Showing posts from 2019

California Tax Challenges Will Be Fast, With Few Options, in 2020

         When it comes to filing a Tax Return in the state of California, there will be a major change in how Taxpayers will interact with the Franchise Tax Board ( FTB ). In the past, if the FTB wanted to disqualify a Taxpayer from claiming Head of Household status, they would send a “ Notice of Proposed Assessment ”. This would allow the Taxpayer 60 days to respond. If they object, and the FTB did not change the proposition, there would be an appeals process that would move to the Office of Tax Appeals ( OTA ). What starts in January 2020 will be very different.           The process described above normally takes months to initiate and try to resolve. In January, the FTB will send out “ Tax Return Change ” notices instead. This adjustment will speed up the time when the FTB contacts Taxpayers. However, if they dispute the change, and the FTB upholds its decision, they will be forced to pay the tax and file the claim for a refund on an amended Tax Return. A “ Tax Return Ch

Prepare to File Now!

          For most people, January 1 is the earliest a Taxpayer will begin to think about filing. While this is understandable, we really should get prepared now to make this process easier in 2020. These are simple steps that involve organizing tax records and making adjustments or necessary tax payments. It’s not too late to make changes to Withholding amounts.           This is also the time to make time to visit your Qualified Tax Professional . Either in person, or by phone, they can tell you what you will need to bring in order to file your taxes properly. In the event you were looking to change Tax Professionals for 2020, this is the best time to make appointments and test out the market, see who listens to you, and find the Professional who fits your needs. Being proactive now, will save a lot of time and anxiety later.

Know Your Filing Status!

         As we look toward 2020 and the next tax filing season, each Taxpayer must clearly understand what their filing status is. Having this information will help them know what the Standard Deduction will be, whether they will be eligible for certain tax credits , how much tax they should pay , or even if they are required to file a Federal Tax return . This usually depends on whether they are married on December 31 and that will determine their status. However, there can be exceptions.           Qualifying widow(er) with dependent child. This can be applied if the spouse of a Taxpayer has died within the previous two years and they have a dependent child. There are other conditions that must be considered. Head of household. This can be used by unmarried Taxpayers in certain situations. they must have paid more than half of the cost to maintain a home for themselves and a qualifying person who lived in the home for at least half the year. The rules for this option should be

New IRS Rules for Virtual Currency

         After being silent about virtual currency since 2014, the Internal Revenue Service ( IRS ) has released a ruling, along with a document detailing how this income should be handled. This provides a good amount of clarity and highlights the responsibilities of those who invest in virtual currencies.           In the past, these types of currency were treated as property. This meant that when they were sold at a profit, there would be a tax applied. Going forward, much more detail will be required. For example, virtual currency traders must track their investments in order to prove how much they bought, and they must document transfers between accounts to prove that they are tax-free transactions. This is just part of the IRS plan to enforce tax law on this aspect of finance. Earlier in the year, they sent around 10,000 letters to holders of virtual currencies to warn that they may be subject to penalties as a result of not paying taxes on their activities. Making these re

What Can Teachers Deduct?

         Now that school has started, many educators have probably bought a few classroom supplies. As the year goes on, these teachers will certainly use their own funds to buy what is needed. Expenses like this can start to add up very quickly. Is there any way to lighten the load that those good-hearted teachers are carrying? Yes, there are, and one of them is through a tax deduction called the Educator Expense Deduction .           Those who qualify for this deduction must work at a school that provides elementary or secondary school education and work at least 900 hours in the year. They may hold a variety of positions, such as, counselor, aide, principal, or teacher. Those qualified must teach a grade from Kindergarten to Twelfth. If they do so, they may qualify for a deduction of up to $250 . This would cover some of the cost of books, supplies, computer equipment, and other items. It can be confusing to determine what qualifies for a deduction, so it may be best to seek t

Special Tax Form for Seniors!

         For about 15 million Taxpayers, the process of filing their taxes might get a little easier next year. A new tax form has been designed for those 65 and older, it is the Form 1040-SR . This form stands out from others because it uses large print, making it easier to read, and it has charts on the form itself, giving immediate answers to refund questions.           This new form should be ready for use in 2020. There are specific lines that can be used to list income from Social Security, IRS’s, pensions and other areas that are of interest to seniors. A Taxpayer must be at least 65 before January 1, 2020 to qualify to use this form. 

