Posts Tagged ‘Tax’
In Accounting & Finances,Culture,Education,Family,Taxes on March 30, 2012 by Sufen Wang Tagged: Adjusted gross income, Adoption, Brangelina, Internal Revenue Service, irs, Money, Patient Protection and Affordable Care Act, Tax
Now with an Added Bonus from the IRS
Have you read the tabloids lately? Brangelina is having another baby! No, not adoption this time, but for those adoptive parents out there who need extra money, here are some IRS tips on taxes and credits.
With adoption, comes responsibility – and lots of bills. Luckily, if you paid expenses to adopt an eligible child in 2011, you have even more to be excited about than just a new member of your household. Say hello to an expanded adoption credit. The Affordable Care Act increased the credit to a maximum $13,360 and made it refundable. In other words, you can get the adoption credit as a tax refund even after your tax liability has been reduced to zero.
Of course, there’s always fine print when money is at stake. While you may consider the Chihuahua you rescued from the animal shelter to be your baby, the IRS defines an eligible child as “under 18 years old, or physically or mentally incapable of caring for himself or herself.” And those expenses don’t refer to the big screen TV you bought on the way to the courthouse. They mean adoption fees, court costs, attorney fees – basically all the “reasonable and necessary expenses” directly related to the legal adoption. One more qualification: if you are rich like (Brangelina), then you are out of luck. Anybody with a modified AGI of $225,210 or higher cannot receive the credit.
Unfortunately, getting the credit requires actual paperwork. Yes, you read that right. You must file a paper tax return, Form 8839, Qualified Adoption Expenses, and attach documents supporting the adoption. No, a hand-written note on a piece of binder paper doesn’t count as a supporting document. The IRS wants you to include stuff like a final adoption decree or a placement agreement from an authorized agency. All of this doesn’t mean you can’t use IRS Free File or other software to prepare your returns first. However, you must eventually print your returns and mail them if you want the IRS to show you the money.
So, for those of you with a big heart and an ache to have children running around the house, adopt away! Hope this article helps the road to adoption a little easier….
On the Money,
Sufen Wang
Wang Solutions
In Accounting & Finances,Business,Taxes on March 23, 2012 by Sufen Wang Tagged: Air Force, Earned Income Tax Credit, Form 4868, Income tax, Internal Revenue Service, IRS Volunteer Income Tax Assistance Program, Tax, Tax preparation
Military personnel tax themselves to help their country, so their country is helping them with free tax return preparation assistance. The Volunteer Income Tax Assistance program provides low-to-moderate-income soldiers and their spouses with free tax advice, tax preparation, and return filing. And our troops don’t have to travel far for this help: VITA sites are located everywhere, from libraries to shopping malls. This means less time fighting numbers and traffic, and more precious time with their families.
The Armed Forces Tax Council is the name to know for military-related tax problems. It doesn’t matter if you’re a soldier on land, sea, or in the sky: the AFTC directs military tax programs worldwide and has program coordinators for the Marine Corps, Air Force, Army, Navy and Coast Guard. With VITA, they provide volunteers who are ready to help you solve common tax issues and also answer any military-specific tax questions you may have. These are the people to ask about combat zone tax benefits or Earned Income Tax Credit guidelines. Just head to a military-based VITA site with all of your relevant identification and financial information.
Things can get a little hectic while protecting the country and filing taxes might be the last thing on your mind. There are filing extensions that the military personnel need to be aware of and take an advantage of. Check out the Extension of Deadlines section of the Armed Forces Tax Guide, Publication 3, along with the extension Form 4868; these documents will provide some breathing room for our military families. The IRS is doing what it can to make taxes as painless as possible for our troops.
On the Money,
Sufen Wang
Wang Solutions
In Accounting & Finances,Business,Taxes on March 18, 2012 by Sufen Wang Tagged: Internal Revenue Service, irs, IRS e-file, Nina Olson, Tax, tax refund, Tax return (United States), United States
IRS Practitioner Phone Line Wait Time: First Sign of Services Decline?
