The IRS has just published new per diem rates for the remainder of 2008. These rates are effective October 1, 2008 and are valid through the end of the year. They increased the daily meal per diem for over night stays to $52 per day. Visit the IRS website for more details, which include rates for large metropolitan areas like New York…etc. If you need assistance in determining whether the per diem applies to you, contact an Enrolled Agent or other tax professional.
If you are are resident of the state of New York and have unfiled tax returns, good news. While the news does not mean you won’t have to pay taxes, it does mean you could avoid expensive penalties and criminal prosecution. Read the information below published by the New State Department of Taxation. If you have additional questions and to read the article in its entirity follow the link above. Read carefully all the disclaimers and be sure to understand all options and implications.
The Voluntary Disclosure Program
This program encourages taxpayers who haven’t paid their taxes to come forward voluntarily and pay what they owe. We offer significant incentives to taxpayers who “fess up” and pay: we won’t impose penalties and we won’t bring criminal charges against them.
The program covers all taxes administered by the Tax Department - including income, corporate, and sales. Any taxpayer who meets the eligibility criteria can participate, even if their nonpayment was the result of fraudulent or criminal conduct.
To participate, a taxpayer need only tell us about the taxes that they owe, enter an agreement to pay what they owe, and continue to pay their taxes in the future.
If you have thought about withdrawing funds from you IRA, be sure you think about what doing so will cost you. Not just in terms of depleting your retirement account, but in out of pocket costs now. If you are under 59 1/2 and you withdraw from your IRA or cash in your 401k and do not immediately reinvest in another IRA, you will be charged a 10% penalty in addition to having to pay regular income tax. There are some exceptions listed below:
Withdrawals from IRA 10% penalty exceptions
Exceptions. You may not have to pay the 10% additional tax in the following situations.
·You have reached age 59½.
·You are disabled.
·You are the beneficiary of a deceased IRA owner.
·You use the distribution to pay certain qualified first-time homebuyer amounts.
·The distributions are part of a series of substantially equal payments.
·You have significant unreimbursed medical expenses.
·You are paying medical insurance premiums after losing your job.
·The distributions are not more than your qualified higher education expenses.
·The distribution is due to an IRS levy of the qualified plan.
·The distribution is a qualified reservist distribution.
If you need additional information visit the IRS website or contact an Enrolled Agent or other tax professional.
In light of the tumbles in the stock market, I thought a blog on Capital Losses might be appropriate. If you are doing financial planning for the end of the year and are trying to determine whether you should sell or hold onto a specific stock, keep the following information in mind. In addition to the decision to hold or sell due to fluctuations in the market, keep in mind the tax implications.
Listed below is important information from the IRS on the rules for taking capital gains and losses. Note the limits on losses that can be taken and the information on carrying forward losses to future years. If you have additional questions, contact an Enrolled Agent of other tax professional.
Almost everything you own and use for personal or investment purposes is a capital asset. Examples are your home, household furnishings, and stocks or bonds held in your personal account. When you sell a capital asset, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. If you received the asset as a gift or inheritance, refer to Topic 703 for information about your basis. You have a capital gain if you sell the asset for more than your basis. You have a capital loss if you sell the asset for less than your basis. Losses from the sale of personal–use property, such as your home or car, are not deductible.
Capital gains and losses are classified as long–term or short–term. If you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
Capital gains and deductible capital losses are reported on Form 1040, Schedule D (PDF). If you have a net capital gain, that gain may be taxed at a lower tax rate. The term “net capital gain” means the amount by which your net long–term capital gain for the year is more than your net short–term capital loss. The highest tax rate on a net capital gain is generally 15% (or 5%, if it would otherwise be taxed at 15% or less). There are 3 exceptions:
The taxable part of a gain from qualified small business stock is taxed at a maximum 28% rate.
Net capital gain from selling collectibles (such as coins or art) is taxed at a maximum 28% rate.
The part of any net capital gain from selling Section 1250 real property that is required to be recaptured in excess of straight-line depreciation is taxed at a maximum 25% rate.
If you have a taxable capital gain, you may be required to make estimated tax payments. Refer to Publication 505, Tax Withholding and Estimated Tax, for additional information.
If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed is limited to $3,000, or $1,500 if you are married filing separately. If your net capital loss is more than this limit, you can carry the loss forward to later years. Use the Capital Loss Carryover Worksheet in Publication 550, to figure the amount carried forward.
Additional information on capital gains and losses is available in Publication 550, Investment Income and Expenses, and Publication 544, Sales and Other Dispositions of Assets. If you sell your main home, refer to Topics 701 and 703, or to Publication 523, Selling Your Home.
If you decided not to set up an LLC, and you are a married couple you can chose the option of “Qualified Joint Venture”. With this option you still file on a Schedule C, but in this case both of you will complete your own Schedule C and SE another advantage of this option is that both of you get credit for your income for social security purposes.
To chose this option you must both “materially participate” in the business and both elect not to be treated as a partnership.Material participation means you both are actively involved in running the business.
