CPA Archives | Page 4 of 15

Deadline Tax Filing Tips from the IRS

Back in the 1980’s I lived in the San Fernando Valley near the main post office. At about 9 pm on April 15th, I would walk my dog to the post office to watch the late tax filers. A line of cars always stretched around the corner and up the 405 Sherman Way freeway offramp up into the slow lane. But the best part were the anti-tax people protesting the existence of the income tax. They would be picketing in front of the post office telling drivers not to throw their returns into the large canvass bins manned by postal employees. What a circus, I loved it.

If you are one of those last minute people, here are some tips from the IRS:

1. File electronically Most taxpayers file electronically.
If you haven’t tried it, now is the time! The IRS has processed more than 1
billion individual tax returns safely and securely since the nationwide debut
of electronic filing in 1990. In fact, 112 million people — 77 percent of all
individual taxpayers — used IRS e-file last year.

2. Check the identification numbers Carefully check
identification numbers — usually Social Security numbers — for each person
listed. This includes you, your spouse, dependents and persons listed in
relation to claims for the Child and Dependent Care Credit or Earned Income Tax
Credit. Missing, incorrect or illegible Social Security numbers can delay or
reduce a tax refund.

3. Double-check your figures If you are filing a paper
return, double-check that you have correctly figured the refund or balance due.

4. Check the tax tables If you e-file, the software will do
this for you. If you are using Free File Fillable Forms or a paper return,
double-check that you used the right figure from the tax table for your filing
status.

5. Sign your form You must sign and date your return. Both
spouses must sign a joint return, even if only one had income. Anyone paid to
prepare a return must also sign it and enter their Preparer Tax Identification
Number.

6. Send your return to the right address If you are mailing
a return, find the correct mailing address at www.irs.gov.
Click the Individuals tab and the “Where to File” link under IRS Resources on
the left side.

7. Pay electronically Electronic payment options are
convenient, safe and secure methods for paying taxes. You can authorize an
electronic funds withdrawal, or use a credit or a debit card. For more
information on electronic payment options, visit www.irs.gov.

8. Follow instructions when mailing a payment People
sending a payment should make the check payable to the “United States Treasury”
and should enclose it with, but not attach it to, the tax return or the Form
1040-V, Payment Voucher, if used. The check should include the Social Security
number of the person listed first on the return, daytime phone number, the tax
year and the type of form filed.

9. File or request an extension to file on time By the
April 17 due date, you should either file a return or request an extension of
time to file. Remember, the extension of time to file is not an extension of
time to pay.

10. Visit IRS.gov Forms, publications and helpful
information on a variety of tax subjects are available at www.irs.gov.

If you hire a CPA to help you file, you don’t have to worry about these things. But, just like dancing, everything in taxes depends on timing. So, make sure you stay in step, or it can cost you penalties or delays. Discuss this with a tax professional before making any decisions.

______________________________________________________________________________

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.

Breaking Bad with a Mysterious Spouse

Believe it or not, I don’t watch TV very much. However, my wife and son sat me down to watch the series Breaking Bad. We are on episode 13 of the drama spotlighting a cancer-stricken high school chemistry teacher turned methamphetamine manufacturer. The acting is superb.

The other night I told my wife that if Walter White (the main character) dies from his lung cancer, his wife could be liable for for tax evasion because of the unpaid taxes from the drug income.

However, Walter’s wife, and Flin (the son stricken with cerebral palsy) could be spared from the IRS if she meets some requirements under Spousal Tax Relief. The IRS states the following:

You may be an injured spouse if you file a joint tax return and all or part of your portion of a refund was, or is expected to be, applied to your spouse’s legally enforceable past due financial obligations.

Here are a couple of facts:

1. To be considered an injured spouse; you must have paid federal income tax or claimed a refundable tax credit, such as the Earned Income Credit or Additional Child Tax Credit on the joint return, and not be legally obligated to pay the past-due debt.

2. Special rules apply in community property states. For more information about the factors used to determine whether you are subject to community property laws, see IRS Publication 555, Community Property.

Now, the Whites live in New Mexico, a Community Property state. That could mean that the income (whether illicit or not) could be attributable to the Walter’s wife because it is earned income. Also, that fact that she knows that he is somehow paying for his chimotherapy my hurt her defense that a reasonable person should have known that $50,000 doesn’t materialize out of the air.

