IRS Payment Arrangements - Installment Agreement

The Internal Revenue Service (“IRS”) is authorized to allow the full payment of a taxpayers unpaid tax debt in small and manageable monthly payment amounts.  This revolving credit arrangement is called an “installment agreement.”

 The taxpayer must satisfy the following conditions before the IRS agrees to an installment agreement:

• Taxpayer filed all tax returns;
• Taxpayer filed all employment tax returns;
• Taxpayer paid all payroll taxes for the current tax quarter;
• Taxpayer filed a financial statement (Form 433) if the tax due exceeds $25,000; and
• Taxpayer (self employed) made estimated tax payments for the current tax year.

A one-time user fee is charged by the IRS to process an installment agreement.  Another cost associated with an installment agreement is a user fee.  The fee is currently $52 for direct debit agreements and $105 for non-direct debit agreements.

Eligible low-income taxpayers (based on the Department of Health and Human Services poverty guidelines) will be charged a $43 fee.  If taxpayers fail to meet the terms of the agreement during the life of the agreement, the IRS will charge an additional $45 fee to reinstate the agreement.  

If you arrange to pay your taxes through an installment agreement, you can pay in various ways: 

• Personal or business checks, money orders, or certified funds (all made payable to the U.S. Treasury);
• Payroll deductions your employer takes from your salary and regularly sends to IRS; 
• Electronic transfers from your bank account or other similar means; or
• Direct debit from your bank account.

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

Are you in business? Can you deduct business expenses?

One answer is once you start generating revenue. In Michael S. Oros (T.C. Memo. 2012-4) the taxpayer traveled to South America, Asia, Africa, and Australia with the intention of writing a book. He took some 4,500 photographs and maintained a contemporaneous journal in which he wrote about his different experiences. But some four years later he had not published or completed a book about his trip. On his 2006 tax return he deducted travel, meal, and telephone expenses for a total loss of $19,140. The Court noted that to be engaged in a trade or business a taxpayer must me regularly and actively involved in the activity. The Court said that while some of the facts in the record suggested the taxpayer was engaged in a trade or business (business plan, journal, etc.), it went on to say the taxpayer failed to present any evidence of continuous or repeated activity as an author, and he was a full-time employee. The Court denied a deduction for the claimed expenses.

In Javier L. Gaitan et al. (T.C. Memo. 2012-3) the taxpayer had a business exporting clothing. The IRS disallowed a subtraction for cost of goods sold amounting to $134,575. The taxpayer attempted to prove the amount by (1) receipts and (2) an American Express card, claiming such evidence substantiated $70,275 of the amount disallowed. The Court found four problems with the receipts:

 They did not indicated which purchases were for export and which were for the taxpayers' personal use.

• Many of the receipts were illegible.
• Many of the receipts did not clearly identify the purchaser.
• Some of the receipts show the purchases were made for another business the taxpayers' owned.

The Court noted that the production of the American Express credit card statements was also flawed. The Court sided with the IRS in disallowing the cost of goods sold deduction.

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

IRA Required Minimum Distributions

Required Minimum Distributions (RMDs) generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 70 ½ years of age or, if later, the year in which he or she retires. However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the account holder is age 70 ½, regardless of whether he or she is retired.

Retirement plan participants and IRA owners are responsible for taking the correct amount of RMDs on time every year from their accounts, and they face stiff penalties for failure to take RMDs.

When a retirement plan account owner or IRA owner dies before RMDs have begun, different RMD rules apply to the beneficiary of the account or IRA. Generally, the entire amount of the owner’s benefit must be distributed to the beneficiary who is an individual either (1) within 5 years of the owner’s death, or (2) over the life of the beneficiary starting no later than one year following the owner’s death.

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

Business Expenses - Substantiation Requirements

In order to claim any deduction, a taxpayer must be able to prove, if the return is audited, that the expenses were in fact paid or incurred. Small expenses and those which are clearly related to the business may be substantiated by the taxpayer's statement or by keeping receipts, sales slips, invoices, canceled checks, or other evidence of payments.

