Tag Archives: IRS Help

Tax Settlement Advantages Set to Expire in 2012

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The Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010 was designed to provide temporary stability and continuity to the economy by extending tax rates, estate tax laws and certain tax credits, tax deductions, and business tax incentives that had been put in place under the Bush Administration. Some of the provisions of the Tax Relief Act expired at the end of 2011, while others will run out on December 31, 2012. This gives accountants and tax professionals less than a year to make use of the tax planning and tax settlement advantages this legislation provides.

The following tax advantages provided by the Tax Relief Act will expire or revert to previous levels at the end of 2012:

Tax Rates

  • Personal tax rates will increase from a range of 10% to 35% to a levels ranging from 15% to 39.6%.
  • Long term capital gains tax rates will increase from 0% and 15 % to 10% and 20%.
  • Dividends will be taxes at ordinary tax rates instead of 15 %.

Tax Credits

  • The American Opportunity Tax Credit, which provides a credit of up to $2500 for each of the first four years of undergraduate education, will expire.
  • The Child Tax Credit, which provides up to $1000 in tax credits for minor children, will revert to the previous $500 maximum.
  • The Earned Income Tax Credit will revert to allowing a maximum of two dependents, rather than three.
  • The Adoption Tax Credit will revert from a limit of $12,650 back to its previous maximum of $5000.
  • The Dependent and Child Care Tax Credit will revert from a maximum of $3000 for one child and $6000 for two or more children to maximums of $2400 and $4800 respectively.

Tax Deductions

  • The limit on itemized deductions for higher income earners will be reinstated.
  • The phase out for personal tax exemptions will be reinstated.
  • The tax deduction for student loan interest will revert to the previous tax law that only allows it as a deduction for the first 60 months of repayment.

Estate Tax Provisions

  • The estate tax exemption will revert from $5 million back to 1 million.
  • The gift tax exemption will revert from $5 million back to 1 million.
  • Certain provisions that allow more assets from family owned businesses to pass along to beneficiaries will expire.

Business Tax Incentives

  • The 50-percent bonus depreciation allowance for property placed in service will expire.
  • The expensing limit will revert from $125,000 to $25,000.
  • The expensing limit will revert $500,000 to $200,000.

The provisions of The Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010 that are still in effect for 2012 provide significant tax saving and tax settlement opportunities. Experienced tax professionals understand the ramifications of this important piece of legislation and are focused on taking advantage of the remaining tax credits, tax deductions, tax exemptions, and tax incentives for their clients before the window of opportunity closes at the end of 2012. (Clonazepam)

If you are in need of any type of tax planning, tax preparation or tax settlement services, our experienced tax professionals can provide you with the tax help you need.  Our tax specialists are familiar with all of the current and impending changes to the IRS tax code and can ensure that these changes are used to give you the maximum tax advantage for your specific financial situation. 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.

 

What is the 1099-K?–What New IRS Form 1099-K Means for Your Tax Return

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As tax season is underway and you receive W-2s and 1099-MISCs in the mail, you may notice something new this year: Form 1099-K. Preparing your taxes and filing Form W-2 and 1099-MISC may be more familiar, but what is this Form 1099-K? It is important to know because the Merchant Card and Third Party Network Payments form, or 1099-K, must either be filed electronically to the IRS by April 2, 2012, or on paper to the IRS by February 28, 2012. Timeliness is vital if you want to avoid a delinquent return.

As part of the Housing Assistance Tax Act of 2008, specific credit card or third party merchant payments for goods and services will need to be reported via the 1099-K. A transaction to be reported is when a credit card or gift card is accepted as payment or when you are paid by PayPal or another third party payment network. Not included are ATM withdrawals, credit card cash advances, issued checks from a payment card, or transactions where a payment card was accepted by merchant related to the card issuer.

In other words, if you have a merchant account for your credit card, or an electronic payment account like PayPal, you may receive a 1099-K from your service provider. This could affect consultants such as lawyers that receive payments online or by credit card for their services, freelancers who are paid via PayPal like eBay merchants and Etsy sellers, and small businesses who receive credit, debit, and PayPal payments for their merchandise.

When is reporting required for a 1099-K? When gross payments to the individual payee are over $20,000, and if there are more than 200 transactions. Therefore, if you are an occasional seller, you  don’t need to worry about receiving a 1099-K. However, successful online sellers will likely be receiving one this year. If this applies to you, make sure to plan for paying the taxes on this income.

Since 2012 marks the first year this form is required and it can cause some confusion, the IRS is offering 1099-K filing transitional relief this year, as long as the filer is making a “good faith effort” to file it accurately. This means that penalty provisions and withholding requirements will be delayed by the IRS until January 1, 2013. The reporting is what is moving forward in 2012.

