Tax Tips

 

Affordable Care Act Tax Provisions Questions & Answers

Most taxpayers are going to be affected by some portion of the Affordable Care Act and should expect additional questions from their tax preparer for 2014 in order to comply with some of the provisions.  The IRS and HealthCare.gov have extensive information regarding your responsibilities under the Affordable Care Act with regard to your health insurance coverage, the Individual and Employer Shared Responsibilities, the Premium Tax Credit, the Additional Medicare Tax, and the Net Investment Income Tax.    See this link to answer many of your questions.

 

Alternative Minimum Tax, Six IRS Tips

The Alternative Minimum Tax attempts to ensure that anyone who benefits from certain tax advantages pays at least a minimum amount of tax. The AMT provides an alternative set of rules for calculating your income tax. In general these rules should determine the minimum amount of tax that someone with your income should be required to pay. If your regular tax falls below this minimum, you have to make up the difference by paying alternative minimum tax. See five facts the IRS wants you to know about the AMT.

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Charitable Contributions

Charitable Donations from IRAs - The option for individuals who are 70-1/2 or older to donate up to $100,000 from IRAs to charitable organizations has been extended through 2013.

To deduct a charitable cash donation, regardless of the amount, you must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Acceptable bank records would include canceled checks or bank or credit union statements containing the name of the charity, the date and the amount of the contribution.

Under the previous rules, records such as personal bank registers, diaries or notes made around the time of the donation could often be used as evidence of cash donations. Personal records like this are no longer sufficient.

Here are some additional tips to help you deduct your charitable contributions on your federal tax return.

More information is available on the IRS Web site at IRS.gov. A good resource is IRS Publication 526, Charitable Contributions, found on the web site or by calling 800-TAX-FORM (800-829-3676).

Additional information: Goodwill Valuation Guide
Determining Value of Donated Property: IRS Pub 561
Noncash Charitable Contributions: IRS Form 8283

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Charitable Contribution - Tips on Travel While Giving to Charity

Do you plan to donate your services to charity this summer? Will you travel as part of the service? If so, some travel expenses may help lower your taxes when you file your tax return next year. Here are five tax tips you should know if you travel while giving your services to charity.

1. You can’t deduct the value of your services that you give to charity. But you may be able to deduct some out-of-pocket costs you pay to give your services. This can include the cost of travel. All out-of pocket costs must be:

• unreimbursed,
• directly connected with the services,
• expenses you had only because of the services you gave, and
• not personal, living or family expenses.

2. Your volunteer work must be for a qualified charity. Most groups other than churches and governments must apply to the IRS to become qualified. Ask the group about its IRS status before you donate. You can also use the Select Check tool on IRS.gov to check the group’s status.

3. Some types of travel do not qualify for a tax deduction. For example, you can’t deduct your costs if a significant part of the trip involves recreation or a vacation. For more on these rules see Publication 526, Charitable Contributions.
4. You can deduct your travel expenses if your work is real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.

5. Deductible travel expenses may include:

• air, rail and bus transportation,
• car expenses,
• lodging costs,
• the cost of meals, and
• taxi or other transportation costs between the airport or station and your hotel.

For more see Publication 526, Charitable Contributions. You can get it on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

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College Tax Benefits for 2014 and Beyond

In general, the American opportunity tax credit, lifetime learning credit and tuition and fees deduction are available to taxpayers who pay qualifying expenses for an eligible student. Eligible students include the primary taxpayer, the taxpayer’s spouse or a dependent of the taxpayer. Please see IRS article for detailed information.

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Do you need to amend your return?

You’ve discovered an error or determined that you are entitled to a previously unclaimed credit or deduction, after your tax return has been filed.  Do you need to amend your tax return?

The IRS usually corrects math errors or requests missing forms – such as W-2s or schedules – when processing an original return. In these instances, do not amend your return.
However, you should file an amended return if any of the following were reported incorrectly:

Generally, to claim a refund, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.

Please contact us if you need to file an amended return.

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Eight Things to Know If You Receive an IRS Notice

Every year, the IRS sends millions of letters and notices to taxpayers. Many taxpayers will receive this correspondence during the late summer and fall. Here are eight things every taxpayer should know about IRS notices – just in case one shows up in your mailbox.

  1. Don’t panic. Many of these letters can be dealt with simply and painlessly.
  2. There are number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
  3. Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.
  4. 4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
  5. If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
  6. If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
  7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.
  8. It’s important that you keep copies of any correspondence with your records.

