Archive for February, 2011

Have You Failed to Report or Pay Any Taxes?

Saturday, February 26th, 2011

The articles from this website are provided solely for the purpose of disseminating and sharing of important information related to a variety of topics.  In the United States the timely filing of required tax returns and the payment of the associated taxes are not an option.

Although every American may have a different opinion, my own experience has lead me to conclude that our nation has been in a downward recessionary spiral since the year 2000.  There have been a myriad of outcomes and associated adverse economic impacts which have already occurred or are still occurring throughout our nation, including (but not limited to):  a)  job losses, b) unacceptably high unemployment, c) unprecedented losses in the housing market, d) the transfer of jobs overseas which were previously filled in America, e) an erosion of the customer base for most businesses, f) personal and business failures (bankruptcy), and g) a significant loss of available working capital (businesses) or available cash after monthly living expenses have been paid (individuals).  

One of the related outcomes from one of more of the above situations is a failure to file all of the required tax returns in a timely manner (on or before the required due date), and failing to make the required tax deposits and/or pay the required taxes when due.  This article is intended to provide important information for you when either or both of these events has occurred.

Before proceeeding, there is a special major category of taxes that requires a separate discussion.  This category is “Payroll Taxes.”  Anyone who withholds payroll taxes for another person (i.e. your employee) is considered to be a “fiduciary” and one who holds assets for another person is a “trustee.”   Therefore, a fiduciary is a person who holds assets in trust for a beneficiary. It is illegal for a fiduciary to misappropriate money held in trust for someone else for personal gain.  From page 3-47 of the Thomson-Reuters “Write Up Services” manual ”The IRS can also assess a penalty equal to 100% of the taxes due if the employer does not withhold or remit employment taxes.  The penalty can be assessed on any person that the IRS determines is (a) responsible for collecting, accounting for, and paying the taxes, and (b) acted willfully in not doing so.  Thus the penalty can be lievied against the company (or organization), or an officer or employee of the company (or organization)” (   ) additional entity added.

If you are in a situation which is described above, there may be courses of action which you can follow to successfully resolve the matter and move yourself back to a position of “compliance with all of the Federal and state laws.”  Generally speaking, the following events either have already occurred, are in the process of occurring, or will occur:

  • You failed to file your tax returns and/or pay the associated taxes when required by law.
  • You have received a notification letter in the mail from the “taxing authority” (Federal or state).  In the upper right hand corner of the notice is a  Notice Number.  This code provides specific information on the cause for the notification. 
  • The body of the letter provides you with a specific period of time in which to respond (i.e. usually 30-60 days).  Even if you can not presently pay the taxes, don’t fail to respond to this notice.  It will only make matters worse for you.
  • Depending on the decisions that you make and the events that occur after you receive the notification letter, you may:  a) file the delinquent report(s) and pay the taxes which are due, plus interest and penalties, b) execute an installment agreement with the taxing authority, c) mutually resolve the matter via an “Offer In Compromise” with the taxing authority, d) the taxing authority will place a “lien” against any and all of the property that you own to satisfy the delinquent taxes, interest and penalties, or e) liquidate all of the seized assets to satisfy the lien

You should certainly consult with and engage the services of a CPA, but preferably a tax attorney,who will act as your representative, IF your situation can not be successfully resolved via options a) through c) above.  This representative should have an extensive background and experience in the successful resolution of tax matters exactly as yours. (more…)

Where Is Your Federal Tax Refund?

Thursday, February 24th, 2011

Although the filing of the 2010 tax returns started later than usual this year (February 14th), if you will be receiving a Federal tax refund you’re probably ready to have it in your bank account as soon as possible.   Your goal should be to take advantage of every opportunity to accelerate the process and receive your income tax refund as quickly as possible.

Among the options that are available to you are to:

1)  e-file – faster processing of your tax returns,  fewer opportunities for processing errors by the taxing authorities, and

2)  direct deposit – if you look at the Federal e-file refund cycle chart on this website you’ll see that direct deposit refunds are sent electronically about eight days after the end of the cycle period. Checks are mailed seven days later. Add 5-7 days for in transit mail time and you should conclude that you’ll have your tax refund about 12-14 days sooner if you wisely select the e-file/direct deposit alternative. You can also track the status of your refund via the “Where’s My Refund” section of the IRS website or by calling 1-800-829-1954.

Note: While most states offer a similar option their refund cycle period may not be on par with the Internal Revenue Service.

