Eight Facts to Help Determine Your Correct Filing Status

Determining your filing status is one of the first steps to filing your federal income tax return. There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) with Dependent Child. Your filing status is used to determine your filing requirements, standard deduction, eligibility for certain credits and deductions, and your correct tax.

Some people may qualify for more than one filing status. Here are eight facts about filing status that the IRS wants you to know so you can choose the best option for your situation.

1. Your marital status on the last day of the year determines your marital status for the entire year.
2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
4. A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.
5. If your spouse died during the year and you did not remarry during 2011, usually you may still file a joint return with that spouse for the year of death.
6. A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.
7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2009 or 2010, you have a dependent child, have not remarried and you meet certain other conditions.

There’s much more information about determining your filing status in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

If you have any questions about this topic or or tax topic, please do not hesitate to contact us.

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Tax Detectives, on the Case

The IRS is busy playing detective! But are they building cases, clue by meticulous clue, like the supersleuths of television's CSI? Or are they falling on their faces like the bumbling Inspector Clouseau?

Last month, a federal judge gave the IRS permission to serve a "John Doe" summons on the California Board of Equalization, demanding names of residents who transferred real estate to children or grandchildren for little or no consideration. The IRS sought the names as part of a nationwide effort to find taxpayers who transfer property to relatives without filing gift tax returns. (The IRS had already rounded up information from Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington state and Wisconsin -- but California officials objected that state law prohibited them from ratting out residents without court approval.)

Most people don't know much about gift tax, for the simple reason that most people won't ever pay gift tax. Gift tax law lets you give up to $13,000 per year to as many people as you like. Once your gifts to any single person (other than your spouse) top $13,000 in a year, you're required to file gift tax returns. Your cumulative lifetime gifts count against your estate tax "unified credit," which is the amount you're allowed to leave free of estate tax. And once your cumulative lifetime gifts top $5,012,000, you owe a 35% tax on the excess. If you're gifting to a grandchild or some other person more than one generation removed, you might even owe an extra35% "generation-skipping" tax.

How does that lead the IRS to combing state property records like a sleazy private investigator tracking down a cheating husband? Well, transferring property into an heir's name is a common estate-planning move. Let's say you own a beloved vacation home, or a stock portfolio, and you don't want to see it burdened by probate. You can just add your child's name to the deed or account as "joint tenant with right of survivorship," and at your death, voila, the property automatically passes to your child. But there's a catch -- transferring property like that counts as a "complete gift." If that property is worth $1,000,000, you've just made a $500,000 gift!

This particular IRS "project" is already yielding results. The IRS filed an affidavit in the California case stating that they had examined 658 taxpayers who transferred property to relatives -- and concluded that 238 of them should have filed Form 709 to report the gift. Twenty of those 238 were assessed actual tax because the transfers pushed them over their lifetime exemption.

This isn't the first time the IRS has used the "John Doe" summons to flush out members of suspect groups. Back in 2002, the IRS subpoenaed MasterCard and Visa to find taxpayers using debit cards tied to accounts in offshore tax havens. And in 2008, they used it to find taxpayers hiding Swiss bank accounts. The Internal Revenue Manualputs strict limits on this tool. But if today's efforts succeed in finding lost revenue, we can probably expect to see more in the future.

There are a couple of lessons here. First, many financial moves -- like transferring property into your kids' names -- have hidden tax consequences that are easy to miss. And second, the IRS has more ways than you realize tofind those consequences. So don't take chances, especially when they might land you on the wrong end of an IRS subpoena! You know how the utility company tells you to "call before you dig"? Well, call us before you dig, and we'll help you avoid all sorts of nasty surprises!

Advantages of Keeping Good Tax Records

You can avoid headaches at tax time by keeping track of your receipts and other records throughout the year. Good record-keeping will help you remember the various transactions you made during the year, which in turn may make filing your return less, well, taxing.

