Amending Prior Returns Can Lower Your Taxes

Posted on May 3, 2012 by Kursti Nakagawa

The first step in resolving an outstanding tax liability should be to verify that the amount of the tax debt being reported by the IRS or State Tax Agency is correct. Because tax law is so complex, important tax deductions or tax credits are often missed when returns are completed by individuals who lack the professional knowledge and experience to determine which ones apply. Often a missed deduction, a missed tax credit, a change in filing status or an overlooked income adjustment will result in a tax amount owed that is greater than it would have been if the item had been claimed on the return. That being the case, the filing of an amended return is sometimes the simplest and most cost effective way to substantially reduce an outstanding tax liability. By law, a return can be amended within three years from the date of the original return or within two years from the date a tax was paid, whichever is later.

Some of the more common reasons for filing an amended return are outlined below:

Errors and omissions It is not uncommon for a tax return to be filed with calculation errors or omissions of data and/or required documentation. Although the IRS will normally correct simple math errors and will often request a missing form or schedule, this type of mistake can also be corrected by taxpayer through the use of an amended return.
Introduction of new information A return that is submitted to meet a filing deadline can be amended later if further examination of events and records of the previous year indicate that there would be a tax advantage to claiming different deductions or additional deductions.
Change in filing status If a return has been submitted but the filing deadline for the return has not passed, it is possible to use an amended return to switch the filing status from married filing jointly to married filing separately or vice versa. Amended returns are also used to undo joint filing status when there has been the annulment of a marriage.
Change in tax elections Tax returns allow for many elections whereby the taxpayer chooses how he or she wishes to be treated by the Internal Revenue Service for tax purposes. These elections include such things as treatment of foreign income, residency status, and income tax withholding, just to name a few of the many elections available. In certain instances, these elections can be changed through the use of an amended return when the introduction of new information indicates that there would be a tax advantage in doing so.
Carry back of losses Amended returns can be used to apply property losses from the current tax year to the previous year’s tax return. They are also commonly used by businesses to carry net operating losses back to the previous two tax years.

If you have an outstanding tax liability, our experienced tax resolution specialists can help you resolve it. The first step in this process will be to carefully examine previously filed returns and to file amended returns when necessary. This process can often result in a significant reduction in the tax amount owed by identifying available tax benefits that have not been utilized. For more information about our tax debt resolution and tax settlement services, visit us today at professionaltaxresolution.com. Contact us by email at info@protaxres.com or by phone at (877)-889-6527 to receive a free, no obligation consultation.

IRS Itemized Deductions and Volunteer Work at Schools

Posted on October 7, 2011 by Kursti Nakagawa

Interesting questions come up everyday at our tax firm. On the mind of many parents particularly those with part time or full time self-employment, relates to how their volunteer work for their child’s school might affect them from a tax standpoint. Now that is October, children have settled into their classrooms and many schools have begun requesting parent volunteers. This practice is becoming more and more common because schools face such large spending constraints. School volunteers might be needed for sports programs, tutoring, maintenance, bulletins, books fairs, drama productions, bands, academic tournaments or even bake sales.

It doesn’t always occur to the parent, but there may be some tax benefits that follow as a result. The question we are asked about most often is the value of volunteered time. The IRS does not allow any charitable deduction for this and the principle is simple; charitable deductions are a donation of taxable income. Because the donated time didn’t create income, no deduction from income occurred.

That said, almost every voluntary effort incurs some cost for the individual volunteer. These out-of-pocket expenses related to volunteering for tax-exempt organizations are indeed tax deductions. A qualified CPA will know that these deductions are reported on Schedule A and are thus only available to taxpayers who itemize deductions.

Clearly in order to deduct costs incurred during volunteer work, the charitable organization must not reimburse the expenditures. In addition, the expenses must have a direct connection to volunteered services and have arisen due strictly to the volunteering. Taxpayers cannot deduct any expenses for personal or general living costs, such as meals eaten while conducting a volunteer service. However, something like buying pizza for the speech team during travel for a school event is in fact tax-deductible.

Likewise, supplies for school projects are tax-deductible along with items given as prizes or awards. Keeping copies of receipts to support any expenses related to volunteer activities is something we always recommend. In addition, we also document the nature of the school event for the deduction on the tax return itself.

One deduction opportunity many parents do not realize is that driving for charitable activities may also incur a tax deduction. It is important to keep a record of the date, travel purpose, and numbers of miles as these are requirements of the IRS. Each year there are standard IRS mileage rates established for using a personal vehicle to perform a charitable function which is then calculated on the return. A word of caution however, mileage driven to and from ballgames or performances doesn’t count as charitable; actual work as a volunteer is required.

