Tax Season 2015

January 7, 2015

Is there such a thing as GOOD NEWS from the Internal Revenue Service? .. Tax season used to begin with a vengeance on the second Friday of January. Tax season was delayed the last two years until the end of January. Congress waited until January to decide to extend certain deductions and tax credits. Their delay to act caused a backlog in tax form programming at the Internal Revenue Service. … This year the IRS has announced Electronic Filing of tax returns will begin January 20th. Now that is not a Friday, it’s a Tuesday. Why Tuesday? The reason is because Monday, January 19th, 2015 is Martin Luther King Day. … The first returns to be filed are usually for people who have already received their W2 forms. Wait for all of your W2s if you worked for more than one employer. … Some tax offices still provide a way for taxpayers to get a quick advance of their refund in the form of some kind of bank product. These bank products come at a price, but most people who want this fast refund are taking advantage of what can be called some kind of ” free” money. This free money usually comes from the Earned Income Tax Credit or the Child Tax Credit. These credits are refundable credits. Taxpayers who are able to claim these credits might have a low or even zero income tax liability. They get a refund of more than the amount of taxes they had withheld to pay their income tax. That is why they are called refundable credits. … Because these credits are like free money from the government, some taxpayers are willing to give up some of this free money to pay the cost to get their money quickly. This is not instant cash. It used to be as fast as one or two days. I am not as “up to date” on this information as I once was because my office no longer offers refund anticipation loans. I can tell you that if you have your own bank account, you can have your refund deposited directly to that bank account. This direct deposit used to be as quick as ten days depending on which day you filed your return. The IRS is depositing refunds quickly these days. .. Electronic filing, or e-filing, has made such a difference in the processing of tax returns by the IRS. I use professional software to help me prepare accurate tax returns. Tax returns are prepared with fewer errors. They are sent, or filed, electronically to the IRS. The IRS is not keying in data from a paper return that was mailed in, so the IRS makes fewer errors in the processing of the tax return. All this is good news for you. … Even better news for 2015 is that the IRS will be accepting electronically tax returns for 2014, 2013 AND 2012. We can file late, or delinquent, tax returns electronically. They do not have to be mailed as in the past. Some of the more complex returns still have to be mailed. We do still have to mail in amended tax returns. We are making progress with technology. Just like the tax laws, things change.

Easily keep Tax Records for as long as you need them

By Nellie Williams on

December 30, 2014

- IRS Tax Problems, Money, Tax Audit, Tax Audit Help

How to Easily keep Tax Records for as long as you need them. And be ready anytime for the Inquiring Mind of the IRS. The IRS has more than one employee. They have more than one division. Do they have more than one mind? They do have one mission. The mission of the Examination Division is to determine if the correct amount of tax was paid. When it comes to your tax returns, IRS has certain requirements. My Top 5 Tips are simple. Here is a recap of the 5 tips I gave you in my last blog of 2014.

Keep your copies of your tax returns FOREVER. ..
The Internal Revenue Service has THREE YEARS time to examine your tax records. This is called the Statute of Limitations for examination or audit. ..
Your state has MORE time. Arizona has ONE more year. California has TWO more years. Which state are you in? How much longer do they have to look at your tax records? ..
For calendar-year tax return items, you must keep your records AT LEAST five years. But some records need to be kept even longer. ..
Don’t be in too big a hurry to get rid of the paperwork. Keep the original documents. Scan them. Use a cross-cut shredder to really destroy the no-longer needed documents.

Now, I’ll share HOW to easily use a multi-drawer cabinet. Once you design your own system, it will save you time, money and tax headaches…

