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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.
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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.
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Odometer2What are you going to do different this year than you did last year? If you use your car for business I hope you remembered to write down, yes on paper, your odometer reading. If you didn’t do this before you got behind the wheel on the first day of the year, it’s not too late to start this process today. What good is this Beginning of the Year Odometer Reading? This is just one step on the “Prove It!” scoreboard if you are ever in a contest with the Internal Revenue Service. This contest is also known as an IRS TAX AUDIT! This audit can be started by the IRS, but they work hand in hand with the states and this audit can also be started by your state’s Department of Revenue. By working together, these agencies  are sharing the workload AND they are sharing the results with each other. Most state tax returns begin with the results of your federal return for that same year. If the IRS makes an adjustment on your federal tax return, you can be darn sure they will tell their counterpart at your state’s tax office. And if your state makes an adjustment, corrects a mistake, disallows (throws out) a deduction, adds income you failed to include (ignored or didn’t even remember you received), you can be sure they will tell “the feds.” Record-keeping is your safety net and YOU must keep the documentation you need to prove the position you take on your tax returns. Because in an audit, you are considered guilty until you prove yourself innocent. CAUTION:  Do not  throw away old tax returns just because we turned another page on the calendar. ALWAYS keep your copy of the tax returns you filed FOREVER!  Why that long? Why not just three or five or seven years? You never know when you need to look back at an earlier year’s return. In 2013, I was amending a 2009 tax return. It had a tax benefit that was to be carried BACK two years to 2007. Since I was the preparer on both years, I had the preparer copy of both years’ returns. But if you were my new client, would you have that 2007 return for me? Another client is inheriting an IRA from her mother. Is all of that IRA taxable to her? Did her mother ever deduct her IRA contributions? Did Mom keep her copies of those earlier year returns that have now become so important to her daughter? Do yourself and your family a favor and KEEP  your tax returns forever. So, back to your New Year’s auto log. It’s never a bad habit to keep a little diary for your car, whether you want to deduct your mileage or not. If you want to sell it later, this odometer reading record helps to prove the condition of your vehicle and could get you a better sales price. Keep a record of your vehicle maintenance. When was the oil changed? When were the tires rotated? When were old tires replaced with new ones. Keep track of things like that. If you want to deduct the business use of your vehicle, the IRS does require a log of your total miles AND a log of the miles you drove for business. If you don’t want to be bothered by keeping this timely (at-the-time driven) log. you don’t have to. But if you do not keep the log, you do not get to claim the deduction. It’s as simple as that.
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Happy New yearTHIS is the end of the year, not the end of the world. I thank my God every morning I awake. Before we rush away from this festive season, I hope you all had a very Merry Christmas, a happy holiday, and I wish you all a very happy New Year! Time marches on whether we plan for it or not. And we only have a couple of business days left in this year! What is THE most important thing you still need to do before the clock turns from 2013 to 2014? Did you know that the Affordable Care Act, commonly known as “Obamacare”, requires we are all covered by minimum essential health insurance? And if you are not, you can be assessed a penalty? For 2014 will you (and the people in your family household) have healthcare coverage for the WHOLE YEAR? Coverage can be a combination of Medicare Part A, Medicaid (ACCHS in Arizona), Military Health Insurance (Tricare) an employer sponsored plan or insurance you buy on your own. This helps meet the “Shared Responsibility” part of the plan. If you do not have healthcare coverage for the entire year, you could be assessed a penalty. The penalty calculation formula is complicated. If I say there is a minimum penalty, will you realize that is the LOWEST it can be and that it is likely to be even higher?  