DO YOU NEED TO WORRY ABOUT RMDs???? Required Minimum Distributions from retirement accounts....
Things to do, if you're already getting by.....
Purchase life insurance.
RMDs can be leveraged for the future generation through an insurance policy. Life insurance provides a potential tax-free death benefit to your clients’ heirs, and allows them through leverage possibly to pass on much more than the balance available in their IRAs today. This option is particularly attractive if clients’ beneficiaries are in a higher tax bracket than themselves.
Purchase long-term-care insurance.
Another great way to leverage an RMD is through the purchase of long-term-care insurance. LTCI provides a way to protect clients’ assets should they ever need in-home or assisted nursing care. With the ever-growing cost of assisted living, this coverage can help clients preserve their estate for the benefit of their children and other beneficiaries.
Fund a 529 plan.
Funding a 529 plan is a great way for clients to leave a legacy. If they have an RMD that is more than the IRS annual gifting limit, using 529 plans allows them to gift five times the annual gifting limit in one year. This mega-funding strategy can only be used once every five years, but front-loading a gifted 529 could make a lot of sense, particularly for elderly clients.
Pay the tax due on a Roth conversion.
Roth IRAs do not have an RMD requirement. Clients can use their current unwanted RMD to pay the taxes due to convert the traditional IRA to a Roth IRA. The amount converted would be subject to ordinary income tax, but once it is converted, there would no longer be an RMD requirement.
There is no law requiring clients to do anything with their RMDs. By reinvesting these dollars into a taxable account, they certainly can expect to recover the taxes they paid on the RMD over time.
The Trade Preferences Extension Act of 2015 contains a number of tax provisions in addition to its trade measures. Taxpayers who exclude foreign earned income under Code Section 911 cannot claim the child tax credit; taxpayers must receive a payee statement (1098-T) before they can claim an American Opportunity, Hope, or Lifetime Learning Credit or take the deduction for qualified tuition and related expenses. This is effective for tax years beginning after the TPEA’s date of enactment.
Under new policies announced by the IRS, taxpayers may receive a letter when the service stops suspicious tax returns that have indications of involving identity theft but contain legitimate taxpayer’s name and/or Social Security number. The IRS has agreed to reverse its policy and provide identity theft victims with copies of the fraudulent tax return that has been filed under their name by scammers, so they can take the proper steps to secure their personal information.
Things to know about ID Theft:
1. Protect your Records. Do not carry your Social Security card or other documents with your SSN on them. Only provide your SSN if it’s necessary and you know the person requesting it. Protect your personal information at home and protect your computers with anti-spam and anti-virus software. Routinely change passwords for Internet accounts.
2. Don’t Fall for Scams. The IRS will not call you to demand immediate payment, nor will it call about taxes owed without first mailing you a bill. Beware of threatening phone calls from someone claiming to be from the IRS. If you have no reason to believe you owe taxes, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484.
3. Report ID Theft to Law Enforcement. If your SSN was compromised and you think you may be the victim of tax-related ID theft, file a police report. You can also file a report with the Federal Trade Commission using the FTC Complaint Assistant. It’s also important to contact one of the three credit bureaus so they can place a freeze on your account.
4. Complete an IRS Form 14039 Identity Theft Affidavit. Once you’ve filed a police report, file an IRS Form 14039 Identity Theft Affidavit. Print the form and mail or fax it according to the instructions. Continue to pay your taxes and file your tax return, even if you must do so by paper.
5. Understand IRS Notices. Once the IRS verifies a taxpayer’s identity, the agency will mail a particular letter to the taxpayer. The notice says that the IRS is monitoring the taxpayer’s account. Some notices may contain a unique Identity Protection Personal Identification Number (IP PIN) for tax filing purposes.
6. IP PINs. If a taxpayer reports that they are a victim of ID theft or the IRS identifies a taxpayer as being a victim, they will be issued an IP PIN. The IP PIN is a unique six-digit number that a victim of ID theft uses to file a tax return. In 2014, the IRS launched an IP PIN Pilot program. The program offers residents of Florida, Georgia and Washington, D.C., the opportunity to apply for an IP PIN, due to high levels of tax-related identity theft there.
7. Data Breaches. If you learn about a data breach that may have compromised your personal information, keep in mind not every data breach results in identity theft. Further, not every identity theft case involves taxes. Make sure you know what kind of information has been stolen so you can take the appropriate steps before contacting the IRS.
8. Report Suspicious Activity. If you suspect or know of an individual or business that is committing tax fraud, you can visit IRS.gov and follow the chart on How to Report Suspected Tax Fraud Activity.
9. Combating ID Theft. Over the past few years, nearly 2,000 people were convicted in connection with refund fraud related to identity theft. The average prison sentence for identity theft-related tax refund fraud grew to 43 months in 2014 from 38 months in 2013, with the longest sentence being 27 years. During 2014, the IRS stopped more than $15 billion of fraudulent refunds, including those related to identity theft. Additionally, as the IRS improves its processing filters, the agency has also been able to halt more suspicious returns before they are processed. So far this year, new fraud filters stopped about 3 million suspicious returns for review, an increase of more than 700,000 from the year before.
Each year the IRS mails millions of notices and letters to taxpayers. If you receive a notice from the IRS, here is what you should do:
- Don’t Ignore It. You can respond to most IRS notices quickly and easily. It is important that you reply right away. CONTACT YOUR TAX PROFESSIONAL IMMEDIATELY.
- Focus on the Issue. IRS notices usually deal with a specific issue about your tax return or tax account. Understanding the reason for your notice is important before you can comply.
- Follow Instructions. Read the notice carefully. It will tell you if you need to take any action to resolve the matter. You should follow the instructions.
- Correction Notice. If it says that the IRS corrected your tax return, you should review the information provided and compare it to your tax return.
If you agree, you don’t need to reply unless a payment is due.
If you don’t agree, it’s important that you respond to the IRS. Write a letter that explains why you don’t agree. Make sure to include information and any documents you want the IRS to consider. Include the bottom tear-off portion of the notice with your letter. Mail your reply to the IRS at the address shown in the lower left part of the notice. Allow at least 30 days for a response from the IRS.
- Premium Tax Credit. The IRS may send you a letter asking you to clarify or verify your premium tax credit information. The letter may ask for a copy of your Form 1095-A, Health Insurance Marketplace Statement. You should follow the instructions on the letter that you receive. This will help the IRS verify information and issue the appropriate refund.
- No Need to Visit IRS. You can handle most notices without calling or visiting the IRS. If you do have questions, call the phone number in the upper right corner of the notice. You should have a copy of your tax return and the notice with you when you call.