A plastic cabinet is convenient, but not secure like a locking cabinet. How many drawers does it have? Have one drawer for each of the 5 prior years plus a drawer for the current year. Permanent files will take up more space over time, so you may want a more secure place for your long-term permanent file. …
Label the drawers 2015 (current paperwork for the coming year.) 2014, 2013, 2012, 2011 and 2010 for the years still open for audit. Look at the date you filed your 2010 tax return. Count forward five years to determine when (what date) it is actually safe for you to begin shredding. …
In each of the 5 years’ drawers keep your tax return for that year. Keep a small box for your income records, your expense receipts and records of anything you sold in that year. …
Keep a file of paperwork related to assets or investments you still own. You will use this “basis” information In the year you sell an asset or investment. It will help your determine the gain or loss on the sale. In the year of sale, that paperwork will go into that year’s tax box.Because state returns are generally based on the federal return, keep the IRS return and the state return’s documents together. …
Save the tax returns in your permanent drawer. Shred the documents that are related to items only pertinent to a single year’s tax return for which the statute of limitations has already expired. For 2010 returns timely filed in 2011, the IRS statute “tolls”, or expires, in year 2014. The Arizona statute for 2010 returns runs out in 2015. The California 2010 tax return expires in 2016.

… If you have been flirting with tax evasion or tax fraud, the IRS has more than three years to look at your return. They have FOREVER to look at a fraudulent tax return. You be the judge. Let your conscience be your guide. Stay out of tax jail. Be honest with yourself and on your tax return. Have a happy year!

Welcome to the tax year home stretch

By Nellie Williams on

December 11, 2014

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

This 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.

Your Rights as a Taxpayer, Part Two

By Nellie Williams on

November 19, 2014

- IRS Audit, IRS Audit Help, IRS Audit Process, Tax advisor, Tax Audit, Tax Audit Help

Last 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.

You Have Rights as a Taxpayer

By Nellie Williams on

November 12, 2014

- Tax Audit, Tax Payments

When you are being audited you might not realize that you do have rights as a taxpayer. 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.” With recent events in the news these past couple of years, we might think the IRS has lost sight of its mission. But when YOU are the taxpayer being audited you need to remember that you have taxpayer rights. The mission of the auditor is not to assess more tax. The examiner’s job is to determine if you have paid the proper amount of tax. If it is decided that you do owe tax, they will ask you right then how you would like to pay your balance due. They will ask you if you can pay i full or if you need to make arrangements to pay. It is the job of the IRS Collector, or Revenue Officer, to collect the tax that remains unpaid. You can pay your tax by check payable to the United States Treasury or pay by direct debit from your bank account. If you’d like to pay by credit card be ready to pay a convenience fee because the IRS does not pay the normal retailer’s merchant fee. I do not recommend you pay with cash. You want a receipt to prove how much you paid and when you paid it. Cash just offers a temptation for human theft at any of the levels in the employee chain. You may find yourself in a position where you are unable to pay your tax. Depending on your financial situation, the Revenue Officer may be able to put your account in what they call currently not collectible status. They will review your uncollectible status at a future determined date to see if your ability to pay has changed. The IRS has published their Declaration of Taxpayer Rights. It reads as follows:

“1. Protection of Your Rights. IRS employees will explain and protect your rights as a taxpayer throughout your contact with us.

“2. Privacy and Confidentiality. The IRS will not disclose to anyone the information you give us. You have the right to know why we are asking you for information, how we will use it, and what happens if you do not provide requested information.

“3. Professional and Courteous Service. If you believe that an IRS employee has not treated you in a professional, fair, and courteous manner, you should tell that employee’s supervisor. If the supervisor’s response is not satisfactory, you should write to the IRS director for your area or the center where you file your return.”

Everyone at every level has a supervisor. It is your right to request to talk with their supervisor. These are just the first three of the IRS’ Declaration of Taxpayer Rights. Next week I’ll deal with just Taxpayer Right number four, Representation.