Records help you document the deductions you've claimed on your return. You'll need this documentation should the IRS select your return for examination. Normally, tax records should be kept for three years, but some documents - such as records relating to a home purchase or sale, stock transactions, IRA, and business or rental property - should be kept longer.

In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return:

• Bills
• Credit card and other receipts 
• Invoices 
• Mileage logs 
• Canceled, imaged, or substitute checks or any other proof of payment 
• Any other records to support deductions or credits you claim on your return 

Good record-keeping throughout the year saves you time and effort at tax time. For more information on what kinds of records you should keep, contact our office.

Need a Blog or Website?

KR Hoffman & Co., LLC uses SquareSpace as its hosting provider.

Prior to switching to SquareSpace, I used a well known hosting company with a site I designed myself.  I am not a designer.  Even though I was an engineer (electrical) in another life, I cannot draw a straight line with a ruler.

A friend suggested that I try SquareSpace.  SquareSpace is a template driven host, all of which are customizable.  I can chage my site design in the background, on the fly, customize it and make it go live, all without taking down the original site.

Since switching to SquareSpace, my website has gone from less than 10 hits per week, to over 3000 hits in the last two months.  Some are repeat viewers.  Most importantly, my phone is ringing, I am getting messages via my contact form and emails.  The majority of which said they liked my site.

Give SquareSpace a look see, and if you have any questions I can be reached at 954.591.8290 or via my Contact form.

New Business Tax Forms for 2011

New info on forms, Schedule C, 1120, 1120S, and 1065 and the new Form 1125-A.

You may need to file a new form with your 2011 business tax return. Form 1125-A, Cost of Goods Sold must be attached if you have inventory. The form is identical to the Schedule A used for many years on From 1120S, 1120C, 1120, and 1065.

In addition, there's a new question to answer on business forms. You'll have to check a box as to whether or not you made any payments that would require you to file Form 1099. A follow-up question asks if you did or will file all required Forms 1099. Don't forget, you're signing the tax return under penalties of perjury.

What Not To Say To The IRS

If you have an IRS problem and feel overwhelmed, you need to know that you are not alone. The Federal Tax Code is so complicated that it’s difficult for anyone to understand it completely.

 Before you speak to anyone from the IRS, you should consult with a firm that is experienced in dealing with the IRS. We can be reached at 954-591-8290 or via our Contact form.

 If you decide to do it yourself, we offer this advice:

First, never voluntarily tell the IRS anything unless they have specifically asked you for the information. This is extremely important for you to understand. You must only give the IRS the information that they have asked for and nothing else. The IRS actually counts on taxpayers to voluntarily give up too much information.

Second, never tell the IRS something that you know is not true. Lying the IRS is a criminal offense. If the IRS catches you in a lie, you may be charged with perjury, which can ultimately subject you to time in prison.

Third, you should never answer any question that you don’t understand completely. Remember what I said about the complexity of the tax code? You should not admit to or speak about anything that you do not understand. If you are not completely sure about your answer to a question, you should let them know that you "don’t know" or "can’t recall, and you want the opportunity to research the answer to the question. You have the right to stop the questioning at anytime. Tell the IRS agent you want to end the questioning and you want to engage someone to represent you.

 IRS problems are serious business and they deserve serious attention. Procrastination will not resolve your IRS problem. There are numerous ways to resolve your IRS problem and move forward with a stress-free life. Contact us at 954.591.8290 to learn we may be of assistance.  

A Man, A Van and $500 Income

We've all been there. Trapped in line at the DMV. Or stuck on hold while trying to call a city agency. It's easy to complain about government bureaucracy. But it's the rare person who sees such inefficiency as a business opportunity.

Meet Adam Humphreys. He lives in New York City, and he wanted to travel to China for a vacation. His bureaucratic hassles with the Chinese consulate launched a whole new business.

