14.02.2010
Taxes, Uncategorized
We received a few calls this past week from clientsconcerned about missing or not receiving their W-2s and how they should handle filing their 2009 income taxes. Employers had until February 1, 2010 to send you a 2009 Form W-2 earnings statement. In most cases where income was over $9,350, you will still need to file a tax return even if you don’t receive a W-2. The IRS outlines the following four (4) steps to handle missing W-2s.
1. Contact your employer If you have not received your W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.
2. Contact the IRS If you do not receive your W-2 by February 16th, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, city and state, including zip code, Social Security number, phone number and have the following information:
- Employer’s name, address, city and state, including zip code and phone number
- Dates of employment
- An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2009. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
3. File your return You still must file your tax return or request an extension to file by April 15, even if you do not receive your Form W-2. If you have not received your Form W-2 by April 15th, and have completed steps 1 and 2, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.
4. File a Form 1040X On occasion, you may receive your missing W-2 after you filed your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
If you are unsure if you need to file a return or have other questions, remember we are here to help.
25.01.2010
Uncategorized
Congress is preparing to approve H.R. 4462, a bill that allows taxpayers to treat qualifying cash contributions for the relief of victims of the earthquake in Haiti as deductions on their 2009 tax returns. Contributions made after 1/1/10 and before 3/1/10 would be eligible for this treatment. Contributions made by cell phone could meet the recordkeeping requirements if the bill from the phone company shows the name of the donee organization, the date of the contribution, and the amount of the contribution.
24.01.2010
Resources, Taxes, Uncategorized
If you’re like most of us, you’re anxious to know exactly when your tax refund from good old Uncle Sam shows up in your account. After all, it is your money that you loaned out. Checking the status of your tax refund, whether you e-filed or paper filed is relatively easy. It can also be done both in English or Spanish. For those individuals who “e-file”, your refund information may be available as soon as 72 hours after the IRS acknowledges receipt of your e-file return.” Paper Filers” will be able to access refund information within 3-4 weeks. The following steps were obtained from the article “Checking the Status of Your Federal Tax Refund is Easy” on the IRS.gov website.
To check your refund status:
1) Navigate your way to the “Where’s My Refund” or “¿Donde está mi reembolso?” (for those who speak Spanish) on the IRS.gov website or Call the IRS TeleTax System at 1-800-828-4477 or the IRS Refund Hotline at 1-800-829-1954.
2) Enter the following information:
-Social Security Number (or Individuals Taxpayer Identification Number)
-Filing Status (Single, Married Filing Joint Return, Married Filing Separate, etc.)
-Exact Refund amount shown on your tax return
3) You will receive a response that could include (but is not limited to) the following:
The return has been received but is in process.
or
The actual date of either the direct deposit of your refund or the mailing date of your refund.
or
The IRS is unable to deliver the refund due to a variety of reason like an incorrect address.
The ability to check your refund online or by phone will not only allow to you to anticipate the approximate arrival of your refund but also correct any errors that may impede getting your refund!
Sidenote: For individuals with Visual Impairments, “Where’s My Refund?” can also be accessed using the Job Access with Speech screen reader used with Braille display and is compatible with different JAWS modes.
DISCLAIMER: All information on this post is the opinion of the author and is not offered as legal advice. Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information. This firm offers valuable professional tax advice only as part of prepaid engagements.
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22.12.2009
Business, Resources, Taxes, Uncategorized
In this continued series of Doing Business With the IRS, I share insights gained from my experience and the experience of other CPAs and IRS agents. Each week I will pose a common question relating to doing business with the IRS.
Q. Should the taxpayer being audited speak with the examining officer or not? I heard its best not to meet with the agent because I might say something too revealing and end up expanding the audit.
A. I love this question because it is one that I must ask myself every time I am faced with representing a client before the Service. “Should I discourage the client from participating in the meetings with the service or not?” The answer is, it depends on the makeup of the client. I believe it can be a good thing to bring the taxpayer and agent together for a meeting outside the taxpayer’s place of business, as long as I can prepare my client in regard to what to expect. I want them to be at ease and know what they are dealing with. It lets the IRS agent know we are not trying to hide anything and can aid the process. If my client is too nervous or just unable to meet with the agent then that’s O.K. too.
I have found that clients generally come away from the experience better educated and that helps me help them.
The most important thing to remember when doing business with the IRS is to keep good records. Don’t panic. Being audited is not a suggestion that you did anything wrong or dishonest. We are here to help you through the audit.
Doing Business With the IRS will continue in future blogs as I share insights gained from my experience and the experience from other CPAs and IRS agents.