If your 2010 tax refund is more than $1,000.00 you may want to consider reducing the amount of your quarterly estimated tax payments or your payroll Federal withholding amount using Federal Form W-4 (Employee’s Withholding Allowance Certificate).  The instructions are included with the form, including a worksheet for your calculations on the reverse side of the form.

 Additonally, if you owe the taxing authority delinquent taxes or are on an installment payment plan, etc you should expect to have your refund applied to that unpaid balance. If there are any remaining funds due you afterwards that amount will be sent to you.

Here is additional information on this subject : (more…)

Adoption Expenses

Thursday, February 17th, 2011

If you had expenses in 2010 that were related to the adoption of a qualified child (under the age of 18 or someone who is physically or mentally incapable of taking care of themself), you may be elibigle for a refundable tax credit of up to $13,170.00 per qualified child or person.  “Refundable” means that you will receive the credit even if you do not have a tax liability.  For example, if your tax liability is $10,000 and your credit is $12,000, with a nonrefundable adoption credit the tax credit would reduce your tax liability to $ 0.00 and you would be required to carry the remaining $2,000 tax credit forward for your tax return next year.  In the same situation with a refundable adoption tax credit, your tax liability would be reduced to zero, but you will also receive a tax refund for $2,000.00 which is the amount  by which your tax credit amount exceeds your tax return liability.

If you believe that your 2010 adoption expenses will qualify, you’ll need to complete Form 8839 (Qualified Adoption Expenses) and attach the completed form to your 2010 Federal tax return.  Be sure to review your state income tax return instructions to determine if your state follows the Federal law.  Written documentation is required to support your claim.  Therefore, you can not e-file.  Instead, you will  have to paper-file your 2010 tax return.

Qualified adoption expenses are reasonable and necessary adoption fees. They include:

  • court costs,
  • attorney fees,
  • traveling expenses (including amounts spent for meals and lodging while away from home), and
  • other expenses directly related to the legal adoption of an eligible child.

There are additional points to be considered:

  • The instructions for Form 8839 are only eight pages in length.  Links to the form itself, the instructions, and “Frequently Asked Questions” (FAQs) are provided below;
  • The full amount of the adoption tax credit will begin to be reduced if your total “modified adjusted gross income” reaches $182,252.00 and will be completely eliminated at the $222,520.00 income level;
  • The tax credit must be reduced (offset) by employer provided adoption benefits;
  • Adoption expenses associated with the adoption of your spouse’s children or a surrogate parenting arrangement are not eligible to be included;
  • Expenses which are associated with a foreign adoption (where the child was not a U.S. citizen or resident at the time the adoption process began) will qualify but only if you actually adopted the child.

(more…)

Individual Tax Return E-Filing Has Begun

Wednesday, February 16th, 2011

I have received the notification below  from the Internal Revenue Service.  However, you should anticipate some delays in the acceptance (or rejection) notification for your individual tax returns during the coming 7-10 business days as indicated after the notice.  This could also affect state income tax returns.  No issues are anticipated at this time for 2010 business tax returns which are not due until March 15, 2011.

IRS Begins Processing Tax Forms Affected by Late Tax Changes; Taxpayers Can e-File Immediately 

WASHINGTON — The Internal Revenue Service announced today it has started processing individual tax returns affected by legislation enacted in December and reminded taxpayers that they can begin filing electronically immediately.

On Monday, IRS systems began to accept and process both e-file and paper tax returns claiming itemized deductions on Form 1040, Schedule A, as well as deductions for state and local sales tax, higher education tuition and fees and educator expenses.

“The IRS is now accepting all the 1040 forms,” IRS Commissioner Doug Shulman said. “We worked hard to update our systems and get the changes in place as quickly as possible. We appreciate the patience of those impacted by the delay. We urge taxpayers to use e-file with direct deposit, and they can get their refunds within days.”

In late December 2010, the IRS announced it would delay processing of some tax returns in order to update processing systems to accommodate the late tax law changes. These tax law provisions were extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which became law on Dec. 17.

For the vast majority of taxpayers, the filing season this year began on time in January. Most taxpayers claiming itemized deductions and the other delayed forms file later in the year.

The IRS urged taxpayers who haven’t filed yet to use e-file instead of paper tax forms to ensure accuracy and to get refunds fast. Taxpayers can do their taxes for free through Free File, which is brand-name software or online fillable forms. Free File is available exclusively at www.irs.gov/freefile.  Anyone who makes $58,000 or less can use Free File software. There are no income limits to online fillable forms. Both Free File software and Free File Fillable Forms allow taxpayers to prepare and e-file their federal returns for free.