Back in November, the IRS predicted that reducing its budget would mean trouble for taxpayers and practitioners down the road. Well, now we’re down the road and it looks like the IRS was right. (Ref: Blog: IRS Budget Cut)
From January 1 to March 1, IRS’s practitioner priority telephone line serviced only 69.9 percent of calls and the average wait time was 26 minutes. IRS Taxpayer Advocate Nina Olson advised callers to “bring your knitting to the phone.” She explained that “There is simply too much work and not enough employees to do the work.” Many practitioners have already noticed an overall increase in tax return processing time and the issuance of tax refunds.
If problems like this are occurring with only a 0.2% reduction in funding from 2010 to 2011, then just imagine how long the wait time will be when the 2.5% cut in 2012 comes into full effect. On the bright side, at least a lot of sweaters will get knitted.
On the Money,
Sufen Wang
Wang Solutions
In Accounting & Finances,Business,Culture,Taxes on March 8, 2012 by Sufen Wang Tagged: Barter, business, Internal Revenue Service, irs, IRS tax forms, Partnership, Small business, Tax
“I will gladly pay you Tuesday for a hamburger today!”
That classic Wimpy phrase was not just about hamburgers, it’s about bartering – one of the oldest business transactions in human history. Well, in Wimpy’s case, it was probably more like an “I.O.U.” than an actual bartering exchanging hands. Yes, before coins and dollars were invented, folks survived by trading stuff. Bartering is back in full swing now that the country is going through some hard times, so it’s time to dust off your haggling skills.
The official definition of bartering is “the trading of one product or service for another.” If you offer your friend three cookies in exchange for a sandwich, you have just bartered. Of course, it gets more complicated than this in the business world, and small business owners can save a lot of money by bartering for the products and services they need.
In general, bartering involves no exchange of cash, but that doesn’t mean you’re off the hook with the IRS. The fair market value of property or services received through barter is taxable income. Since it takes two to barter, both parties must report this income for the year in which the transaction is performed. How you report your transactions depends on which form of bartering takes place. In most cases, you’ll use Form 1040, Schedule C Profit or Loss from Business, or other business returns such as Form 1065 for Partnerships, Form 1120 for Corporations, or Form 1120-S for Small Business Corporations.
You might still imagine bartering to be like a crowded swap meet, with people yelling and pushing you. Actually, the internet has allowed bartering to get a lot fancier than that and now there are even things like organized barter exchanges. A barter exchange organizes a marketplace where members buy and sell products and services among themselves. If you choose to use such a marketplace, every year you’ll have to fill out Form 1099-B, Proceeds from Broker and Barter Exchange Transactions.
You, yourself, might find that you really like bartering – if you start to do it a lot, congratulations, you may have started what the IRS calls a “barter business.” Once you’re established enough, you can even deduct business expenses. Or you might have a regular business and are simply using barter transactions to help your sales; then you’ll have to include those sales in your business income.
If you really want to be a savvy barterer, here’s a tip: never barter outside of your industry. When you mix two different types of businesses, one party of the bartering partners will always feel short-changed. That’s why a uniform currency was invented in the first place. So, stick with the same business if you want to barter – otherwise, just pay for each other’s services and be done with it!
The IRS provides a Bartering Tax Center for all of your bartering needs. And no, you don’t need to trade anything to read it!
On the Money,
Sufen Wang
Wang Solutions
In Accounting & Finances,Business,Taxes on March 2, 2012 by Sufen Wang Tagged: Dirty Dozen, Identity theft, Internal Revenue Service, irs, IRS tax forms, Social Security number, Tax, United States
Another Dirty Dozen: The Top 12 Tax Scams of 2012
As long as there are taxes, there are going to be scams. A lot of money gets moved around in April and a lot of people want to get their hands on it – illegally. If you’re one of those people, you’ll probably be in jail sometime soon. Luckily, the IRS’ “Dirty Dozen” – the list ranking scams taxpayers are most likely to get sucked into – is back. Let’s see how things have changed since we brought you the “Dirty Dozen” last year.