 The following expenses, which are deemed by the IRS as particularly susceptible to abuse, must generally be substantiated by adequate records or sufficient evidence corroborating the taxpayer's own statement: expenses with respect to travel away from home, including meals and lodging, entertainment expenses, business gifts, and expenses in connection with the use of “listed property”.

 The expenses must be substantiated as to the amount, time and place, and business purpose. For entertainment and gift expenses, the business relationship of the person being entertained or receiving the gift must also be substantiated (Temp. Reg. §1.274-5T(a)-(c)). See “Auto Expenses Allowed when Loss of Mileage Log Wasn't the Taxpayers' Fault “

 If you have employees, and you reimburse your employees for their business related expenses under an accountable reimbursement plan, you must require your employees to satisfy the foregoing substantiation requirements in order to be treated as an accountable plan.

If you have any questions about the substantiation requirements or what is an accountable reimbursement plan, please contact us.

Will Bank of America Need To Sell Branches?

Headline from the Chicago Tribune Beaking Business News;  "Bank of America told Fed it could sell branches in emergency: Source".

You can read the story here.

If you bank with Bank of America, ensure your accounts are below the FDIC insurance limits of $250,000.

Credit Card Reporting for Tax Purposes Debuts This Month

Yep, there’s a new form from the IRS out this year and one might be landing in your mailbox soon. The federal form 1099-K, Merchant Card and Third Party Network Payments, will debut early this year: forms 1099-K are due to merchants by January 31, 2012. Electronically filed 1099-Ks are due to the IRS April 2, 2012 (normally March 31), while paper 1099-Ks are due February 28, 2012.

So what is the new form 1099-K? It looks like this (downloads as a pdf and yep, no longer in draft form!).

And here’s how it will work: certain payments for goods and services paid by credit card or third party merchants will be reported to the IRS via the form 1099-K. A reportable payment transaction is a transaction in which a payment card (such as a credit card or gift card) is accepted as payment or any transaction that is settled through a third party payment network like PayPal. It does not include ATM withdrawals, cash advances against a credit card, a check issued in connection with a payment card, or any transaction in which a payment card is accepted as payment by a merchant or other payee who is related to the issuer of the card.

In plain talk, this means that taxpayers who have a credit card merchant account, Paypal account or similar account and otherwise meet the criteria will receive form 1099-K from their service provider. That would include professionals like lawyers and architects who accept online or credit card payments for services, freelancers compensated via PayPal and etsy sellers, affiliates, eBay merchants and other small businesses who accept credit cards, debit card or PayPal as payment for their wares.

But not every dollar will count. Reporting is only required when gross payments to an individual payee exceed $20,000 for the year and when there are more than 200 transactions with the participating payee. So the occasional sale of a crocheted toilet paper roll cover over the internet? Not likely to merit the issuance of a 1099-K. But a successful online store? That’s another story.

Continue reading at Credit Card Reporting.

Tax Tips for the Newly Self-Employed

With more than 14 million Americans currently unemployed, many have become self-employed. Starting a new business is pretty intense with entrepreneurs having to wear different hats to get the business off the ground. The financial and tax side of owning a business is a common area that most entrepreneurs need help with.

Here are some tips that will help self-employed workers get their business off the ground without running into tax problems down the road.  

Hire a Tax Pro and an Attorney. It’s part of the cost of doing business and is highly recommended by many experts, not just us tax pros and attorneys. Richard Kiyosaki, in his book, “Rich Dad, Poor Dad” stresses the importance of having a team of legal and accounting/tax experts to guide you through the process. Pound for pound, their advice will save you money in the long run. Tax planning, entity selection, financial analysis, and setting up accurate books are integral to your success.

Read more: http://smallbusiness.foxbusiness.com/legal-hr/2011/11/18/tax-tips-for-newly-self-employed/#ixzz1jP7xhIow

Are you newly self-employed?  Contact us so the IRS does not contact you.

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.

Let Me Know What You Think

I am trying different styles for my website and blog.  I like the two column layout and the fonts.  I am undecided about the colors.

Let me know what you think, and your suggestions.

Thanks!

Ken

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!