- Keep the Notice. Keep a copy of the notice you get from the IRS with your tax records.
- Watch Out for Scams. Don’t fall for phone and phishing email scams that use the IRS as a lure. The IRS first contacts people about unpaid taxes by mail – not by phone. The IRS does not initiate contact with taxpayers by email, text or social media.
- Correct your tax withholding. Did you get a big refund or owed more tax than you expected when you filed your tax return? If so, you may want to change your tax withholding. To make a change, complete and give your employer a new Form W-4, Employee's Withholding Allowance Certificate. The IRS Withholding Calculator tool can help you fill out a new Form W-4.
- Check on your refund. The Where’s My Refund? tool is a fast and easy way to check on your tax refund. Use the IRS2Go mobile app to access it or click on the “Refunds” tab on IRS.gov.
- Try IRS Direct Pay. If you owe taxes, pay them with IRS Direct Pay. It’s the safe, easy and free way to pay from your checking or savings account. Just click on the “Pay Your Tax Bill” link on the IRS home page.
- Apply to make payments. If you are not able to pay your tax in full, you may apply for an Online Payment Agreement. Check out the direct debit payment plan. It has a lower set-up fee and you will not miss a payment. With a direct debit plan the IRS will not send you a monthly reminder to send your check.
- Check out a charity. If you donate to a charity, the value of your gift may be deductible. Use the Select Check tool to see if your charity qualifies.
PLEASE HELP US HELP YOU! CURRENTLY THE NEW IRS REGULATIONS STIPULATE THAT WE ARE TO BE USING STREET ADDRESSES IN FULL – I.E. NO MORE AVE OR ST, IT MUST BE SPELLED OUT. FURTHER, IF THE IRS REC’S MORE THAN ONE ADDRESS FOR YOU – SAY A BANK ACCOUNT OR W2 THAT DOES NOT SHOW A CURRENT ADDRESS THEN THEY WILL START TO ISSUE NOTICES TO ALL PARTIES UNTIL CONTINUITY IS REESTABLISHED – THIS COULD HOLD UP REFUNDS!!
MISC items that MAY EFFECT YOU
- Tip Income. All tip income is taxable. Keep a daily log to report them. You must report $20 or more in cash tips in any one month to your employer. And you must report all of your yearly tips on your tax return.
- Newspaper Carriers. Special rules apply to a newspaper carrier or distributor. If you meet certain conditions, you are self-employed. If you do not meet those conditions, and are under age 18, you may be exempt from social security and Medicare taxes.
- ROTC Pay. If you’re in ROTC, active duty pay, such as pay you get for summer camp, is taxable. A subsistence allowance you get while in advanced training is not taxable.
Don’t Overlook the Child and Dependent Care Tax Credit this Summer
IRS Special Edition Tax Tip 2015-12
1. Day camps are common during the summer months. Many parents pay for them for their children while they work or look for work. If this applies to you, your costs may qualify for a federal tax credit that can lower your taxes. Here are the top ten tips to know about the Child and Dependent Care Credit:
- Care for Qualifying Persons. Your expenses must be for the care of one or more qualifying persons. Your dependent child or children under age 13 usually qualify. For more about this rule see Publication 503, Child and Dependent Care Expenses.
- Work-related Expenses. Your expenses for care must be work-related. This means that you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they’re physically or mentally incapable of self-care.
- Earned Income Required. You must have earned income, such as from wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care. This rule also applies to you if you file a joint return. Refer to Publication 503 for more details.
- Joint Return if Married. Generally, married couples must file a joint return. You can still take the credit, however, if you are legally separated or living apart from your spouse.
- Type of Care. You may qualify for it whether you pay for care at home, at a daycare facility or at a day camp.
- Credit Amount. The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on the amount of your income.
- Expense Limits. The total expense that you can use in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.
- Certain Care Does Not Qualify. You may not include the cost of certain types of care for the tax credit, including:
- Overnight camps or summer school tutoring costs.
- Care provided by your spouse or your child who is under age 19 at the end of the year.
- Care given by a person you can claim as your dependent.
- Keep Records and Receipts. Keep all your receipts and records for when you file your tax return next year. You will need the name, address and taxpayer identification number of the care provider. You must report this information when you claim the credit on Form 2441, Child and Dependent Care Expenses.
- Dependent Care Benefits. Special rules apply if you get dependent care benefits from your employer. See Publication 503 for more on this topic.
Remember that this credit is not just a summer tax benefit. You may be able to claim it for qualifying care that you pay for at any time during the year.
If you have a dispute with the IRS and neither you nor your tax professional have been able to solve the situation it may be time for you to call in the Tax Payer Advocacy.
How Does the Taxpayer Advocate Service Work for You?
The Taxpayer Advocate Service is an independent organization within the Internal Revenue Service. We protect taxpayers’ rights by ensuring that all taxpayers receive fair treatment. We can also help you to know and understand your rights under the Taxpayer Bill of Rights.
What is the Taxpayer Bill of Rights?
The Taxpayer Bill of Rights describes ten basic rights that all taxpayers have when dealing with the IRS. Our taxpayer rights webpage can help you understand what these rights mean to you and how they apply. These are your rights. Know them. Use them.
Our site at taxpayeradvocate.irs.gov also can help you with common tax issues and situations: what to do if you made a mistake on your tax return, if you got a notice from the IRS or you’re thinking about hiring a tax preparer.
What can a Taxpayer Advocate do for you?
We can help you resolve problems that you can’t resolve with the IRS. And our service is free. Always try to resolve your problem with the IRS first, but if you can’t, then come to the Taxpayer Advocate Service. The best thing you can do is act now!
- We help individuals, businesses, and exempt organizations. If you qualify for our help, your advocate will be with you at every turn and do everything possible.
- You may be eligible for our help if your IRS problem is causing financial difficulty or you believe an IRS procedure just isn't working as it should.
- We have offices in every state, the District of Columbia, and Puerto Rico. Your local advocate’s number is in your local directory and at taxpayeradvocate.irs.gov. You can also call us at 1-877-777-4778.
We also handle large-scale problems that affect many taxpayers. If you know of one of these broad issues, please report it to us at irs.gov/sams.
The Taxpayer Advocate Service is your voice at the IRS. For more information, visit us at taxpayeradvocate.irs.gov.
Info about late filing:
What to Know about Late Filing and Late Paying Penalties
April 15 was the tax day deadline for most people. If you are due a refund there is no penalty if you file a late tax return. But if you owe tax, and you failed to file and pay on time, you will usually owe interest and penalties on the tax you pay late. You should file your tax return and pay the tax as soon as possible to stop them. Here are eight facts that you should know about these penalties.
