Net Operating Loss Deduction in the News

Posted on October 10, 2016 by Kursti Nakagawa

Net Operating Loss in the News

A net operating loss occurs when the allowable business tax deductions for any given tax year exceeds gross income for that year, thus generating a negative taxable income. Beginning with the Revenue Act of 1918, tax law has allowed for the carryover of such losses, making them a valuable tax planning tool for reducing taxable income in any year where a profit is generated. The federal carryback and carryforward periods, which have fluctuated over the years, are currently set at two and 20 years, respectively. Many states also permit the carryover of a net operating loss although the allowable the time periods and rules governing the deduction vary considerably from state to state. At the present time, the majority of states allow the corporate net operating loss deduction to be carried forward for some period of time while a much smaller number allow it to be carried back.

Although the net operating loss deduction is most commonly used on corporate tax returns, losses from various pass-through entities such a partnerships, limited liability companies and s-corporations can be used to cancel out income on personal returns. Such was apparently the case with the personal tax returns of Donald Trump which is why the carryover of a net operating loss has made the news headlines in recent weeks. Although Trump’s tax returns have not officially been released, the portions of his 1995 state income tax returns for New York, New Jersey and Connecticut that were recently uncovered by the New York Times showed him claiming a negative income of over $916,000 million for that year. Although it has not been confirmed, speculation is that this negative income represented a net operating loss from businesses that were set up as pass though entities. If this is the case, those losses have been available to cancel out income from these various businesses and thus reduce the taxes owed by Mr. Trump over much of the time that has transpired between 1995 and the present.

Regardless of the specifics of Donald Trump’s tax returns, it is certain that the carryover of a net operating loss can be a valuable tax saving tool for businesses of any size, maturity level or business structure. Using this deduction, companies with fluctuating income can take full advantage of deductions that would be otherwise be lost in years where expenses exceed income. In fact, the carryover of a net operating loss is one of the only means by which the taxes owed by a business in any given tax year can be reduced by anything other than tax credits or tax deductions earned in that specific year. Although certain items such as personal exemptions and non-business deductions including contributions to charities, deductible IRA contributions and medical deductions cannot be used to calculate a net operating loss, it is nevertheless a valuable tax saving and tax settlement tool available to businesses across the board.

If you have tax questions or a tax debt you are unable to pay, our experienced tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. Our CPAs, Enrolled Agents and other skilled accountants have a thorough understanding of tax law together with the experience necessary to know which tax settlement option will be the best fit for your specific set of circumstances.

Taxes Due Today!

Posted on April 18, 2016 by Kursti Nakagawa

Tax Day 2016!!!!

Taxes Due April 18th, 2016

April 18, 2016 is the deadline for filing taxes and is the income tax due date.

If you have tax questions or a tax debt you are unable to pay, our tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. With over 16 years in the business of resolving tax debt, we have a thorough understanding of tax law together with the experience to know which settlement option will be the best fit for your specific set of circumstances

Tax Fraud Back in the Limelight

Posted on February 15, 2016 by Kursti Nakagawa

Tax Fraud Back in the Limelight

The subject of tax fraud often makes the news headlines somewhere around the opening of tax season and it appears that Tax Season 2106 is no exception. Numerous state tax agencies, including Illinois, Hawaii, Utah and, most recently, South Carolina, have already announced tax refund delays due the threat of identity theft and tax refund fraud. Although the Internal Revenue Service has not issued any similar notices of delay, they have nonetheless issued bulletins warning taxpayers of potential fraudulent activity and suggesting precautions to take to combat it.

The refund delays announced by certain states are the result of increased security measures that have been put in place to prevent identity theft and other types of tax fraud. A spokesperson for the Illinois Department of Revenue, which has announced that they are unlikely to issue any tax refunds before the middle of March, has said that efforts used last year “illustrate the positive impact that additional delays and scrutiny have had in combating tax return and identity theft.” Other states have followed suit. The Hawaii Department of Taxation announced that refunds may be delayed by as much as 16 weeks while the Utah legislature actually passed a law prohibiting the issuing of tax refunds before March 1st unless all returns and required forms were submitted by January 31st. Veranda Smith of the Federation of Tax Administrators has said that the general trend for tax agencies will be to move in the direction longer lead times in order to allow more time for the matching of information sent from multiple sources.

In addition to the delays announced by certain states, the Internal Revenue Service continues to take steps to combat tax fraud. They have published security tips on their website and have met jointly with representatives of software companies and state tax agencies for the purpose of sharing data and standardizing online security protocol. On top of this, the software companies are taking their own steps to protect taxpayers from fraudulent activity. Some have published stepped up requirements for passwords while others, such as Turbo Tax, are requiring the use of a security code sent to the cellphone in order to log on to the tax software. While the 2105 Turbo Tax software required the use of this code for the initial use of theprogram, the 2016 version has increased this security measure by giving users the option of using the code each time they log in. All of these steps are part of a clear tend on the part of the IRS, state tax agencies and software companies to increase tax return security.