Rebuilding After A Disaster

         In the event of a disaster, there are many issues that must be taken care of. First and foremost is to make sure that your family and loved ones are cared for. After that, Taxpayers will be able to reconstruct their records to prove disaster related losses. Often these have already been destroyed, but there are ways to get copies.           Financial statements can be requested from a bank or credit card company. They are usually available online, or hard copies can be provided in person. Property records can be provided by the title company, escrow company, or the bank that handled the purchase. If any home improvements were made, copies of the invoices and statements should be requested from the contractors. For inherited properties, Taxpayers can investigate court records for probate values. The county assessor’s office can also be a source to estimate property value. For car owners , the current fair-market value of the vehicle will be acceptable. There are a few sou

What to Know About Health Arrangements for Employees and in Retirement

        When looking into options to provide health coverage for employees, Health Reimbursement Arrangements ( HRA ) are often chosen by different businesses. This is a popular option for firms to give to their retired employees, as it gives a predictability ( maximum number ) for their yearly health costs. However, there are limitations on what they can cover. Some are put in place by the company, others by the Internal Revenue Service ( IRS ). HRA ’s are an attractive option because funding them is tax deductible for the company, but they are not the only option available.           A Flexible Spending Account ( FSA ) can be created. The employee will decide how much goes into this account, using some of their pre-tax salary to fund it. Typically, if there is any unused money at the end of the year, it cannot be rolled over to the next. A Health Savings Account ( HSA ) is paired with a high-deductible health plan to pay for medical and dental costs not covered by their plan. I

Changes to Health Reimbursement Arrangements

         A Health Reimbursement Arrangement ( HRA ) is a plan set up by a business to cover the qualified medical expenses such as prescription medications, physical exams, care from a psychologist or psychiatrist, and more. They are a tax deduction for the employer and tax free for the employee. In our last post, we mentioned that January 2020 would mark a big change in how HRA ’s could be administered.           Next year, a new type of HRA can be offered and used to buy health insurance inside or outside the Affordable Care Act marketplace. Another option that is available applies to companies that continue to offer group health insurance. They can offer an excepted benefit HRA , which would reimburse employees up to $1,800 for qualified medical expenses. If an employee were to decline group coverage and only go with the HRA , they could only use it for expenses, short term insurance and premiums.           The uses of an HRA are limited by the Internal Revenue Servic

What Is A Health Reimbursement Arrangement?

          A Health Reimbursement Arrangement ( HRA ) is a plan set up by an employer. It covers medical expenses related to the care of employees and their dependents. This type of fund can be claimed as a deduction by the business and is usually tax free for the employee. This is often an attractive option for businesses because they determine how much will be in the fund. Any expenses over that amount will be covered by the employee.           This is not an account that can have withdrawals as necessary. The expense must be made, then it will be reimbursed. Since the HRA belongs to the company, if the employee leaves, they will lose the benefit. Starting in January 2020, HRA ’s will undergo a massive change. Our next post will detail why that is.

SALT May Take On A Different Look

         The limit that was put on the amount of State and Local Taxes ( SALT ) that could be deducted from Federal Taxes as a part of the Tax Cuts and Jobs Act ( TCJA ), was quite a controversial topic. Some felt that they were being targeted and this led to various schemes and lawsuits being filed. Those feelings have not changed, and as a result of different tax changes being considered, the SALT deductions are being reconsidered in Congress.           While the SALT deductions will expire in 2025, it is unlikely that a repeal will happen before then. However, there are different alternatives that might come into play. For example, a limit on all deductions, which would include mortgage interest and charitable contributions. There are certain tax deductions which have not been limited. To find out more about them and if they apply to your situation, talk to your Qualified Tax Professional .

Guidance on the New Section 199A Changes

          At the end of August, the Internal Revenue Service ( IRS ) released some new guidance on changes related to Qualified Business Income ( QBI ) as covered in Section 199A . When the Tax Cuts and Jobs Act ( TCJA ) took effect, QBI was a topic of interest for many businesses. If the amount was determined correctly, it would directly lead to tax savings for the business. The calculations for this deduction have now changed.           All items related to a trade or business must be considered, including charitable contributions and unreimbursed partnership expenses. The new guidance indicates that QBI will be reduced by the amount of charitable donations made by the business. As a result of this and other changes, the Qualified Tax Professional handling the taxes for the affected businesses will need to make several manual adjustments to the Tax Return. Tax software has not been able to keep up with these changes. Now is the time to consult with a Tax Professional to see

Home Office Deduction Tips

        For Taxpayers who use part of their home as an office for their business, certain expenses may be deductible. This is available to those who own as well as rent their home. The deductions can include mortgage interest, insurance, utilities, maintenance, and rent. There are, however, specific requirements that must be met.           A home can be any structure used on a property, as long as it is not a hotel or motel. There must be a dedicated part of this home where business is conducted. That home must be the place where most business is handled. This can include administrative or management functions of the business. In this way, if business is done outside the home, the Home Office Deduction can still be claimed. There are different methods that can be used to calculate the Home Office Expense Deduction. Speak with your Qualified Tax Professional to determine how this deduction applies to you and your business.

