Several times a year I am interviewed for articles and radio pod-casts. (Nobody has had the guts (or fool-hardiness) to throw my face on the screen). During tax season, freelance writers are looking for the latest and greatest tax tips. The article 5 Tips for Freelance Writers by Kylie Jane Wakefield, set out to give a few tips to freelance writers. But frankly, the tips do not differ much to any other struggling entrepreneur who is trying to fulfill a dream while working a day job.
The main point only slightly stressed is that your tax planning starts at the completion of your last year’s tax return. Don’t wait until March of the following year to tax plan for the previous year. That is like trying to put in the drain plug in a speed boat after you have launched it into the ocean. For example, when I clean out my garage, I lay everything out in the driveway that I am taking to Goodwill. I then take multiple photographs. I also usually list what I have to donate. When I arrive at the Goodwill drop off, I copy the list onto the Goodwill receipt and get it signed. At home, I print out the pictures (nothing special, just on regular paper) and staple the pictures to the receipt. I stick the whole package in a big tax envelope and forget about it until I prepare my tax returns. Simple planning, simple result.
You can use the same method for any business expense paid by cash. Always take a receipt and throw it into the tax envelope to be resurrected again during the preparation of your tax return next year.
However, no financial decision should be made on the basis of tax savings. The first concern for any decision should be whether it makes good business sense. Remember, you are only getting about 1/3 benefit, from a tax deduction. So, if you spend $100 solely on the basis that you will get “to write it off,” you may be making a bad business decision. The decision will ultimately cost you $70 ($100 less taxes returned into your pocket.)
Plan and understand you tax situation and you will be more informed and maybe more satisfied come April 15.
The IRS publishes a list of tax scams that they are focusing. It is good to understand the basic premise of these in order to protect you, your family, and your business.
Identity Theft
Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. Identity theft occurs when someone uses your personal information, such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes. In many cases, an identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund.
Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. Taxpayers can call the IRS Identity Protection Specialized Unit at 800-908-4490. More information can be found on the special identity protection page.
Pervasive Telephone Scams
People may call you pretending to be from the IRS in hopes of stealing money or identities from victims.
These phone scams include many variations, ranging from instances from where callers say the victims owe money or are entitled to a huge refund. Some calls can threaten arrest and threaten a driver’s license revocation. Sometimes these calls are paired with follow-up calls from people saying they are from the local police department or the state motor vehicle department.
Characteristics of these scams can include:
Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
Scammers may be able to recite the last four digits of a victim’s Social Security Number.
Scammers “spoof” or imitate the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
Victims hear background noise of other calls being conducted to mimic a call site.
After threatening victims with jail time or a driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.
Phishing
Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.
If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.
False Promises of “Free Money” from Inflated Refunds
Scam artists routinely pose as tax preparers during tax time, luring victims in by promising large federal tax refunds or refunds that people never dreamed they were due in the first place.
Scam artists use flyers, advertisements, phony store fronts and even word of mouth to throw out a wide net for victims. They may even spread the word through community groups or churches where trust is high. Scammers prey on people who do not have a filing requirement, such as low-income individuals or the elderly. They also prey on non-English speakers, who may or may not have a filing requirement.
Return Preparer Fraud
About 60 percent of taxpayers will use tax professionals this year to prepare their tax returns. Most return preparers provide honest service to their clients. But, some unscrupulous preparers prey on unsuspecting taxpayers, and the result can be refund fraud or identity theft.
It is important to choose carefully when hiring an individual or firm to prepare your return. This year, the IRS wants to remind all taxpayers that they should use only preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINs).
Hiding Income Offshore
Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities and then using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.
The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases.
At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program(OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The IRS works on a wide range of international tax issues with DOJ to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.
The IRS has collected billions of dollars in back taxes, interest and penalties so far from people who participated in offshore voluntary disclosure programs since 2009. It is in the best long-term interest of taxpayers to come forward, catch up on their filing requirements and pay their fair share.
Impersonation of Charitable Organizations
Another long-standing type of abuse or fraud is scams that occur in the wake of significant natural disasters.
Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information. 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.
They may attempt to get personal financial information or Social Security numbers that can be used to steal the victims’ identities or financial resources. Bogus websites may solicit funds for disaster victims. The IRS cautions both victims of natural disasters and people wishing to make charitable donations to avoid scam artists by following these tips:
To help disaster victims, donate to recognized charities.
Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.
Don’t give out personal financial information, such as Social Security numbers or credit card and bank account numbers and passwords, to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money.
Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.
False Income, Expenses or Exemptions
Another scam involves inflating or including income on a tax return that was never earned, either as wages or as self-employment income in order to maximize refundable credits. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions. This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.