The new leader of the IRS’ “Dirty Dozen” is Identity Theft. This is a growing problem in which somebody uses a real taxpayer’s personal information to file a return and then receives the refund. If that sounds like a good idea to you, just know that the IRS is cracking down on this particular scam with law-enforcement. There’s even a special web page to help taxpayers spot when somebody is pretending to be them. So how do you know if your name is being used elsewhere? If you get an IRS notice telling you that you filed more than one return, you could be a victim of identity theft.
Close behind is Phishing. This does not have to do with going out on a boat and catching things in the water. This is actually when a scammer uses a fake website or email to steal your personal information – which they can then use for the big bad identity theft. Always check that you’re on the real IRS site (the address should contain irs.gov) and since the IRS doesn’t send out any e-mails, don’t open anything that is supposedly from the agency or the Electronic Federal Tax Payment System (EFTPS). Oh, and don’t post your social security number on the “IRS” Facebook page.
Remember that post a few weeks ago about finding the right preparer? It was supposed to help you avoid becoming a victim of scam number three, Return Preparer Fraud. These corrupt preparers will do anything, from stealing part of your return, to charging you outrageous fees. Make sure your preparer includes his/her signature and PTIN on your return, and walk away if they tell you to include false information.
You really can’t get away from Hiding Income Offshore. The number one scam on last year’s “Dirty Dozen” list, evading taxes by storing your assets out of the United States, continues to be a huge problem. That’s not to say that you can’t keep stuff overseas – you just have to tell the IRS about it. If you’ve had a change of heart and want to stop being a scammer, the Offshore Voluntary Disclosure Program is still going on.
The above are the most prevalent issues, but there’s still a lot of scamming going on at the bottom of the list. Don’t pay attention to people offering advice – for a fee – about how to get “Free Money” from the IRS & Tax Scams Involving Social Security. You’ll be paying money for a claim that is eventually going to get rejected by the IRS. And don’t think you can get away with penning in False/Inflated Income and Expenses on your tax return. Although it might seem easy to claim income or expenses you didn’t really pay, so that you can receive refunds like the EITC, you’ll face interest and penalties when you do get caught.
The same goes for False Form 1099 Refund Claims. Filing a fake information return to verify a fake refund claim will result in real problems for you. And don’t listen to Frivolous Arguments about why you don’t need to pay taxes. Pay first, and then if you have a problem, bring it up in court later. You also need to pay the correct amount that you owe, so don’t Falsely Claim Zero Wages.
Perhaps the dirtiest scam on the Dirty Dozen is Abuse of Charitable Organizations and Deductions. Yes, people will do things like “improperly shield income or assets from taxation” and “maintain control over donated assets.” Charities are for you to help other people – not yourself. The penultimate scam, Disguised Corporate Ownership, is when the true ownership of a business is obscured. Last but not least is Misuse of Trusts. Promoters will convince taxpayers to transfer their assets into trusts, promising less income subject to taxation or reduced estate taxes. In reality, this is just a fancy way of avoiding tax liability.
The IRS is watching you.
On the Money,
Sufen Wang
Wang Solutions
In Accounting & Finances,Business,Taxes on February 23, 2012 by Sufen Wang Tagged: First-Time Homebuyer Credit, First-Time Homebuyer Credit Account, Internal Revenue Service, irs, IRS Form 5405, IRS tax forms, Social Security number, Tax
The IRS is reminding individuals who received the First Time Homebuyer Credit not to wait for a repayment reminder in the mail. All account information has officially gone digital. Recipients of this credit must now go online to check their total credit and repayment amounts.