Employer Credit for Family and Medical Leave

        For employers who offer paid family and medical leave for their employees, they may qualify for a tax credit. There are several eligibility requirements that must be met in order to claim this credit. There must be at least 2 weeks of paid leave offered to full-time employees and a certain amount of time made available to part-time employees as well. This tax credit has a limited window of availability. It is only applicable for wage paid between December 31, 2017 to January 1, 2020 . The actual amount of the credit will be determined by how much employers paid their employees for reasons related to family or medical leave. The reasons for using this type of leave from work could be something like to having or caring for a child, caring for a family member with a serious health condition, or an emergency due to a family member being called to active duty. With time running out, get in contact with your Qualified Tax Professional to find out if you can benefit from this

Virtual Currency Creates Very Real Responsibilities

The Internal Revenue Service ( IRS ) has been sending out letters to many Taxpayers informing them of errors that may have been made in previous Tax Returns. The root cause of these errors has to do with cryptocurrency or virtual currency. By the end of the month, over 10,000 letters will have been sent out.           This is part of an active compliance campaign being conducted by the IRS . As the popularity of virtual currency increases, many do not realize that it is taxed as property from the Federal level. The purpose of sending these letters and having an education campaign is to help affected Taxpayers understand their obligations and know how to fix past mistakes. This also sends a clear message that the IRS will be fully enforcing the tax law in this area. Non-compliance regarding virtual currency is a growing focus within IRS Criminal Investigation. Now is the time to understand how these currencies can truly impact your bottom line.

California's Insurance Mandate

Starting in January of 2020 , California will require all residents to have basic health insurance. The bill passed in the California Assembly is called the California Health Care Coverage Shared Responsibility Act. This “Individual Mandate” is like what was seen in the Affordable Care Act. There will be a fine for individuals who do not secure health coverage. This can be applied based on the number of months, or the size of the household. One big difference with this requirement is that the Franchise Tax Board ( FTB ) will not fine employers who do not offer health care to their employees. The fines that are collected will help to create subsidies for those who have difficulties paying for the insurance. These individuals must meet certain specific criteria. Members of Native American tribes and those who receive certificates of exemption will not be required to be a part of this program. The FTB will administer the program and any penalty will be reported on, and paid with,

Keeping Up with the Speed of Change: Digital Taxes

         Taxes in the digital landscape have now taken hold. In the United States, Sales Tax on transactions that take place on the Internet must now be collected, even if that company does not have a physical presence in that state. It took a Supreme Court ruling to change this fundamental way so many online firms handle business. However, this change is by no means just a national issue.           European countries are considering different ways to tax multinational digital companies. At its core, these taxes will take a percentage of sales from user information, digital ads, and other sources of revenue. In some cases, the taxes will only apply if the company meets a certain threshold, in others it will be focused on the business activity that is generated in that country. Either way, these Digital Taxes are something new that must be navigated on the road of entrepreneurship. There have been accusations that some of these newly passed Digital Taxes are specifically targeti

What is the Taxpayer Protection and Preparer Proficiency Act?

        In June, legislation was introduced into Congress known as the Taxpayer Protection and Preparer Proficiency Act . The goal of this bill is to create a minimum Federal standard for all tax preparers. At this point, none exists. However, there are basic standards that must be met under laws in certain states, like in California. There are tens of thousands of complaints received by the Internal Revenue Service ( IRS ) every year that relate to poor service from tax preparers. Fraud can be prosecuted, but nothing can legally be done in the case of incompetence. This new tax law is taking aim at this problem.           This law is an effort to make sure that every taxpayer can be assured that their tax preparer is qualified. The requirements would include showing an ability tax returns and claims for refunds, it would also require continuing education credits. The IRS would also be given the authority to invalidate taxpayer identification numbers ( PTINs ) of any preparer wh

Death and Taxes

         When someone dies, an executor is appointed to identify the assets of the estate, pay its debts, and distribute what is left to the heirs. What some not realize is that the executor is also responsible for arranging to pay any taxes and filing the appropriate tax forms. This is a situation that can become very complicated for several reasons, so here are a few details to help get you through a difficult time.           For an unmarried person , the last Form 1040 should be filed the same as it would normally. It would cover the time from January 1 to the day of their death. There is the possibility of being able to deduct uninsured final medical expenses. If they are married , and the surviving spouse remains single until December 31 of that year, then the last Form 1040 can be filed as a joint return. In this way, they can continue to enjoy more favorable income tax rules. This may even be possible for the next 2 years.           Dealing with the death of a loved

International Rules Still Not Complete

          After over a year and a half since the passage of the Tax Cuts and Jobs Act ( TCJA ), the regulations that apply to many international transactions are still not finalized. There are issues that still need to be addressed as companies are unsure how to proceed. They are making some conservative guesses but are really looking for clarity from the Internal Revenue Service ( IRS ).           For example, there is the Foreign Derived Intangible Income ( FDII ) provision. This is a potential deduction for businesses, but it can only be claimed if the business can prove that what it sells is for foreign use . In this way, a company’s decision on where to locate its headquarters will not be based on how it can avoid paying taxes where most of its goods are sold. Companies are unwilling to alter their normal business operations to prove that they qualify for FDII. The IRS has indicated that there will be more options given to prove that they qualify. This rule was proposed on

