most cities and towns in Arizona stay on Mountain STANDARD time all year long. .. In the Spring, the rest of the country “Springs Forward” advancing their clocks one hour. They change their clocks from 8am to 9am and experience more daylight in the evening hours. Since the clocks in most of Arizona remain unchanged, we effectively “fall back” an hour. We are neighbors to California and I say to others that during Daylight Saving Time (DST) we are now on Pacific Time. .. Pacific time is three hours behind Eastern time which makes a difference when we are trying to contact businesses located east of us. When it is 8am in Phoenix, it is already 11am in New York and Washington, DC.   When it is 8am in Phoenix, it is already 10am in Chicago and St Louis. And when it is 8am in Phoenix, it is already 9am in Denver and Las Vegas. Wait a minute, Phoenix and Denver are both in the Mountain Time Zone. But when it is DST, Denver is Mountain DAYLIGHT Time and Phoenix is Mountain STANDARD Time. And now when it is 8am in Phoenix, it is 8am in Los Angeles and San Diego. .. The Internal Revenue Service has always been aware of the differences in our time zones. That is why their Customer Service offices are open past 5pm. But they are not open 24/7. .. Now that they have developed a “modernized” electronic filing process, the IRS processes our e-filed tax returns continuously around the clock. But what happens on April 15th? A return filed after midnight will be considered LATE. But which midnight must I pay attention to? My midnight or IRS midnight? .. March 15th is important for businesses returns. Corporation returns are due March 15th. Like an individual, if a corporation cannot file their return by the due date, they can request an extension of time to file. But this request must be filed by March 15th. .. When it comes to these time sensitive and very important deadlines, I do not wait until the last possible minute. I want to file at least one day before. If I can’t be one day early, I want to get as much as I possibly can get done before 6pm on that deadline night. .. Everyone else who waits until the last possible minute is risking a bottleneck of electronic paperwork. And it you are delayed by this bottleneck, your tax return or your request for more time could be delayed. .. Uncle Sam doesn’t just want you. Uncle Sam wants your money. And when you owe money and you pay that money late, Uncle Sam wants even more money. .. So watch that clock. Time is a-ticking and it waits for no man.

irs tax auditAre you ready to file these required forms? The LAST thing any employer wants is to be delinquent in the employer’s tax filing requirements. What is required and when? .. December 31st marked the end of the fourth quarter of the calendar year. Fourth quarter employers’ reports due by January 31st. You must give your employees their W2 forms by January 31st. You must also give any independent contractors their Forms 1099 Miscellaneous by January 31st. Caution: Do NOT make the costly mistake of treating an employee as an independent contractor! Attention Employees – the next blog is devoted to YOU! .. In addition to the W2 forms given to the employee, you must also send a copy to Social Security Administration (SSA) with the transmittal Form W3. If you withheld state taxes for the benefit of your employee, you must send a W2 copy to your state (with your state’s W3 equivalent). Form W3 must be filed with SSA by the last day of February. I tell my employer clients there is no penalty for filing early. If you file the W3 at the same time as you issue the W2 forms, you are more likely to file it on time. There is no real benefit in waiting to file these forms. .. Most employers file the quarterly report Form 941 to report the taxes withheld from the employees’ paychecks. The taxes withheld include the employees’ federal income taxes, Social Security taxes and Medicare taxes. PLUS the employer matches the Social Security and Medicare taxes. If you are self-employed you are considered both employer and employee and you pay the full 15.3 percent of earnings. .. You may be a small employer that has been given permission from the IRS to file an annual Form 944 instead of the quarterly Form 941. Form 944 is due by January 31st for the preceding calendar year’s wages paid. .. In addition to Form 941 (or Form 944), Forms W2/W3 and state equivalent forms, you must also file (and pay) by January 31st, your 4th Quarter state income tax withholding report, file (and pay) your 4th Quarter state unemployment tax report, and file (and pay) your annual federal unemployment tax report Form 940.  Only the first $7000 of wages paid to a covered employee is generally all that is subject to Unemployment tax. Remember to take into account any deposits you made during the earlier quarters for federal unemployment taxes.

To recap:

By January 31, 2014:

1. File Form 941 for the 4th quarter 2013 OR Form 944 for the whole year 2013

2. File your state’s 4th Quarter 2013 income tax withholding tax reports

3. File your state’s 4th Quarter 2013 unemployment tax report

4. File Form 940 for the whole year 2013 federal unemployment tax report

5. Give Forms W2 to your employees

6. Give Forms 1099 to your independent contractors

By February 28, 2014 :

1. Send Form W3 with Copy A of all Forms W2 to Social Security Administration

2. DO not mail the W3/W2 to IRS, it goes to SSA

3. Mail Form 1096 with IRS copy of Forms 1099 to the Internal Revenue Service.

4. 1096 is the form that goes to IRS

5. I’s OKAY to file these transmittal forms in January. You don’t have to wait till February 28th.