Upcoming Questions and Answers
Q. How do I handle my client’s phone call that they have received an IRS notice?
Q. What did I learn from my interview with an IRS agent?
Past Questions and Answers Posted
Q. What is the Examination Process?
Q. How are tax returns selected for an audit?
Q. Should I have someone represent my interest in the examination and audit process?
Q. What is the examiner looking for?
Q. What if a taxpayer cannot produce the records of revenue and expense the agent is requiring?
Q. What will expand an audit? (cause more years or items to be examined)
Q. What happens if I disagree with the auditor’s findings?
Q. How is the agency structured to conduct audits?
Q. What is the appeals process?
Q. How does the Offer in Compromise work and who should consider using it?
Q. What do I need to know about fees and penalties?
Q. What is the role of the agent vs. that of the revenue officer?
Q. Can you comment on source codes? What might a source code indicate or what should I be looking for?
DISCLAIMER: All information on this post is the opinion of the author and is not offered as legal advice. Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information. This firm offers valuable professional tax advice only as part of prepaid engagements.
03.12.2009
Business, Entrepreneurship, Home Based Business, Payroll, Resources, Small Business, Starting a Business, Taxes, Uncategorized
Beginning on January 1, 2010, the standard mileage rates are as follows:
- 50 cents per mile for business miles driven
- 16.5 cents per mile driven for medical and moving purposes
- 14 cents per mile driven for charitable services
The new rates reflect lower transportation costs compared to a year ago and slightly lower.
01.12.2009
Business, Resources, Taxes, Uncategorized
In this continued series of Doing Business With the IRS, I share insights gained from my experience and the experience of other CPAs and IRS agents. Each week I will pose a common question relating to doing business with the IRS.
Q. What do I need to know about fees and penalties?
The IRS imposes penalties to encourage compliance with the tax laws. The examining officer has some liberty regarding the penalty for negligence which can be 20% of the taxes owed. Negligence can include any failure to make a reasonable attempt to comply with the IRS laws, exercise of ordinary and reasonable care in the preparation of a tax return, or keeping adequate books and records to properly substantiate items deducted. In other words, you truly tried your best to do the right thing but missed something along the way.
Where the examining officer has no control whatever is the substantive underpayment of taxes penalty. Underpayment is considered substantial if it is more than the larger of 10% of the correct tax or $5,000 for individuals and $10,000 for businesses. To avoid the substantial underpayment penalty you have to provide adequate disclosure of items which might cause such an underpayment along with the disclosure of the position for the reasonable basis for such a position.
Some of the most common penalties are listed here.
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Penalty Code
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Explanation
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14
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Fraud – Late Filing Penalty – IRC Section 6651 (f)
The law allows an increase of the penalty for filing late if you didn’t file on time because of fraud. The penalty is 15% of the amount of tax you should have reported on your tax return and an additional 15% for each additional month or part of a month you didn’t file your return. The total penalty may not be more than 75% of the tax you didn’t pay.
|
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27
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Penalty on Tips – IRC Section 6662(b)
You are charged a penalty if you don’t report tips to your employer. The penalty is 50% of the social security or railroad retirement tax on the tips you didn’t report. If you disagree with this penalty, see “Removal of Penalties” in the notice you received.
|
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28
|
Examining Officer’s Report – IRC Section 6751(a)
Penalty explained in the examining report you received with audit.
|
|
30
|
Late Payment Penalty Removed
A previous late payment penalty charged you is being removed.
|
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40
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Overstatement, Understatement, or Accuracy-Related Penalty – IRC Section 6662
For returns due before January 1, 1990, this penalty is one or more of the following: Valuation Overstatement, Valuation Understatement, or Substantial Understatement. For returns due after December 31, 1989, the accuracy-related penalty has been added. Refer to you Examining Officer’s report for an explanation of the penalty.
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The most important thing to remember when doing business with the IRS is to keep good records. Don’t panic. Being audited is not a suggestion that you did anything wrong or dishonest. We are here to help you through the audit.
Doing Business With the IRS will continue in future blogs as I share insights gained from my experience and the experience from other CPAs and IRS agents.
Upcoming Questions and Answers
Q. What do I need to know about fees and penalties?
Q. What is the role of the agent vs. that of the revenue officer?
Q. Can you comment on source codes? What might a source code indicate or what should I be looking for?
Q. Should the taxpayer being audited speak with the examining officer or not? I heard it’s best not to meet with the agent because I might say something too revealing and end up expanding the audit.