How to Deal with the SALT Limit

         One of the most talked about issues surrounding the Tax Cuts and Jobs Act ( TCJA ) was the deduction limitation of $10,000 when applying State and Local Taxes ( SALT ) to Federal taxes. One immediate idea that certain high tax states proposed, was to create charitable accounts where Taxpayers could give money to states to pay taxes, and yet have them considered as charitable contributions. In this way people could make up for the Tax deductions they lost. Some states loved the idea and started to put it into action, while the Internal Revenue Service ( IRS ) said it would not work. The rules have now been established.           One of the rules being applied should be somewhat familiar. The whole idea behind a truly charitable donation is that a person is giving money or other goods in exchange for nothing . If there is an expectation of something in return, then it is really a payment and no charity is involved . From the perspective of the IRS , if a Taxpayer were to

Foreign Individuals Dealing with New US Tax Surprises

        One of the goals of the 2017 Tax Cuts and Jobs Act ( TCJA ) was to keep multinational corporations from hiding profits offshore to avoid paying US taxes. While this Tax Reform has taken great steps toward reaching this goal, unanticipated results have come to be seen. In applying this law, any foreigner who becomes a US citizen must report the global income of any family businesses in the US and pay the tax on the income of those businesses.           The changing of tax rules in this area do not only impact business interests, these can be applied to domestic trusts, partnerships , and estates . This is a sharp increase in tax responsibility that many are unprepared for. This is a real situation that many are dealing with and have very limited options moving forward. With guidance, some can navigate this tricky situation, without having to renounce their claims or move out of the country.

Private Companies are now Collecting Business Tax Debt

        In 2017, the Internal Revenue Service ( IRS ) put into action a plan to use private debt collection agencies to collect unpaid taxes from individuals that met certain criteria. This started from a 2015 law that allowed for all inactive tax debts to be sent to these companies. These companies will now have the authority to collect from businesses.           The goal is to collect unpaid employment taxes, which the IRS always contends is the legal responsibility of every employer to collect and pay. These debts are typically higher than individuals. Companies are being assigned these cases because they are considered inactive. Hundreds of cases per week will be assigned to these 4 authorized debt collection agencies. If you have a business debt that has not been resolved, the IRS has not forgotten.

Time to Check Your Business Credits and Deductions!

          Deductions and credits help the bottom line for every self-employed person and small business owner. With most of the year still ahead, this is a good time to check your options and eligibility which will allow you the ability to plan for the future.             Business Expenses. To be considered a deductible business expense, the expense must be considered ordinary (common and acceptable in this trade) and necessary (helpful and appropriate for the business). For example, if part of a Taxpayer’s home is used for a business, some of the mortgage interest insurance, utilities and depreciation can be deducted. Usually rent can be considered a deductible expense if the property is used for the business.           Business Credits . A new credit that was created by the Tax Cuts and Jobs Act ( TCJA ) is a credit for paid family and medical leave. To be eligible, employers must have a written policy that meets certain requirements and pays at least 2 weeks of paid

New Form W-4 Draft is Here!

         After a time of adjustment, the Form W-4 has been redesigned and is available for comment from the public. It is expected to be used in 2020. This is the form used to determine how much tax is to be withheld from an employee’s paycheck. This version will reflect the changes brought on by the Tax Cuts and Jobs Act ( TCJA ). A portion of the draft has been provided below.           It will require the Taxpayer to list every position they have. Essentially, they must tell their employer if they are holding another job, which is becoming increasingly common in the age of the side hustle. This might make some uncomfortable, but it is important to get the right balance on your Paycheck Withholding. This year, many were shocked to see their refunds shrink, or turn into a surprise debt. This is because the TCJA changed the withholding tables, and often this meant more take home pay during the year.  In the end, the Internal Revenue Service ( IRS ) will keep track of what it f

When to Amend A Tax Return

         With the activity surrounding this year’s Tax Season now at a reduced level, some might look back and realize they made a mistake on their Tax Return. This is more common than many people might think. However, there are only certain situations that would require an amended Tax Return.           If a Taxpayer noticed that they made a mathematical mistake on their Tax Return, it is not necessary to file a Form 1040X to amend it. In most cases the Internal Revenue Service ( IRS ) will automatically correct them. This is also usually true when it comes to missing forms. If the IRS does want a missing form, they will make a request in writing through the mail. Amended Tax Returns can take up to 4 months to process, so those who feel they will be due an additional refund, need to show patience. On the other hand, if the amendment will result in tax due, it must be paid immediately to penalties and interest. This type of Form cannot be submitted electronically, so consult

Always Pay the Payroll Tax!

