A Tax Consultant for All Seasons

The IRS has just issued a notice regarding the requirement that you must file a tax return in order to receive the economic stimulus check. This letter ensures that taxpayers who do not normally file a tax return will be aware that they must do so for 2007. If you have additional questions once you have read this information, please visit the IRS Website or contact a tax consultant.

WASHINGTON — More than 130 million American households will begin receiving Internal Revenue Service letters next week reminding them to file a 2007 tax return in order to receive a 2008 economic stimulus payment.

The mailings by the IRS will begin the first week in March and continue throughout the month. The informational notice, titled Economic Stimulus Payment Notice, alerts people that they may be eligible for a one-time stimulus payment of up to $600 ($1,200 married filing jointly) starting in May. There also is a $300 per child payment for qualifying children younger than 17.

“This special letters remind people that they won’t need to do anything more than file a 2007 tax return in order to put the stimulus payment process in motion,” Acting IRS Commissioner Linda Stiff said.

The notice is informational and does not seek any financial information. The main mailings, which will take place in three weekly batches, will go to taxpayers who filed a tax return last year.

“To receive a payment in 2008, individuals who qualify will not have to do anything more than file a 2007 tax return. The IRS will determine eligibility, figure the amount and send the payment,” the notice states. “This payment should not be confused with any 2007 income tax refund that is owed to you by the federal government. Income tax refunds for 2007 will be made separately from this one-time payment.”

However, some people must take an extra step this year to receive a stimulus payment. In late March, the IRS will send a special mailing to certain recipients of Social Security and Veterans Affairs benefits. Generally, those benefits are nontaxable and recipients do not file tax returns. In order to receive a stimulus payment, people in this group need to file a tax return if they have at least $3,000 from a combination of certain Social Security benefits, Veterans benefits and earned income. The minimum stimulus payment for these people is $300 ($600 for married filing jointly).

The IRS has created a sample of Form 1040A with information on how to fill out a few lines that will enable eligible people who do not normally file a tax return to receive the stimulus payment.

More details on the special mailings for recipients of Social Security and veterans benefits will be available soon.

Posted below is important information from the IRS regarding tax help for those in the military and their families. If you have questions which are not answered by this information, visit the IRS website or contact a tax consultant.

If you, or your spouse, are a member of the military, you may be eligible to receive free assistance with the preparation and filing of your federal tax return. The U.S. Armed Forces participate in the Volunteer Income Tax Assistance Program (VITA). The Armed Forces Tax Council (AFTC) oversees the operation of the military tax programs worldwide, and serves as the main conduit for outreach by the IRS to military personnel and their families. The AFTC consists of tax program coordinators for the Marine Corps, Air Force, Army, Navy and Coast Guard.

Military-based VITA sites provide free tax advice, tax preparation, return filing and other tax assistance to military members and their families. The volunteer assistors are trained to address military-specific tax issues, such as combat zone tax benefits.

Military commanders support the program by detailing members of the military to prepare returns and by providing space and equipment for tax centers. The IRS supports these efforts by providing tax software and training.

To receive this free assistance, you should bring the following records to your military VITA site:

• Valid photo identification
• Social Security cards for you, your spouse and dependents or a social security number verification letter issued by the Social Security Administration
• Birth dates for you, your spouse and dependents
• Current year’s tax package, if you received one
• Wage and earning statement(s) — Form W-2, W-2G, 1099-R
• Interest and dividend statements (Forms 1099)
• A copy of last year’s federal and state tax returns, if available
• Bank routing numbers and account numbers for direct deposit
• Total amount paid for day care
• Day care provider’s identifying number
• Other relevant information about income and expenses

If your filing status is Married Filing Jointly and you wish to file your tax return electronically, both you and your spouse should be present to sign the required forms. If it isn’t possible for both to be present, a valid power of attorney that allows tax preparation can be used to sign and file the return.

For more information, review IRS Publication 3, Armed Forces’ Tax Guide.