For more information about IRS notices and bills, see Publication 594, The IRS Collection Process. Information about penalties and interest charges is available in Publication 17, Your Federal Income Tax for Individuals. Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Links:

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Employer W-2 Filing Instructions

The attached pdf payroll file is from an article by the Washington Association of Accountants and provides important information about ITINs (Individual Taxpayer Identification Number); how to verify social security numbers via internet, telephone and paper; how long a W-4 is in effect; and withholding income taxes on wages of nonresident alien employees.

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Five Facts about Suspicious Emails

There are many e-mail scams circulating that fraudulently use the Internal Revenue Service name or logo as a lure. The goal of the scam – known as phishing – is to trick you into revealing personal and financial information. The scammers can then use your personal information – such as your Social Security number, bank account or credit card numbers – to commit identity theft and steal your money.

Here are five things the IRS wants you to know about phishing scams.

1.  The IRS does not send unsolicited e-mails about a person’s tax account or ask for detailed personal and financial information via e-mail.

2. The IRS never asks taxpayers for their PIN numbers, passwords or similar secret access information for their credit card, bank or other financial accounts.

3. If you receive an e-mail from someone claiming to be the IRS or directing you to an IRS site,

4. You can help shut down these schemes and prevent others from being victimized. If you receive a suspicious e-mail that claims to come from the IRS, you can forward that e-mail to a special IRS mailbox, phishing@irs.gov. You can forward the message as received or provide the Internet header of the e-mail. The Internet header has additional information to help us locate the sender.

5. Remember, the official IRS Web site is http://www.irs.gov/. Do not be confused or misled by sites claiming to be the IRS but end in .com, .net, .org or other designations instead of .gov.


Link:   Suspicious e-Mails and Identity Theft

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Five Filing Facts for Recently Married or Divorced Taxpayers

If you were married or divorced recently, there are a couple of things you’ll want to do to ensure the name on your tax return matches the name registered with the Social Security Administration.

Here are five facts from the IRS for recently married or divorced taxpayers. Following these steps will help avoid problems when you file your tax return.

  1. If you took your spouse’s last name or if both spouses hyphenate their last names, you may run into complications if you don’t notify the SSA. When newlyweds file a tax return using their new last names, IRS computers can’t match the new name with their Social Security Number.
  2. If you were recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.
  3. Informing the SSA of a name change is a snap; you’ll just need to file a Form SS-5, Application for a Social Security Card at your local SSA office.
  4. Form SS-5 is available on SSA’s Web site at www.socialsecurity.gov, by calling 800-772-1213 or at local offices. It usually takes about two weeks to have the change verified.
If you adopted your spouse’s children after getting married, you’ll want to make sure the children have an SSN. Taxpayers must provide an SSN for each dependent claimed on a tax return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return. The W-7A is available on IRS.gov, or by calling 800-TAX-FORM (800-829-3676).

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Home Office Deduction

Here are five important things the IRS wants you to know about claiming the home office deduction.

1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:

For certain storage use, rental use or daycare-facility use, you are required to use the property regularly but not exclusively.

2. Generally, the amount you can deduct depends on the percentage of your home that you used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

3. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

4. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home, to figure your home office deduction. Report the deduction on line 30 of Schedule C, Form 1040.

5. Different rules apply to claiming the home office deduction if you are an employee. For example, the regular and exclusive business use must be for the convenience of your employer.

For more information see IRS Publication 587, Business Use of Your Home, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Simplified Option

For taxable years starting on, or after, January 1, 2013 (filed beginning in 2014), you now have asimpler option for computing the business use of your home (IRS Revenue Procedure 2013-13, January 15, 2013). The standard method has some calculation, allocation, and substantiation requirements that are complex and burdensome for small business owners. This new simplified option can significantly reduce recordkeeping burden by allowing a qualified taxpayer to multiply a prescribed rate by the allowable square footage of the office in lieu of determining actual expenses.

Regular Method

Taxpayers using the regular method (required for tax years 2012 and prior), instead of the optional method, must determine the actual expenses of their home office. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. Generally, when using the regular method, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities.

Links:  Publication 587, Business Use of Your Home; IRS - Home Office Deduction; comparison chart Simplified/Regular Method

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Mileage Rate

IRS Standard mileage rates for 2015:

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New Identity Theft Scams

The Internal Revenue Service reminds consumers to avoid identity theft scams that use the IRS name, logo or Web site in an attempt to convince taxpayers that the scam is a genuine communication from the IRS. Scammers may use other federal agency names, such as the U.S. Department of the Treasury.