         Almost 72% of all the revenue collected by the Internal Revenue Service ( IRS ) comes from Payroll Taxes . With this understanding, it easy to see why they put so much effort into making sure that every business pays their fair share. This is done in a variety of ways.           First, there is usually some educational outreach if it is determined that a business is not meeting its obligations. The IRS uses years of experience combined with data analytics to pinpoint which businesses need help. It would be wise to accept and apply the information they provide, because the next steps are not as pleasant.           Since the IRS considers payroll tax an essential part of the tax system, it will use any and every method at its disposal to make sure that this obligation is paid. This can include lawsuits, seizures of property, and criminal prosecution by the IRS Criminal Investigation division. Staying current with Payroll Taxes is a non-negotiable issue with the IRS

Tax-Exempt Organizations Must File Now!

         The filing deadline for many tax-exempt organizations is coming soon. They normally need to file Informational Returns of the 15 th day of the 5 th month after their accounting period has finished. For those who operate their fiscal year on the calendar year, the time for them to file is May 15 .           This year the Internal Revenue Service ( IRS ) want to make sure that filers know what is and is not required. By law, most parts of these forms must be made available to the public . These organizations are strongly cautioned against using Social Security Numbers or any other personally identifying information on these forms, schedules, or attachments. Doing so will prevent their donors, clients, or benefactors from having their identities compromised.           There are a wide variety of Forms 990 that are used for tax-exempt organizations. Not every form applies to every organization. Whether large or small, it is the course of wisdom to consult a Qualifi

Facts About Claiming Dependents

         In this Tax Season, there have been many adjustments from previous years. One of which is related to the claiming of dependents. It came as a surprise to some that the tax filer, spouse, or dependents can no longer be claimed as personal exemptions. This has been suspended. However, dependents can still be claimed if they meet qualifying criteria.           For any dependent claimed, their name and Social Security number must be listed in the Tax Return. The Internal Revenue Service ( IRS ) is taking these steps to combat fraud. In recent years, the Child Tax Credit has been a target of criminals. A Taxpayer cannot claim any dependents, if they themselves, or even their spouse, have been claimed as a dependent. Making sure that a child or relative still qualify to be claimed as a dependent is not the same as it was a year ago. Talk to your Qualified Tax Professional to understand the nuances of this change in Tax Law.

Time for A Paycheck Checkup!

         Federal income tax that is withheld from paychecks is generally paid over the year. The amounts withheld are shown on the Form W-2 . That has not changed. However, this has been a big issue when filing 2018 Tax Returns because of how the Tax Cuts and Jobs Act ( TCJA ) changed Withholding Tables. That directly impacted the Tax Refund or debt responsibility given to Taxpayers.           To avoid another surprise next year, the Internal Revenue Service ( IRS ) recommends a Paycheck Checkup as soon as possible. This should be done even if there are no significant changes from last year. This way, you can plan to get the refund you want next year. Withholding can be changed by filling out a Form W-4 . The amount withheld depends on the amount of income earn, along with filing status (married or single), the number of allowances (the more claimed, the less withheld), and any other additional amount requested to be withheld.           This evaluation should be done as ear

What if You Did Not File On Time?

        This is a post for those who, for one reason or another, did not file their Tax Return on time. This does not include those who have filed extensions, because they would not be considered late. What should everybody else do? Here are some practical steps that will save you stress and money.           Do not panic. This might seem like a strange point to make, but it is helpful. Thinking too much about a missed deadline will keep you from moving forward and making progress. Just deal with the situation at hand. File as soon as you can. If you have a Refund coming, there will be no penalty for filing late. However, if you owe a Tax Debt, penalties and interest are determined by how late the Tax Return is filed. Either way, it is in your best interest to get this done promptly.           Find a Qualified Tax Professional. Since the Tax Season is over, many seasonal Tax Pros are closing up shop, only to reappear next year. For situations like this, you will want to find s

Some of the "Dirtiest" Tax Arguments

         A general warning has been issued to all Taxpayers by the Internal Revenue Service ( IRS ). There are some who continue to promote what have been deemed frivolous schemes and tax arguments . Considering that this happens every year, it has earned a spot on the 2019 IRS “ Dirty Dozen ” list. These are considered the 12 most common tax scams seen during the year.           Some of the myths that continue to be promoted are that only those who work for the Federal Government are subject to income tax, the First Amendment allows for the refusal to pay taxes on religious or moral grounds, and that only foreign income is taxable. These arguments, and many others like them, have been thrown out of court repeatedly , so do not get talked into going down this path. Taxpayers have the right to contest their Tax liabilities, but they must do so legally . Using any frivolous arguments will bring stiff penalties and fines, along with attention from the IRS Criminal Investigation d