Frivolous Arguments
Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. These arguments are wrong and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes.
Taxpayers who rely on frivolous arguments and schemes may also face criminal prosecution for attempting to evade or defeat tax. Similarly, taxpayers may be convicted of a felony for willfully making and signing under penalties of perjury any return, statement, or other document that the person does not believe to be true and correct as to every material matter. Persons who promote frivolous arguments and those who assist taxpayers in claiming tax benefits based on frivolous arguments may be prosecuted for a criminal felony.
Falsely Claiming Zero Wages or Using False Form 1099
Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.
Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any variations of this scheme. Filing this type of return may result in a $5,000 penalty.
Abusive Tax Structures
Abusive tax schemes have evolved from simple structuring of abusive domestic and foreign trust arrangements into sophisticated strategies that take advantage of the financial secrecy laws of some foreign jurisdictions and the availability of credit/debit cards issued from offshore financial institutions.
IRS Criminal Investigation (CI) has developed a nationally coordinated program to combat these abusive tax schemes. CI’s primary focus is on the identification and investigation of the tax scheme promoters as well as those who play a substantial or integral role in facilitating, aiding, assisting, or furthering the abusive tax scheme (e.g., accountants, lawyers). Secondarily, but equally important, is the investigation of investors who knowingly participate in abusive tax schemes.
Misuse of Trusts
Trusts also commonly show up in abusive tax structures. They are highlighted here because unscrupulous promoters continue to urge taxpayers to transfer large amounts of assets into trusts. These assets include not only cash and investments, but also successful on-going businesses. There are legitimate uses of trusts in tax and estate planning, but the IRS commonly sees highly questionable transactions. These transactions promise reduced taxable income, inflated deductions for personal expenses, the reduction or elimination of self-employment taxes and reduced estate or gift transfer taxes. These transactions commonly arise when taxpayers are transferring wealth from one generation to another. Questionable trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.
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.
Raising children can be a financial strain. There are some tax benefits that you should not forget. Here are eight CPA tax benefits parents should look out for when filing their federal tax returns.
1. Dependents. In most cases, you can claim your child as a dependent. This applies even if your child was born anytime in 2013. For more details, see Publication 501, Exemptions, Standard Deduction and Filing Information. Watch out for joint custody arrangements. As CPAs, we have had tax returns rejected because the other spouse had claimed the child as a dependent.
2. Child Tax Credit. You may be able to claim the Child Tax Credit for each of your qualifying children under the age of 17 at the end of the year. The maximum credit is $1,000 per child. If you get less than the full amount of the credit, you may be eligible for the Additional Child Tax Credit. For more about both credits, see the instructions for Schedule 8812, Child Tax Credit, and Publication 972, Child Tax Credit.
3. Child and Dependent Care Credit. You may be able to claim this credit if you paid someone to care for one or more qualifying persons. Your dependent child or children under age 13 are among those who are qualified. You must have paid for care so you could work or look for work. For more, see Publication 503, Child and Dependent Care Expenses. You should have the name, address, federal ID number, and amount paid ready for your CPA at tax time.
4. Earned Income Tax Credit. This is the most audited area by the IRS due to fraud. If you don’t make too much money and have dependents, you may be able to take advantage of it. Use the EITC Assistant tool at IRS.gov to find out if you qualify or see Publication 596, Earned Income Tax Credit. A CPA is at risk also, if a client misleads them in regards to this item.
5. Adoption Credit. You may be able to claim a tax credit for certain expenses you paid to adopt a child. For details, see the instructions for Form 8839, Qualified Adoption Expenses.
6. Higher education credits. If you paid for higher education for yourself or an immediate family member, you may qualify for either of two education tax credits. Both the American Opportunity Credit and the Lifetime Learning Credit may reduce the amount of tax you owe. If the American Opportunity Credit is more than the tax you owe, you could be eligible for a refund of up to $1,000. See Publication 970, Tax Benefits for Education.
7. Student loan interest. You may be able to deduct interest you paid on a qualified student loan, even if you don’t itemize deductions on your tax return. For more information, see Publication 970.
8. Self-employed health insurance deduction. If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid to cover your child under the Affordable Care Act. It applies to children under age 27 at the end of the year, even if not your dependent. See Notice 2010-38 for information. Be careful if you are an owner of an S-corporation, partnership, or LLC. There are specific rules to follow in order to get the deduction. A CPA can help guide you through the process but you should contact us well before the end of each year to make sure things like W-2’s correctly reflect this if applicable.
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.