1. Two penalties may apply. If you file your federal tax return late and owe tax with the return, two penalties may apply. The first is a failure-to-file penalty for late filing. The second is a failure-to-pay penalty for paying late.
2. Penalty for late filing. The failure-to-file penalty is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. It will not exceed 25 percent of your unpaid taxes.
3. Minimum late filing penalty. If you file your return more than 60 days after the due date or extended due date, the minimum penalty for late filing is the smaller of $135 or 100 percent of the unpaid tax.
4. Penalty for late payment. The failure-to-pay penalty is generally 0.5 percent per month of your unpaid taxes. It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due. It can build up to as much as 25 percent of your unpaid taxes.
5. Combined penalty per month. If the failure-to-file penalty and the failure-to-pay penalty both apply in any month, the maximum amount charged for those two penalties that month is 5 percent.
6. File even if you can’t pay. In most cases, the failure-to-file penalty is 10 times more than the failure-to-pay penalty. So if you can’t pay in full, you should file your tax return and pay as much as you can. Use IRS Direct Pay to pay your tax directly from your checking or savings account. You should try other options to pay, such as getting a loan or paying by debit or credit card. The IRS will work with you to help you resolve your tax debt. Most people can set up an installment agreement with the IRS using the Online Payment Agreement tool on IRS.gov.
7. Late payment penalty may not apply. If you requested an extension of time to file your income tax return by the tax due date and paid at least 90 percent of the taxes you owe, you may not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the April 15 due date.
8. No penalty if reasonable cause. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show reasonable cause for not filing or paying on time. ```
Return Preparer Fraud Hits IRS Annual “Dirty Dozen” List of Tax Scams to Avoid During the 2015 Filing Season
WASHINGTON — The Internal Revenue Service today warned taxpayers to be on the lookout for unscrupulous return preparers, one of the most common “Dirty Dozen” tax scams seen during tax season.
The vast majority of tax professionals provide honest high-quality service. But there are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. That's why unscrupulous preparers who prey on unsuspecting taxpayers with outlandish promises of overly large refunds make the Dirty Dozen list every year.
“Filing a tax return can be one of the biggest financial transactions of the year, so taxpayers should choose their tax return preparers carefully,” said IRS Commissioner John Koskinen. “Most tax professionals provide top-notch service, but we see bad actors every year that steal from their clients or compromise returns in ways that can severely harm taxpayers."
Return preparers are a vital part of the U.S. tax system. About 60 percent of taxpayers use tax professionals to prepare their returns.
Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them.
Choosing Return Preparers Carefully
It is important to choose carefully when hiring an individual or firm to prepare your return. Well-intentioned taxpayers can be misled by preparers who don’t understand taxes or who mislead people into taking credits or deductions they aren’t entitled to in order to increase their fee. Every year, these types of tax preparers face everything from penalties to even jail time for defrauding their clients.
Here are a few tips when choosing a tax preparer:
- Check to be sure the preparer has an IRS Preparer Tax Identification Number (PTIN). Anyone with a valid 2015 PTIN is authorized to prepare federal tax returns. Tax return preparers, however, have differing levels of skills, education and expertise. An important difference in the types of practitioners is “representation rights”. You can learn more about the several different types of return preparers on IRS.gov/chooseataxpro.
- Ask the tax preparer if they have a professional credential (enrolled agent, certified public accountant, or attorney), belong to a professional organization or attend continuing education classes. A number of tax law changes, including the Affordable Care Act provisions, can be complex. A competent tax professional needs to be up-to-date in these matters. Tax return preparers aren’t required to have a professional credential, but make sure you understand the qualifications of the preparer you select.
- Check on the service fees upfront. Avoid preparers who base their fee on a percentage of your refund or those who say they can get larger refunds than others can.
- Always make sure any refund due is sent to you or deposited into your bank account. Taxpayers should not deposit their refund into a preparer’s bank account.
- Make sure your preparer offers IRS e-file and ask that your return be submitted to the IRS electronically. Any tax professional who gets paid to prepare and file more than 10 returns generally must file the returns electronically. It’s the safest and most accurate way to file a return, whether you do it alone or pay someone to prepare and file for you.
- Make sure the preparer will be available. Make sure you’ll be able to contact the tax preparer after you file your return – even after the April 15 due date. This may be helpful in the event questions come up about your tax return.
- Provide records and receipts. Good preparers will ask to see your records and receipts. They’ll ask you questions to determine your total income, deductions, tax credits and other items. Do not rely on a preparer who is willing to e-file your return using your last pay stub instead of your Form W-2. This is against IRS e-file rules.
- Never sign a blank return. Don’t use a tax preparer that asks you to sign an incomplete or blank tax form.
- Review your return before signing. Before you sign your tax return, review it and ask questions if something is not clear. Make sure you’re comfortable with the accuracy of the return before you sign it.
- Ensure the preparer signs and includes their PTIN. Paid preparers must sign returns and include their PTIN as required by law. The preparer must also give you a copy of the return.
- Report abusive tax preparers to the IRS. You can report abusive tax return preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or changed the return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. You can get these forms on IRS.gov.
Fees: - this is a survey of fees put out by the Wall Street Journal Jun '13
Average fees for preparing other IRS forms, including the following:
$205 for a Schedule C (business)
$556 for a Form 1065 (partnership)
$759 for a Form 1120 (corporation)
$717 for a Form 1120S (S corporation)
$468 for a Form 1041 (fiduciary)
$628 for a Form 990 (tax exempt)
$59 for a Form 940 (Federal unemployment)
$134 for Schedule D (gains and losses)
$155 for Schedule E (rental)
$185 for Schedule F (farm)
Tax-preparation fees varied by region, firm size, population, and an area’s economic strength. Here is the average fee for an itemized Form 1040 with Schedule A and a state tax return in different U.S. census districts:
New England (CT, ME, MA, NH, RI, VT) – $237
Middle Atlantic (NJ, NY, PA) – $258
South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) – $253
East South Central (AL, KY, MS, TN) – $279
West South Central (AR, LA, OK, TX) – $226
East North Central (IL, IN, MI, OH, WI) – $225
West North Central (IA, KS, MN, MO, NE, ND, SD) – $196
Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) – $233
Pacific (AK, CA, HI, OR, WA) – $288
Pet owners warned – expenses not deductible
an increase recently in the number of clients asking him about deducting their pet expenses such as veterinary bills, on the basis that the animals are dependents. CPA Bob Grossman warns that these are generally not allowed, outside of service dogs for the visually-impaired, though arguments can be made if the animal is used in business, or as a doctor-prescribed therapy companion.