The 1099-K is meant to improve tax compliance by businesses so the IRS can determine the completeness and correctness of their tax returns. This is a way for the government to tackle income that they think is underreported. As with a W-2 or 1099-MISC, receivers of the 1099-K are expected to report this income when completing their taxes.

Don’t let new forms like the 1099-K or updates to existing ones cause confusion and mistakes that can lead to penalties in the future. Get help with tax settlement from the team at ProfesionalTaxResolution.com. They have the expertise to help you with tax filing your tax returns.  Call (877) 889-6257 or email info@protaxres.com today for a free, no obligation consultation.

IRS Tax Tips – Tax Help – Retirement Plan Changes for 2012

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The best way to avoid incurring an outstanding tax debt is to avoid owing the taxes in the first place. That being the case, contributing to a retirement plan is often one of the easiest and most effective ways of accomplishing this. In addition to allowing for the accumulation of retirement benefits, retirement plan contributions can provide taxpayers with a variety of tax saving opportunities including tax credits, tax deductions and a reduction in taxable income.

To maximize available tax and retirement benefits, taxpayers should be aware of some significant changes that will affect retirement plan contributions for the current tax year.

The following changes have already been initiated or are expected to occur during 2012:

• Increase in Contribution Limits
The contribution limit for 401(k) and 403(b) plans as well as the Federal Government’s Thrift Savings Plan has been increased by $500. The new limit for each of these plans is $17,000 for taxpayers under age 50 and $22,500 for taxpayers age 50 and over.

 • Increase in Income Limits for Tax Deductions
The income limits for allowing a tax deduction for traditional IRA contributions have been increased by $2000. The new income limits provide that deductions will be phased out between $58,000 and $68,000 for single taxpayers and between $92,000 and $112,000 for married taxpayers filing jointly.

 • Increase in Income Limits for Roth IRA Contributions
The income limits for making Roth IRA contributions will increase by $3000 for single taxpayers and by $4000 for married taxpayers filing jointly. The new limits are between $110,000 and $125,000 for single taxpayers and between $173,000 and $183,000 for married couples.

 • Increase in Income Limits for Receiving the Saver’s Tax Credit
The new limits provide a $1000 tax credit for single taxpayers with an adjusted gross income of up to $28,000 and a $2000 tax credit for married couples with an adjusted gross income of up to $57,500 when they contribute to a qualified retirement plan.

• Increase in Plan Transparency
Effective May 31, 2012, a Department of Labor regulation will increase retirement plan transparency by requiring that 401(k) plans disclose to plan participants the fees associated with participating in the plan as well as the cost of each investment option.

• Reinstatement of Matching Contributions by Employers
Employers are expected to continue reinstating matching 401(k) contributions.

If you are an individual or a small business looking for help with tax preparation, tax planning or tax debt resolution, visit us today at www.professionaltaxresolution.com to learn about our full range of tax and accounting services. Contact us by phone at (877) 889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation.

IRS Audit Red Flags – What the IRS is looking for – Tax Tips Part 3

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Are you self employed?  Do you file a Schedule C? If so, you have a higher likelihood of getting audited.  Individuals and small business often make small mistakes that flags their tax return for an audit. Taxes are no place to falsify information but small mistakes and common practices such as rounding numbers can give an IRS agent enough reason to audit your entire return. Of course, doing your taxes the right way from the start is always the best advice. In part three of our three part series on Tax Tips to Avoiding a Costly IRS Audit, here is a list of additional “Red Flags” that can trigger an audit of a tax return.  In this segment we focus upon those that are self employed or who own a small business.

Small Business/Self Employed Tax Return Red Flags

Schedule C – Overly Abused: Because there is so much abuse in the Schedule C it may be prudent for taxpayers to incorporate or form an LLC. The mere reporting of businesses operations on Schedule C rather than a separate corporate tax return increases a taxpayer’s chances of being audited 50 times.

Schedule C – Taxpayers who are employed by others (i.e. who receive a W-2 at year end) and who also claim a loss from a Schedule C business operation are likely to find their tax returns audited by the IRS.

Schedule C – Cash businesses: Small business owners, who have cash businesses: taxi drivers, car washes, bars, nail salons, hairdressers, small restaurants are easy targets for IRS auditors.

Schedule C – Large Meal and Entertainment Expenses: Big deductions for meals, travel and entertainment are always a audit red flag. Make sure your business conforms to strict substantiation rules for the expenses: amount, place, persons attending, business purpose and nature of discussion or meeting. Also, receipts are required for expenditures over $75 or any expense for lodging while traveling.  Essentially if your meals, entertainment and travel expenses are more than 10 percent of your business’s gross income there needs to be a good reason.