Q. How do I handle my client’s phone call that they have received an IRS notice?
Q. What did I learn from my interview with an IRS agent?
Past Questions and Answers Posted
Q. What is the Examination Process?
Q. How are tax returns selected for an audit?
Q. Should I have someone represent my interest in the examination and audit process?
Q. What is the examiner looking for?
Q. What if a taxpayer cannot produce the records of revenue and expense the agent is requiring?
Q. What will expand an audit? (cause more years or items to be examined)
Q. What happens if I disagree with the auditor’s findings?
Q. How is the agency structured to conduct audits?
Q. What is the appeals process?
DISCLAIMER: All information on this post is the opinion of the author and is not offered as legal advice. Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information. This firm offers valuable professional tax advice only as part of prepaid engagements.
16.11.2009
Taxes, Uncategorized
With just seven weeks left before the end of the year, making the right tax moves now could help improve your tax situation. There may be actions, such as deferring income, accelerating deductions, and harvesting investment losses, that will reduce your 2009 taxes if you act soon.
Homeowners
The first-time homebuyers credit of $8,000 has been extended to expire 4/30/10 instead of 11/30/09. This allows homebuyers under a binding contract an additional 60 days to close after that date. An additional tax credit of $6,500 is now available to new buyers who have lived in their current residence for 5 years or more.
Homeowners who enter into a mortgage insurance contract after 2006 and before 2011 may be eligible to deduct their premiums if they itemize deductions.
Homeowners who do not itemize can claim an additional standard deduction of up to $500 or $1,000 if filing joint for real estate taxes they paid in 2009. This deduction is set to expire after 2009. TIP. If this deduction is not extended beyond 2009 and your property taxes are less than the deduction limit, consider paying your 2010 property taxes before the end of 2009 so you can deduct the maximum amount.
Home Improvements
If you add solar, small wind, geothermal and/or fuel cell equipment to your home, you can take a credit for 30% of the cost of qualifying equipment and installation.
Energy-saving home improvements for any of the following could land you a tax credit:
- Asphalt roofs with cooling granules
- Central air conditioners
- Insulation
- Metal roofs
- Water heaters (natural gas, propane, oil, or electric heat pump)
- Biomass fuel stoves
- Exterior windows, doors, and skylights
- Furnaces (natural gas, propane, or oil)
Time Income and Deductions
Generally if given the choice of accepting income this year or next, delaying the income will result in lower taxes this year. Anyone owning a business should consider whether to hold off billing until the new year. But with the possibility of higher federal income tax rates in the future, please check your tax situation before shifting income.
If your deductible expenses (mortgage interest, taxes, charitable contribution, etc.) are close to exceeding your standard deduction, you might want to go ahead and pay some of those 2010 expenses in 2009 so you can itemize deductions and deduct an amount larger than the standard deduction. The 2009 standard deduction is $5,700 for single or married filing separately, $11,400 for married filing joint or qualifying widow(er), and $8,350 for head of household.
Companies may benefit from a special “bonus depreciation” deduction equal to 50% of the cost of qualified new (not used) assets placed in service in 2009. This is scheduled to expire 12/31/09. But for this year you can pile on the purchases of new business assets by using the Section 179 election and the bonus depreciation if it applies.
Buying a Vehicle
If you purchase a new car, light truck, motorcycle, or motor home after February 16, 2009 and before December 31, 2009, you may be able to deduct the sales or excise tax you paid. There is no limit to the number of qualifying assets you can apply this to but there is a purchase price limit of $49,500.
The tax credit for hybrid and clean diesel vehicles of up to $3,000 still applies to many of the models. The credit is not available for Toyota or Honda vehicles purchased this year.
A new tax credit was created this year for plug-in electric drive motorcycles, three-wheeled vehicles, and low-speed vehicles purchased after February 17, 2009 and before 2012.
Higher Education
The credit for the first 4 years of post-secondary education increased from $1,800 to $2,500 for 2009 and 2010 and the income phase-outs have increased to allow more taxpayers to use the credit. It is a refundable credit for these years too.
Gifts to Charity
You must itemize on your tax return to claim a charitable deduction. You are required to have written proof, such as a cancelled check and you need a receipt from the charity if your gift is over $250. Donations over $5,000 generally require a written appraisal from a qualified appraiser.
You can donate assets that have gone up in value, such stocks or bonds, that you have owned for longer than one year and deduct them at their current fair market value (limits apply) and avoid paying tax on the capital gain. If the asset has depreciated or gone down in value, generally you’re better off tax-wise selling the asset yourself, claiming the loss and donating the money to charity.