Take care when making business travel deductions
Because of the potential for abuse, small businesses making deductions for business travel expenses are “a fertile area for the IRS to pursue”, according to small firm tax specialist Barbara Weltman.
Tips for Self-Employed Taxpayers
If you are an independent contractor or run your own business, there are a few basic things to know when it comes to your federal tax return. Here are six tips you should know about income from self-employment:
- Self-employment income can include income you received for part-time work. This is in addition to income from your regular job.
- You must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040.
- You may have to pay self-employment tax as well as income tax if you made a profit. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to figure the tax. Make sure to file the schedule with your tax return.
- You may need to make estimated tax payments. People typically make these payments on income that is not subject to withholding. You may be charged a penalty if you do not pay enough taxes throughout the year.
- You can deduct some expenses you paid to run your trade or business. You can deduct most business expenses in full, but some must be ’capitalized.’ This means you can deduct a portion of the expense each year over a period of years.
Report Name Change before You File Taxes
Did you change your name last year? Did your dependent have a name change? If the answer to either question is yes, be sure to notify the Social Security Administration before you file your tax return with the IRS.
This is important because the name on your tax return must match SSA records. If they don’t, you’re likely to get a letter from the IRS about the mismatch. And if you expect a refund, this may delay when you’ll get it.
Be sure to contact SSA if:
- You got married or divorced and you changed your name.
- A dependent you claim had a name change. For example, this would apply if you adopted a child and that child’s last name changed.
Four Tax Facts about the Health Care Law for Individuals
There are a few basic tips to keep in mind about the new health care law. Health insurance choices you make now may affect the income tax return you file in 2015.
1. Most people already have qualified health insurance coverage and will not need to do anything more than maintain qualified coverage throughout 2014.
2. If you do not have health insurance through your job or a government plan, you may be able to buy it through the Health Insurance Marketplace.
3. If you buy your insurance through the Marketplace, you may be eligible for an advance premium tax credit to lower your out-of-pocket monthly premiums.
4. Your 2014 tax return will ask if you had insurance coverage or qualified for an exemption. If not, you may owe a shared responsibility payment when you file in 2015.
What if I didn’t get a Form W-2? Employers are required to send to their employees a Form W-2, Statement of Earnings, by January 31. If you don’t get a form W-2 by mid-February, you should first contact your employer to make sure they have your correct address on file. After exhausting all options with your employer, you may contact the IRS and we will send a letter to the employer. However, call after Presidents Day week to avoid long telephone wait times.
Why do some folks get BIG TAX REFUNDS
Earned Income Tax Credit. If you worked but earned less than $51,567 last year, you may qualify for EITC. If you have three qualifying children, you may get up to $6,044 as EITC when you file and claim it on your tax return.
WHERE'S MY REFUND??
Most recent update from IRS - they are NOT giving us dates that you should expect a refund. The only thing they are recommending is that once you receive notification from us that it has been accepted, is to wait 24hours and then try the "where's my refund" status update on their website. (https://sa2.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp)
We've already run a few early filers we had and all it says it that it is "being processed" and that the funds will be available within 21 days from our email to you....
If you either have not rec'd communication that your income taxes have been confirmed by the IRS/ie. your refund is on its way, please advise, there has been a little delay in getting word back from the IRS (i.e. some returns have taken longer than the typical 24-48hrs) this is especially true if you return was completed on or near a weekend.
Job Search Expenses Can be Tax Deductible
If you are looking for a new job that is in the same line of work, you may be able to deduct some of your job hunting expenses on your federal income tax return.
Here are seven things the IRS wants you to know about deducting costs related to your job search:
1. To qualify for a deduction, your expenses must be spent on a job search in your current occupation. You may not deduct expenses you incur while looking for a job in a new occupation.
2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you received in your gross income, up to the amount of your tax benefit in the earlier year.
3. You can deduct amounts you spend for preparing and mailing copies of your resume to prospective employers as long as you are looking for a new job in your present occupation.
4. If you travel to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area to which you travelled. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity unrelated to your job search compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
5. You cannot deduct your job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.
6. You cannot deduct job search expenses if you are looking for a job for the first time.
7. In order to be deductible, the amount that you spend for job search expenses, combined with other miscellaneous expenses, must exceed a certain threshold. To determine your deduction, use Schedule A, Itemized Deductions. Job search expenses are claimed as a miscellaneous itemized deduction. The amount of your miscellaneous deduction that exceeds two percent of your adjusted gross income is deductible.
There are specific guidelines you must need to prove you are actually running it as a business and not a hobby.
1. Whether you carry on the activity in a businesslike manner. You must run it like a business and show an intent to make a profit. Keeping full and accurate records of all aspects of your business is critical.
2. Whether the time and effort you put into the activity indicate you intend to make it profitable. Put in lots of documented hours if you don't want to be classified as a hobby.
3. Whether you are depending on income from the activity for your livelihood.
4. Whether your losses are due to circumstances beyond your control or are normal in the start-up phase of your type of business.
5. Whether you change your methods of operation in an attempt to improve profitability.
6. Whether you, or your advisors, have the knowledge needed to carry on the activity as a successful business. Become an expert and surround yourself with experts.
7. Whether you were successful in making a profit in similar activities in the past. If this is your first time in a racing or breeding business, they will look at your past business experiences.
8. Whether the activity makes a profit in some years, and how much profit it makes.
9. Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
10. To avoid automatically being classified as a hobby, you must show a profit in at least 2 out of every 7 years. If you don't you are sure to be audited and will likely have to spend lots of money on a tax lawyer to defend your claim of being a business.
IRS Warns of Tax-time Scams
It’s true: tax scams proliferate during the income tax filing season. This year’s season opens on Jan. 31. The IRS provides the following scam warnings so you can protect yourself and avoid becoming a victim of these crimes:
- Be vigilant of any unexpected communication purportedly from the IRS at the start of tax season.
- Don’t fall for phone and phishing email scams that use the IRS as a lure. Thieves often pose as the IRS using a bogus refund scheme or warnings to pay past-due taxes.
- The IRS doesn’t initiate contact with taxpayers by email to request personal or financial information. This includes any type of e-communication, such as text messages and social media channels.
- The IRS doesn’t ask for PINs, passwords or similar confidential information for credit card, bank or other accounts.
- If you get an unexpected email, don’t open any attachments or click on any links contained in the message. Instead, forward the email to firstname.lastname@example.org. For more about how to report phishing scams involving the IRS visit the genuine IRS website, IRS.gov.