How do you know if you should log on to the First Time Homebuyer Credit Account Look-Up page? Well, you must have received a First Time Homebuyer Credit! The credit was introduced in 2008 at a maximum $7,500 – with the footnote that all of the money had to be paid back over 15 years. However, 2010 first time buyers got an even better deal: their credit doesn’t need to be repaid unless the house is sold within three years.
If the credit applies to you, you’ll want to log on for tax reference purposes. Make sure you have your current information ready, including your SSN, date of birth, and street address. The IRS site is secure and encrypted, so you don’t have to worry about your info ending up in the wrong hands. Once you’re in, you’ll be able to see your original credit amount, what you’ve paid back so far, what you still owe, and the amount of each annual repayment.
Now for the hard part. To actually repay your First Time Homebuyer Credit, just add the amount that you are told to repay to the other taxes that you owe on your return. Then use line 59b on Form 1040 to report repayment of the credit. You only need to attach Form 5405, First Time Homebuyer Credit and Repayment of the Credit, if you are repaying because the house is no longer your main home. You can access the First-Time Homebuyer Credit Account Look-Up tool all day, everyday, so there’s no excuse for not knowing how much you owe!
Summary of the First-Time Homebuyer Credit by Year
2008: up to $7,500, the credit is paid back over 15 years.
Jan – Nov 2009: up to $8,000, the credit does not need to be paid back.
Dec 2009 – April 2010: up to $8,000 for first-time buyers, the credit does not need to be paid back.
Nov 7, 2009 – April 2010: up to $6,500 for “long-term residents” buying a new home, the credit does not need to be paid back.
On the Money,
Sufen Wang
Wang Solutions
In Accounting & Finances,Business,Taxes on February 17, 2012 by Sufen Wang Tagged: Alternative Minimum Tax, Earned Income Tax Credit, Filing Status (federal income tax), Internal Revenue Service, irs, Tax, Tax credit, Tax preparation
When and Why You Should File
Tax season is in full bloom with preparer commercials flooding the air waves and “Tax Filing This Way” signs being waved on every corner. The good news is that some of you out there won’t need to go through the hassle of filing this year. The bad news is that if you don’t file a return, you’ll have no chance of receiving certain tax credits.
As a U.S. Citizen or Resident Alien, you only have to file if you made a certain amount of money in 2011, and that amount varies based on your age, your filing status, and the type of income you received. Let’s say you were under 65 years old at the end of 2011, single, and made over $9,500 last year. You earned more than the minimum gross income, so you must file a return. However, if you are under 65, married, and want to file jointly with your spouse, you need to do so only if your gross income was at least $19,000. The IRS provides a handy-dandy chart with explanations for you to decide which categories apply to you.
Of course, there are all sorts of different situations that complicate these rules. Maybe you were self-employed and you made $800 last year. It might seem like a small amount, but if you earn over $400 working for yourself, you must submit a return. Or perhaps you owe certain special taxes, such as the Alternative Minimum Tax, or Recapture Taxes – once again, you’re going to be filling out a return in the next few months.
These are some reasons why you’re required to file, but even if none of them apply to you, you could still benefit from sending in a return. It’s the only way you can get a refund on that federal tax your employer withheld from your paycheck, or that overpayment you made on your 2010 taxes. There’s also the Earned Income Tax Credit, which is a refundable tax credit for people who worked, but barely made any money.
Sometimes kids are a good thing, especially when it comes to taxes. Maybe you decided to adopt last year and need help with all of the fees you paid during the process. You might be eligible for the Adoption Credit, a refundable tax credit for those adoption expenses. If your son or daughter (or both) attends college, you can offset the cost of their tuition with the American Opportunity Credit. Each student is eligible for a maximum $2,500 and 40% of the credit is refundable. It doesn’t take a math major to realize you should file a return even if you owe no taxes: you can still receive as much as $1,000 cash back for each student. So think twice before you set aside your financial records for next year – you might be missing out on the money you deserve.