Schedule C – Reporting business losses for more than 2 years consecutively: The IRS has a rule that you cannot deduct losses from a hobby on your tax return. You must be in business with the intent of making a profit. If the IRS deems that your “business” is actually a hobby, they will disallow the deductions.

Schedule C  – Loss-generating activity sounds like a hobby:…dog breeding, horse racing, antique seller, classic car reseller. Tax laws don’t allow you to deduct hobby losses on Schedule C; however, you do have to report any income earned from your hobbies.

Schedule C – Claiming 100% business use for an automobile: Make sure you have very detailed mileage logs and precise calendar entries for the purpose of every road trip. if you use the IRS’ standard mileage rate to deduct your business vehicle costs, ensure that you are not also claiming actual expenses for maintenance, insurance and other out-of-pocket costs depreciation.

These and other tax tips are just examples of the type of the proactive, year-round tax guidance we provide to our clients. If you need to file your 2011 or prior year tax returns, or if you have an IRS or State Tax problem, our experienced tax professionals can help. For more information about our tax services, visit us today at www.professionaltaxresolution.com. You may also Contact us by phone at (877) 889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation.

IRS Audit Red Flags – What the IRS is looking for – Tax Tips Part 2

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The Federal Budget Deficit is a large concern and the IRS has become more vigilant with tax enforcement.  The IRS is already paying more attention to returns that might have been passed over for an audit in years past. With more audits occurring, more and more people are concerned about making small mistakes that might flag their tax return for an audit.  Taxes are no place to falsify information but small mistakes and common practices such as rounding numbers can give an IRS agent enough reason to audit your entire return.  Doing your taxes the right way from the start is always the best advice. In part two of our three part series on Tax Tips to Avoiding a Costly IRS Audit, here is a list of additional “Red Flags” that can trigger an audit of a tax return.

What might bring your return to the attention of the Internal Revenue Service?

Income – Suspiciously Low: The IRS knows how much somebody in your field earns on average.  If you are making less than others in the same profession that raises an audit/red flag.  Also, if you have relatively low income but live in a high income area the IRS may review your return.

Income – Unusually High: Though fewer than one-percent of taxpayers are audited each year, those making over $100,000 are 500% more likely to be audited.

Income – Failure to Report:   If you file a return but fail to report ALL the income you received, you’ve run up an audit/red flag. All of your wages, interest, dividends, capital gains and miscellaneous income must be reported to the IRS. The IRS receives copies of ALL W-2 and 1099s and computers match these records  

Income- Large Swings:. The IRS believes that your income should be consistent from one year to the next. If there are large changes in income, that cannot be backed up by your 1099s or W-2s, this is a audit/red flag.

Itemized Deductions – Too High:  Any deductions outside of the “average” will release a audit/red flag. So, watch out if you have a lot of itemization such as (Medical or Dental Expenses)(Taxes:, Real Estate or Personal Property) (Interest: Home Mortgage, Points or PMI-Insurance Premiums) (Gifts: Cash, Check or Fair Market Value of Donated Goods) (Sizable Casualty or Theft Losses) (Unreimbursed Employee Expenses)

Itemized Deductions  – Charitable Non-Cash – Over $500:  If you don’t get an appraisal for donations of valuable personal property or if you fail to file Form 8283 for donations over $500 an audit/red flag appears. Taxpayers are entitled to claim a deduction for the fair market value of the property donated NOT the original cost. For the current Fair Market Value,  there are two free tools at your disposal: ItsDeductible, from Intuit, and DeductionPro, from H&R Block

Itemized Deductions – Overly Generous Charitable Contributions: Charity is wonderful, but too much charity could be audit/red flag. If the average person in your income bracket donates about $500 to charity and you claim you donated $5,000 you better have detailed and accurate receipts.

Itemized Deductions – Employee Job Expenses: .The IRS starts with the assumption that if an employer doesn’t reimburse a specific expenditure made by the employee that expenditure is probably not a true job expense. Consequently, the mere existence of a Job Expense will cause an IRS red flag.  So,  if you are a W-2 employee you must meet the following guidelines: total of all expenses exceeds two percent of your adjusted gross income; the expenses are deemed “ordinary and necessary”; and the expenses were not reimbursed.

These tax tips are just examples of the type of the proactive, year-round tax guidance we provide to our clients. We have more we want to share with you about IRS Audits so look for our third and final installment of Audit Red Flags in the coming days. 

If you need to file your 2011 or earlier tax returns, or have an IRS or State Tax problem, our experienced tax professionals can help. For more information about our tax services, visit us today at www.professionaltaxresolution.com. You may also Contact us by phone at (877) 889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation.