Posts Tagged ‘Tax’

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Casual Merchants: Expect Underreporting Notices in the Mail

In Accounting & Finances,Business,Taxes on April 2, 2013 by Sufen Wang Tagged: , , , , , , ,

MH900104746The IRS Didn’t Forget about Casual Merchants: Expect Underreporting Notices in the Mail

Casual merchants might have some official ‘splainin’ to do. The IRS is taking a good, hard look at the gross receipts of food cart operators, mom-and-pop shops, swap meet participants, and sellers on online auction sites such as Ebay. If there appear to be any discrepancies, the agency will likely send out “soft letters” requesting additional information from those small business taxpayers.

$10 billsSpecifically, the IRS will be checking whether gross receipts – as reported by credit card companies and third-party networks – match up with income stated on tax returns. Since 2011, certain taxpayers have had credit, debit, and certain electronic transactions reported on Form(s) 1099-K, Merchant Card and Third Party Network Payments. A high amount of receipts that appears on this form, but not in income levels on the tax return, is obviously going to raise eyebrows.

MH900401126Thus, a soft letter means the taxpayer isn’t in trouble (yet), but the IRS wants answers. After all, the IRS knows there are legitimate reasons why a merchant’s numbers might not add up with the third parties’. For example, there could be a difference between parties’ calendar year versus fiscal year accounting systems. Or it could arise from the fact that Form 1099-K does not take into account on sales returns and refunds processed by the merchant, or a merchant’s cost of goods, or other legitimate deductions from gross income.

These valid excuses are exactly why the IRS plans to begin with soft letters of inquiry. If the taxpayer agrees with the assessment of underreporting, the IRS will request that they amend their returns. The goal is not punish taxpayers, but to increase voluntary compliance.

Sufen Wang, M.S.Accountancy

Wang Solutions, Long Beach, CA (562) 856-0793

Articles

Taxable or Nontaxable?

In Accounting & Finances,Business,Education,Family,Taxes on March 11, 2013 by Sufen Wang Tagged: , , , , , , ,

MH900442285Question Needs to be Answered: Income Tax Basics

You know (hopefully) that federal income tax returns are due April 15. But do you really know what income is – let alone if it’s taxable or non-taxable? Here’s income by the numbers to help you do the math correctly on your returns.

Income can include money, property, or services that you receive. All income is taxable unless the law specifically excludes it – and those “tips” you pocketed are not excluded. You should notice that income doesn’t just mean money: non-cash income received through bartering is as taxable as wages, and both parties must report the fair market value of goods/services received as income on their tax returns. 

MH900361224Although most income is taxable, there are exceptions to this rule. Gifts, bequests, and inheritances are usually nontaxable, so don’t worry about that luxury car given to you for your birthday. If you buy something and get a cash rebate from the dealer/manufacturer, that rebate is also not taxable. Welfare benefits, child support payments, and reimbursements for qualified adoption expenses are all not taxable. Finally, if you collected damage awards for a physical injury or sickness, those are yours to keep, tax-free – nobody wants to kick you while you’re down.

TMH900234599hings get a little tricky with income that’s not taxable except under certain conditions. For example, life insurance proceeds paid to you because of an insured person’s death are usually not taxable. However, if you redeem a life insurance policy for cash, any amount more than the cost of the policy is taxable. Similarly, any scholarship income used for certain costs like tuition and required course books is not taxable, but amounts used for room and board are taxable. And classifying your frat house as  “textbook” college living won’t work.

Don’t forget to report any taxable refund, credit, or offset of state or local income taxes you received, even if you weren’t mailed Form 1099-G. You’ll have to contact the government agency that issued the payment to obtain that form. And don’t miss out on IRS Publication 525, Taxable and Nontaxable Income – it explains everything you ever wanted to know about income.

Wang Solutions, Sufen Wang, M.S. Accountancy, (562) 856-0793

Articles

Whistleblowers Wanted:

In Accounting & Finances,Business,Education,Taxes on January 27, 2013 by Sufen Wang Tagged: , , , , , , ,

MH900084382Report Suspected Tax Fraud

To catch a thief, the IRS needs your help. If you suspect someone might be bending certain tax laws, don’t just stand there – do something! There’s a variety of tax frauds, so the IRS has conveniently created a chart to explain which form you’ll need to fill out in order to make the tax world a better place.