Lies About Business Tax Credits Earn A Spot on the "Dirty Dozen" List

         The Internal Revenue Service ( IRS ) continues to strenuously warn taxpayers against claiming Business Tax Credits for which their companies do not qualify for . This is a tactic commonly used by Tax Preparers who are not to be trusted. This is a practice seen often, which is why falsely claiming Business Tax Credits has a spot on the IRS 2019 “Dirty Dozen” list.           There are two credits that are often claimed irresponsibly. One is the Research Credit , which is used to support scientific experimentation that improves a product or process used in the business. There are very specific guidelines that must be followed in order to successfully claim this credit and if there is no supporting documentation, failure to do so will lead to the claim being rejected. The Fuel Tax Credit is even more difficult to claim. It’s basically limited to use of farming or other vehicles not used on highways. With these stringent rules and updated IRS processing protocols, scams

There is Nowhere to Hide Anymore!

         Finding money hidden in unreported money in accounts outside the United States is a focal point of enforcement efforts at the Internal Revenue Service ( IRS ). As a result, Offshore Avoidance schemes have earned a place on the 2019 IRS “ Dirty Dozen ” list. The IRS has stepped up their efforts in finding these kinds of accounts, which has resulted in many millions of dollars in taxes paid due to audits. This has also led to criminal prosecutions.           There are different reasons why Taxpayer’s in the US would maintain bank accounts in other countries. If you do, they must be declared to the IRS . For those who try to use a variety of ways to get around this requirement and their tax responsibilities, success is much more difficult than it was in the past. Due to their criminal prosecutions, the IRS understands the ways Taxpayer’s and their accomplices go about hiding assets overseas. With the application of the Foreign Account Tax Compliance Act ( FACTA ), the IRS

Inflating Credits and Deductions will Sink Your Financial Future

        Falsely inflating tax credits and deductions is something that is so easy to do. It can be tempting to lower your tax responsibility in this way, but this scheme is well-known to the Internal Revenue Service ( IRS ). Therefore, it has earned a spot on the IRS 2019 “ Dirty Dozen” list of scams.           Often this scam will manifest itself as overstating charitable contributions or very large business expenses . Sometimes Tax Credits are claimed falsely. These tactics are seen throughout the year, but they commonly peak at this time. When these deceptions are found out, the penalties are steep and severe.           The Tax filer may be cited 20% of the amount of the credit that they falsely claimed. This would be in addition to paying the full amount of the tax owed. If it is determined that a fraudulent Tax Return was filed willfully, then more fines can be applied, and a criminal investigation would begin. Filing an accurate Tax Return is always the best cho

Realistic IRS Payment Plans

         After considering one of the more well-known (yet difficult to qualify for) plans in Offer-In-Compromise ( OIC ), let’s shift our focus to realistic options. There is a real expectation that more Taxpayers will end up with a tax debt after filing a Tax Return this year. Let’s see why these agreements may prove to be a better choice when it comes to dealing with a surprise debt.           Guaranteed Installment Agreement ( GIA ). This typically is a 3-year payment plan for balances of under $10,000. This is attractive because it does not require management approval or selling off assets to pay the IRS . However, the Taxpayer must not have been involved in any other payment plan in the previous 5 years. They must also have filed all Tax Returns related to the debt.           There are other programs for those who owe around $50,000 and $100,000. The length of time to pay is increased, but there are circumstances in which the payment plan can be shortened. To understand

Know Who You Give Your Information To!

         Disasters, in one way or another, have become all too common. Sadly, when one occurs, there is a group of people who look to profit from it by stealing the money of well-intentioned people who want to help. Therefore, Fake Charities have made the Internal Revenue Service ( IRS ) “ Dirty Dozen ” list for 2019. This is a list of the 12 most common scams that Taxpayer’s will come across during the year. Here are some basic tips to help keep you from falling prey to a scheme like this.           Be suspicious of any charity that has a name like one that is familiar or nationally known. This is a trick used to make people feel that the bogus organization is truly legitimate. Never give personal information , like passwords or Social Security Numbers to those who are soliciting for donations. They don’t need that information! Confirm that they are from an actual charity before providing any Credit/Debit card numbers. Do not give cash.           These scams often peak

False Documents and Lies About Income are on the "Dirty Dozen" List

        The Dirty Dozen list is a compilation of the 12 most common Tax scams in the view of the Internal Revenue Service ( IRS ) and is updated every year. One scam that peaks during Tax Season is lying about income and generating false Tax documents .           The IRS is very aware of these schemes and works closely with the Department of Justice to prosecute those who attempt these kinds of activities. Some people try to falsely claim a deduction, expense, or Tax credit that they have not earned. These actions are all illegal and when found out, will cause a repayment of any refund along with penalties and interest . There is also a variation of this scam which uses fraudulent Tax forms issued by institutions that may or may not exist.           Anyone who makes these kinds of claims will be investigated by the IRS Criminal Investigations division and will likely never be able to claim these deductions or credits in the future, even if they qualify. Carefully choos