Here is some important information from the IRS about income from foreign sources:Many United States citizens and resident aliens receive money from foreign sources. These taxpayers must remember that they must report all such income on their tax return, unless it is exempt under federal law.

U.S. citizens and residents are taxed on their worldwide income. This applies whether a person lives inside or outside the United States. Foreign income must be reported on a U.S. tax return whether or not the person receives a Form W-2, Wage and Tax Statement, a Form 1099 (information return) or the foreign equivalent of those forms.

Foreign source income includes but is not limited to earned and unearned income, such as:

• Wages and tips
• Interest
• Dividends
• Capital Gains
• Pensions
• Rents
• Royalties

An important point to remember is that individuals living outside the U.S. may be able to exclude up to $85,700 of their 2007 foreign earned income if they meet certain requirements. However, the foreign earned income exclusion does not apply to payments made by the U.S. government to its civilian or military employees living outside the U.S.

Be sure to contact your tax consultant or CPA about this potentially confusing issue. Additional information can be found at the IRS website.

• Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad (PDF 348K)

The short answer is…it depends. Basically you need to keep them long enough to be able to support deductions you have taken on your tax return and until the statute of limitations runs out. Keep a copy of filed tax returns for at least 10 years from the date of filing. Here are other time frames as given by the IRS.

1. You owe additional tax and situations (2), (3), and (4), below, do not apply to you; keep records for 3 years.
2. You do not report income that you should report, and it is more than 25% of the gross income shown on your return; keep records for 6 years.
3. You file a fraudulent return; keep records indefinitely.
4. You do not file a return; keep records indefinitely.
5. You file a claim for credit or refund* after you file your return; keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
6. You file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.
7. Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

Records of assets should be kept until the statute runs out for the year in which you disposed of the asset.

See IRS Publications 535 and 583 for additional information.

If you own your own business, it is crucial that you keep good records. Knowing what you need to keep and for how long(covered in my next blog). can save you untold hassles later on. What records you keep depends to some degree on what type of business you have. Here is a list of a few that every business needs to keep.

• Gross Receipts - this may include cash register tapes, invoices, bank deposit records, credit card slips and in some cases 1099-Misc.
• Purchases of items for resale – Canceled checks, credit card slips, cash register tapes, invoices.
• Records of expenses – Canceled checks, credit slips, cash register tapes, petty cash slips, account statements.
• Travel records – Credit card slip or canceled checks. If it is for meal you should note the name of the client or other business purpose. For additional information on travel records see IRS Publication 463.
• Assets – You need records of the purchase of any items you bought for your business… i.e. furniture, equipment, machinery. Also keep records of the sale of any of these items.
• Employment taxes – Payroll reports which include who you paid, what you paid them and when.

If you need additional information on keeping business records, see IRS Publication 583. Your tax consultant or CPA should be able to answer most questions you will have.

A press release was just issued that reveals that Effectur is a new leader in customer service. To read the release in its entirety please see the link below. Once you read this article it should answer questions you may have about choosing Effectur to help you with your tax debt issues. Effectur can help represent you before the IRS with both business and personal tax debt.

http://www.prweb.com/releases/2008/02/prweb718833.htm

If you have a business, either sole prop, S corp, C corp, partnership or LLC, You have some type of business taxes you will have to pay. In addition to income taxes, you may have to pay self-employment tax, employment taxes, excise tax. You may also have state taxes, both income and or sales tax. These vary by state and you will need to check with your state department of revenue.

• Income taxes are due annually and what return you file depends on your business structure. See the IRS Website for more information. Remember that taxes are pay-as-you-go and if you will owe taxes, you should pay your estimated taxes quarterly. For more information see the estimated tax section of the IRS website.
• Self employement tax is determined when you file your 1040 and is based on the amount of income generated by your business. You file a schedule SE along with you schedule C.
• Excise taxes are due if you manufacture or sell certain products, operate certain types of businesses, use certain types of equipment, facilities or products or receive payment for certain services. If you need additional information on excises see IRS Publication 510.
• Employment taxes are a combination of the federal and Social Security/Medicare taxes you take our of your employees taxes and the portion you as an employer pay for Social Security/Medicare. It also include the Federal Unemployment tax.