The End is Near

By Nellie Williams on

October 2, 2014

- Tax advisor, Tax Audit

The end is near, the end of the tax year that is. We just ended the third quarter and are beginning the fourth quarter of this calendar year. . What does this “quarter” stuff have to do with you, the individual income taxpayer? If you filed an extension for your personal tax return, that return is due by October 15th. . Most individuals can file that personal tax return electronically. Once in a while there is something complicated that may require you to mail your tax return to the Internal Revenue Service Center, but those cases are rare. I highly recommend e-filing whenever possible, it cuts down on processing errors and you get confirmation that your return has been filed. . If you are in business for yourself, or have other income on which you have no withholding, you may pay estimated tax payments. The third quarter payment was due September 15th. If you missed that date, send that payment now to minimize late payment penalties when you file your tax return. The payment for the fourth quarter is not due until January 15th of this coming year. Of course, you can pay it early if you want to. . If you miss the due date for your tax return, whether individual or business, file that late return as soon as you can. If you file a late, or delinquent, tax return with taxes due, don’t be surprised when you get a bill for interest and maybe penalties. The government is the biggest business there is. They want you to file and pay on time. If you don’t they will look to collect more money from you. . Are you an employer? Do you have employees? The third quarter employment tax returns are due before the last day of October. You want to be sure to file those reports before the “witching” hour on Halloween. Don’t let the Tax Goblins come knocking on your door, that knocking would come in the form of a notice in the mail. If you fail to file a return to the IRS is expecting, they will ask you for it. If you fail to send them the money they are expecting, they will ask you for it and more. . Before you get busy with your fall and winter holidays, now is a good time to start organizing the papers you’ve been collecting all year for this upcoming tax season. How can I think of this already? It’s my business. You don’t have to think about it like I do, but I get phone calls all through the year, so I know once in a while someone else is thinking taxes. Is it deductible? Can I do this or that? I want you to stay out of tax trouble! . I started this blog with “The End is Near.” I don’t see an end to the IRS, they work 24/7 closed only for an occasional federal holiday. We file a tax return every year. I want you to pay only your lowest legal tax. File on time. Pay on time. Watch your calendar. Save your receipts. Let your tax advisor help you. Welcome to the fourth quarter.

I just got a call from the IRS!

By Nellie Williams on

July 16, 2014

- Fraud, IRS Problems, IRS Tax Problems, Tax Audit

When I, Nellie, get a phone call from the IRS, it really IS the IRS. Income taxes are my job, after all. If a phone call is the first contact YOU get from the IRS know this…IT IS PROBABLY NOT THE IRS! The first contact you will get from the IRS is usually a letter. If the IRS wants to talk to you, they will contact you by regular “snail” mail. They will NOT contact you by email. That email is phony, too. There are SO many ways people commit fraud. I have spent my life learning how to do things right. It boggles my mind that other people spend their lives trying to figure out how to scam the system. Most of those people are in jail or are on their way to jail. Personally, I like my own bed and my own cooking better than the bread and water jail diet. The IRS wants you to beware of these types of scams. The callers pretend to be from the IRS. They hope to be able to steal money from you. They also hope to steal your identity. The phone scams include many variations, such as…

Sometimes they say you owe money.
Sometimes they say you are entitled to a huge refund.
Some calls threaten arrest.
Some calls threaten your driver’s license revocation.
Sometimes these calls are paired with follow-up calls from people saying they are from the local police department or the state motor vehicle department.

According to IRS.gov, the phony scams can include some of these characteristics:

“Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.

“Scammers may be able to recite the last four digits of a victim’s Social Security Number.

“Scammers “spoof” or imitate the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.

“Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.

“Victims hear background noise of other calls being conducted to mimic a call site.

“After threatening victims with jail time or a driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.”

“If you get a phone call from someone claiming to be from the IRS, here’s what you should do: If you know you owe taxes or you think you might owe taxes, call the IRS at 800-829-1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.

“If you know you don’t owe taxes or have no reason to think that you owe any taxes, then call and report the incident to the Treasury Inspector General for Tax Administration at 800-366-4484”

Next week I’ll discuss some of the other IRS’ “Dirty Dozen” scams for you to guard against.

APRIL 15th Is Over – Now What? (Part Three)

By Nellie Williams on

April 30, 2014

- April 15, Charitable Giving, contribution, Deductions, IRS Audit Help, Tax Audit

“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 www.salvationarmyusa.org and www.goodwill.org. 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.

Deducting Medical and Dental Expenses

By Nellie Williams on

March 20, 2014

- Deductions, IRS Audit, IRS Problems, Money, Tax advisor, Tax Audit

Medical Expenses are not the deduction I want you to have. But medical expenses are deductible if you itemize your deductions. Here are 8 tips direct from the Internal Revenue Service and one more from me.