Offer-In-Compromise: Higher than Most Would Expect

         In our earlier posts on this subject, we discussed how much work it takes to even begin to qualify for an Offer-In-Compromise (OIC). After proving that you are not in a short-term economic hardship or dealing with a surprise due to the Tax Cuts and Jobs Act ( TCJA ) acceptance may be granted. That is when the really difficult work begins.           The Internal Revenue Service ( IRS ) will conduct a special OIC review, which could last up to 2 years . This in-depth investigation will search the history of the Taxpayer in attempt to see if they truly qualify at the offer amount. Are they hiding assets? What does their credit report show? These are some of the questions that the examiner will seek to answer. As a result, its not unusual for an OIC to be appealed to a higher level after the review. This could be due to a dispute regarding asset levels, non-payment while the review is taking place, or not paying the 20% down payment.           Taxpayers need to under

Inflated Refunds are #5 on the IRS "Dirty Dozen" List

         In expanding on the 12 most common Tax scams in the view of the Internal Revenue Service ( IRS ) for 2019, the next entry is the artificial inflation of Tax Refunds . This was briefly mentioned in the post about Tax Preparer fraud. In that post we emphasized how you can choose a Qualified Tax Professional with care. You can read the steps here. We are going to look at some situations in which scam artists have been known to strike!           They often use flyers and phony storefronts to lure victims in. If the word of mouth about someone sounds too good to be true, it probably is . Sometimes they file a false Return in their client’s name to get the money, or target those who qualify for a Refund and con them into getting a larger amount by making false claims for credits. Included in the group who make inflated claims, are those who make deflated claims . There are some who make efforts to claim zero wages when they have income for that year. This is a theory which ha

Tax Preparer Fraud Makes the IRS Dirty Dozen List

         With the application of the Tax Cuts and Jobs Act ( TCJA ), there has been an increase of Taxpayer’s choosing to have a paid professional prepare their taxes. While the vast majority are honest and provide high quality service to those who need it, there is a small group that operates with the intent to defraud and steal from innocent Taxpayer’s. while the Internal Revenue Service ( IRS ) does work with the Department of Justice to prosecute these individuals, it is the Taxpayer who is ultimately responsible for what is stated in the Tax Return.           There are several ways the average Taxpayer can protect themselves from dishonest tax preparers. Never sign a blank or incomplete Tax Return. This gives your approval to whatever will be filled in later, without your review. Always ask questions about your Tax Return. Make sure that any refund goes directly to you. Ask about any charges and fees in the beginning and avoid anyone who charges their fee based on you

The Threat of Identity Theft!

        There has been a drop in Identity Theft cases over the past few years but it is still a crime that Taxpayer’s must be cautious of, especially during tax Season. That is why it still remains on the Dirty Dozen list of tax scams released by the Internal Revenue Service ( IRS ) in 2019. This is a list of the 12 most common scams that Taxpayer’s may encounter at any time of the year. Identity Theft ranks at Number 3 this year, and here are some reasons why.           This type of scam is still a problem for Individuals and Businesses during this time of year because thieves are always changing their tactics . Once they get ahold of a Social Security Number ( SSN ), the con artist will immediately file a fraudulent Tax Return to claim a refund. They will strive to steal the Tax information of a business to file a false Form 1120 . While the criminals may be on the attack, there are ways that we can protect ourselves.           Always use updated security software on your

Offer-In-Compromise, Not the First Choice

        Our last post ended with the point that a Taxpayer must qualify in order to receive an Offer-In-Compromise from the IRS. Detailed and accurate records are required in this process. When analyzing the past tax returns and records, along with the help of a Qualified Tax Professional, they may find that the balance in question is lower than they thought. If that is the case, they should challenge the amount owed and may find a better solution.           Apart from needing detailed records, Taxpayers must recognize that this program is not about negotiating with the IRS . There is simple math involved. If the formula works in your favor, you have a good chance of being able to pay the compromise debt amount. With that said, this amount must be paid . There is no ability to lower the debt any further. For those who have hit hard times, this may not be particularly helpful. We will discuss that in our next article.

Protect Yourself from Phone Scams!