- Don’t carry your Social Security card or any documents that include your Social Security number or Individual Taxpayer Identification Number.
- Don’t give a business your SSN or ITIN just because they ask. Give it only when required.
- Protect your financial information.
- Check your credit report every 12 months.
- Secure personal information in your home.
- Protect your personal computers by using firewalls and anti-spam/virus software, updating security patches and changing passwords for Internet accounts.
- Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact and are sure of the recipient.
There simply are not enough IRS resources today to handle the volume of work for which the IRS is responsible.
- Expect more changes designed to conserve resources. Up until recently, the IRS dealt with this challenge by reducing resources pretty much across the board. We believe the IRS is more and more likely to prioritize the programs it will support rather than across-the-board reductions. For example, the IRS has already announced that it planned to significantly reduce the amount and type of taxpayer service programs that would be available in the upcoming filing season. The tax professional community will have to remain vigilant to learn about programs the IRS may change, reduce, or eliminate, with a particular eye toward changes that will affect not only services upon which you may have relied in the past but also the manner in which you relate to, or deal with, the IRS in the future. In other words, beware of any changes announcing further changes to stakeholder liaison activities or customer service initiatives like the practitioner priority telephone line.
- Expect more delays and more frustration. Because of the decline in personnel, we anticipate increased delay and difficulty in solving problems. For example, former IRS Commissioner has pointed out that the IRS currently has a hiring freeze in effect, which means that when someone in the IRS National Office leaves (perhaps as a result of the morale problems mentioned earlier), the unfinished work he or she left behind often is simply divided among those who remain. In short, the already thin National Office workforce is being stretched, in some places almost to the breaking point, and backlogs and significant delays are developing. As a result, getting your problems into and out of the National Office has become increasingly more difficult.
- Resolving technical tax problems in the field may also be increasingly difficult. The IRS has cut its training budget in the last three years by more than 80 percent. This will likely result in deficiencies in technical knowledge and capabilities in the field. When coupled with (a) early retirements of IRS employees and the resulting loss in the historical knowledge of the tax situation of specific taxpayers, and (b) finding no remaining IRS employees with either the time or the ability to take on difficult tax issues, this is likely to cause even more problems and delays in addressing audit issues than in the past.
AUDITS OF INDIVIDUAL TAX RETURNS HIT LOWEST RATE SINCE 2005:
For fiscal year 2013 the IRS audited .96% of individual income tax returns, the lowest rate since 2005. Over the last three years the IRS has lost approximately one billion dollars in annual funding and 8,000 employees. Revenue collected from collections activity increased by 6.3% which mainly came from collections and appeals, stemming from prior year tax returns. For fiscal year 2014 Congress is proposing a nine million dollar budget which is less than the 11.2 billion dollars the IRS received in 2013. The presidential budget is seeking 12.9 billion dollars in fiscal year 2014.
Customer service has also declined, with only 60% of the people who called the IRS toll-free line able to speak to a person, the lowest level since 2008.
CHANCE OF AUDIT
For fiscal year 2013 the IRS audited .96% of individual income tax returns, the lowest rate since 2005. Over the last three years the IRS has lost approximately one billion dollars in annual funding and 8,000 employees. Revenue collected from collections activity increased by 6.3% which mainly came from collections and appeals, stemming from prior year tax returns
realize when they project <1% they are talking about face-to-face auditing, their letter writing campaign (primarily computer generated) has increased dramatically.
FROM THE LEE COUNTY SHERIFF'S OFFICE:
Identity Thieves Set to Steal Taxpayers Security
As Tax Identity Theft Awareness Week comes to a close, the Lee County Sheriff's Office encourages you to take the time to educate yourself on Stolen Identification Refund Fraud, also known as SIRF.
Criminals who commit SIRF use stolen personal information – like your Social Security number – to file phony tax returns that contain fake income and withholding information resulting in fraudulent tax refunds being processed by the IRS.
So what can you do to lessen the chance you’ll be a victim?
· File your tax return early in the tax season, before identity thieves do.
· If you file electronically, use a secure internet connection, not unsecured, publicly available Wi-Fi hotspots at places like coffee shops.
· Mail your tax return directly from the post office, not your mailbox.
· Respond to all mail from the IRS as soon as possible.
· Know the IRS will not contact you be e-mail, text or social media. If the IRS needs information from you, you will be contacted by mail only.
· Don’t give out your Social Security Number (SSN) or Medicare number unless necessary. Ask why it’s needed, how it’s going to be used, and how it will be stored.
· Get recommendations and research a tax preparer thoroughly before you hand over personal information.
What should you do if you are a victim of SIRF? Typically, tax identity theft victims find out about the crime when they get a letter from the IRS saying that more than one tax return was filed in their name. If you get a letter like this, don’t panic. Instead do the following:
· Contact the IRS ID Theft Protection Specialized Unit at 1-800-908-4490.
· Contact your local law enforcement agency to file a police report.
· Immediately check your credit report for free at annualcreditreport.com to make sure no other accounts have been opened in your name.
CHANGES TO ITEMIZED DEDUCTION FOR 2013 MEDICAL EXPENSES:
Confused about the new 10% threshold on medical deductions and the temporary relief for taxpayers 65 and older? Following are the answers from the IRS website on who is eligible for the lower threshold:
1. When do changes to the itemized deduction for medical expenses take effect? The rules are changing if you plan to itemize medical deductions on your 2013 federal tax return that you will file in 2014. The change will not affect income tax returns for the 2012 taxable year that will be filed in 2013.
2. What amount of my medical expenses can I deduct beginning Jan. 1, 2013? If you and your spouse are both under age 65, on your 2013 tax return that you will file in 2014, you can deduct on Schedule A, Itemized Deductions (Form 1040) only the amount of your unreimbursed allowable medical and dental expenses that is more than 10 percent of your adjusted gross income (AGI) from Form 1040, line 38. If you or your spouse is 65 or over, you are temporarily exempt from the increase. The exemption applies to any tax year beginning after December 31, 2012, and ending before January 1, 2017, if you or your spouse attained age 65 during or before the tax year.
3. If I turn 65 in 2014, what threshold percentage should I use? You will file your 2013 tax return - which you will file in 2014 - using the 10 percent threshold of your adjusted gross income. When you turn 65 in 2014, you will file your 2014 tax return in 2015 and will use the 7.5 percent threshold of your adjusted gross income. Beginning with your 2017 tax return (filing in 2018), and thereafter, you will use the 10 percent threshold of your adjusted gross income.