The IRS worked closely with the tax software industry and the tax professional community during the reprogramming process to minimize disruptions for taxpayers and ensure a smooth tax season.

As a result of these efforts, many major software providers and paid tax preparers started accepting impacted returns before the Feb. 14 start date, which they held and started submitting after the IRS systems opened.

Due to the expected increase in tax return volumes being transmitted this week, the IRS cautioned a small number of taxpayers may experience a brief delay in receiving their e-file acknowledgement, which is normally provided within 24-48 hours. The IRS continues working with the software industry to minimize any impact to taxpayers.

Business taxpayers who use the 1040 series can file now as well. However, the Feb. 14 start date does not apply to non-1040 business tax forms (add link) affected by the recent tax law changes. The IRS will announce a specific date in the near future when it can begin processing those impacted business tax forms.

Updated information has been posted on IRS.gov, including Schedule A and updated state and local sales tax tables. For a complete list of affected individual tax forms and business tax forms visit www.IRS.gov.

You may experience some delays in the receipt of the acceptance/rejection notifications for your tax returns and the direct deposit of your tax refund: (more…)

2010 Tax Law Changes (Summary)

Tuesday, February 15th, 2011

Important Tax Law Changes for 2010

Taxpayers should make sure they are aware of many important changes to the tax law before they complete their 2010 federal income tax return.

Here are several important changes that the IRS wants you to keep in mind when you file your 2010 federal income tax return in 2011.

Health Insurance Deduction Reduces Self Employment Tax  In 2010, eligible self-employed individuals can use the self-employed health insurance deduction to reduce their social security self-employment tax liability in addition to their income tax liability. As in the past, eligible taxpayers claim this deduction on Form 1040 Line 29. But in 2010, eligible taxpayers can also enter this amount on Schedule SE Line 3, thus reducing net earnings from self-employment subject to the 15.3 percent social security self-employment tax.

Premiums paid for health insurance covering the taxpayer, spouse and dependents generally qualify for this deduction. Premiums paid for coverage of an adult child under age 27 at the end of the year, for the time period beginning on or after March 30, 2010, also qualify for this deduction, even if the child is not the taxpayer’s dependent.

As before, the insurance plan must be set up under the taxpayer’s business, and the taxpayer cannot be eligible to participate in an employer-sponsored health plan. Details, including a worksheet, are in the instructions to Form 1040.

First-time homebuyer credit You must meet the required deadlines to be eligible to claim the credit.  You must have bought — or entered into a binding contract to buy — a principal residence on or before April 30, 2010. If you entered into a binding contract by April 30, 2010, you must have closed or gone to settlement on the home on or before Sept. 30, 2010.   Because of the documentation requirements for claiming the credit, taxpayers who claim the credit on their 2010 tax return must file a paper — not electronic — return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and a properly executed copy of a settlement statement used to complete the purchase.

Taxpayers who claimed the first-time homebuyer credit for a home bought in 2008 must generally begin repaying it on the 2010 return. In most cases, the credit must be repaid over a 15-year period. Many of those affected by this requirement received reminder letters from the IRS.

A repayment requirement also applies to a taxpayer who claimed the credit on either their 2008 or 2009 return and then sold it or stopped using the home as their main home in 2010. Use Form 5405 to report the repayment.

In addition, certain members of the armed forces and some other taxpayers still have time to buy a home and take the credit. See Form 5405 and its instructions for details.

Standard Mileage Rates for 2010 The standard mileage rate for business use of a car, van, pick-up or panel truck is 50 cents for each mile driven. The rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 16.5 cents per mile. The rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.

Tax Breaks Extended Several tax breaks that expired at the end of 2009 were renewed and can be claimed on 2010 returns. They include:

  • State and local general sales tax deduction, primarily benefiting people living in areas without state and local income taxes. Claim on Schedule A, Line 5.
  • Higher education tuition and fees deduction benefiting parents and students. Claim on Form 8917.
  • Educator expense deduction for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250, Claim on Form 1040, Line 23 or Form 1040A Line 16.
  • District of Columbia first-time homebuyer credit. Claim on Form 8859

For further information about these changes visit the IRS website at http://www.irs.gov or call 1-(800) 829-1040.