The lowest 2014 penalty for a single person s $95. The penalty for a married couple starts at $190. As the size of the family grows, the penalty grows. And it gets bigger every year. If you are a low-income taxpayer, you may qualify for healthcare insurance premium assistance. Meaning that you could find the cost of your premium lowered by the assistance amount you qualify for. There are more complicated formulas in calculating the amount of credit that can be applied to your premium costs. And who is in charge of keeping tabs on all of this? IRS, of course. They have been granted the privilege, the responsibility, to make sure we are paying our fair share. Not only must we pay our fair share of income tax. We must also pay our fair share of healthcare insurance premiums. I am not a healthcare insurance provider. I am a tax return preparer. And now the insurance exchange agents will want to see your tax returns to determine how much premium assistance you might qualify for. Lower-income taxpayers might not have an INCOME TAX return requirement to file. BUT they may NOW have to file a return to prove they have paid their fair share of medical insurance premiums. So much is new. We are all learning. If you are under 65 years old (the minimum age for Medicare), you will want to check your health insurance coverage to avoid the penalty for not having shared enough of this new required program.   Always to your lowest legal tax,   Nellie T Williams, EA
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Have you ever thought “I have so much to do, I don’t know where to start”? I know I have – and sometimes I still do. And this end-of- Beautiful thoughtful womanyear time is a perfect time to share these 3 tips. Recently, I attended a meeting of one of my mastermind groups. This group is a collection of fellow business owners in various fields. Everyone brings their expertise and willingness to share. I led a breakout group on taxes and attended several others led by fellow members sharing their specialized knowledge. My friend, Deanne Marie, led a session on overcoming overwhelm. She shared 3 powerful tips that are SO easy! Why couldn’t we think of these ourselves? Of course the first challenge that comes to my mind is what some of my clients share with me. “Do I have to keep these papers? Do I have to put these papers in neat files? Can’t I just throw them all in a box and deal with them later in the year?” Sure, just don’t bring that shoebox to your tax appointment 😉 I learned early in life, never put off until tomorrow that which you can do today. But with SO much that needs to be done each day, some of those things that are better done NOW actually do get put off. Here are the Three Terrific Tips from Deanne Marie that I call my favorites: The 15 Minute Method
  • This tool can be used any time
  • Use this tool when you are putting off starting a task for whatever reason
  • This tool will help you overcome inertia and let you take that valuable first step (knowing that it is only for 15 minutes)
  • Set a timer for 15 minutes
  • Commit to working until the timer goes off
  • At the end of the 15 minutes, you can choose to continue working or move on to something else
  • This tool can also work to limit the time spent surfing the web or doing social networking
The Power Day
  • This tool is something you might use once or twice a month to make progress on one or several larger tasks
  • Plan ahead to have the resources you need available before you start.
  • For each of six to ten tasks, create one hour slots (45-50 minutes of work with 10-15 minute breaks, to get coffee or listen to voice messages from calls you ignored during the hour)
  • Mix it up if you can – an hour at the desk, an hour on a task that has you moving around (if possible)
The Power Hour
  • This tool is also something you might use once or twice a month to make progress on several smaller tasks (like making appointments, returning phone calls, planning larger tasks)
  • Plan ahead to have the resources you need available before you start.
  • Divide the hour into 6 to 10 slots and time them appropriately
  • If you are on the phone with someone who likes to chat, you can honestly say “I have to go, I am on a deadline.
