CPA tax preparation Archives

How Can I Pay my taxes? What if I Can’t Afford to Pay Them?

We get clients all of the time that are in tax trouble. Many neglect filing their tax returns for years because they are afraid of the tax balance due. This is the worst mistake you can make because if there is income reported under your social security number, then the federal and state agencies will find you. There is no statute of limitations that will save you if you don’t file.

The IRS has provided some advice about paying your taxes. I have commented below with what we do to help.

Pay your tax bill. If you get a bill, you should pay it as soon as you can. You should always try to pay in full to avoid any additional charges. See if you can use your credit card or to get a loan to pay in full. If you can’t pay in full, you’ll save if you pay as much as you can. The more you can pay, the less interest and penalties you will owe for late payment. The IRS offers several payment options on IRS.gov.
Use IRS Direct Pay. The best way to pay your taxes is with IRS Direct Pay. It’s the safe, easy and free way to pay from your checking or savings account. You can pay your tax in just five simple steps in one online session. Just click on the “Payment” tab on IRS.gov. You can now use Direct Pay with the IRS2Go mobile app.
Get a short-term payment plan. If you owe more tax than you can pay, you may qualify for more time, up to 120 days, to pay in full. You do not have to pay a user fee to set up a short-term full payment agreement. However, the IRS will charge interest and penalties until you pay in full. It’s easy to apply online at IRS.gov. If you get a bill from the IRS, you may call the phone number listed on it. If you don’t have a bill, call 800-829-1040 for help.
Apply for an installment agreement. Most people who need more time to pay can apply for an Online Payment Agreement on IRS.gov. A direct debit payment plan is the hassle-free way to pay. The set-up fee is much less than other plans and you won’t miss a payment. If you can’t apply online, or prefer to do so in writing, use Form 9465, Installment Agreement Request. Individuals can use Direct Pay to make their installment payments. For more about payment plan options, visit IRS.gov. (We work with the IRS and state agencies to set up installment agreements like this. We recommend that you use their direct payment from your checking account so you don’t miss a payment and invalidate the agreement.)
Check out an offer in compromise. An offer in compromise, or OIC, may let you settle your tax debt for less than the full amount you owe. An OIC may be an option if you can’t pay your tax in full. It may also apply if full payment will cause a financial hardship. Not everyone qualifies, so make sure you explore all other ways to pay your tax before you submit an OIC to the IRS. Use the OIC Pre-Qualifier tool to see if you qualify. It will also tell you what a reasonable offer might be. (We have found this pretty hard to do if you have assets or access to credit.)
Change your withholding or estimated tax. If you are an employee, you can avoid a tax bill by having more taxes withheld from your pay. To do this, file a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer. The IRS Withholding Calculator tool on IRS.gov can help you fill out the form. If you are self-employed you may need to make or change your estimated tax payments. See Form 1040-ES, Estimated Tax for Individuals for learn more. (This is proactive for the current tax year. We prepare tax projections to help clients pay in the proper amount of taxes throughout the year.)

To find out more see Publication 594, The IRS Collection Process. You can get it on IRS.gov/forms at any time.

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IRS CIRCULAR 230 DISCLAIMER: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein. Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, (Firm) would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.

CPA Alert: Top Ten Tips to Help You Choose a Tax Preparer

Believe it or not, taxpayers are not the only persons hurt by fraudulent or unprepared tax preparers. The IRS has an interest in weeding those people out. Every year we acquired new clients that have tax returns that were improperly prepared. Sometimes we have to amend the prior years return. One time a person came to us because their S-corporation was suspended for not filing its returns. After we checked into it, we discovered that the tax preparer had not filed ANY corporate returns from its inception. The tax preparer had been fabricating numbers from the corporation onto the client’s personal return. We had to file five years of tax returns which racked up penalties and interest.

The IRS has some good tips when reviewing a tax preparer because you are still responsible for what is on it regardless if you prepared it or not.

1. Check the preparer’s qualifications. All paid tax preparers are required to have a Preparer Tax Identification Number or PTIN. In addition to making sure they have a PTIN, ask the preparer if they belong to a professional organization and attend continuing education classes.

2. Check the preparer’s history. Check with the Better Business Bureau to see if the preparer has a questionable history. Check for disciplinary actions and for the status of their licenses. For certified public accountants, check with the state board of accountancy. For attorneys, check with the state bar association. For enrolled agents, check with the IRS Office of Enrollment.

3. Ask about service fees. Avoid preparers who base their fee on a percentage of your refund or those who say they can get larger refunds than others can. Always make sure any refund due is sent to you or deposited into your bank account. Taxpayers should not deposit their refund into a preparer’s bank account.

4. Ask to e-file your return. Make sure your preparer offers IRS e-file. Any paid preparer who prepares and files more than 10 returns for clients generally must file the returns electronically. IRS has safely processed more than 1.2 billion e-filed tax returns.