If you are over age 70½, you can transfer up to $100,000 tax-free from your traditional or Roth IRA to a qualified charity in 2009. In the past, this type of rollover counted towards your Required Minimum Distributions (RMD) for the year, RMDs are suspended for 2009 only. The tax-free nature of a charitable rollover may still be attractive to those who cannot deduct a charitable gift because they do not itemize deductions.
Retirement
Max out your retirement plan at work to reduce your taxable income and your tax bill for the year. If you are age 50 or older, your plan may permit you to contribute extra amounts, known as “catch-up” contributions, in addition to regular contributions.
Contribute to a personal IRA if you’re not covered by a retirement plan at work or if your income is under certain limits. You can also contribute to an IRA for your spouse, even if your spouse has little or no taxable compensation, provided you are married, you file a joint return, and the contribution is made from your taxable compensation.
AMT
Alternative minimum tax can wreak havoc with your year-end tax planning if it applies. And many of tax savings strategies will not apply to AMT. The tax rate is a flat 26% on AMT income up to $175,000 and then 28%. The best planning tip for this tax is to either try to avoid it by shifting tax preference and adjustment items (state and local taxes, sales taxes, real estate taxes, some medical expenses, and most miscellaneous write-offs) into 2010. If you can’t escape the AMT this year, accelerate income into 2010, assuming your regular tax bracket is higher than 28%. The additional income you receive this year will be taxed at either 26% or 28% — lower than your top marginal regular tax rate for 2009. Be very careful if exercising an Incentive Stock Option.
Investors
Harvest losses to offset gains. Consider selling off investments that you can realize the loss and use it to offset gains on your tax returns. If your losses exceed your gains, up to $3,000 of the excess can be deducted from your ordinary income each year until the losses are fully deducted. Just watch out for the “wash sale” rule. This rule prevents you from deducting the loss from a sale of securities if you buy substantially identical securities within 30 days of the loss sale. If you have been the victim of a Ponzi-type investment scheme, more favorable rules for claiming the loss can apply.
Gift Tax
The annual gift tax exclusion for 2009 is $13,000. This is the amount you are permitted to give to as many individuals as you choose without your gifts being subject to the federal gift tax or reducing the amount that can be exempted from your federal estate taxes later on. Consider giving gifts of deflated assets, like company stock, that you expect will increase in value. This way, any future appreciation occurs outside of your estate.
You may be able to reduce your 2009 taxes if you act soon. The first step is to contact us before the end of the year if you have questions about your situation. The items shared here are but a tip of the tax strategies.
DISCLAIMER: All information on this post is the opinion of the author and is not offered as legal advice. Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information. This firm offers valuable professional tax advice only as part of prepaid engagements.
09.11.2009
Business, Payroll, Retirement, Taxes, Uncategorized
How to avoid the alternative minimum tax (AMT)
In general, when you buy stock by exercising an incentive stock option (ISO) and don’t sell that stock in the same year, you could be subject to AMT. For regular tax purposes, no income is recognized when an ISO is exercised. However, additional income is recognized for AMT purposes equal to the excess of the stock’s FMV on the date of exercise over the exercise price. Therefore, you may be taxed on income you haven’t even received (phantom income).
Don’t be caught off guard and end up with an unexpected tax liability when you go to file your tax return. If you exercised an ISO early in the year and the stock has been rapidly declining ever since, consider selling the stock before the end of the year. There is no AMT adjustment when stock that was acquired by exercising an ISO is sold in the same year, so you can avoid paying tax on phantom income. Otherwise, if you want to hold onto the stock and don’t want a big tax liability at year-end, you can make estimated tax payments. Also, the additional tax triggered by the AMT adjustment for ISOs generates a minimum tax credit (MTC) that may reduce your regular tax in future years.
Note: If you owed AMT attributable to the exercise of ISOs for 2007 or any prior year, the amount still owed as of October 3, 2008, was abated. However, your MTC must be reduced accordingly. In addition, any unpaid interest and penalties with respect to such unpaid AMT as of October 3, 2008, were abated. If you already paid such interest and penalties, you can increase your MTC. You should have received a Letter 2719C from the IRS detailing the amount of tax, interest, and penalties that were abated.
DISCLAIMER: All information on this post is the opinion of the author and is not offered as legal advice. Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information. This firm offers valuable professional tax advice only as part of prepaid engagements.