Direct your pen to Form 3949-A, Information Referral, if you suspect an individual/business of false exemptions or deductions, kickbacks, false/altered documents, failure to pay taxes, unreported income, failure to withhold, or organized crime. Then congratulate yourself on doing the right thing.

MH900422392Identity theft is also a type of tax fraud. If you believe that someone is posing as you and has used your SSN for employment purposes or to file a tax return, pick up Form 14039, Identity Theft Affidavit. The sooner you submit the form, the sooner the impostor will be caught.

Maybe your friendly neighborhood tax preparer has been getting rich a little too quickly. If you suspect fraudulent activity or an abusive tax scheme by a tax return preparer/company, report it on Form 14157. You’ll need both this form and Form 14157-A if you also think a tax return preparer filed or altered your return without your consent.

If you have information about a suspicious tax promotion or promoter, whip out Form 14242 and show that fake promotion who’s boss. And finally, if you notice misconduct or wrongdoing by an exempt organizationor employee plan, complain about it on Form 13909, Tax-Exempt Organization Complaint (Referral) Form.

MH900383616Reporting tax fraud is a good deed and should be reward enough by itself. However, for anyone who needs extra motivation, check out Form 211, Application for Award for Original Information. Sometimes it pays to be a whistleblower.  Do the right thing, it is hard, but it is very, very rewarding!!!

 

Sufen Wang, M.S.Accountancy

Wang Solutions, Long Beach, CA (562) 856-0793
Editor: Hannah Huff, M.F.A. Creative Writing: Poetry, (626) 806-5805

 

Articles

Tax Relief for Hurricane Sandy Victims…

In Accounting & Finances,Business,Culture,Family,Insurance & Liability,Taxes on November 23, 2012 by Sufen Wang Tagged: , , , , , , ,

Hurricane Sandy Qualifies as a Disaster: Victims Given Much-Needed Tax Relief

Just because Hurricane Sandy has disappeared from the Doppler radar does not mean its aftermath dropped off the map. Almost a month has passed, but many East Coast residents are still picking through debris on their lawns and others will be homeless for the holidays. The storm really was a disaster in many ways – which is why it has been designated as a “qualified disaster for federal tax purposes.”

That’s actually good news: victims can exclude qualified disaster relief payments received from their employer (or anyone else for that matter) from their taxable income. So any payments used to repair homes or repair/replace the contents not covered by insurance, would not be included in the individual recipient’s gross income. This is also the case with any payments received for uninsured personal, family, living, or funeral expenses resulting from the storm. As a result, hurricane victims won’t have to worry about paying extra later when they’ve already lost so much.

Hurricane Sandy being named a “qualified disaster” will also help anybody trying to help the storm’s victims. Now, employer-sponsored private foundations can provide disaster relief to employee-victims in areas affected by the hurricane without having to worry that their tax-exempt status will change. An official list of those affected areas can be found here.

This tax relief is nice, but assistance for Hurricane Sandy victims shouldn’t stop there. Every cent does count, so donate whatever you can. Or if you don’t have a lot of money, volunteer a little of your time. It’s the season of giving after all.

Happy Thanks–Giving…. 

Sufen Wang 

Wang Solutions

Articles

Looking for Tax Penalty Relief?:

In Accounting & Finances,Business,Taxes on November 19, 2012 by Sufen Wang Tagged: , , , , , ,

The IRS Made it Hard to Find…

Failed…

That’s the only word to describe the IRS’ actions concerning penalty forgiveness. How else could you explain forgetting to inform 1.45 million taxpayers that they qualified for and had a right to ask for relief from tax penalties totaling $181 million? If you’re like most people and have never heard of this tax penalty relief, here’s the reason why:

The IRS fines taxpayers when they don’t file a tax return or pay the full tax shown on any tax return. However, any taxpayers who have demonstrated full compliance over the previous three years can have these fines waved in something known as “first-time abate” (FTA). The only catch is that you need to first request the penalty waiver – and that’s hard to do if you don’t even know the waiver exists.