I know, don’t trust the government when it gives you something free. But in the area of phone tapping, drones, and internet bugging, it probably won’t compromise your privacy too much to take advantage of the high tech candy. Here are some of the IRS tips to help you:
Are you on the go but need the latest tax information at your fingertips? There’s an app for that. The latest version of the innovative IRS2Go app is now available.
Here’s what you can do with the redesigned IRS Smartphone app IRS2Go, version 4.0, available in English and Spanish:
Check the status of your refund. The new version of IRS2Go includes an easy-to-use refund status tracker so taxpayers can follow their tax return step-by-step throughout the IRS process. Just enter your Social Security number, filing status and your expected refund amount. You can start checking on the status of your refund 24 hours after the IRS confirms receipt of an e-filed return or four weeks after you mail a paper return. Since the IRS posts refund updates on a daily basis, there’s no need to check the status more than once each day.
Find free tax preparation. You may qualify for free tax help through the IRS Volunteer Income Tax Assistance or Tax Counseling for the Elderly programs. A new tool on IRS2Go will help you find a VITA location. Just enter your ZIP code and select a mileage range to see a listing of VITA/TCE sites near you. Select one of the sites and your Smartphone will show an address and map to help you navigate.
Get tax records. You can request a copy of your tax bill or a transcript of your tax return using IRS2Go. The post office will deliver to your address on record.
Stay connected. You can interact with the IRS by following the IRS on Twitter @IRSnews, @IRStaxpros and @IRSenEspanol. You can also watch IRS videos on YouTube, register for email updates or contact the IRS using the “Contact Us” feature.
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.
Surprises are usually fun. I remember the Dean Martin show in the 1960s. In the middle of his show he would go to a door and casually open it to let in a cameo appearance by a celebrity. It was fun because it was a surprise, not a shock.
During the year you should keep an eye on your tax withholdings. If you under-withhold taxes you could be subjected to penalties. Here are some examples that can change what happens in April:
Wages and Income Tax Withholding
New Job. Your employer will ask you to complete a Form W-4, Employee’s Withholding Allowance Certificate. Complete it accurately to figure the amount of federal income tax to withhold from your paychecks.
Life Event. Change your Form W-4 when certain life events take place. A change in marital status, birth of a child, getting or losing a job, or purchasing a home, for example, can all change the amount of taxes you owe. You can typically submit a new
Form W–4 anytime.
IRS Withholding Calculator. This handy online tool will help you figure the
correct amount of tax to withhold based on your situation. If a change is
necessary, the tool will help you complete a new Form W-4.
Self-Employment and Other Income
Estimated tax. This is how you pay tax on income that’s not subject to withholding. Examples include income from self-employment, interest, dividends, alimony, rent and gains from the sale of assets. You also may need to pay estimated tax if the amount of
income tax withheld from your wages, pension or other income is not
enough. If you expect to owe a thousand dollars or more in taxes and meet
other conditions, you may need to make estimated tax payments.
Form 1040-ES. Use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you need to pay estimated taxes on a quarterly basis.
Change in Estimated Tax.
After you make an estimated tax payment, some life events or financial
changes may affect your future payments. Changes in your income, adjustments,
deductions, credits or exemptions may make it necessary for you to refigure your estimated tax.
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.
I love our clients. Usually, before they make a financial move (small or large), they contact us. Sometimes it results in important decisions. Take for example the client who calls about an email form his bank that states that his account will be closed down unless he logs in and fixes a problem. The client would send the email to me (we control his account), and we would immediately email him to not respond because it is a phishing email trying to steal his login. We find these problems when we run our cursor over the authentic-looking logo. It points to a site other than the bank site.
The IRS system is a target of fraudsters also. Here are some examples they warn you about:
Three common year-round scams are identity theft, phishing and return
preparer fraud. These schemes are on the top of the IRS’s “Dirty Dozen” list of
scams this year. They’re illegal and can lead to significant penalties and
interest, even criminal prosecution.
Here’s more information about these scams that every taxpayer should know.
1. Identity Theft. Tax fraud by identity theft
tops this year’s Dirty Dozen list. Identity thieves use personal information,
such as your name, Social Security number or other identifying information
without your permission to commit fraud or other crimes. An identity thief may
also use another person’s identity to fraudulently file a tax return and claim
a refund.
The IRS has a special identity
protection page on IRS.gov dedicated to identity theft issues. It has
helpful links to information, such as how victims can contact the IRS Identity
Theft Protection Specialized Unit, and how you can protect yourself against
identity theft.
2. Phishing. Scam artists use phishing to trick
unsuspecting victims into revealing personal or financial information. Phishing
scammers may pose as the IRS and send bogus emails, set up phony websites or
make phone calls. These contacts usually offer a fictitious refund or threaten an
audit or investigation to lure victims into revealing personal information.