Where is My Tax Refund?

Posted on February 2, 2016 by Kursti Nakagawa

Where Is My Tax Refund?

Where is My Refund?

The IRS has announced that the recently opened 2016 tax season started off on a good note. In fact, they reported the receipt of thousands of tax returns on opening day with no major filing issues. It has also been reported that the average wait time for a tax professional to speak to an IRS representative is ten minutes in comparison to wait times of over an hour last year. Although it is still very early in the game, expectations are high for a smooth and easy tax season. This includes the issuing of tax refunds which is the aspect of tax filing that is usually of highest interest to taxpayers.

If you have filed your tax return and are anxiously awaiting your refund, you are well ahead of the game. This year, taxpayers actually have a few extra days to file their 2015 tax returns. The filing deadline has been moved ahead to Monday, April 18, 2016 (April 19, 2016 for taxpayers in in Maine and Massachusetts) due to the observation of the Washington D.C. Emancipation Day holiday on April 15th. That being said, once you or your tax preparer have filed your return, you can go to the IRS Refund app/tool on the IRS website https://www.irs.gov/Refunds to check the status of your refund. The IRS updates this site once per day, so there is no advantage to checking it constantly.

The “Where’s My Refund?” app/tool will guide you through the refund process in three easy steps:

1) Return Received – The site will let you know when your return has been officially been received by the IRS.

2) Return Approved – Most refunds are approved and sent via direct deposit unless you have requested a paper check. Once your return has been approved, the site will let you know when your refund is scheduled to arrive.

3) Refund Sent – Your refund is on its way. It usually takes about five days for direct deposits to arrive, whereas mailed refund checks can take weeks

The IRS predicts that most refunds will be issued in less than 21 days from the time the return is received. However, the process will take longer if there is a mistake, an inaccuracy, an omission of required information or the return is selected for further review. To avoid a delay in receiving your refund or even an audit, it is often best to use a professional tax preparer, especially if your return is complicated. If you have not received your refund within 21 days of e-filing (or six weeks of mailing your paper return), the “Where’s My Refund?” app/tool that will route you to direct contact with an IRS agent to get further information and assistance. Based on 2015 data which showed that the IRS processed over 109 million refunds, this streamlined refund process represents quite an accomplishment!

Charitable Contributions Require Documention

Posted on November 4, 2015 by Kursti Nakagawa

Charitable Contributions Require Documentation

Although charitable contributions can amount to a significant tax savings, they can also have the negative affect of flagging a return from audit when they are claimed in excess or not reported according to preset IRS guidelines. A case in point is that of Kunkel versus United States Tax Commissioner. In this 2011 United States Tax Court case, the court disallowed over $37,000 in noncash contributions due to lack of substantiation. While the Kunkels maintained that the value of each donation was less than $250, the court questioned the total amount of the contributions. They pointed out that the total donation amount could have only been achieved by making almost 100 trips to various donation sites. In addition, the Kunkels had no dated receipts from any of the receiving charities giving either a value or description of the property being donated.

In order to avoid a situation such as the one described above, it is important to follow the guidelines set by the Internal Revenue Service for reporting charitable contributions. According to these guidelines, increasingly strict documentation requirements are imposed on charitable donations above or below the following preset thresholds:

 Contributions of less than $250

Contributions of less than $250 require 1) the name and location of the charitable organization to which the donation is being made, 2) the date the donation is made and 3) a description of the property being donated. Although it is advisable to get a receipt from the organization to which the donation is being made, this is not required.

 Contributions in excess of $250

In addition to the documentation required for contributions of less than $250, those in excess of $250 must have a written receipt from the charitable organization to which the contribution is made. In addition to a description of the donated property, the receipt must include a good faith estimate of the property’s value as well as a statement indicating whether any goods or services were given in exchange for the contribution.

 Contributions in excess of $500

Charitable donations in excess of $500 require 1) a specific description of the property being donated, 2) the date the property was acquired, 3) the cost basis of the property, 4) the fair market value of the property at the time the donation is made and 5) a statement of the method used to calculate fair market value.

 Contributions in excess of $5000

In addition to all of the documentation required for donations in excess of $500, charitable contributions in excess of $5000 require a qualified appraisal.

With the end of the calendar year fast aproaching, now is as good a time as any to review the IRS guidelines for documenting charitable contributions. Although the IRS sometimes allows charitable deductions even when the reporting taxpayer lacks the required documentation, there is no good reason to take a chance on this being the case. It is better to be safe than sorry! Charitable contributions can amount to a significant savings of tax dollars but proper reporting is essential.