Many times I have come across taxpayers who have gone several years without filing their tax returns, both state and federal. Usually the IRS (federal) is the first to contact the taxpayer about the problem. I always advise the taxpayer, after learning they are unfiled for both the federal and the state, to get the state returns filed first and work our a plan of resolution with the state, then file the federal returns and work out a plan with the feds (the IRS) next. The reasoning on this is very sound.
By taking this approach the taxpayer is able to get a plan of resolution in place with the state first. When we go to negotiate with the IRS it is much easier to work out a payment plan with them that includes the payment already being made to the state. If the feds (the IRS) are done first and then we go to the state the individual states are not very flexible and will usually not be very agreeable to a reasonable plan. When consulting with a professional tax resolution consultant take this sound reasoning under advisement. You would do well to do so.
Friday, November 28, 2008
A Word On Amended Tax Returns
Before I even begin the first thing I am going to say is this…beware! Amending a tax return is okay if you are amending it to include income you left off for whatever reason. It’s also okay to amend a return to include deductions you forgot to list completely the first time around. This is where I would say BEWARE.
Whenever the IRS receives an amended return with a lot of deductions that was not listed on the original return the look at the amended return very closely. The statistical probability of the return getting audited is much higher than just an ordinary return. Too many times in the past the IRS found situations where taxpayers filed their return, was hit with a substantial penalty and then tried to rectify the problem after the fact in the form of an amended return.
Don’t get me wrong. It is okay to file an amended return just make sure you have all of the supporting documentation to justify the expenses you are claiming. Many taxpayers have found themselves in need of the services of a professional tax resolution firm as a result of getting audited after filing an amended return and subsequently getting hit with a huge tax bill. Just remember…have your documentation to support whatever deductions you make!
Whenever the IRS receives an amended return with a lot of deductions that was not listed on the original return the look at the amended return very closely. The statistical probability of the return getting audited is much higher than just an ordinary return. Too many times in the past the IRS found situations where taxpayers filed their return, was hit with a substantial penalty and then tried to rectify the problem after the fact in the form of an amended return.
Don’t get me wrong. It is okay to file an amended return just make sure you have all of the supporting documentation to justify the expenses you are claiming. Many taxpayers have found themselves in need of the services of a professional tax resolution firm as a result of getting audited after filing an amended return and subsequently getting hit with a huge tax bill. Just remember…have your documentation to support whatever deductions you make!
Dividend Income Is Reportable
Many employers have stock purchase plans and encourage employees to purchase stock in the company they work for. Some company plans allow for the employee to choose between accepting a cash payout for the dividends or having the dividends re-invested to purchase more shares of stock. If an employee chooses the latter then this must be reported as income.
Sometimes a company will allow an employee to purchase shares below market value. In this case the shareholder must report as income the fair market value of the additional stock on the dividend payment date. If the plan allows the shareholder to invest more cash to buy shares of stock at a price less than fair market value then the shareholder must report as dividend income the difference between the cash invested and the fair market value of the stock purchased.
This can become a sticky area when there are lots of purchases when the stock fluctuates wildly. It would be a good idea to have a professional tax preparer determine exactly what must and what must not be reported.
Sometimes a company will allow an employee to purchase shares below market value. In this case the shareholder must report as income the fair market value of the additional stock on the dividend payment date. If the plan allows the shareholder to invest more cash to buy shares of stock at a price less than fair market value then the shareholder must report as dividend income the difference between the cash invested and the fair market value of the stock purchased.
This can become a sticky area when there are lots of purchases when the stock fluctuates wildly. It would be a good idea to have a professional tax preparer determine exactly what must and what must not be reported.
You Need To Report It!
Way back in time before money was as trustworthy as it is today as a medium of exchange people used to barter. According to Wikipedia, “Barter is a type of trade in which goods or services are directly exchanged for other goods and/or services, without the use of money. It can be bilateral or multilateral, and usually exists parallel to monetary systems in most developed countries, though to a very limited extent. Barter usually replaces money as the method of exchange in times of monetary crisis, when the currency is unstable and devalued by hyperinflation.”
People still barter today despite the fact that we have a highly developed monetary system. For example, you have a plumber who is highly skilled at what he does and you have a mortgage banker who owns a beachfront property. The mortgage banker has an extensive, not to mention expensive, plumbing problem so he calls the plumber. The plumber comes out, works a couple of days, and fixes the problem and then hands the mortgage banker a bill for $7,150.
The mortgage banker, short on money, says to the plumber, “Hey, I have a beach home I usually rent for $7,500 for the whole week. I’ll let you have the place at no cost if you will accept my offer as payment in full for the $7,150 I owe you, deal?” “Deal.” the plumber replies. Well guess what? They both need to report the dollar value of the benefit they received as income! Sometimes seemingly simple little “oversights” like these can lead to tax problems requiring the services of a tax professional. Be careful and don’t forget…you need to report it!
People still barter today despite the fact that we have a highly developed monetary system. For example, you have a plumber who is highly skilled at what he does and you have a mortgage banker who owns a beachfront property. The mortgage banker has an extensive, not to mention expensive, plumbing problem so he calls the plumber. The plumber comes out, works a couple of days, and fixes the problem and then hands the mortgage banker a bill for $7,150.
The mortgage banker, short on money, says to the plumber, “Hey, I have a beach home I usually rent for $7,500 for the whole week. I’ll let you have the place at no cost if you will accept my offer as payment in full for the $7,150 I owe you, deal?” “Deal.” the plumber replies. Well guess what? They both need to report the dollar value of the benefit they received as income! Sometimes seemingly simple little “oversights” like these can lead to tax problems requiring the services of a tax professional. Be careful and don’t forget…you need to report it!
Electronic Paying
Much is said about eFiling, filing your federal tax returns electronically, but how often do you hear about ePaying, paying your federal taxes electronically. The IRS has made it easy to file and also easy to pay thru an online system called EFTPS, which stands for Electronic Federal Tax Payment System. This system may work well for individuals who have an installment agreement with the IRS to re-pay a federal tax debt and would really work will for any business owner who is the person responsible for paying the company’s payroll taxes.
The system is quick and convenient. Enrollment is easy as well. All that is required is simply calling the EFTPS customer service number at 800-555-4477 and speak directly with a representative. You will need to give them your name, social security number, spouse’s social security number, mailing address, contact phone number and banking information complete with account number and routing number. Once you get set up in the system you will be notified what your PIN number is and to call to establish your password and then your ready to access the system. Give it a try, I’m sure you’ll love it!
The system is quick and convenient. Enrollment is easy as well. All that is required is simply calling the EFTPS customer service number at 800-555-4477 and speak directly with a representative. You will need to give them your name, social security number, spouse’s social security number, mailing address, contact phone number and banking information complete with account number and routing number. Once you get set up in the system you will be notified what your PIN number is and to call to establish your password and then your ready to access the system. Give it a try, I’m sure you’ll love it!
Friday, November 21, 2008
IRS Installment Agreements
Taxpayers have lots of questions regarding installment agreements with the IRS. One question that comes up quite frequently concerns whether or not the taxpayer can roll a new tax year’s liability in with the pre-existing installment agreement. The only way this can be done successfully is to completely re-negotiate the installment agreement with the IRS. Whenever the IRS sets up an installment agreement with a taxpayer the agreement calls for the taxpayer to file all future returns and pay future taxes on time. If not, this alone will default thee agreement.
If the current agreement with the IRS is defaulted then the taxpayer goes right back into the collection cycle and may face liens and levies once again. Another point to consider is if the liability from the new tax year when added to the prior balance causes the total liability to go over $25,000 the an extensive negotiation with the IRS must take place. The best way to handle a situation like this is to have a professional tax resolution firm handle it.
If the current agreement with the IRS is defaulted then the taxpayer goes right back into the collection cycle and may face liens and levies once again. Another point to consider is if the liability from the new tax year when added to the prior balance causes the total liability to go over $25,000 the an extensive negotiation with the IRS must take place. The best way to handle a situation like this is to have a professional tax resolution firm handle it.
Educational Tax Credits
The tax code has a provision whereby a taxpayer may claim a Hope credit up to $1,650 for qualified tuition and any related expenses paid by himself, his or her spouse and any dependent required for enrollment at any accredited college, university, or some other accredited postsecondary educational institution and can only be claimed for two taxable years for each eligible student.
For a student to be eligible they must hot have completed the first two years of postsecondary education and must be enrolled in a program that leads to a degree or so other for of educational credential. They also must be taking at least one-half of the normal full-time workload for their course of study for at least one period starting at the first of the calendar year and must not have been convicted of a felony related to the possession or distribution of a controlled substance.
The maximum amount that can be claimed is $1,650 per eligible student. This translates into a substantial tax savings for the taxpayer! Does your tax preparer know about this valuable tax credit?
For a student to be eligible they must hot have completed the first two years of postsecondary education and must be enrolled in a program that leads to a degree or so other for of educational credential. They also must be taking at least one-half of the normal full-time workload for their course of study for at least one period starting at the first of the calendar year and must not have been convicted of a felony related to the possession or distribution of a controlled substance.
The maximum amount that can be claimed is $1,650 per eligible student. This translates into a substantial tax savings for the taxpayer! Does your tax preparer know about this valuable tax credit?
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