This article is not meant to be tax advice but a warning to persons regarding their spouses’ mysterious income. If you find yourself in such a position, you can talk to your CPA tax advisor and visit www.irs.gov

______________________________________________________________________________

CPA Reminder: 2012 Self-employed Healthcare Credit

Yes, I know. Health insurance is very high and a drag on the small business. So, lessen the pain by taking the healthcare credit if you qualify. Here are the facts:

Starting in tax year 2011, you take the credit on Form 1040.

However, you must be one of the following to qualify:

A self-employed individual with a net profit reported
on Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ
(Form 1040), Net Profit From Business, or Schedule F (Form 1040), Profit
or Loss From Farming.
A partner with net earnings from self-employment
reported on Schedule K-1 (Form 1065), Partner’s Share of Income,
Deductions, Credits, etc., box 14, code A.
A shareholder owning more than 2 percent of the
outstanding stock of an S corporation with wages from the corporation
reported on Form W-2, Wage and Tax Statement. This last situation catches clients off guard because they have to do an odd adjustment to their W-2. Our bookkeepers work with clients to properly report their payroll. If you did not properly include the health insurance in your W-2, then you should amend it.

The insurance plan must be established under your business.

For self-employed individuals filing a Schedule C,
C-EZ, or F, the policy can be either in the name of the business or in the
name of the individual.
For partners, the policy can be either in the name of
the partnership or in the name of the partner. You can either pay the
premiums yourself or your partnership can pay them and report the premium
amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included
in your gross income. However, if the policy is in your name and you pay
the premiums yourself, the partnership must reimburse you and report the
premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be
included in your gross income. Otherwise, the insurance plan will not be
considered to be established under your business.
For more-than-2-percent shareholders, the policy can be
either in the name of the S corporation or in the name of the shareholder.
You can either pay the premiums yourself or your S corporation can pay
them and report the premium amounts on Form W-2 as wages to be included in
your gross income. However, if the policy is in your name and you pay the
premiums yourself, the S corporation must reimburse you and report the
premium amounts on Form W-2 as wages to be included in your gross income.
Otherwise, the insurance plan will not be considered to be established
under your business.

If this in confusing, speak to your CPA. The deduction is too good to pass up.

IRS Source

______________________________________________________________________________

Don’t Shoot the CPA! Something New This April If You Can’t Pay Your Taxes

You’ve worked hard, but got laid off. Then on April 15th the following year, your CPA tells you that you owe taxes, but you don’t have the money. What are you going to do? Check out what our “compassionate” IRS has to say:

The Internal Revenue Service today announced a major expansion
of its “Fresh Start” initiative to help struggling taxpayers by taking steps to
provide new penalty relief to the unemployed and making Installment Agreements
available to more people.

Under the new Fresh Start provisions, part of a broader effort started at the
IRS in 2008, certain taxpayers who have been unemployed for 30 days or longer
will be able to avoid failure-to-pay penalties. In addition, the IRS is doubling
the dollar threshold for taxpayers eligible for Installment Agreements to help
more people qualify for the program.

“We have an obligation to work with taxpayers who are struggling to make ends
meet,” said IRS Commissioner Doug Shulman. ”This new approach makes sense for
taxpayers and for the nation’s tax system, and it’s part of a wider effort we
have underway to help struggling taxpayers.”

Penalty Relief

The IRS announced plans for new penalty relief for the unemployed on
failure-to-pay penalties, which are one of the biggest factors a financially
distressed taxpayer faces on a tax bill.

To assist those most in need, a six-month grace period on failure-to-pay
penalties will be made available to certain wage earners and self-employed
individuals. The request for an extension of time to pay will result in relief
from the failure to pay penalty for tax year 2011 only if the tax, interest and
any other penalties are fully paid by Oct. 15, 2012.

The penalty relief will be available to two categories of taxpayers:

Wage earners who have been unemployed at least
30 consecutive days during 2011 or in 2012 up to the April 17 deadline for
filing a federal tax return this year.
Self-employed individuals who experienced a 25
percent or greater reduction in business income in 2011 due to the economy.

This penalty relief is subject to income limits. A taxpayer’s income must not
exceed $200,000 if he or she files as married filing jointly or not exceed
$100,000 if he or she files as single or head of household. This penalty relief
is also restricted to taxpayers whose calendar year 2011 balance due does not
exceed $50,000.