On the Money,
Sufen Wang
Wang Solutions
In Accounting & Finances,Business,Taxes on February 10, 2012 by Sufen Wang Tagged: Best Buy, Capital asset, Capital gains tax, Income tax, Internal Revenue Service, irs, Republicans, Tax
Capital Gains Tax this, Capital Gains Tax that…
We have been hearing this phrase a lot in the presidential debates. But what are those politicians actually arguing about? Don’t shake your head and say “Just another tax I have to pay.” Understanding how the Capital Gains Tax works and what’s at stake will benefit you and your finances in the long run.
That nice fridge you just bought from Best Buy is no ordinary refrigerator: it’s also something called a capital asset. The same term applies to your car, your house – even your secret Disney figurine collection. The IRS sums it up pretty well with the explanation that “almost everything you own and use for personal or investment purposes is a capital asset.”
Don’t panic yet hoarders. You can own as much stuff as you want without paying a cent of Capital Gains Tax on it. The problem starts when you sell any of that stuff and make more dough than you originally paid for it. For example, you might have purchased a rare book at a garage sale for $5 and you end up selling it for $6,000. Nice job on your $5,995 profit, but the IRS is going to want a piece of the pie too.
How much the IRS gets from you depends, in part, upon how long it takes you to sell the asset. A short-term gain is when you sell something for a profit less than a year after its original purchase. Therefore, a long-term gain is when you keep something for at least a year before you sell it. And then, for those people who are really patient, the super-long-term gain is when an asset is held for over five years after the original purchase.
You’re currently better off making long-term investments. For short-term investments, you get charged at the same rate as your income tax – so those in the highest income category get hit hard if they take the fast lane. However, everyone pays a flat rate of 15% for long-term capital gains (except individuals in the 15% income tax range and below, who are now paying 0%). The rates also vary depending on the nature of the asset. Sorry, but everyone is stuck at a 28% long-term rate for collectibles, so you might want to save those figurines for your kids. You can’t avoid paying taxes when you profit from your assets, but the rates aren’t set in stone, so pay attention to what politicians are proposing.
On the Money,Sufen Wang
Wang Solutions
In Accounting & Finances,Business,Taxes on February 1, 2012 by Sufen Wang Tagged: Address (geography), Cheque, InternalRevenueService, irs, IRS e-file, Tax, tax refund, Tax returns
IRS Seeks to Return Undelivered Refund Checks…
Are you missing your refund? Don’t miss out on your missing money….
The IRS is doing a little year-end cleaning and they want to get rid of your money. Almost 100,000 taxpayers didn’t receive their tax refunds last year due to simple mailing address errors. That means over $153.3 million, or about $1,547 per check, in refund checks had to be sent back to the IRS offices because of scribbled, incorrect, or just plain missing addresses – and are just waiting to be returned.
So if you’re one of those people still asking “Where’s my refund?”, you might find the “Where’s My Refund?” tool on IRS.gov very useful (or call 1-800-829-1954). You can check the status of that mysteriously absent check and find instructions on how to resolve any delivery problems. These are the only ways to find out about your pending refund, so don’t be fooled by e-mails that look like they are sent by the IRS. Those messages are phishing scams and your computer will be grateful if you don’t open the attachments or click on any suspicious links.
A word of advice on future filings, you really should just choose direct deposit when you file your return and completely avoid the hassle of lost, stolen, and undelivered checks. You can receive the tax refund directly into your bank account, divvy it up between two or three financial accounts, or even buy a savings bond! You might as well go digital all the way and file your tax return electronically, so that you don’t have to go all the way to the post office. The IRS also recommends e-file because it eliminates the risk of lost paper returns, reduces errors on tax returns, and speeds up refunds. This is particularly useful for taxpayers who can’t even read their own handwriting; well, maybe they can, while the IRS Revenue Agent has to guess what those numbers really are on their returns.