4. Whose medical expenses can I include? You can generally include medical expenses you pay for yourself, your spouse, and your dependents. IRS Publication 502, Medical and Dental Expenses, contains additional information on medical expenses including how you figure and report the deduction on your return.
5. How do I figure the deduction if I am under 65? To figure your medical and dental expense deduction on your 2013 tax return that you will file in 2014, follow the instructions to complete lines 1 through 4 of Schedule A, Form 1040. IRS Publication 502, Medical and Dental Expenses, contains additional information on medical expenses including how you figure and report the deduction on your return.
6. How do I figure the deduction if I am over 65? To figure your medical and dental expense deduction on your 2013 tax return that you will file in 2014, follow the instructions to complete lines 1 through 4 of Schedule A, Form 1040.
The Internal Revenue Service is gearing up to audit more S corps and LLCs than ever before.
NOVEMBER 12, 2013 If your business operates as a partnership, such as an S corporation or LLC, your odds of being audited appear to be rising.
The Internal Revenue Service plans to shift its business auditing focus away from corporations and concentrate more on “pass-through” entities in coming years, Faris Fink, head of the IRS’s Small Business/Self-Employed Division, recently told conference attendees. The reason: Partnerships are becoming more complex, and the IRS sees them as a type of business ripe for tax-fraud potential.
“The Service has for a long time focused its energy on corporations,” Fink said at the American Institute of CPAs’ National Tax Conference, according to Bloomberg. “Frankly, we’re a little bit behind the curve in getting around to developing a partnership strategy.”
According to IRS data, about 95 percent of businesses are structured as “pass-through” entities, such as S corps, LLCs or sole proprietors, where business income flows down to the individuals who pay taxes on it. The number of these types of entities grew 15.3 percent between 2007 and 2011, Bloomberg reported.
Overall, partnerships have gotten more complex and sometimes have thousands of partners and various tiers, making them more susceptible to fraud, Fink said. The IRS has been training its auditors on how to better evaluate these structures and identify red flags.
The IRS has audited very few partnership returns—only 0.5 percent in 2012—according to the IRS Data Book. That’s compared with 1.6 percent of corporate returns and 1 percent of individual taxpayer returns.
In other small-business tax audit news, the IRS also recently announced that it would allow small businesses with under $10 million in revenues to request fast-track settlement, similar to what large and midsize businesses have been able to do. The new rule would allow small businesses to appeal their audits early and get resolution within 60 days rather than having to wait until an audit is complete, which can take years, according to CNN Money.
IRS IS SHUT DOWN, automated services ONLY, BILLS
Due to the current lapse in appropriations, IRS operations are limited. However, the underlying tax law remains in effect, and all taxpayers should continue to meet their tax obligations as normal.
Individuals and businesses should keep filing their tax returns and making deposits with the IRS, as they are required to do so by law. The IRS will accept and process all tax returns with payments, but will be unable to issue refunds during this time. Taxpayers are urged to file electronically, because most of these returns will be processed automatically.
No live telephone customer service assistance will be available, however most automated toll-free telephone applications will remain operational. IRS walk-in taxpayer assistance centers will be closed.
While the government is closed, people with appointments related to examinations (audits), collection, Appeals or Taxpayer Advocate cases should assume their meetings are cancelled. IRS personnel will reschedule those meetings at a later date.
Automated IRS notices will continue to be mailed. The IRS will not be working any paper correspondence during this period. Here are some basic steps for taxpayers to follow during this period.
How does this affect me?
- You should continue to file and pay taxes as normal. Individuals who requested an extension of time to file should file their returns by Oct. 15, 2013.
- All other tax deadlines remain in effect, including those covering individuals, corporations, partnerships and employers. The regular payroll tax deadlines remain in effect as well.
- You can file your tax return electronically or on paper –– although the processing of paper returns will be delayed until full government operations resume. Payments accompanying paper tax returns will still be accepted as the IRS receives them.
- Tax refunds will not be issued until normal government operations resume.
- Tax software companies, tax practitioners and Free File will remain available to assist with taxes.
- For taxpayers seeking assistance, only the automated applications on the regular 800-829-1040 telephone line will remain open.
- The IRS website, www.IRS.gov, will remain available, although some interactive features may not be available.
- The IRS Free File partners will continue to accept and file tax returns.
- Tax software companies will continue to accept and file tax returns.
Taxpayers should continue to file and pay taxes during a lapse in appropriations as they would under normal government operations. Individuals who requested an extension of time to file should file their returns by Oct. 15, 2013. Taxpayers can file their tax return electronically or on paper, though the processing of paper returns will be delayed until full government operations resume. Payments accompanying paper tax returns will still be accepted as the IRS receives them. Tax refunds will not be issued until normal government operations resume. Tax software companies, tax practitioners and Free File will remain available to assist with taxes.
All other tax deadlines remain in effect, including those covering individuals, corporations, partnerships and employers. The regular payroll tax deadlines remain in effect as well. Penalties and interest still apply for all late filings not received by the regular deadlines.
Will electronically filed returns be processed?
Individuals and businesses should keep filing their tax returns and making deposits with the IRS, as they are required to do so by law. Taxpayers are urged to file electronically, because most of these returns will be processed automatically. Payments accompanying electronic tax returns will be accepted as the IRS receives them, although the IRS will be unable to issue refunds during this time.
Will paper tax returns be processed?
Individuals and businesses should keep filing their tax returns and making deposits with the IRS as they are required to do so by law. However, the processing of paper returns will be delayed until full government operations resume. Payments accompanying paper tax returns will still be accepted as the IRS receives them, though the IRS will be unable to issue refunds during this time.
Will paper tax returns be considered timely filed even though the IRS is not processing paper returns?
Yes. the United States Postal Service is operating during the shutdown, and they will postmark and deliver mail to the IRS. Any return postmarked by the due date will be considered timely filed by the IRS even though processing of the return may not occur until after the return due date depending on the length of the lapse in appropriations.
Can an individual taxpayer obtain a tax transcript during the shutdown?
Yes. This is an automated process. Taxpayers can still use automated tools, including IRS.gov, to request that a transcript of their personal tax records be sent to their address of record; the taxpayer will typically receive transcripts in the mail within five to 10 calendar days.
Can a third party obtain a tax transcript during the shutdown?
No. Transcript requests from third parties require actions by IRS employees, who are not available due to the current lapse in government appropriations. During this period, transcript requests by third parties, such as financial institutions, cannot be processed through the Return and Income Verification Services and Income Verification Express Service. These processes are not automated. However, individuals requesting their own transcripts can use the automated process, which remains available.