Taxpayers meeting the eligibility criteria will need to complete a new Form 1127A to
seek the 2011 penalty relief. The new form is available on IRS.gov.

The failure-to-pay penalty is generally half of 1 percent per month with an
upper limit of 25 percent. Under this new relief, taxpayers can avoid that
penalty until Oct. 15, 2012, which is six months beyond this year’s filing
deadline. However, the IRS is still legally required to charge interest on
unpaid back taxes and does not have the authority to waive this charge, which is
currently 3 percent on an annual basis.

Even with the new penalty relief becoming available, the IRS strongly
encourages taxpayers to file their returns on time by April 17 or file for an
extension. Failure-to-file penalties applied to unpaid taxes remain in effect
and are generally 5 percent per month, also with a 25 percent cap.

Installment Agreements

The Fresh Start provisions also mean that more taxpayers will have the
ability to use streamlined installment agreements to catch up on back taxes.

The IRS announced today that, effective immediately, the threshold for using
an installment agreement without having to supply the IRS with a financial
statement has been raised from $25,000 to $50,000. This is a significant
reduction in taxpayer burden.

Taxpayers who owe up to $50,000 in back taxes will now be able to enter into
a streamlined agreement with the IRS that stretches the payment out over a
series of months or years. The maximum term for streamlined installment
agreements has also been raised to 72 months from the current 60-month
maximum.

Taxpayers seeking installment agreements exceeding $50,000 will still need to
supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F).
Taxpayers may also pay down their balance due to $50,000 or less to take
advantage of this payment option.

An installment agreement is an option for those who cannot pay their entire
tax bills by the due date. Penalties are reduced, although interest continues to
accrue on the outstanding balance. In order to qualify for the new expanded
streamlined installment agreement, a taxpayer must agree to monthly direct debit
payments.

Taxpayers can set up an installment agreement with the IRS by going to the
On-line Payment Agreement (OPA) page on IRS.gov and following the
instructions.
These changes supplement a number of efforts to help struggling
taxpayers, including the “Fresh Start” program announced last year. The
initiative includes a variety of changes to help individuals and businesses pay
back taxes more easily and with less burden, including the issuance of fewer tax
liens.

Generally, an offer will not be accepted if the IRS believes that the
liability can be paid in full as a lump sum or through a payment agreement. The
IRS looks at the taxpayer’s income and assets to make a determination regarding
the taxpayer’s ability to pay.

So don’t shoot your CPA who informs you of bad news. We’re here to help. Always discuss your situation with a tax professional before making any decision.

Source: IRS Site

______________________________________________________________________________

Are You a Bomar Enough to Move to the IPad in Your Small Business?

Back in the 1970’s, I was amazed at a new small business gadget, the Bomar Brain. This little $40 calculator could add, subtract, divide, and do other mathematical functions. You could even carry it with one hand. Good by to the clunky adding machines whose tapes rolled under the desk across the power cord. Every small business soon had a handheld calculator, though the Bomar Brain faded into the techie sunset.

In the last few years, business has now come to another technological crossroad. Is the iPad necessary to run a business? According to Lauri Kulikowski in Why Every Business Needs an iPad?, it is necessary. According to the article, businesses can be flexible with product demos, videos, images in a mobile setting. This article did not surprise me since I have watched people in the entertainment industry use the iPads to show demos, head shots, and movie clips.

What has kept me from buying an iPad was Microsoft Office. I was told that iPad did not support Microsoft Office but had its own word processor, spreadsheet, etc.

However, this may have changed. Check out online.com. Apparently, Online.com provides an App (either free or $4.99 a month) that can bring the Microsoft Office to life. I have to try this out, but this could be the missing link for me and the iPad. Most of my work entails analysis, accounting, etc. The imaery doesn’t help very much.

However, if you are a small business Android lover, the Onlive Desktop bridges that, too.

Either way, what you must remember in a small business is that technology can open up opportunities and change how your clients see you. Small businesses must be vigilant with technology.

Don’t Mess with Taxes

(From Marx Brother’s Duck Soup)

The new Secretary of War Chicolini( Marx brother Chico) is discussing the funding of the war:

Minister of Finance: Something must be done! War would
mean a prohibitive increase in our taxes.

Chicolini: Hey, I got an uncle lives in Taxes.”