Thank you, Deanne Marie. Now I have 3 tools to overcome overwhelm. And so do you. Use these to save you time and to save you money. Always to your lowest legal tax, Nellie T Williams, EA
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clockDo you hear that tax clock ticking, ticking, ticking? There are certain things to keep in mind as we come to the close of another tax year. December is the LAST month in the LAST quarter of the year. What should you do before time runs out? Tax laws change every year. Moving from 2013 to 2014, we are going to experience some major changes. Some of the deductions we are used to taking are being adjusted, changed, or even eliminated. If you are a classroom teacher, your $250 ‘above the line” or 1040 front page, deduction goes back to the Schedule A for itemized deductions.  You may or may not remember that it started there. Chances are, you’ve made your purchases already this year, but if your total is under $250, now is the time to take full advantage of that little benefit. With only a few weeks left in the year, do you have any medical expenses you need to pay for in 2013? We can include in our itemized deductions unreimbursed medical expenses that exceed 7.5% of our adjusted gross income. That’s pretty technical. What you need to know is that in 2014 that “floor” rises to 10%. That just means that we will be deducting a little less.  As I mentioned in a previous article, medical is NOT the deduction I want you to benefit from… I want you to be healthy. Speaking of healthy, 2013 is the year that the Affordable Care Act, commonly referred to as “Obamacare” kicked in. There is a provision for a Premium Tax Credit to help low income taxpayers pay for heath care coverage.  However, there is also a “Shared Responsibility Penalty” for anyone who fails to maintain a minimum essential health care coverage.  Medicare counts as qualified coverage. The IRS is charged with allowing the tax credit or imposing the tax penalty. What does that mean to your tax return preparer? We will be looking to confirm your coverage. SO, 2014 is only a few weeks away. Keep your coverage and keep track of your payments. Check into getting coverage if you don’t already have it. I’ll be learning more, too. If you are used to deducting sales tax instead of state income taxes paid, that sales tax deduction will not be a choice for your 2014 tax return. Most of the big ticket items that created a big sales tax deduction were vehicles. IF, and I say IF, you need a new car, this may be the month to buy it, but DO NOT BUY IT just to take advantage of the sales tax deduction. You are still out of pocket thousands of dollars for that new car. My parents always told me, “Watch your pennies and the dollars will take care of themselves.”  So I tell you to watch your expenditures.  Take advantage of what will benefit you, but don’t lose sight of the true cost of your deductions.  
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healthYears ago the expense of weight loss programs and stop-smoking programs were not deductible. The negative effects of smoking and being overweight were not seen as illnesses but as bad habits. Then someone in Congress realized these former bad habits lead to real health problems. Somebody must have convinced a lawmaker that we could have more productivity if people stopped smoking and made better dietary choices. Who knows. But that kind of influence is what gets laws changed and the tax laws are what we have to follow when we file our tax returns. We can deduct medical expenses after we become sick. We can deduct the cost of repairing the damage. But preventive care is not deductible. We cannot deduct the cost of our gym membership or workout equipment. The tax laws were changed to allow us to deduct expenses for programs to help end the smoking habit. When obesity became thought of as an illness, we could then deduct the cost of programs to help combat that epidemic. I promised a few weeks ago that I would tell you how I quit smoking. One of my clients said, “You smoked?!” It was many, many years ago that I did smoke. This article is more about habits than taxes, but if it can help you quit, then I will save you a lot of money, you might live longer and get to pay taxes longer. How can the IRS argue with that? Smoking was considered “cool” when I was growing up. Famous movie stars were seen holding cigarettes and blowing smoke rings. I was a teenager and I wanted to be cool like that. I can remember how awful it tasted and how awful it felt to force that stinky smoke into my lungs. I learned how to ignore the negative aspects. My hands smelled bad and an occasional spark would burn a hole in my clothing or the furniture. So I grew up smoking and then smoking became less popular. People were complaining because non-smokers didn’t want to breathe second-hand smoke.  Magazines were now carrying articles and photographs about the horrors of cancers from smoking.  Now it was becoming more important to me NOT to smoke. I didn’t want to disfigure my face from cancer of the mouth. I didn’t want to talk through a tube in my throat.  But it was not easy to stop this habit that can have such an addictive hold. I stopped several times before I learned how to quit. I read a book that said it takes only 5 days to get the chemicals from smoking out of your blood stream.  I repeated that to myself every time I thought I wanted to light a cigarette. I told myself just wait 10 minutes. If you still want to smoke then, you can. After an hour went by I realized that I had gone much longer than 10 minutes. After the first day I knew I only had four more days to go. And on day three I couldn’t start back up because I only had two more days to go. I told myself I was bigger than that little stick of tobacco.  On day six, I knew I had the chemicals out of my blood stream, but I still wanted to smoke. I realized I needed a new habit. I had to change my behavior and learn to do something else with my hands. I held a ball point pen as if it were a cigarette, then I would take a long, deep inhale as if I were taking a drag on the cigarette. Pretty soon I had that bad habit, that nicotine addiction licked. If you want to lick something, maybe this will give you the support you need to find what will help you be successful.  I quit smoking “cold turkey”. Quitting food is quite another story. I haven’t got a magic answer for that one yet. I like the way food tastes and I need to change my thinking and my behavior. So this article is not really about tax deductions or tax credits, it is about your good health. I’d rather see that for you than than a medical deduction.
