Tax advice Archives | Rick Norris

What Moving Expenses Are Tax Deductible?

We occasionally acquire clients who move their tax residences for a new job. There is always a lot of confusion and questions about what is deductible. Here is some guidance from the IRS.

If you move your home you may be able to deduct the cost of the move on your federal tax return next year. This may apply if you move to start a new job or to work at the same job in a new location. In order to deduct your moving expenses, your move must meet three requirements:

Your move must closely relate to the start of work. In most cases, you can consider moving expenses within one year of the date you start work at a new job location. Additional rules apply to this requirement.
Your move must meet the distance test. Your new main job location must be at least 50 miles farther from your old home than your prior job location. For example, let’s say that your old job was three miles from your old home. To meet this test, your new job must be at least 53 miles from your old home.
You must meet the time test. You must work full-time at your new job for at least 39 weeks the first year after the move. If you’re self-employed, you must also meet this test. In addition you must work full-time for a total of at least 78 weeks during the first two years at the new job site. If your tax return is due before you meet the time test, you can still claim the deduction if you expect to meet it.

See Publication 521, Moving Expenses, for more information about the rules.

If you qualify for this deduction, here are a few more tips from the IRS:

Travel. You can deduct certain transportation and lodging expenses while moving. This applies to costs for yourself and other household members while moving from your old home to your new home. You may not deduct your travel meal costs.
Household goods and utilities. You can deduct the cost of packing, crating and shipping your property. This may include the cost to store or insure the items while in transit. You can deduct the cost to disconnect or connect utilities at your old and new homes.
Expenses you can’t deduct. You may not deduct:
- Any part of the purchase price of your new home.
- The cost of selling your home.
- The cost of breaking or entering into a lease.

See Publication 521 for more examples.

Reimbursed expenses. If your employer later pays you for the cost of a move that you deducted on your tax return, you may need to include the payment as income. You must report any taxable amount on your tax return in the year you get the payment.
Address change. When you move, make sure to update your address with the IRS and the U.S. Post Office. To notify the IRS, file Form 8822, Change of Address.

For other advice on family budgeting, check out our podcasts:

Family Financial Issues–Part II (Spending Your Monday) and Shopping in Tijuana.

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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.

Tax Scams Can Hit All Year, Especially During Tax Season

Imagine getting a call or e-mail from an “IRS Agent” who claims that you owe them a lot of money and will have your bank account levied? Just reading that sentence may raise the heart rate of some of you.

Here are some warnings from the IRS and some steps you can take to protect yourself:

Be vigilant of any unexpected communication purportedly from the IRS at the start of tax season.
Don’t fall for phone and phishing email scams that use the IRS as a lure. Thieves often pose as the IRS using a bogus refund scheme or warnings to pay past-due taxes.
The IRS doesn’t initiate contact with taxpayers by email to request personal or financial information. This includes any type of e-communication, such as text messages and social media channels.
The IRS doesn’t ask for PINs, passwords or similar confidential information for credit card, bank or other accounts.
If you get an unexpected email, don’t open any attachments or click on any links contained in the message. Instead, forward the email to phishing@irs.gov. For more about how to report phishing scams involving the IRS visit the genuine IRS website, IRS.gov.

Here are several steps you can take to help protect yourself against scams and identity theft:

Don’t carry your Social Security card or any documents that include your Social Security number or Individual Taxpayer Identification Number.
Don’t give a business your SSN or ITIN just because they ask. Give it only when required.
Protect your financial information.
Check your credit report every 12 months.
Secure personal information in your home.
Protect your personal computers by using firewalls and anti-spam/virus software, updating security patches and changing passwords for Internet accounts.
Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact and are sure of the recipient.
Be careful when you choose a tax preparer. Most preparers provide excellent service, but there are a few who are unscrupulous. Refer to Tips to Help you Choose a Tax Preparer for more details.

For more on this topic, see the special identity theft section on IRS.gov. Also check out IRS Fact Sheet 2014-1, IRS Combats Identity Theft and Refund Fraud on Many Fronts.

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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.