The IRS knows best when it comes to tax returns, so listen to its recommendation and use e-file and direct deposit to avoid future delivery problems. You can also literally listen to the IRS’ Undeliverable Refund Podcast for more information or check out the agency’s Undeliverable Refund Video.
On the Money
Sufen Wang
Wang Solutions
In Accounting & Finances,Business,Taxes on January 16, 2012 by Sufen Wang Tagged: Certified Public Accountant, Preparer Tax Identification Number, State bar association, Tax, Tax preparation, tax refund, tax return
What to Look for in a Tax Return Preparer
It’s already that special time of the year, folks: people are getting ready for tax returns. You might be tempted to forget about filing because you plan on having a professional do it for you. But how do you know that you’ll find the right person for the job? After all, as the taxpayer, you are legally responsible for everything written on your tax return – even if you don’t prepare it. Here are some tips to keep in mind so that you can ensure your paperwork ends up in good hands.
First and foremost, the preparer MUST have a Preparer Tax Identification Number (PTIN) – otherwise he won’t be able to sign your return and enter this number, which is now required for all paid preparers. Once you have his official digits, you’ll want to dig a little deeper. Steer clear of any individual who has had a particularly unpleasant relationship with the Better Business Bureau or a bad record with the State Boards of Accountancy for certified public accountants, State Bar Associations for attorneys, etc. You get the drift?!
You’re obviously going to be charged for the preparer’s services, but how you pay is crucial. Avoid anyone who bases their fee on a percentage of your refund. Or take your business elsewhere if the preparer tells you that your refund will go into his bank account first, and he will then write you a check, after deducting his fees. Your tax refund is your money and should be deposited directly into an account in your name. You should pay your tax preparer separately for his services.
How you file is also important. The IRS is pushing for e-file because it’s faster and safer, and your preparer should at least make this option available to you. And if you choose not to e-file, then be sure to read my last week’s blog, Hello E-File!, as a reference to understand your responsibility in this process.
The tax preparer needs to be easily accessible to you, both by telephone and in-person. You don’t want to show up a few days before your returns are due and find a “Gone Fishing” sign on the door. You also don’t want your preparer to mysteriously leave town (with all of your personal information) after the return has been filed, so make sure you will be able to contact him for future questions.
Once you chose a preparer, you still need to keep your eyes open for any signs of bad business practices. A good preparer will ask you tons of questions to double-check your financial information, and should also request all of the necessary records and receipts. Think about it: how can someone accurately file your return if they don’t have the required documents, or a full understanding of your financial detail?
Returns are like checks – never sign a blank one. That means you need to review the completed return in its entirety before signing it. Ask your preparer any questions you may have, because if something is incorrect, you’re the one who will have to deal with it later. So, ask questions, and do no stop until you get satisfactory answers from your preparer. Finally, once the preparer has signed your return and included his PTIN, don’t walk out of the office until you have a hard copy in hand. Tax preparers are supposed to make things easier for taxpayers. Don’t let one get off easy if he tries to swindle you: report abusive tax preparers with Form 14157, available on www.irs.gov.
On the Money
Sufen Wang
Wang Solutions
Now with an Added Bonus from the IRS
Of course, there’s always fine print when money is at stake. While you may consider the Chihuahua you rescued from the animal shelter to be your baby, the IRS defines an eligible child as “under 18 years old, or physically or mentally incapable of caring for himself or herself.” And those expenses don’t refer to the big screen TV you bought on the way to the courthouse. They mean adoption fees, court costs, attorney fees – basically all the “reasonable and necessary expenses” directly related to the legal adoption. One more qualification: if you are rich like (Brangelina), then you are out of luck. Anybody with a modified AGI of $225,210 or higher cannot receive the credit.
So, for those of you with a big heart and an ache to have children running around the house, adopt away! Hope this article helps the road to adoption a little easier….
Wang Solutions 