 It started simply enough. Adam found out he needed a visa to travel to China. He went online. Filled out a long, complicated form. And Adam showed up at the Chinese Consulate only to find out that he had filled out the wrong form.

Continue reading at Planet Money.

Nickles and Dimes

Last Thursday, cellphone carrier Verizon Wireless announced a new $2 fee for one-time payments made online or over the phone. On Friday, the Federal Communications Commission immediately announced they were "concerned about Verizon's actions" and planned to look into the matter. At the same time, over 158,000 visitors signed an online petition demanding that Verizon drop the fee. In fact, the website hosting the petition expressed shock that "while you are instituting this new fee, Verizon paid zero federal income tax from 2008-2010, and actually got almost a billion dollars in rebates from taxpayers." Verizon immediately beat a hasty retreat and dropped the proposed fee.

Verizon is hardly the only corporate giant to float new fees, only to see them immediately fall back to earth. Back in September, Bank of America announced plans to charge a $5 monthly fee for customers making debit card purchases -- then, after howls of customer protest, backed off just five weeks later. Other banks, which had tested similar debit card fees, killed their fees too in the wake of the protests.

There's a pattern developing here. In today's struggling economy, companies can't impose the broad-based price hikes they really want. So they settle for nickel-and-diming us with junk fees. Unfortunately for them, consumers are pushing back -- and at least with Verizon and the banks, the customers are winning.

There's a similar pattern at work in today's Washington.Candidates can talk 'till they're blue in the face about bold sweeping change, like Rick Perry's 20% flat tax and Herman Cain's attention-grabbing "9-9-9" plan. (If you close your eyes right now, I bet you can still hear Cain saying "9-9-9" in your head.) But in today's hyper-partisan Congress, the actual legislators in charge ofimplementing all those bright ideas can't find the consensus to name a Post Office, let alone remake the tax code in any meaningful way. So they settle for nickel-and-diming the system -- extending the payroll tax holiday for a miserly 60 days instead of a full year, and paying for it by levying fees on mortgages sold to Fannie Mae and Freddie Mac rather than by raising taxes on million-dollar earners. Even when legislators extend new breaks, they tend to be for small amounts, like the $800 "Making Work Pay" credit or $1,500 for home energy improvements. New tax breaks also tend to be short-lived: the 2009 deduction for sales tax on new cars lasted 10½ months, and the much-ballyhooed "Cash for Clunkers" program lasted just 56 days.

The problem, of course, is that Washington's version of nickel-and-diming us adds up fast. A couple of bucks for online bill payments here and $5 for monthly debit-card usage there? Maybe it cuts into your Starbucks budget. But closing tax breaks hurts. As former Senate Minority Leader Everett Dirksen famously said, "A billion here, a billion there, pretty soon you're talking real money." And IRS "customers" can't threaten to take their "business" somewhere else like customers at the bank.

2012 is an election year, of course, which means we can expect even less in the way of substantive action -- at least for the next 10 months. But that may all change after November 6, as the Bush tax cuts expire after December 31. If the upcoming election leaves Washington as divided as it is now, we can expect a repeat of last summer's debt-ceiling battle. Our job is to keep on top of all the news to safeguard your nickels and dimes, regardless of what happens in November. And that means planning. Remember, being proactive, now, is the key to keeping your tax bill as low as possible in 2012 and beyond. So, if one of your New Year's resolutions is to get out in front of the tax nickel-and-dimers, give us a call!

New 1099K Impacts Your Tax Return

This year, companies that process credit and debit cards as well as third-party network payments such as PayPal, Amazon.com and Google are required to report to merchants and to the IRS the gross amount of the transactions they've processed. If the small business exception, which is fewer than 200 transactions totaling less than $20,000, does not apply to you and you receive Forms 1099-K, be sure to handle them properly on your tax return.

Continue reading at 1099K Impact on your tax return.

If you have any questions about the tax law changes, business tips, or how to become a client, please call us at 954-591-8290 or use our Contact form.