Is the IRS continuing to issue levies or liens during this period?
During the lapse in appropriations, the IRS is not sending out levies or liens - either those generated systemically or those manually generated by employees. The IRS notes that taxpayers may still receive levy or lien correspondence with October mailing dates, but those notices were printed before IRS shut down operations were fully complete. (It is standard practice for these notices to be printed with a future date to allow for mailing time to reach taxpayers.) In addition, the IRS notes that other letters related to liens and levies – such as notifications that a taxpayer could potentially be subject to a lien or a levy at a future date – continue to be automatically generated by IRS systems during the appropriations lapse. However, the IRS emphasizes that these notices are not actual levies or liens; just a notification of potential future action. For more information on the IRS collection process, see Publication 594, the IRS Collection Process.
Are IRS personnel continuing to take enforcement actions during this period?
In non-criminal cases, the only enforcement actions the IRS is taking during the appropriations lapse involve isolated instances where we need to take immediate action to protect the government's interest. So any enforcement action in this category - such as seizures - would be extremely limited. For example, where the expiration of the statute of limitations on collection action is imminent. For criminal issues, most IRS Criminal Investigation employees continue to work during this period, similar to other federal law-enforcement agencies.
Tips for Taxpayers Who Owe Taxes
While most taxpayers get a refund from the IRS when they file their taxes, some do not. The IRS offers several payment options for those who owe taxes.
1. Tax bill payments. If you get a bill from the IRS, you should pay it as soon as possible to save money. You can pay by check, money order, cashier’s check or cash. If you cannot pay it all, consider getting a loan to pay the bill in full. The interest rate for a loan may be less than the interest and penalties the IRS must charge by law.
2. Electronic Funds Transfer. It’s easy to pay your tax bill by electronic funds transfer. Just visit IRS.gov and use the Electronic Federal Tax Payment System. You may also use EFTPS to pay your taxes by phone at 800-555-4477.
3. Credit or debit card payments. You can also pay your tax bill with a credit or debit card. Even though the card company may charge an extra fee for a tax payment, the costs of using a credit or debit card may be less than the cost of an IRS payment plan. To pay by credit or debit card, contact one of the processing companies listed at IRS.gov.
4. More time to pay. You may qualify for a short-term agreement to pay your taxes. This may apply if you can fully pay your taxes in 120 days or less. You can request it through the Online Payment Agreement application at IRS.gov. You may also call the IRS at the number listed on the last notice you received. If you can’t find the notice, call 800-829-1040 for help. There is generally no set-up fee for a short-term agreement.
5. Installment Agreement. If you can’t pay in full at one time and can’t get a loan, you may want to apply for a monthly payment plan. If you owe $50,000 or less, you can apply using the IRS Online Payment Agreement application. It’s quick and easy. If approved, IRS will notify you immediately. You can arrange to make your payments by direct debit. This type of payment plan helps avoid missed payments and may help avoid a tax lien that would damage your credit.
Taxpayers may also apply using IRS Form 9465, Installment Agreement Request. If you owe more than $50,000, you must also complete Form 433F, Collection Information Statement. For approved payment plans the one-time user fee is $105 for standard and payroll deduction agreements. The direct debit agreement fee is $52. The fee is $43 if your income is below a certain level.
6. Check withholding. You may be able to avoid owing taxes in future years by increasing the taxes your employer withholds from your pay. To do this, file a revised Form W-4
How to Get a Transcript or Copy of a Prior Year Tax Return
There are many reasons why you should keep a copy of your federal tax return. For example, you may need it to answer an IRS inquiry. You may also need it to apply for a student loan or a home mortgage. If you can’t find your tax return, the IRS can provide a copy or give you a transcript of the tax information you need.
Here’s how to get your federal tax return information from the IRS:
1. Transcripts are free and you can get them for the current year and the past three years. In most cases, a transcript includes all the information you need.
2. A tax return transcript shows most line items from the tax return you originally filed. It also includes items from any accompanying forms and schedules you filed. It does not reflect any changes made after you filed your original return.
3. A tax account transcript shows any changes either you or the IRS made to your tax return after you filed it. This transcript includes your marital status, the type of return you filed, your adjusted gross income and taxable income.
4. You can get transcripts on the web, by phone or by mail. To request transcripts online, go to IRS.gov and use the Order a Transcript tool. To order by phone, call 800-908-9946 and follow the prompts.
5. To request a 1040, 1040A or 1040EZ tax return transcript by mail or fax, complete Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript. Businesses and individuals who need a tax account transcript should use Form 4506-T, Request for Transcript of Tax Return.
6. If you order online or by phone, you should receive your tax return transcript within five to 10 calendar days. You should allow 30 calendar days for delivery of a tax account transcript if you order by mail.
7. If you need an actual copy of a filed and processed tax return, it will cost $57 for each tax year. Complete Form 4506, Request for Copy of Tax Return, and mail it to the IRS address listed on the form for your area. Copies are generally available for the current year and past six years. Please allow 60 days for delivery.
8. If you live in a Presidentially declared disaster area, the IRS may waive the fee to obtain copies of your tax returns. Visit IRS.gov and select the ‘Disaster Relief’ link in the lower left corner of the page for more about IRS disaster assistance.
Six Tips on Gambling Income and Losses
Whether you roll the dice, play cards or bet on the ponies, all your winnings are taxable. The IRS offers these six tax tips for the casual gambler.
1. Gambling income includes winnings from lotteries, raffles, horse races and casinos. It also includes cash and the fair market value of prizes you receive, such as cars and trips.
2. If you win, you may receive a Form W-2G, Certain Gambling Winnings, from the payer. The form reports the amount of your winnings to you and the IRS. The payer issues the form depending on the type of gambling, the amount of winnings, and other factors. You’ll also receive a Form W-2G if the payer withholds federal income tax from your winnings.
3. You must report all your gambling winnings as income on your federal income tax return. This is true even if you do not receive a Form W-2G.
4. If you’re a casual gambler, report your winnings on the “Other Income” line of your Form 1040, U. S. Individual Income Tax Return.
5. You may deduct your gambling losses on Schedule A, Itemized Deductions. The deduction is limited to the amount of your winnings. You must report your winnings as income and claim your allowable losses separately. You cannot reduce your winnings by your losses and report the difference.
6. You must keep accurate records of your gambling activity. This includes items such as receipts, tickets or other documentation. You should also keep a diary or similar record of your activity. Your records should show your winnings separately from your losses.
Renting Your Vacation Home
A vacation home can be a house, apartment, condominium, mobile home or boat. If you own a vacation home that you rent to others, you generally must report the rental income on your federal income tax return. But you may not have to report that income if the rental period is short.