CPA Tip: Tax Scam Alerts from the IRS

The IRS actually tries to help taxpayers. Here they list the biggest tax scams the hook taxpayers who do not have their guard up. Be careful of who you are giving your information to, and what you put down on your tax return.

Identity Theft. Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. Combating identity theft and refund fraud is a top priority for the IRS. The IRS’s ID theft strategy focuses on prevention, detection and victim assistance. During 2012, the IRS protected $20 billion of fraudulent refunds, including those related to identity theft. This compares to $14 billion in 2011. Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should immediately contact the IRS so the agency can take action to secure their tax account. If you have received a notice from the IRS, call the phone number on the notice. You may also call the IRS’s Identity Protection Specialized Unit at 800-908-4490. Find more information on the identity protection page on IRS.gov.

Phishing. Phishing typically involves an unsolicited email or a fake website that seems legitimate but lures victims into providing personal and financial information. Once scammers obtain that information, they can commit identity theft or financial theft. The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. If you receive an unsolicited email that appears to be from the IRS, send it to phishing@irs.gov.

Return Preparer Fraud. Although most return preparers are reputable and provide good service, you should choose carefully when hiring someone to prepare your tax return. Only use a preparer who signs the return they prepare for you and enters their IRS Preparer Tax Identification Number (PTIN). For tips about choosing a preparer, visit www.irs.gov/chooseataxpro.

Hiding Income Offshore. One form of tax evasion is hiding income in offshore accounts. This includes using debit cards, credit cards or wire transfers to access those funds. While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements taxpayers need to fulfill. Failing to comply can lead to penalties or criminal prosecution. Visit IRS.gov for more information on the Voluntary Disclosure Program.

“Free Money” from the IRS & Tax Scams Involving Social Security. Beware of scammers who prey on people with low income, the elderly and church members around the country. Scammers use flyers and ads with bogus promises of refunds that don’t exist. The schemes target people who have little or no income and normally don’t have to file a tax return. In some cases, a victim may be due a legitimate tax credit or refund but scammers fraudulently inflate income or use other false information to file a return to obtain a larger refund. By the time people find out the IRS has rejected their claim, the promoters are long gone.

Impersonation of Charitable Organizations. Following major disasters, it’s common for scam artists to impersonate charities to get money or personal information from well-intentioned people. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds. Taxpayers need to be sure they donate to recognized charities.

False/Inflated Income and Expenses. Falsely claiming income you did not earn or expenses you did not pay in order to get larger refundable tax credits is tax fraud. This includes false claims for the Earned Income Tax Credit. In many cases the taxpayer ends up repaying the refund, including penalties and interest. In some cases the taxpayer faces criminal prosecution. In one particular scam, taxpayers file excessive claims for the fuel tax credit. Fraud involving the fuel tax credit is a frivolous claim and can result in a penalty of $5,000.

False Form 1099 Refund Claims. In this scam, the perpetrator files a fake information return, such as a Form 1099-OID, to justify a false refund claim.

Frivolous Arguments. Promoters of frivolous schemes advise taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These are false arguments that the courts have consistently thrown out. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

Falsely Claiming Zero Wages. Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, scammers use a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 to improperly reduce taxable income to zero. Filing this type of return can result in a $5,000 penalty.

Disguised Corporate Ownership. Scammers improperly use third parties form corporations that hide the true ownership of the business. They help dishonest individuals underreport income, claim fake deductions and avoid filing tax returns. They also facilitate money laundering and other financial crimes.

Misuse of Trusts. There are legitimate uses of trusts in tax and estate planning. But some questionable transactions promise to reduce the amount of income that is subject to tax, offer deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits. They primarily help avoid taxes and hide assets from creditors, including the IRS.

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Additional Medicare Tax For Upper Income Earners Explained

A new Additional Medicare Tax goes into effect starting in 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation, and self-employment income that exceeds a threshold amount based on the individual’s filing status.

The threshold amounts are:

• $250,000 for married taxpayers who file jointly,
• $125,000 for married taxpayers who file separately, and
• $200,000 for all other taxpayers.

An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year.

The IRS and the Treasury Department have issued proposed regulations on the Additional Medicare Tax.

Self-employed individuals must be careful when making their estimated tax payments which will include these taxes if they are above the threshholds. Make sure you check with your tax professional before making any decisions.

