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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.

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.

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-100231194What does this really mean for you?

This is such a BIG topic and it’s not possible to answer every question here.  I’m not your insurance specialist, I am your Income Tax Audit Specialist. Here is the introduction to this new tax wrinkle that may impact your current and future tax returns.

The healthcare coverage you currently carry for yourself and your family may be all you need. If you have what is called Minimum Essential Coverage, you probably don’t have to do anything.

But if you go without coverage for any part of the year, there are special rules that apply.  If you don’t qualify for an exemption, you may need to make a special payment called an Individual Shared Responsibility Payment.

Who qualifies for an exemption?  Those who…

  1. Do not have to file a tax return
  2. Do not have access to affordable health care
  3. Are a member of certain exempt groups
  4. Are suffering a hardship.
  5. Have other situations as shown at

If you and your dependents do not have coverage and do not qualify for an exemption, then you may have to make a “shared responsibility” payment when you file your tax return.

This payment is either a percentage of your income or a flat dollar amount, whichever is greater. The payment is based on the number of months you go without coverage, or the number of months you are exempt.

If you get your health insurance coverage through the Health Insurance Marketplace, you may be eligible for the Premium Tax Credit. This can help people with moderate income more easily afford the coverage.

If you meet the following requirements, there is a Premium Tax Credit:

  1. Your income must be within certain limits
  2. You must not be eligible for other coverage through an employer or government plan
  3. You cannot be claimed as a dependent on someone else’s return
  4. You cannot file your tax return using the Married Filing Separate status

When you apply for coverage through the Marketplace, you can choose to get the credit now or you can choose to get the credit later. If you choose to get the credit now, you are asking the marketplace to pay some, or pay all of the estimated credit in advance, directly to your insurance company. That will help lower your out of pocket premium costs. If you choose to get the credit later, you take that credit on your income tax return.

If you choose the advance payment, to get the credit now, be sure to report changes in your income or changes in your family size. Report these changes when they happen to ensure you are getting the correct amount of advance credit. This is important, because getting too much or getting too little credit can affect your income tax return refund or balance due.

I still get my insurance from a private insurance company. There is a lot to learn about ObamaCare and income taxes. In next week’s article, I will address the time line for getting coverage now for next year.


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.  

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.


taxes2For those that can file the simplest of tax forms, you may have your W2 and are ready to file. Last week I talked about W2, W2-G, 1099-G, 1099-Misc and K1 forms. Today I talk about more of the common forms you need to complete your proper tax form. 1099-R is used to report distributions paid to you from your pension plan, your retirement plan or our Individual Retirement Account or IRA. If you have a distribution that is not taxable, it must still be taken into account in filing your proper tax return. 1099-INT is sent to you when you earn $10 or more interest on a bank account or certificate of deposit. You should get one of these forms for each account that generated $10 or more of interest. If you have more than one account at a single branch, they may report each account separately on a single, or consolidated, statement. Some banks show each account and provide the total earnings for all accounts. Whether or not you withdrew the interest, or had it in your hot little hands, this is taxable income that must be reported. If you earned less than $10 you are still required to report the interest earned, you just won’t get the Form 1099-INT to remind you. In this case, you’ll need to check your account statement that includes December 31st. 1099-DIV reports to you earnings of $10 or more in dividends paid on stocks, bonds and mutual funds. Like 1099-INT, you are responsible to report all earnings even if you had less that $10 and do not get this form. 1099-DIV also includes capital gains paid on these investments. These capital gains are for activity within you account, not for the sales of stocks from your account. Both ordinary dividend and capital gain dividend numbers are important in calculating your proper tax. Your tax professional will see that you don’t overpay your tax.  1099-B reports your sale of stocks, bonds or mutual funds. You receive Form 1099-B from your broker or mutual fund company. This form can be one page or multiple pages depending on the size of your account. For each sale this report will tell you the name of the stock or fund account, how many shares were sold, the date of the sale and the sales price. Some brokers issue a preliminary report to meet heir February 15th deadline to issue this Form 1099-B, but they will tell you to expect a corrected or final statement later in the tax season. Provide EVERY page of this report to your tax advisor. 1099-C reports Cancellation of Debt income which must be reported on your tax return. This income may or may not be taxable to you. It can be issued because you were unable to pay a debt, perhaps credit card or mortgage debt. Be sure to share this information with your trusted tax advisor.  The US Tax Code states all income is reportable except that which is specifically exempt from tax. Protect yourself from IRS audit by reporting all of your income.