Minister of Finance: No, I’m talking about taxes – money,
dollars.

Chicolini: Dollas! There’s-a where my uncle
lives. Dollas, Taxes!

People usually stress about taxes in the first quarter of every year. What a person doesn’t need is a negligent or dishonest tax preparer. Brian O’Connell wrote an article, 5 Signs You’ve Got a Lousy Tax Preparer which offered some good advice. However, the points he raised really seemed to point to a dishonest tax preparer, as opposed to a lousy one. Here are the points:

Your preparer promises a big tax refund: This is comical. Why would a tax preparer proclaim a big refund especially before seeing the documents unless they are going to “create” numbers?
Your preparer doesn’t have proper credentials: The IRS has really buckled down on the education and registration of tax preparers. This of course doesn’t apply to CPAs where we have our own standards to adhere to.
The tax preparer requires that your refund be deposited into their bank: This is a clear red flag to run. We never take our client’s refunds in any circumstance.
The preparer’s fee is based on a percentage of your refund: This is another ethical violation for CPAs. Never take the bait.

Taxes are not something to gamble with. Make sure you understand your tax return. Expecially understand where the numbers come from. Make sure your preparer is not dreaming up numbers. Discuss any advice given here with your tax advisor before making any decisions.

______________________________________________________________________________

IRS Mercy? To Err is Human, to Forgive is Divine

Well, as a CPA for the last thirty years, I thought I’d see the tin man get a real heart before the IRS show any heart at all. The IRS has released some sort of an amnesty program designed to offer mercy to businesses that have misclassified workers as independent contractors instead of employees. IRS Announcment 201-64 states out the conditions that an employer must meet in order to minimize the penalties for misclassifying workers. It is called the Voluntary Classification Settlement Program (VCSP).

For those of you that are unaware of this tax controversy, when employers classify employees as independent contractors, they escape the obligation of paying payroll taxes on those employees like social security and medicare. The criteria of classifying workers is complex because it covers tax law, national labor laws, and state laws. Your CPA can calculate the costs you may be avoiding.

If a taxpayer voluntary invokes this option (without being under audit), then they will only have to “pay 10 percent of the employment tax liability that may have been due on compensation paid to the workers for the most recent year…” They will not be liable for any interest and penalties and not subject to any prior year’s audits.

So, as an employer, what does this mean? If you are classifying workers properly, it means nothing. However, as a CPA, I have seen substantial misclassification by new clients that I have helped correct. Yes, they end up paying more taxes, but the client sleeps better at night.

The downside of ignoring proper classification are heavy penalties, interest, and possibly jail time. Sometimes employers are exposed when a worker files for unemployment compensation, worker’s compensation, or social security. The worker is surprised that nothing had been paid in by his “employer” over the last ten years he had worked. Thus, an investigation may materialize which will require you to hire a CPA and/or an attorney. You will have to pay them and the taxes if you lose.

Various departments and levels of the federal government are mobilizing not only to uncover worker misclassification, but also a CPA who is improperly advising a client to do so. Even the Obama administration is increasing efforts to uncover workers misclassification in the September 2011 release of his plan “Living Within Our Means and Investing in the Future: The President’s Plan for Economic Growth and Deficit Reduction.”

If you feel you want to embrace this amnesty, talk to your CPA about your exposure and the additional requirements to qualify. As a business owner, you should clear your mind of such anxiety and concentrate on your business strategy.

______________________________________________________________________________

How Business Consultants Can Help America Compete

Think of your latest large purchase. Was the technology or production based in the USA? Recently we purchased a Panasonic plasma flat-screen. Panasonic is based in Oaza, Kadoma. The other options were flat-screens from Mitsubishi and Samsung.

Why no USA? It may not surprise you to see that the USA has fallen from 1st to 4th in innovation-based competitiveness according to the Commerce Department. This conclusion prompted the America Competes Reauthorization Act which reported that research, education, and infrastructure has been neglected in the US.