Also not every school related purchase will qualify as a deduction. Merchandise sold at school activities are not tax deductable so buying candy, popcorn, apparel with the school logo, and similar items will not qualify as a donation.

These tips are examples of the types of the proactive, year-round tax guidance we provide to our clients. At Professional Tax Resolution we often amend prior year returns and file back taxes for new clients, many of whom qualify for more deductions than they realize.

If you have an IRS or State Tax problem, our experienced tax professionals can help you resolve the tax issue that caused it. For more information about our tax debt resolution services, visit us today at www.professionaltaxresolution.com. Contact us by phone at (949)-596-4143 or by email at info@protaxres.com to receive a free, no obligation consultation.

IRS to Fingerprint Tax Preparers and Require PTIN to be Renewed Yearly.

Posted on September 28, 2011 by Kursti Nakagawa

We have many clients who come to us with huge tax debts that have resulted from errors or miscalculations on prior year returns. Sometimes these tax filing errors flag an audit or create what might start off as a small tax liability but after years of penalties and interest becomes a much bigger problem. Of course, we wish no one had to experience this in the first place but unfortunately until now there has been some leniency in the educational and documentation requirements for some tax preparers.

Luckily Uncle Sam also wants to be sure that whomever you trust to prepare your taxes also understands the increasingly complex tax code. While CPA’s like those at our firm have extensive licensure oversight, continuing education and years of experience, not all general tax preparers do. To overcome this, the IRS has just announced they are taking steps to begin fingerprinting all tax preparers and are stepping up educational requirements.

In addition to acting as proper Identification, the fingerprints will also be run through the FBI database. This will help identify any unscrupulous characters. Perhaps even more importantly is the new obligation for tax preparers to renew their Preparer Tax Identification Numbers (PTIN) every year in accordance with Notice 2011-80 and undergo a 15-hour continuing education requirement. All of this is set to take effect next year.

Up until now, the IRS had been issuing provisional PTIN for preparers who are not attorneys, CPA’s, accountants or enrolled agents. That former flexibility allowed others to prepare tax returns before taking competency tests and undergoing suitability requirements. This was partially because the testing and continuing education programs had not been implemented yet, but as of next year, this will finally be the case.

Before you hire anyone, we recommend checking their licensure and checking with the Better Business Bureau. Read reviews and understand the details of any services for which you are hiring.

At Professional Tax Resolution Inc. our CPA’s and EA’s are proud of our reputation. We welcome you to look up our license and review our A rating with the BBB. We have links to a variety of unbiased review sites including Yelp, The BBB, and Merchant Circle readily available on our home page.

Call us today for a free, no obligation consultation. No matter how worried you are, no tax issue is too complex! (949) 596-4143 or toll free (877)-889-6527

IRS Math Error Adjustments -The Debate and Your Rights

Posted on September 5, 2011 by Kursti Nakagawa

A report from the Treasury Inspector General for Tax Administration published earlier this month gives an unfavorable evaluation of the timeliness and accuracy of IRS responses to taxpayer complaints about math adjustments. The IRS has the authority to adjust taxpayer returns for over 400 math error conditions. These conditions, which can be adjusted by the IRS without performing an audit, include arithmetic errors, missing documentation and missing or incorrect social security numbers, among other things. A taxpayer can accept or reject a math error adjustment once they have received an official IRS Notice informing them that one exists.

The complaint highlighted in the recent TIGTA report is that taxpayers who dispute math adjustments often experience delays in receiving a response form the IRS. Such delays either result in the taxpayer not receiving benefits to which they are entitled or a loss of revenue to the federal government, depending on how the appeal is decided. Since both of these results are negative to one of the parties involved, TIGTA has made recommendations to the IRS to remedy the situation. In response to the TIGTA suggestions, the IRS has agreed to make their responses to taxpayer math error disputes more thorough and accurate. They did not, however, agree to the other TIGTA requests which were to monitor the timeliness of their responses and to prioritize the responses related to earned income.

The most important thing to take away from this is that if you revieve an official notice from the IRS regarding a math error adjustment, you should not ignore it. The professional help of a qualified Certified Public Accountant to evaluate your options in dermining your responce to this notification is often well worth the investment.

Click the “Learn More Link” or Call (949) 596-4143 to have one of our CPA’s provide a Free IRS or State Tax Notice Review and Consultation.