jan 31January 31 is the deadline for many of your “Important Tax Information” reports to be mailed to you. You may even have received some of them early. They truly are important for you. They are a goldmine for identity thieves, so get them out of your mailbox and into a safer place right away. .. The reason we are getting them in the first place is that they are also important to the IRS.  The IRS gets copies of these forms as well and if you happen to forget to include income on your return…don’t worry because the IRS will certainly be contacting you. .. W-2 is the key form for employees. You need to report the wages you earned from each employer you worked for during the year. This form also reports the income taxes withheld from your earnings and other important information. .. 1099-MISC  is the key form for independent contractors or business owners. Much like the W-2 for employees, this is the form that businesses report total yearly payments of $600 or more to workers who are not considered employees. If you think you are an employee and get a 1099-Misc instead of a W-2, I’d like to consult with you. If your business has taken the steps to become a corporation or partnership, you may receive a W-2 or a K-1. .. Form K-1 is used by various entities to report earnings and other tax return related information. S-Corporations, Partnerships, Trusts and Estates use this form to “pass through” income and expenses to owners, partners and heirs. Your  tax return cannot be completed until this K-1 is reviewed. If the business has filed an extension of time to file the business return, you may not get this form until close to, or even after, the April filing deadline for individual returns. If this is the case for you, you will need to file an extension for your individual tax return. .. W-2G is used to report Gambling Winnings. There are different reporting requirements depending on the type of game you won. Just because you were the WINNER does not mean are ahead “of the game.” and had a profit. It means you had a WIN. To avoid an IRS inquiry, report ALL gambling winnings, whether or not you received a W2G. Be sure to keep a log of your Gambling Activity. See my blog on Gambling Winnings and Losses for more information. .. 1099-G is issued by states when you receive a tax refund of state or local taxes. This refund may or may not be fully taxable to you. Consult with your tax advisor. A separate form of this same number will also report unemployment benefits paid to you. Unemployment benefits received are income taxable and must be reported on your tax return. .. Next week we’ll cover more of the 1099 series of forms you need to watch for. .. The US Tax Code states all income is reportable except that which is specifically exempt from tax. Protect yourself from IRS audit by reporting all of your income.

padpaperThe tax industry is ever changing. Tax professionals are subject to various federal and state regulations. The Internal Revenue Service was sued to stop them from requiring all tax return preparers to take a test to prove their competence to properly apply the tax laws. Enrolled Agents (EAs), Certified Public Accountants (CPAs) and Attorneys have already demonstrated their competence by passing other comprehensive tests. Some in this group of un-enrolled preparers have been writing tax returns for many years. Some are brand new to the tax business. They all were to take a test to demonstrate their knowledge and level of competence. No one could use the designation RTRP, Registered Tax Return Preparer, until they passed this test. The IRS is appealing the lawsuit’s decision. I see nothing wrong with the IRS protecting their tax-paying public (YOU) by ensuring that all tax return preparers show some level of competence. No single person can know everything. There are many areas of specialty within the tax code and ever-growing procedures, regulations and rulings. I help individuals and small business owners. Big corporations and partnerships are outside my area of expertise. Anyone can make a mistake. Yes, we learn from our mistakes, but wouldn’t  you rather that I learn from someone else’s mistake?  The IRS does and they want EAs and CPAs to keep up with the ever-changing tax laws. We do this by taking required annual continuing professional education (CPE). I like the medical doctor’s Hippocratic Oath, “first do no harm.” I follow that in my tax business. I always want to do my best for you. These brief descriptions give you a glimpse of what these professionals can do. An EA, Enrolled Agent, is licensed by the Department of Treasury to represent taxpayers nationwide at all levels of the Internal Revenue Service. A CPA, Certified Public Accountant, is licensed by their State’s Board of Accountancy to perform accounting services in that state. Those same Boards of Accountancy limit the use of the word “accounting” to their recognized CPAs. Some CPAs also practice tax. Some EAs also offer bookkeeping services. Attorneys are admitted to their State’s Bar. Attorneys who are admitted to the Tax Court can represent taxpayers at that level of IRS Appeal. Here are 7 questions you can ask to help ensure you find an experienced, trustworthy tax advisor:
  1. How long have you been in the tax business?
  2. What licenses or designations do you have?
  3. What tax issues do you specialize in?
  4. Do you have the knowledge and experience to handle my tax situation?
  5. Do you outsource any of your work?
  6. What’s your privacy policy?
  7. How do you charge your fee; how much will it cost?
It is important that you establish a comfort level with your tax advisor. You want to feel safe (and you want to feel your information is safe) when you share your important and confidential tax return information with your trusted advisor.