The last category is the one I see most business owners have trouble with. If you withhold these taxes from you employees pay, you MUST deposit them as required. Deciding to forgo paying these and using this money for other purposes, is basically stealing and the IRS is extremely intolerant of this. Even if you have a corporation, these taxes can be assessed to you personally, if you have not paid them as required.

If you or your corporation has problems with unpaid employment taxes, you may want an Enrolled Agent or CPA to represent you before the IRS. At Effectur, we help clients everyday deal with this type of issue.

Here is some important information you need to know if you are planning to start your own business:

• If you need an EIN(Employer Identification Number) you can get one online at the IRS website. You will need this if you are going to have a payroll or its is a good option is you will have to issue 1099-Misc for contract workers.
• Decide on a business structure–are you going to incorporate (either C or S corp), be an LLC or a sole proprietorship.
• Decide if you will use the calendar year as your tax year, or if you will use fiscal year.
• Unless you have some knowledge of accounting or bookkeeping, you will need a bookkeeper or accountant to help you keep accurate records of your business transactions. Being sure you hire an honest reliable person to hand the financial aspects of your business can prevent you from having a host of problems later.
• Be sure no matter who you hire to help you in your business, be sure you always review your books.  It is ultimately your responsibility.
• File you business tax returns both income and payroll in  a timely manner
• Pay your business taxes on time. If you have a payroll, be certain that your Federal Tax Deposits are made on time.

If you need help in setting you your business, the is a wealth of information at the IRS website small business section. Another option is to consult a CPA or other tax consultant about both setting up and keeping the records for your business.

The IRS has announced, that in addition to the stimulus package for individuals, there is also a stimulus package for businesses. The business stimulus package has 2 parts. The first part is that there is a 50% depreciation allowance for business purchases made in 2008. According to the IRS website, “Under the new law, a taxpayer is entitled to depreciate 50 percent of the adjusted basis of certain qualified property during the year that the property is placed in service.” The property must be placed in service after Dec. 31, 2007, but before Jan. 1, 2009.”

The IRS revealed that the second part of this business plan relates to the Section 179 depreciation deduction and states, “Under the new law, a qualifying business can expense up to $250,000 of section 179 property purchased by the taxpayer in a tax year beginning in 2008. Absent this legislation, the 2008 expensing limit for section 179 property would have been $128,000. The $250,000 amount provided under the new law is reduced if the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds $800,000.”

Your tax consultant should be able to advise you as to how your business can benefit from this stimulus package.

As you prepare your tax return you may wonder if all your tips are taxable. The IRS has specific guidelines as to how your tips are taxed. The information from the IRS is provided below gives you details and resources on tips and how they are taxed. If you need additional information, contact your tax consultant.

If you work at a hair salon, barber shop, casino, golf course, hotel or restaurant or drive a taxicab, the tip income you receive as an employee from those and other services is taxable income.

Here are some tips about tips:

• Tips are taxable. Tips are subject to federal income, Social Security and Medicare taxes, and may be subject to state income tax as well. The value of non–cash tips, such as tickets, passes or other items of value, is also income and subject to tax.
• Include tips on your tax return. You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip–splitting arrangement with fellow employees.
• Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.
• Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record your tip income. For a free copy of Publication 1244, call the IRS toll free at 800-TAX-FORM (800-829-3676).

For more information, check out IRS Publication 531, Reporting Tip Income, or Publication 3148, Tips on Tips. These can be found at the IRS Web site at IRS.gov.

• Publication 1244, Employee’s Daily Record of Tips and Report of Tips to Employer (PDF 38K)
• Publication 531, Reporting Tip Income (PDF 93K)
• Publication 3148, Tips on Tips for Employees (PDF 629K)
• Tax Topic 402, Tips