        Phone Scams continue to be an ever-present threat to Taxpayers, and peak during Tax Season. This kind of attack, also known as vishing (voice phishing), starts with a phone call threatening arrest , deportation , or some other intimidation in order to pay a fake Tax debt. They try to bully the money out of victims. These may be robot-calls or made by an actual person. They can alter their caller ID to make it seem like they are calling from the Internal Revenue Service ( IRS ). Often, they have already stolen some Taxpayer information, such as the last four digits of their Social Security Number, to make themselves seem even more legitimate. However, there are a few ways that we can actively protect ourselves.           If any of these interactions occur when you are dealing with someone who claims to be from the IRS , then know it is a scam . The IRS will never demand an immediate payment with a gift card or a prepaid debit card. Any payment details about a Tax debt

Stay Away From the "Dirty Dozen"

         Every year criminals are relentless in their attacks on Taxpayers to steal their personal information. In a similar way, the Internal Revenue Service ( IRS ) updates the “ Dirty Dozen ” list of the 12 most commonly used frauds and scams that lead to identity theft. This serves as a warning to Taxpayers, Businesses, and Tax Professionals. For 2019, the Number 1 scam to aware of are phishing schemes .           We must be on constant guard against phishing attacks, because they are tricky and cleverly disguised to imitate a real organization, such as the IRS . However, there are some basic protective steps that each of us can take. First, we must be cautious with our personal information and not quick to share it when an unexpected message demands it. The emails and websites may be very convincing. Many people are comfortable on Social Media and may not think twice about sharing information there. Remember that the IRS will start contact with a written letter , not an ema

The New Relationship Between Taxes and Lawsuits

         Hearing of high-profile lawsuits in the news, and the large judgements that come with them, is not unusual. In these situations, we know that the lawyers get to keep a good amount of the money as a part of their fees. How much do those involved in the legal action get to keep? When we hear of large settlements or decisions in a case, how will taxes impact the amount of money that will be received?           From the point of view of the IRS , there is a difference between money received because of physical symptoms related to emotional distress, and money received because of physical injuries or sickness. Physical injury cases have been, and still are , tax free. However, there is a new potential concern, especially for those who have sexual harassment cases.           Changes in the tax law, brought on by the Tax Cuts and Jobs Act ( TCJA ), will now deny  most tax deductions for legal fees and settlement payments if there is a Nondisclosure Agreement . Most sexual

Offer-In-Compromise, Not for the Short Term

         Some might think that if they have hit hard times, or if they have an unexpected tax debt, that this will make them an Offer-In-Compromise candidate. This is very unlikely. From the point of view of the IRS, most people will eventually get a new job . At that point, their income will increase, and they will be able to pay their tax debt. This is the same reason why active businesses are rarely granted Offer-In-Compromise status.           If a business is open, the owner expects to make a profit . With that future profit, tax debt can be paid. If the issue deals with payroll taxes, the resolution becomes even clearer. Those who are considered “responsible parties”, such as owners or financial officers, can be held personally responsible for that tax. Even if you can qualify, the work has only just begun. 

Offer-In-Compromise, One Size Does Not Fit All

        In our previous post, we discussed how the “Offer-In-Compromise” ( OIC ) program is available to help settle tax debt. However, companies often misrepresent how this program works, and what its requirements are. This is an area worth taking time to consider because there will probably be several Taxpayers with a greater than expected tax responsibility brought on by changes made by the Tax Cuts and Jobs Act. Now we will look at the actual details of this program.           First, there are different kinds of OIC filings . One applies to those who don’t think they owe the tax, another says that they can pay, but it will cause an undue hardship. Very few people use these options. The most popular choice is called “Doubt as to Collectibility”. This acknowledges the debt, but attempts to settle for a lower amount.           For this application to be successful, the Taxpayer must prove that they qualify for the OIC . They must prove the cost and value everything. This will

Being Patient with the IRS

         After having a partial Federal Government Shutdown that lasted for over 30 days, there was a lot of work that had piled up on many desks in the IRS . By some counts there were over 5 million pieces of mail that needed to be processed by employees when they came back to work. On top of that, their first day was the beginning of the most complicated Tax Season in recent history.           Some of this correspondence is related to audits, amended Tax Returns and criminal cases from last year. In addition, there is an unprecedented 1 hour and 30-minute wait time to talk to an IRS agent on the phone. All these employees are struggling to deal with current issues and past assignments that were neglected because of the Shutdown. The response may seem slow, but they are doing their best . Many factors have combined to make this one of the mist unusual Tax Seasons in history. If we all cooperate , we can get through it together.

How Does an Offer-In-Compromise Work?

         The “Offer-In-Compromise” ( OIC ) program is available to help people to settle their tax debts. This is a fact that is often advertised by different companies claiming to help people reach success in this way. The truth is that very few people are accepted into this program.           The basic viewpoint of the IRS is that most taxpayers can afford to pay their taxes, either with what they have, or on a payment plan. The OIC is only for those who will never pay off the debt within 10 years . That is considered the time limit for the IRS to collect. This is important to consider because with the changes to withholding limits brought on by the Tax Cuts and Jobs Act , many people may unexpectedly owe the IRS when they file. In this situation, an OIC will not work. Our next post will start to explain the requirements for this program.