In most cases, you can deduct expenses of renting your property. Your deduction may be limited if you also use the home as a residence.
• You usually report rental income and deductible rental expenses on Schedule E, Supplemental Income and Loss.
You may also be subject to paying Net Investment Income Tax on your rental income.
• If you personally use your property and sometimes rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. The number of days used for each purpose determines how to divide your costs.
Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.
• If the property is “used as a home,” your rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received.
• If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income.
Special Tax Benefits for Armed Forces Personnel
If you’re a member of the U.S. Armed Forces, the IRS wants you to know about the many tax benefits that may apply to you. Special tax rules apply to military members on active duty, including those serving in combat zones. These rules can help lower your federal taxes and make it easier to file your tax return.
Here are ten of those benefits:
1. Deadline Extensions. Qualifying military members, including those who serve in a combat zone, can postpone some tax deadlines. This includes automatic extensions of time to file tax returns and pay taxes.
2. Combat Pay Exclusion. If you serve in a combat zone, you can exclude certain combat pay from your income. You won’t need to show the exclusion on your tax return because qualified pay isn’t included in the wages reported on your Form W-2, Wage and Tax Statement. Some service outside a combat zone also qualifies for this exclusion.
3. Earned Income Tax Credit. You can choose to include nontaxable combat pay as earned income to figure your EITC. You would make this choice if it increases your credit. Even if you do, the combat pay remains nontaxable.
4. Moving Expense Deduction. If you move due to a permanent change of station, you may be able to deduct some of your unreimbursed moving costs.
5. Uniform Deduction. You can deduct the costs and upkeep of certain uniforms that regulations prohibit you from wearing while off duty. You must reduce your expenses by any reimbursement you receive for these costs.
6. Signing Joint Returns. Both spouses normally must sign joint income tax returns. However, when one spouse is unavailable due to certain military duty or conditions, the other may, in some cases sign for both spouses, or will need a power of attorney to file a joint return.
7. Reservists’ Travel Deduction. If you’re a member of the U.S. Armed Forces Reserves, you may deduct certain travel expenses on your tax return. You can deduct unreimbursed expenses for traveling more than 100 miles away from home to perform your reserve duties.
8. Nontaxable ROTC Allowances. Educational and subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.
9. Civilian Life. After leaving the military, you may be able to deduct certain job hunting expenses. Expenses may include travel, resume preparation fees and job placement agency fees. Moving expenses may also be deductible.
Job Search Expenses May Lower Your Taxes
Summer is often a time when people make major life decisions. Common events include buying a home, getting married or changing jobs. If you’re looking for a new job in your same line of work, you may be able to claim a tax deduction for some of your job hunting expenses.
Here are seven things the IRS wants you to know about deducting these costs:
1. Your expenses must be for a job search in your current occupation. You may not deduct expenses related to a search for a job in a new occupation. If your employer or another party reimburses you for an expense, you may not deduct it.
2. You can deduct employment and job placement agency fees you pay while looking for a job.
3. You can deduct the cost of preparing and mailing copies of your résumé to prospective employers.
4. If you travel to look for a new job, you may be able to deduct your travel expenses. However, you can only deduct them if the trip is primarily to look for a new job.
5. You can’t deduct job search expenses if there was a substantial break between the end of your last job and the time you began looking for a new one.
6. You can’t deduct job search expenses if you’re looking for a job for the first time.
7. You usually will claim job search expenses as a miscellaneous itemized deduction. You can deduct only the amount of your total miscellaneous deductions that exceed two percent of your adjusted gross income.
Tax Tips if You’re Starting a Business
If you plan to start a new business, or you’ve just opened your doors, it is important for you to know your federal tax responsibilities.
1. Type of Business. Early on, you will need to decide the type of business you are going to establish. The most common types are sole proprietorship, partnership, corporation, S corporation and Limited Liability Company. Each type reports its business activity on a different federal tax form. Sole Proprietorship is the most simple and least expensive, you can also be LLC and sole for tax purposes...
IF YOU INCORPORATE YOU MUST FILE CORPORATE TAXES WITH THE STATE OF FLORIDA
2. Types of Taxes. The type of business you run usually determines the type of taxes you pay. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
3. Employer Identification Number. A business often needs to get a federal EIN for tax purposes. Check IRS.gov to find out whether you need this number. If you do, you can apply for an EIN online.
4. Recordkeeping. Keeping good records will help you when it’s time to file your business tax forms at the end of the year. They help track deductible expenses and support all the items you report on your tax return. Good records will also help you monitor your business’ progress and prepare your financial statements. You may choose any recordkeeping system that clearly shows your income and expenses.
5. Accounting Method. Each taxpayer must also use a consistent accounting method, which is a set of rules that determine when to report income and expenses. The most common is the cash method. Under the cash method, you normally report income in the year you receive it and deduct expenses in the year you pay them. Under the accrual method, you generally report income in the year you earn it and deduct expenses in the year you incur them. This is true even if you receive the income or pay the expenses in a future year.
Tax Tips for Newlyweds
Late spring and early summer are popular times for weddings. Whatever the season, a change in your marital status can affect your taxes. Here are several tips from the IRS for newlyweds.
- It’s important that the names and Social Security numbers that you put on your tax return match your Social Security Administration records. If you’ve changed your name, report the change to the SSA. To do that, file Form SS-5, Application for a Social Security Card. You can get this form on their website at SSA.gov, by calling 800-772-1213 or by visiting your local SSA office.
- If your address has changed, file Form 8822, Change of Address to notify the IRS. You should also notify the U.S. Postal Service if your address has changed. You can ask to have your mail forwarded online at USPS.com or report the change at your local post office.
- If you work, report your name or address change to your employer. This will help to ensure that you receive your Form W-2, Wage and Tax Statement, after the end of the year.
- If you and your spouse both work, you should check the amount of federal income tax withheld from your pay. Your combined incomes may move you into a higher tax bracket. Use the IRS Withholding Calculator tool at IRS.gov to help you complete a new Form W-4
- If you are married as of Dec. 31, that’s your marital status for the entire year for tax purposes. You and your spouse usually may choose to file your federal income tax return either jointly or separately in any given year. You may want to figure the tax both ways to determine which filing status results in the lowest tax. In most cases, it’s beneficial to file jointly. Important note, if one of you has serious debts or issues w/ the IRS prior to marriage be sure to tell your tax preparer BEFORE taxes are prepared/filed, it may be necessary to be single for tax purposes or file as married filing separate to prevent future problems........