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ThanksgivingWhat holiday you ask? I’m talking about the totally American holiday of Thanksgiving Day. Why is this so American?  I did a little research for you. In representing a client in a tax case I must often research tax law. I learned a lot that I hadn’t know before in researching the history of Thanksgiving. How much of this did your already know? In 1621, the Pilgrims and some of the members of the Native American Wampanoag tribe came together to celebrate a successful harvest. They feasted for three days on fowl and deer and berries and most likely boiled pumpkin and plums. Mmmm. By 1777, all thirteen colonies celebrated a day of thanksgiving. In 1789, President George Washington declared a day of public thanksgiving and prayer. We were forming a new nation and establishing a new constitution and this was cause for the new national holiday and annual day of celebration. President Abraham Lincoln issued a proclamation in 1863 declaring the last Thursday in November to be a day of thanksgiving and praise. He wanted a way to bring our nation together after our Civil War. Climbing out of our Great Depression, in 1939 President Franklin D Roosevelt heard the merchants’ cry. The last November Thursday in 1939 fell on November 30th. And that only left 24 days to shop for Christmas. So FDR moved Thanksgiving to the second Thursday in the month. There was a lot of confusion and controversy around the new “Franksgiving”, but the shopping wasn’t really affected. (Deductible Gift giving was the subject of earlier blogs. Do you want me to address tax deductions of gifts again? Leave me a comment and let me know.) Congress passed a law on December 26, 1941 declaring Thanksgiving would be held every year on the fourth Thursday of November. This year that date is November 26th. We will have only 26 days until Christmas Eve. Most American’s will celebrate this family holiday. You are hard-pressed to take a tax deduction. But it can be done. Are you a restaurant or cafe or other eating establishment in the business of feeding people? Then you’ve got business income and business expenses. Keep track of those numbers. Most people will spend this day with their family. But are you throwing a business event on the holiday? If so, what business will you be discussing? Have your guests sign the guest book so you can prove who you were entertaining. And of course, keep your receipts. Maybe you will volunteer your time to help out at your local charity dining hall. You may not deduct the value of your time. But if you gave a turkey, or other items for the banquet, keep your receipts for what you spent AND get a letter of acknowledgement from the charity. Chances are you did some driving. If you made a special shopping trip for the charity, or if you drove to the dining hall to volunteer your time, keep track of those miles. Charitable miles are deductible at 14 cents per mile. You can choose not to track those miles. But if you don’t keep that mileage log, you don’t get to claim the deduction. One more thing. The day after Thanksgiving is called Black Friday. Why? Because that is traditionally the busiest holiday shopping day of the year. Many retailers’ profits move from the “red” to the “black” on Black Friday. I am grateful for all that I have. Everyday I thank God for my new day. I hope you have a blessed day of giving thanks.