Phishers then use the information they obtain to steal the victim’s identity,
access their bank accounts and credit cards or apply for loans. The IRS does
not initiate contact with taxpayers by email to request personal or financial
information. Please forward suspicious scams to the IRS at phishing@irs.gov. You can also visit IRS.gov and select the link “Reporting
Phishing” at the bottom of the page.
3. Return Preparer Fraud. Most tax professionals
file honest and accurate returns for their clients. However, some dishonest tax
return preparers skim a portion of the client’s refund or charge inflated fees
for tax preparation. Some try to attract new clients by promising refunds that
are too good to be true.
Choose carefully when hiring an individual or firm to prepare your return.
All paid tax preparers must sign the return they prepare and enter their IRS
Preparer Tax Identification Number (PTIN). The IRS created a webpage to assist
taxpayers when choosing a tax preparer. It includes red flags to look for and
information on how and when to make a complaint. Visit www.irs.gov/chooseataxpro.
Be very careful with your personal information. If in doubt, don’t click or answer anything.
IRS Podcasts:
Protect Yourself from Identity Theft – English
| Spanish
If you are a working parent, you may need to pay for the care of your child or children. These expenses may qualify for a tax credit that can reduce your federal income taxes. Here are eight key points the IRS wants you to know about this credit.
1. You must pay for care so you – and your spouse if filing jointly – can work or actively look for work. Your spouse meets this test during any month they are full-time student, or physically or mentally incapable of self-care.
2. You must have earned income. Earned income includes earnings such as wages and self-employment. If you are married filing jointly, your spouse must also have earned income. There is an exception to this rule for a spouse who is full-time student or who is physically or mentally incapable of self-care.
3. You must pay for the care of one or more qualifying persons. Qualifying children under age 13 who you claim as a dependent meet this test. Your spouse or dependent who lived with you for more than half the year may meet this test if they are physically or mentally incapable of self-care.
4. You may qualify for the credit whether you pay for care at home, at a daycare facility outside the home or at a day camp. If you pay for care in your home, you may be a household employer. For more information, see Publication 926, Household Employer’s Tax Guide.
5. The credit is a percentage of the qualified expenses you pay for the care of a qualifying person. It can be up to 35 percent of your expenses, depending on your income.
6. You may use up to $3,000 of the unreimbursed expenses you pay in a year for one qualifying person or $6,000 for two or more qualifying person.
7. Expenses for overnight camps or summer school tutoring do not qualify. You cannot include the cost of care provided by your spouse or a person you can claim as your dependent. If you get dependent care benefits from your employer, special rules apply.
8. Keep your receipts and records to use when you file your 2013 tax return next year. Make sure to note the name, address and Social Security number or employer identification number of the care provider. You must report this information when you claim the credit on your return.
Alternatively, you can register for your employer’s “Cafeteria Plan.” These plans allow you to deduct your childcare expenses from your wages.
For more details about the rules to claim this credit, see Publication 503, Child and Dependent Care Expenses.
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.
“Back in the day, we didn’t have child tax credits, we just raised them on chewin gum and knee patches.” Well, back in the day, they didn’t have athletic club teams and every kid of activity available to drain a parent’s bank account.
But, there is a little reprieve. The Child and Dependent Care Credit can help offset some of the costs you pay for the care of your child, a dependent or a spouse. Here are 10 facts the IRS wants you to know about the tax credit for child and dependent care expenses.
1. If you paid someone to care for your child, dependent or spouse last year, you may qualify for the child and dependent care credit. You claim the credit when you file your federal income tax return.
2. You can claim the Child and Dependent Care Credit for “qualifying individuals.” A qualifying individual includes your child under age 13. It also includes your spouse or dependent who lived with you for more than half the year who was physically or mentally incapable of self-care.
3. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.
4. You, and your spouse if you file jointly, must have earned income, such as income from a job. A special rule applies for a spouse who is a student or not able to care for himself or herself.
5. Payments for care cannot go to your spouse, the parent of your qualifying person or to someone you can claim as a dependent on your return. Payments can also not go to your child who is under age 19, even if the child is not your dependent.
6. This credit can be worth up to 35 percent of your qualifying costs for care, depending upon your income. When figuring the amount of your credit, you can claim up to $3,000 of your total costs if you have one qualifying individual. If you have two or more qualifying individuals you can claim up to $6,000 of your costs.
7. If your employer provides dependent care benefits, special rules apply. See Form 2441, Child and Dependent Care Expenses for how the rules apply to you.