In an identity theft scam, a fraudster, often posing as a trusted government, financial or business institution or official, tries to trick a victim into revealing personal and financial information, such as credit card numbers and passwords, bank account numbers and passwords, Social Security numbers and more. Generally, identity thieves use someone’s personal data to steal his or her financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name and even file fraudulent tax returns.

The scams may take place through e-mail, fax or phone. When they take place via e-mail, they are called “phishing” scams.

The IRS does not discuss tax account matters with taxpayers by e-mail.

The IRS urges consumers to avoid falling for the following recent schemes:

How to Spot a Scam
Many e-mail scams are fairly sophisticated and hard to detect. However, there are signs to watch for, such as an e-mail that:

Additional information can be found on the IRS web site, Suspicious e-Mails and Identity Theft.

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Independent Contractor vs. Employee 

Are your workers independent contractors or employees?  Employers who misclassify workers as independent contractors can end up with substantial tax bills as well as penalties for failing to pay employment taxes and failing to file required tax forms.  Workers can avoid higher tax bills and lost benefits if they know their proper status.

Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.

Generally, whether a worker is an employee or an independent contractor depends upon how much control you have as a business owner.  If you have the right to control or direct not only what is to be done but also how it is to be done then your workers are most likely employees.  If you can direct or control only the result of the work done, and not the means and methods of accomplishing the result, then your workers are probably independent contractors. 

Three broad characteristics are used by the IRS to determine the relationship between businesses and workers - Behavioral Control, Financial Control, and the Type of Relationship.  Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training, or other means.  Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.  The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.

The State of Washington has slightly different rules regarding worker classification, so even if you determine that your worker is an independent contractor for IRS purposes you may still be liable for WA State Unemployment http://www.esd.wa.gov/uitax/  or WA State Industrial Insurance (Workers’ Compensation)  http://www.lni.wa.gov/IPUB/101-002-000.pdf.   Be sure to check with your accountant if you believe you may have reporting requirements with regard to employment taxes.

Knowing the proper worker classification can be critical to your business.  Don’t guess.  Act now to make certain you know for sure.

Additional Information Links:

*     Contractor vs. Employee
*     Publication 1779
*     Publication 15-A (Circular E)

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Is Your Gift Taxable 

If you give someone money or property during your life, you may be subject to the federal gift tax. Most gifts are not subject to the gift tax, but the IRS has put together "Eight Tips" to help you determine if your gift is taxable. If you determine your gift is taxable, you must file a gift tax return on Form 709.

The annual exclusion applies to gifts to each donee and is currently $13,000. You and your spouse are each entitled to the annual exclusion. Together you can give $26,000 to each donee.

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Keeping Good Tax Records 

Publication 552, Recordkeeping for Individuals, provides detailed information on individual record keeping requirements.

Publication 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses, provide additional information on required documentation for taxpayers with business expenses.

These publications can be downloaded from IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

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Rental Income and Expenses 

Do you rent property to others? If so, you'll want to read the seven tips from the IRS about rental income and expenses.

You generally must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use of or occupation of property. Expenses of renting property can be deducted from your gross rental income. You generally deduct your rental expenses in the year you pay them. Publication 527, Residential Rental Property, includes information on the expenses you can deduct if you rent property.

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Summer Day Camp Expenses May Qualify for a Tax Credit

Many parents who work or are looking for work must arrange for care of their children under 13 years of age during school vacation. There is a tax credit available for child care expenses. See IRS Summertime tax tip 2011-01 for additional information.

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Tax Calendar for Small Businesses

The IRS offers a free calendar to help you keep track of tax deadlines and important dates throughout the year.  The 2013 IRS Tax Calendar for Small Businesses and Self-Employed, Publication 1518, is now available.  On IRS.gov you can download the tax calendar due dates and actions, and import them into Outlook or iCal. Printed copies of the tax calendar can also be ordered online or by calling 800-TAX-FORM (800-829-3676). This is a 12-month calendar filled with deadline reminders, important information such as changes in deductible mileage rates and business tips such as how to organize business and travel expenses. 

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Withholding Amounts/Payments

Some people are surprised to learn they’re due a large federal income tax refund when they file their taxes. Others are surprised that they owe more taxes than they expected. When this happens, it’s a good idea to check your federal tax withholding or payments. Doing so now can help avoid a tax surprise when you file your 2013 tax return next year.

Here are some tips to help you bring the tax you pay during the year closer to what you’ll actually owe.

Wages and Income Tax Withholding

Self-Employment and Other Income

See Publication 505, Tax Withholding and Estimated Tax, for more on this topic. You can get it at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

IRS Resources:

 

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