There are many reasons for the poor US showing, but instead of pointing fingers, business consultants should be working with their clients to help innovate. Even though the report list recommendations concerning government commitment, business consultants can play a role on a micro level. Here are a few of the report’s recommendations and the possible role of a business consultant:

Support regional clusters: Though the report encourages all levels of governments to support regional clusters (like Silicon Valley), a business consultant can facilitate the development of a regional supply chain of a client. “Just in Time” inventory system is one example where a business consultant can facilitate a client’s processes.
Accelerate high-growth entrepreneurship: The federal government’s Startup America program seeks to match businesses with resources. A business consultant, however, can position a client’s strategically to take advantage of such opportunities. What resources are available in a particular industry?
Promote exports and access to foreign resources: A business consultant can make a large contribution to a client in the area of exports by advising the client to register with the US EXIMBANK. The government agency insures foreign receivables allowing clients to finance their manufacturing of products to be exported.

Business consultants can play an important role in facilitating business development. Small and medium sized businesses must innovate with the view of creating a market segment where competition is (at least temporarily) irrelevant.

A recurring problem though is that most business consultants can’t implement the strategy. That is where CPA/strategists dwell. An external CPA could implement a strategy that he/she has designed.

The business consultants who are advocating this strategy during the Great Recession are now becoming industry leaders in the Great Recovery. If you, as a business consultant, have not already been promoting an aggressive strategy, then already you are behind the curve.

The Best CPA Tax Tip: Filing Your Tax Return For Free

Yes, you heard me. The IRS has a link that provides free tax software to those who have an adjusted gross income of $57,000 or less. The IRS explains the program:

Everyone can prepare and e-file their federal tax returns for free using the
IRS Free File Program. Free File is offered through a public-private
partnership between the Internal Revenue Service and tax software companies.
Free File can help you do your taxes fast; it’s safe and it doesn’t cost
anything.

Nearly 100 million Americans – that’s 70 percent of the nation’s taxpayers –
can use the free brand-name software and secure e-filing offered by
private-sector companies. Software products also are available in Spanish. Each
company sets its eligibility requirements, generally based on income, age or
state residency. However, if your adjusted gross income was $57,000 or less in
2011, you will find at least one tax software product to use.

Here’s how it works: You must access Free File through the IRS website. At www.irs.gov/freefile, there’s an online tool which allows you to give a little information about yourself then guides you to the software for which you are eligible. Or, you
can review a complete list of companies and their offerings and make a
selection.

Try it and see if you can save tax preparation fees. Of course, if you have a business, or unusual tax situations, you may want to hire a CPA. Always discuss your situation with your tax advisor before making any decisions.

______________________________________________________________________________

IRS Fraudulent Tax E-mails: Never Give a Sucker an Even Break

“Never give a sucker an even break,” is attributed to W.C Fields in the 1923 movie, Poppy. However, some say it represents the real personality of W.C. Fields as a ruthless businessman.

So, don’t be a “sucker” to fraudulent tax notices.

CPA’s usually see through tax fraudsters because we know how the system works. Still, it facenates me when I get an email stating that my tax payment was rejected, or that my tax refund has not been claimed. Fortunately, the IRS gives us some guidance to those who don’t wallow between the lines of the 1040.

Here are five things the IRS wants you to know about phishing scams:

The IRS doesn’t ask for detailed personal and financial information like PIN
numbers, passwords or similar secret access information for credit card, bank or
other financial accounts.
The IRS does not initiate taxpayer communications through e-mail and won’t
send a message about your tax account. If you receive an e-mail from someone
claiming to be the IRS or directing you to an IRS site:
• Do not reply to
the message.
• Do not open any attachments. Attachments may contain
malicious code that will infect your computer.
• Do not click on any
links. If you clicked on links in a suspicious e-mail or phishing website and
entered confidential information, visit the IRS website and enter the search
term ‘identity theft’ for more information and resources to help.
The address of the official IRS website is https://www.irs.gov. Do not be confused or misled
by sites claiming to be the IRS but ending in .com, .net, .org or other
designations instead of .gov. If you discover a website that claims to be the
IRS but you suspect it is bogus, do not provide any personal information on the
suspicious site and report it to the IRS.
If you receive a phone call, fax or letter in the mail from an individual
claiming to be from the IRS but you suspect they are not an IRS employee,
contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need
to contact you. Report any bogus correspondence.
You can help shut down these schemes and prevent others from being
victimized. Details on how to report specific types of scams and what to do if
you’ve been victimized are available at https://www.irs.gov, keyword “phishing.”

If you are unsure, do not do anything until you contact your CPA. One phone call to a CPA can save you a bundle by keeping you out of a fraudulant transaction.

______________________________________________________________________________