01.11.2009
Business, Entrepreneurship, Payroll, Resources, Small Business, Starting a Business, Taxes, Uncategorized
Determining the proper worker status
When you hire someone to work in your business, that individual will either be an employee or independent contractor for tax purposes. Failure to properly classify the worker can subject you to an IRS audit and possibly interest and penalties for failing to withhold and deposit payroll taxes. Under common-law rules, if you have control over what work is being done and how it will be done, you are generally regarded as an employer and the worker is considered your employee.
The IRS uses three factors to determine the proper worker classification. Behavioral control refers to facts that show whether there is a right to direct or control how the worker does the work. Behavioral control looks at the type of instruction given, the degree of instruction, an evaluation system, and training.
The second factor is financial control. Financial control refers to facts that show whether or not the business has the right to control the economic aspects of the worker’s job. Financial control factors consist of significant investment, unreimbursed expenses, opportunity for profit or loss, services available to the market, and method of payment. If you provide the tools and supplies to do the job, set the work hours, provide the location where the work is performed, and can hire or fire the worker, chances are this worker is classified as an employee. However, if the worker provides his own tools and supplies, performs services for an agreed price, performs these same services to others, and maintains control over how the work is completed, the worker is more likely an independent contractor.
The third factor is the type of relationship between you and the worker. Under type of relationship, take into consideration any written contracts, employee benefits, permanency of the relationship, and services provided as the key activity of the business. An employee will be hired for a long-term relationship and employee benefits will generally be provided.
You must weigh all of these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate an independent contractor. The key is to look at the entire relationship you have with the worker, consider the degree or extent of the right to direct or control, and finally document each of the factors used in arriving at a determination.
If you are unsure whether your newly hired worker is an employee or independent contractor, you may file Form SS-8 with the IRS. They will assist you in making a proper determination, thus avoiding mistakes, audits, and additional taxes and penalties.
Winter 2009/2010 NATP Tax Tips
DISCLAIMER: All information on this post is the opinion of the author and is not offered as legal advice. Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information. This firm offers valuable professional tax advice only as part of prepaid engagements.
20.10.2009
Business, Resources, Taxes, Uncategorized
In this continued series of Doing Business With the IRS, I share insights gained from my experience and the experience of other CPAs and IRS agents. Each week I will pose a common question relating to doing business with the IRS.
Q. What if a taxpayer cannot produce the records of revenue and expense the agent is requiring?
A. Were your records lost in a fire or a flood?
It is not an excuse that will get you anywhere. Believe it or not, you can actually enlist the help of the IRS to get your past returns filed. That’s right, the IRS will provide you, at no charge, copies of the records they have on you filed by other third parties, such as wages, non-employee compensation, interest, dividends, etc. This may be enough to file your taxes. And did you know that the banks are required by law to keep your records for seven years? So you can get those bank records for up to seven years. Seven years and a week later could be a problem. Oh, and if the bank gives you a problem about retrieving your records, the IRS might be willing to help you with that too.
The agents will often create their own analysis of your income and expenses based on their fact finding research. They will make assumptions of your income and expenses. It is up to you to disprove false assumptions. This is harder to do without the evidence or backup documents.
Ideally, you will want documents that backup the numbers reported on your tax return filings, such as:
• Payment records
• Invoices
• Receipts
• Mileage logs
• Charitable cash or non-cash contributions
• Meals and entertainment
• Investments
• Other
The most important thing to remember when doing business with the IRS is to keep good records. Don’t panic. Being audited is not a suggestion that you did anything wrong or dishonest. We are here to help you through the audit.
Doing Business With the IRS will continue in future blogs as I share insights gained from my experience and the experience from other CPAs and IRS agents.
Upcoming Questions and Answers
Q. What will expand an audit? (cause more years or items to be examined)
Q. What happens if I disagree with the auditor’s findings?
Q. How is the agency structured to conduct audits?
Q. What is the appeals process?
Q. How does the Offer in Compromise work and who should consider using it?
Q. What do I need to know about fees and penalties?
Q. What is the role of the agent vs. that of the revenue officer?
Q. Can you comment on source codes? What might a source code indicate or what should I be looking for?
Q. Should the taxpayer being audited speak with the examining officer or not? I heard it’s best not to meet with the agent because I might say something too revealing and end up expanding the audit.
Q. How do I handle my client’s phone call that they have received an IRS notice?
Q. What did I learn from my interview with an IRS agent?
Past Questions and Answers Posted
Q. What is the Examination Process?
Q. How are tax returns selected for an audit?
Q. Should I have someone represent my interest in the examination and audit process?
Q. What is the examiner looking for?
DISCLAIMER: All information on this post is the opinion of the author and is not offered as legal advice. Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information. This firm offers valuable professional tax advice only as part of prepaid engagements.