8. You must include the Social Security number on your tax return for each qualifying individual.
9. You must also include on your tax return the name, address and Social Security number (individuals) or Employer Identification Number (businesses) of your care provider.
10. To claim the credit, attach Form 2441 to your tax return. If you use IRS e-file to prepare and file your return, the software will do this for you.
Take every available deduction and credit you are entitled to. It can make the difference between a refund and taxes due in April. Always check 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.
Do your kids treat you like an ATM on legs? They certainly can cost you money. Well, depending on your tax situation and tax level, your kids can also put money in your pockets and you don’t have to hire them.
Here are some tips:
1. Dependents. In most cases, you can claim a child as a dependent even if your child was born anytime during the tax year. For more information, see IRS Publication 501, Exemptions, Standard Deduction and Filing Information.
2. Child Tax Credit. You may be able to claim the Child Tax Credit for each of your children that were under age 17 at the end of the year. If you do not benefit from the full amount of the credit, you may be eligible for the Additional Child Tax Credit. For more information, see the instructions for Schedule 8812, Child Tax Credit, and Publication 972, Child Tax Credit.
3. Child and Dependent Care Credit. You may be able to claim this credit if you paid someone to care for your child or children under age 13, so that you could work or look for work. See IRS Publication 503, Child and Dependent Care Expenses.
4. Earned Income Tax Credit. If you worked but earned less, you may qualify for EITC. If you have qualifying children, you may get dollars back when you file a return and claim it. Use the EITC Assistant to find out if you qualify. See Publication 596, Earned Income Tax Credit.
5. Adoption Credit. You may be able to take a tax credit for certain expenses you incurred to adopt a child. For details about this credit, see the instructions for IRS Form 8839, Qualified Adoption Expenses.
6. Higher education credits. If you paid higher education costs for yourself or another student who is an immediate family member, you may qualify for either the American Opportunity Credit or the Lifetime Learning Credit. Both credits may reduce the amount of tax you owe. If the American Opportunity Credit is more than the tax you owe, you could be eligible for a small refund. See IRS Publication 970, Tax Benefits for Education.
7. Student loan interest. You may be able to deduct interest you paid on a qualified student loan, even if you do not itemize your deductions. For more information, see IRS Publication 970, Tax Benefits for Education.
8. Self-employed health insurance deduction – If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid to cover your child. It applies to children under age 27 at the end of the year, even if not your dependent. See IRS.gov/aca for information on the Affordable Care Act.
Always check with your tax advisor because these rules may change from year to year, and your situation may be special.
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.
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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Several times a year I am interviewed for articles and radio pod-casts. (Nobody has had the guts (or fool-hardiness) to throw my face on the screen). During tax season, freelance writers are looking for the latest and greatest tax tips. The article 5 Tips for Freelance Writers by Kylie Jane Wakefield, set out to give a few tips to freelance writers. But frankly, the tips do not differ much to any other struggling entrepreneur who is trying to fulfill a dream while working a day job.
The IRS publishes a list of tax scams that they are focusing. It is good to understand the basic premise of these in order to protect you, your family, and your business.
Raising children can be a financial strain. There are some tax benefits that you should not forget. Here are eight CPA tax benefits parents should look out for when filing their federal tax returns.
I know, don’t trust the government when it gives you something free. But in the area of phone tapping, drones, and internet bugging, it probably won’t compromise your privacy too much to take advantage of the high tech candy. Here are some of the IRS tips to help you:
Surprises are usually fun. I remember the Dean Martin show in the 1960s. In the middle of his show he would go to a door and casually open it to let in a cameo appearance by a celebrity. It was fun because it was a surprise, not a shock.
I love our clients. Usually, before they make a financial move (small or large), they contact us. Sometimes it results in important decisions. Take for example the client who calls about an email form his bank that states that his account will be closed down unless he logs in and fixes a problem. The client would send the email to me (we control his account), and we would immediately email him to not respond because it is a phishing email trying to steal his login. We find these problems when we run our cursor over the authentic-looking logo. It points to a site other than the bank site.
If you are a working parent, you may need to pay for the care of your child or children. These expenses may qualify for a tax credit that can reduce your federal income taxes. Here are eight key points the IRS wants you to know about this credit.
“Back in the day, we didn’t have child tax credits, we just raised them on chewin gum and knee patches.” Well, back in the day, they didn’t have athletic club teams and every kid of activity available to drain a parent’s bank account.
Do your kids treat you like an ATM on legs? They certainly can cost you money. Well, depending on your tax situation and tax level, your kids can also put money in your pockets and you don’t have to hire them.
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.