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Watch Your Mailbox for Important Tax Forms! Part One:

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January 15, 2014

- IRS Audit Help, IRS Audit Process, IRS penalties, IRS Problems, IRS Tax Problems

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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What is Your Beginning of the Year Odometer Reading?

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January 4, 2014

- IRS Audit, IRS Audit Help, IRS penalties, IRS Problems, IRS Tax Problems

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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Internal Revenue Service is always Watching the Clock!

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December 11, 2013

- Deductions, IRS Audit, IRS penalties, IRS Problems, IRS Tax Problems

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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Closed for Business

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October 2, 2013

- Government Shutdown, IRS penalties, Obamacare

ID-100152039Is the Internal Revenue Service closed for business? Could this be the sign you see when you try to reach a federal government office this week? Yes, a Federal Shut Down began October 1, 2013. This is the same day the Patient Protection and Affordable Care Act, or “Obamacare” was to begin. This is also the first day of the United States’ Fiscal Year. Most of us work on a calendar year basis, January 1 through December 31. The government’s fiscal year begins October 1 and runs through September 30 of the following year. When I worked for the IRS in 1979, we experienced a government shutdown. Like today, our government leaders were at odds and could not agree on our laws. How would our government move forward? During that shutdown, only certain “essential” employees were expected to still come to work. Was I one of those essential employees? We were told to go home at lunch and listen to the newscasts. I had one afternoon to wonder… was that a day to party?  NO, it was a day to worry.  Would I have to get up early the next day or could I sleep in? Like today, I traded my time for dollars and I needed those dollars to pay my bills. I was an auditor. I went to work the next day. My co-workers were temporarily furloughed without pay. There is so much affected when the government shuts down. Some services, like national parks and museums, will completely shut down. Some offices will be cut back and others, like public safety, air traffic controllers will have business as usual. The Post Office gets its money from the sale of stamps so fortunately we will still have mail service. Where does the IRS fit into all of this?  Well, don’t call the IRS with a question. Customer Service is closed. Audits, already started, will be suspended and for now, no new audits will begin. Don’t worry though, your tax payment will always be accepted and the filing of your tax returns will continue. If you filed an extension for your tax return, the extended due date for your 1040 return is still October 15th and if you don’t file by that date, well – it is just plain late. What does the IRS have to do with Obamacare?  Did you know that the IRS is charged with the responsibility of seeing that every American taxpayer proves they have medical insurance? Yes, so that means there will be a new form for me to include with your tax return. Beginning January 2014, taxpayers who choose not to have medical insurance will pay a fine and they will be subject to a penalty imposed on your income tax return. This penalty will be the greater of $95 per person each year, OR 1% of the household income. People who are temporarily unemployed, people who are on Medicaid (not medicare) or people who live in a state that has opted out of the new expanded program, such as Texas, Pennsylvania or Wisconsin, will be exempt from the penalty. Is this one of the laws that our Congress is battling over? Yes!  Is Obamacare still going to be mandated? We don’t know only time will tell. One thing is certain. We need to know what might be ahead so we can plan. Plans can change. Ignorance is expensive. If you are not aware, you are at risk of paying more than you expected.
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