“If you plan to claim a deduction for your medical expenses, there are some new rules this year that may affect your tax return. Here are eight things you should know about the medical and dental expense deduction:

AGI threshold increase. Starting in 2013, the amount of allowable medical expenses you must exceed before you can claim a deduction is 10 percent of your adjusted gross income. The threshold was 7.5 percent of AGI in prior years. .
Temporary exception for age 65. The AGI threshold is still 7.5 percent of your AGI if you or your spouse is age 65 or older. This exception will apply through Dec. 31, 2016. .
You must itemize. You can only claim your medical and dental expenses if you itemize deductions on your federal tax return. You can’t claim these expenses if you take the standard deduction. .
Paid in 2013. You can include only the expenses you paid in 2013. If you paid by check, the day you mailed or delivered the check is usually considered the date of payment. .
Costs to include. You can include most medical or dental costs that you paid for yourself, your spouse and your dependents. Some exceptions and special rules apply. Any costs reimbursed by insurance or other sources don’t qualify for a deduction. .
Expenses that qualify. You can include the costs of diagnosing, treating, easing or preventing disease. The cost of insurance premiums that you pay for policies that cover medical care qualifies, as does the cost of some long-term care insurance. The cost of prescription drugs and insulin also qualify. For more examples of costs you can deduct, see IRS Publication 502, Medical and Dental Expenses. .
Travel costs count. You may be able to claim the cost of travel for medical care. This includes costs such as public transportation, ambulance service, tolls and parking fees. If you use your car, you can deduct either the actual costs or the standard mileage rate for medical travel. The rate is 24 cents per mile for 2013. .
No double benefit. You can’t claim a tax deduction for medical and dental expenses you paid with funds from your Health Savings Accounts or Flexible Spending Arrangements. Amounts paid with funds from those plans are usually tax-free.”

And here’s the extra tip from Nellie. If you wonder if your disability insurance is deductible. Yes it is. But I encourage you NOT to deduct this insurance. If your disability insurance premium is about $800 each year and you have enough medical expenses to exceed your AGI threshold, you could deduct this $800. For easy math, if your tax bracket is 25%, this deduction could save you $200 of tax. But if you ever file a claim and collect on this disability insurance, those insurance benefits will be income taxable. And when you are out of work due to disability, do you want to add to your tax bill?

Tax Season – The Good, The Bad and The Ugly

By Nellie Williams on

February 20, 2014

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

The Good, The Bad and The Ugly is a catchy phrase and makes reference to one of the most popular “spaghetti” western movies. This phrase seems to describe lots of situations we experience. In this case….Income Tax Season. In January, I talked about the different tax forms you need to watch for. Most will come to your mailbox while others will be sent to you electronically. You may even be able to download them yourself from secure websites. Some of my clients last year didn’t really understand why I couldn’t finish everything in progress by April 15th. Sometimes it is just not possible. There are only 24 hours in any one day. No one person can work well without sleep day after day.. The clock ticks away every minute. We simply run out of time. I tell everyone in my first letter of the tax season that I may file an extension for returns not completed by April 1st. What does “extension” mean? Quite simply, it is a request for more time to file a tax return. An extension is not automatic. And it is not a request for more time to PAY your taxes. It is important to know that if your taxes are not paid in full by the due date of your return, the extension will not be valid. In other words, if you owe tax on April 15th and do not pay that tax by April 15th, no request for more to time to file will be valid. In other words, your return will be considered late, or delinquent. Interest and penalties may apply to that balance paid after April 15th. How can you change this undesirable position? Even if you have given your preparer everything necessary to file a proper return, you may still want to file an extension. The key is having your tax paid in full. You can send a payment in with your extension request. Realize this is a request, it is not automatic. An extension will only give you more time to submit your tax return. Do you need to increase your paycheck withholding? Do you need to adjust the amount you pay with your quarterly estimated tax payments? Did you have something unusual happen during the year that caused you to owe more tax this year than in earlier years? The bottom line is, if you know for certain you will not owe taxes on April 15th, you can request that extension for more time to submit your return without penalty. Be sure to mark your calendar so you remember your new extended due date. Any return filed after that date will be considered delinquent. And a late return with taxes due will cost you interest and penalties.

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