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Solving Tax Issues: Another Avenue

Probably every year new clients appear who have tax issues from various tax agencies. We usually acquire a power of attorney and step into the shoes of the taxpayer. There is a non-conventional way that taxpayers may get relief. The Taxpayer advocate service or (TAS). Here is what the IRS says about using that service:

1. The Taxpayer Advocate Service is your voice at the IRS.

2. TAS assistance is free and tailored to meet your needs.

3. You may be eligible for TAS help if you’ve tried to resolve your tax
problem through normal IRS channels and have gotten nowhere, or if you are
facing (or your business is facing) an immediate action from the IRS that will
adversely affect you.

4. The worst thing you can do is nothing at all!

5. TAS helps individual and business taxpayers whose tax problems are
causing financial difficulty, which could include the cost of hiring
professional representation, such as a tax attorney.

6. If you qualify for TAS help, you’ll be assigned one advocate who
will do everything possible to get your problem resolved.

7. There is at least one local Taxpayer Advocate office in every state,
the District of Columbia, and Puerto Rico. You can obtain the number of your
local Taxpayer Advocate from your local phone book, in Pub. 1546, Taxpayer
Advocate Service – Your Voice at the IRS and on the IRS website at
IRS.gov/advocate. You can also call TAS toll-free at 1-877-777-4778.

8. As a taxpayer, you have rights that the IRS must abide by when
working with you. Our tax toolkit website at www.TaxpayerAdvocate.irs.gov
can help you understand these rights.

9. TAS also handles tax problems that may have a broad impact on more
than just one taxpayer. You can report these “systemic” issues to TAS
through the Systemic Advocacy Management System at IRS.gov/advocate.

10. You can get updates on hot tax topics
by visiting the TAS YouTube channel at www.youtube.com/TASNTA
and the TAS Facebook page at www.facebook.com/YourVoiceAtIRS,
or by following TAS tweets at www.twitter.com/YourVoiceatIRS

Tax problems always create some level of anxiety. It’s good to know that you have another arrow in your quill.

Source: IRS

CPA Tax Tip:Are You Tarnishing Your Golden Years By Using Your Retirement as a Piggy Bank?

Years ago, a client referred me to a songwriter. The first thing I noticed about the songwriter is that he and his wife had liquidated his IRAs to buy a bigger house. Now this was prior to the first home exception of $10,000. I cringed. The upshot was that the large distribution sling-shotted the couple into a much higher tax bracket, triggered additional income tax, and a 10% premature penalty.

There are some exceptions, now, but before you make the plunge into that pot of gold reserved for the golden years, you should know the rules:

1. Payments you receive from your Individual Retirement Arrangement before
you reach age 59 ½ are generally considered early or premature distributions. This was the situation of my clients.

2. Early distributions are usually subject to an additional 10 percent tax. As previously discussed, there was no way I could get them out of this penalty.

3. Distributions are reported to the IRS and identified such as rollovers or due to death.

4. Distributions you roll over to another IRA or qualified retirement plan
are not subject to the additional 10 percent tax. You must complete the
rollover within 60 days after the day you received the distribution. These are also not subjet to income taxes also.

5. The amount you roll over is generally taxed when the new plan makes a
distribution to you or your beneficiary.

6. If you made nondeductible contributions to an IRA and later take early
distributions from your IRA, the portion of the distribution attributable to
those nondeductible contributions is not taxed. If you do not need a tax deduction (yes I have had client’s like this), then this may be a good strategy to shelter some investment income.

7. If you received an early distribution from a Roth IRA, the distribution
attributable to your prior contributions is not taxed.

8. If you received a distribution from any other qualified retirement plan,
generally the entire distribution is taxable unless you made after-tax employee
contributions to the plan.

9. There are several exceptions to the additional 10 percent early
distribution tax, such as when the distributions are used for the purchase of a
first home (up to $10,000), for certain medical or educational expenses, or if
you are totally and permanently disabled.

The place to start is to not NEED the extra money. Try to live within your means so as to not be tempted to withdraw your retirement nest egg. If you need help in creating a budget, or analyzing your expenses, contact your CPA.

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