And the IRS has certainly kept its lips zipped and its fine print invisible. The potential penalty relief is not mentioned anywhere on Form 1040, nor is it on the IRS website’s page about penalties, or on any balance due notices – not even within the text on those documents mentioning penalties for failure to file or pay. Even worse, over 90% of the people who actually did qualify for the penalty relief were not granted it.

Of course, the IRS’ failure does not mean that all taxpayers are perfect angels. The TIGTA found that a number of taxpayers who received the FTA waivers failed to fully pay off their taxes six months after the postponement. Accordingly, the TIGTA suggested that the IRS also use the FTA waiver as a compliance tool: make taxpayers aware of their potential to receive an FTA waiver based on their past compliance history and make receipt of the waiver dependent on taxpayers paying their current liability. That way, it’s a win-win situation for everyone involved.

If you to read all of the juicy legal tidbits regarding the TIGTA’s findings, you can check out the full report here.

On the Money,  Sufen Wang,  Wang Solutions

Articles

Take a Vacation from Taxes

In Accounting & Finances,Business,Culture,Entertainment,Family,Taxes on August 20, 2012 by Sufen Wang Tagged: , , , , , ,

Rent Smart and Take a Vacation from Taxes:

Hopefully you were able to sneak away from work this summer and relax with your family at your vacation home: swimming, fishing, trying to keep up with the kids on breath-taking hikes. Unfortunately, it’s time to go home. The kids are tired of wearing sunscreen, and just want to go back to their air-conditioned rooms, and video games. Worse, your boss already sent you a dozen e-mails about what’s due next week. As you’re loading up the car, you wish you could find a renter to put the vacation home to good use for the last few weeks of summer.

Actually, that’s a very good idea. See, if you rent out your vacation home for fewer than 15 days a year, you don’t have to report it to the IRS. And if you don’t report something to the IRS, you don’t have to pay taxes on it. In other words, your rental income for 14 days or less is tax free.

14 is the magic number though (or more specifically, 14 days, 23 hours, 59 minutes, and 59 seconds). Anything over that and you must report the income on Schedule E. So if Joe Schmoe Renter is really enjoying the lake house after two weeks and wants to stay longer, you have to decide if you want to deal with the hassle of kicking him out, or the hassle of filling out Schedule E.

If you choose the latter option, things get a little confusing. You have to start looking at how much you used the vacation home for personal use versus how many days it was occupied by a renter. Then you’ll be able to figure out how much you can deduct, which expenses you can claim, and how you report them. You can check out how to do the math on Publication 527: Residential Rental Property. If only vacation could always be all play and no work… 

Articles

Get a Summer Job!

In Accounting & Finances,Business,Culture,Education,Family,Insurance & Liability on July 31, 2012 by Sufen Wang Tagged: , , , , , , ,

At first, working during the summer sounds awful to most young adults. Then they usually stop complaining when their first paycheck arrives. However, they usually start complaining again once they realize that with income, comes taxes.

Meet Form W-4: Employee’s Withholding Allowance Certificate. This form is used by employers to determine the amount of tax that will be withheld from your paychecks to cover your income tax liability. You, along with everybody else, must fill out a W-4 when you start a new job – even if you work at that job for just one day.

Maybe you were lucky and found work as a waiter. Dealing with customers is difficult, but it also means you can get extra money from tips, and who’s going to say no to free,extra money? Unfortunately, you can’t just pocket your tips and forget about them– all tips you receive are taxable income which you must report. 

Perhaps you decide you want to be your own boss for the summer. You start doing odd jobs around town: babysitting, mowing your friend’s dad’s lawn, walking your neighbor’spoodle up and down the street. Congratulations on being a young entrepreneur,but the earnings you receive from self-employment are still subject to income tax. And if you end up mowing a lot of lawns and make $400 or more from self-employment, you’ll have to pay a self-employment tax.

If you get a job as paperboy (or girl), at least you’ll be done with work by the time most of America wakes up for work. And teens have special rules when it comes to federal taxes. Because newspaper deliverers are generally treated as self-employed, they have to pay the self-employment tax. However, if you’reunder 18, and you don’t meet all of the carrier self-employment conditions, you are exempt from that tax.

Everyone has to start working at some point. If you have nothing do this summer except wait for school to start, then you might as well start mowing some lawns! 

On the Money,

Sufen Wang

Wang Solutions