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armyAttention Military Members: Internal Revenue Service gives special tax treatment to our Military! I am grateful for the sacrifices of our military veterans. This week we remembered them on Veterans’ Day. My father and my uncles all served in World War II. My schoolmates served in the Vietnam War. Many of my clients have served or are still serving in our military today. You and your families sacrifice so much to protect us. Thank you so much for your service. I am happy to help remind you of these tax benefits available to you. Americans are taxed on their worldwide income and you are taxed on most of your income, too. But there are some specific incomes that are excludable, or not taxable. Military pay you earn while serving in a designated combat zone is not taxable. When you are outside the United States you are allowed an extra two months if you choose to file an extension of time to file your return. If you are serving in a combat zone you have even more time. There is a complicated formula used to figure the exact number of extra days you can use. The same caution applies to everyone filing an extension: taxes not paid by April 15th will incur interest and may also incur penalties. So get those taxes paid early to avoid those extras. If your spouse is unable to sign the tax return because they are serving in a combat zone. you are allowed to sign the return for your spouse. Most of my client spouses have power of attorney, often referred to as POA. If you do not have a POA, and you sign for your combat-zone serving spouse, attach a letter with the return explaining this. The basic allowances for housing and subsistence are not taxable. If you own your home and pay real estate taxes, those taxes paid are still deductible even though you get the tax-free housing allowance. Most people who have a job-related moving expense have to meet certain time and distance requirements. These requirements do not apply to military moves. Your new location does not have to be more than 50 miles from your last assignment. You do not have to stay employed in the new location for at least 39 weeks in the 52 weeks following your move. If you receive disability pay for a combat-related injury, that disability income is not taxable to you. If you are on full-time active duty, you generally may not deduct your uniform expenses. But if you are serving as a reservist, you DO get to deduct any uniform expense that is more than the uniform expense reimbursement you receive. Just like any mileage to a second job on one day, reservists may also be allowed to deduct the cost of their transportation to meetings they attend on the same day after working their regular job.
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PB & JellyNovember is National Peanut Butter Lover’s Month. I grew up on peanut butter and jelly sandwiches. I still have one of these comfort, stand-by sandwiches every once in a while. And I love peanut butter cookies! .. Can you deduct peanut butter? Not if it is just your own, or your children’s meal. And chances are you’re not going to offer a peanut butter sandwich to your business client. But you could decide to serve a fancied up sandwich at a business get-together. Think about a working lunch or a special afternoon tea type theme to your business meeting. .. If you run a sandwich shop, peanut butter can be an ingredient in one of your menu items. If you run a daycare center, you will certainly be serving this staple at lunch. Cookies can become a business gift. And maybe you want to have your clients over for an afternoon celebration.  Of course, if your guest list includes someone with a peanut allergy, peanut butter will not be on the menu. But then this peanut butter could be the cause of a medical deduction. So there can be several ways peanut butter and taxes really are related. .. The IRS loves the words “ordinary and necessary”, “generally” and “usually”. To be deductible your meal or entertainment expense must be “directly related to” or “associated with” the active conduct of a trade or business. It can also be for the production or collection of income. It cannot be lavish or extravagant. It must be reasonable considering the facts and circumstances. .. Do you remember the five Ws of journalism? Who, what, when, where, why and then add how much you spent.. Who did you entertain? What did your discuss. When did you have this meal? Where did you go? What was the business purpose or what did you want to talk about at this restaurant? And how much did you spend? Your deduction can include the cost of the food, beverage and tip, but is limited to 50%. The cost of your own meal at a restaurant is not deductible. Meals with coworkers or business associates are not deductible unless you can show a clear business purpose. .. You must show that the main purpose for this meal or entertainment was for business; that you engaged in business during this meal or activity. You must also have more than a general expectation of receiving income or some other specific business benefit in the future. .. Instead of “directly related”, where you discuss business over a meal, your business discussion can be “associated with” the meal or entertainment. How much talking could possibly go on during a concert, at the theater or at a rousing sporting event or a backyard bar-b-que? If you are entertaining at your home, be sure to have a guest book for your records. Have each of your guests sign in. .. If the business discussion or transaction is substantial (and directly before or after the meal or entertainment) it can be deductible. There is no requirement that you spend more time on business than on the meal or entertainment. .. Employers have exceptions to the 50% deduction limit. If you provide meals to more than half of your employees on your business premises and for your convenience (not the convenience of the employee), those meals are a 100% deductible fringe benefit. Employer provided social or recreational expenses, like a company party or picnic, for the benefit of employees who are not highly compensated employees, are 100% deductible. .. I can’t emphasize enough your need to keep adequate records. This is for your tax audit protection.
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