5. Make sure the preparer is available. Make sure you’ll be able to contact the tax preparer after you file your return – even after the April 15 due date. This may be helpful in the event questions come up about your tax return.

6. Provide records and receipts. Good preparers will ask to see your records and receipts. They’ll ask you questions to determine your total income, deductions, tax credits and other items. Do not use a preparer who is willing to e-file your return using your last pay stub instead of your Form W-2. This is against IRS e-file rules.

7. Never sign a blank return. Don’t use a tax preparer that asks you to sign a blank tax form.

8. Review your return before signing. Before you sign your tax return, review it and ask questions if something is not clear. Make sure you’re comfortable with the accuracy of the return before you sign it.

9. Ensure the preparer signs and includes their PTIN. Paid preparers must sign returns and include their PTIN as required by law. The preparer must also give you a copy of the return.

10. Report abusive tax preparers to the IRS. You can report abusive tax preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or changed the return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. You can get these forms at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

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IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the U.S. Department of the Treasury and Internal Revenue Service, we inform you that any tax advice contained in this e-mail (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (a) avoiding penalties under the Internal Revenue Code or state tax authority, or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

Penny-wise and $20 Million Foolish in Charitable Tax Donations

Did you miss a tax deduction because you did not substantiate it correctly? Don’t feel bad, Joseph Mohamed lost a $20 million tax deduction for real estate that he donated to charities. You see, Joseph wanted to save a few bucks by preparing his own tax return, instead of giving it to a CPA. An important part of the return required Joseph to file a form for any property above $5,000. This form was to be signed by a certified independent appraiser.

Joseph not only did not sign the form, but decided to save even more money by appraising the property himself since he was a certified real estate appraiser. The overall savings of not using a CPA and an independent appraiser? Maybe about $2,000. The overall cost of not using a CPA and an independent appraiser? $20 million.

The IRS has various rules in donating non-cash items to a charity. These rule change whether the property is below $500, and above $5,000. You have to follow the rules exactly, or risk losing your deductions.

But just because you use an appraiser for $5,000 + property doesn’t mean that your appraisal would be accepted by the IRS. They may challenge the appraiser and bring in their own appraiser. I worked on a client years ago who seemed to satisfy all of the requirements for donating a Picasso. I made sure every step was satisfied in regards to the appraisal and valuation. What I didn’t know is that the appraiser he picked was the dealer he purchased the art piece from. The IRS questioned the appraiser’s objectivity and brought in their own appraiser who valued the piece much lower than the client’s appraiser.

As a CPA, I see all sorts of donations, so here are some tips:

Take pictures of what you are donating
Get a detailed receipt. If the organization will not itemize your receipt, type up a list of items and attached it to the paper. Make sure the receipt states language that you did not receive any goods or services in consideration for the donation.
It is good practice to itemize what you are donating.
If you are a business donating an inventory item, you will not be allowed the fair market value, just your inventory cost for the donation.
The same goes for artists donating their art. You are allowed to donate only the value of what the art piece cost you to create, and that does not include your labor which cannot be valued for tax purposes.

Every situation is unique, so contact your tax advisor before making any decisions.

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Congress Gives Small Businesses a 1099 Reporting Break

Congress is sending a tax bill to the President that will ease up the 1099 reporting requirements created by the Health Bill. The 1099 provision required businesses, charities and state and local governments to file a 1099 form with the Internal Revenue Service to report annual purchases from contractors above $600. The bill also would repeal the following:

Business payments of $600 or more made to a corporation;
Amounts paid in consideration for property and other gross proceeds for both property and services; and
Payments of $600 or more made to a service provider by recipients of income from rental real estate.

For more information see the Senate bill under Accounting today. The President is expected to sign it into law.

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The Band “Kiss” FaceBook and Twitter Strategy Case Study…Old School

Chances are, if you are reading this article, it is because you found the link on a social network like Facebook and Twitter. However, the strategy dicussed in the following article will probably be obsolete within a year…bummer. Music Think Tank published a cool article How to use Facebook and Twitter on your Official Website using “Kiss” as their case study in using such social networks.

However, there is a major point that I disagree in the author’s strategy. He set up Kiss’s Facebook with the idea to bring everyone back to Kiss’s web page. That is old school. Today, if you want to impress people with your skills and knowledge, you link everything to your BLOG. And that blog should be a page on your web site.

Why? You link people to your blog to demonstrate your knowledge in a specific area. Web pages are stagnant and not very interesting. Blogs are dynamic and informative. Secondly, just as I am trying to demonstrate in this blog, the blog topic should give the user free information.

Now, maybe a band, or an artist may not have anything to write in a blog, and their official web site is good enough. But not for the rest of us. You are an expert in something. Share it with others and build relationships.