An EIN is not necessary unless you have other employees and have to pay payroll or other taxes that require an EIN.Once you make this choice you can only change it with the permission of the IRS.
If you live a community property state, this option is not available to you. It is also not available if you have other partners. It is only available for a husband and wife.
If you need assistance in determining which option is best for your situation, visit the IRS website or contact an Enrolled Agent or other tax professional.
If you and your spouse have decided to form a company, you may decide to form a LLC. There are 2 ways you can handle this.
1.One way is with one spouse owning 100% thus creating what is considered a “disregarded entity”. This allows for the liability protection of the LLC and the owner is taxed through the Schedule C on the 1040. Advantages of this plan are there is only one tax return to file and the other is you can pay your spouse wages to work for you and claim health insurance taken out it her name as a deduction on the Schedule. Normally health insurance for a sole proprietor belongs on the front page of the 1040, not on the Schedule C. You will have to pay payroll taxes on your spouse and any other employees you may have. However, these too are deductible as expenses on the Schedule C.
2.The other way is as a partnership. If each of you owns say 50% of the company, you will file your taxes for the LLC on a Form 1065 which will generate a Form K1 which you both will report on your Form 1040. One advantage to a partnership is that assets and allocations of income are kept separate and can be more easily split should a divorce occur.You also have the ability to add another partner without changing the structure of the business.
See tomorrow’s blog for another option available to married couples. If you need assistance in settingup your business structure a tax professional such as an Enrolled Agent can weigh all the options a determine which structure is best for your situation.
The IRS has published important information for Texas victims of hurricane Ike. If you are someone in your family that may not have access to the internet, should be made aware of these changes in deadlines. The information below published by the IRS show what the original 7 day extension has been further extended to Jan 5, 2009. Read the important information below for full details on all the benefits available to the Texas hurricane victims.
Following the hurricane’s landfall on Saturday, Sept. 13, the federal government declared the following Texas counties a presidential disaster area qualifying for individual assistance: Angelina, Austin, Brazoria, Chambers, Cherokee, Fort Bend, Galveston, Grimes, Hardin, Harris, Houston, Jasper, Jefferson, Liberty, Madison, Matagorda, Montgomery, Nacogdoches, Newton, Orange, Polk, Sabine, San Augustine, San Jacinto, Trinity, Tyler, Walker, Waller and Washington.
“We are giving taxpayers in these hard-hit areas until early next year to file their returns and make payments,” IRS Commissioner Doug Shulman said. “All Americans have concerns for those affected by this devastating hurricane, and our hope is that this extra time will allow people to stay focused on the rebuilding and clean-up effort.”
Specifically, the relief postpones until Jan. 5, 2009, certain deadlines for taxpayers who reside or have a business in the disaster area. The postponement applies to return filing, tax payment and certain other time-sensitive acts due on or after Sept. 7, 2008, and before Jan. 5, 2009 –– including individual estimated tax returns and corporate tax returns that were due Sept. 15, and extended individual returns due Oct. 15.
In addition, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after Sept. 7 and before Sept. 22, 2008, as long as the deposits are made on or before Sept. 22.
The relief extends an initial seven-day postponement of tax filing and payment deadlines for Ike victims that was announced Sept. 12.
IRS computer systems automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief. Affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request tax relief.
If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, from Sept. 7, 2008, to Jan. 5, 2009.
Covered Disaster Area
The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.
Affected Taxpayers
Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area –– but whose books, records, or tax professionals’ offices are in the covered disaster area –– are also entitled to relief. In addition, all relief workers affiliated with a recognized government or charitable organization assisting in the relief activities in the covered disaster area are eligible.
Grant of Relief
Under section 7508A, the IRS gives affected taxpayers until Jan. 5,2009, to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership and S corporation returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns) or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Sept. 7, 2008, and before Jan. 5, 2009.
The IRS also gives affected taxpayers until Jan. 5, 2009, to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (August 20, 2007) that are due on or after Sept. 7,2008, and before Jan. 5, 2009. This includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.
The postponement of time to file and pay does not apply to information returns in the Form W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to file timely information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise deposits, due on or after Sept. 7, 2008, and before Sept. 22, 2008, provided the taxpayer makes these deposits on or before Sept. 22, 2008.
Casualty Losses
Affected taxpayers in a presidentially declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.
Individuals may deduct personal property losses that are not covered by insurance or other reimbursements but they must first subtract $100 for each casualty event and then subtract 10 percent of their adjusted gross income from their total casualty losses for the year. For details on figuring a casualty loss deduction, see IRS Publication 547, Casualties, Disasters and Thefts.Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Texas/Hurricane Ike” at the top of the form so that the IRS can expedite the processing of the refund.
Other Relief
The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.
Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster affects them so that the IRS can provide appropriate consideration to their case.
Taxpayers may download forms and publications from IRS.gov, the official IRS Web site, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.
If you find yourself the executor of an estate, you may have many questions about your responsibilities. If the estate is complicated or your are unsure how to proceed, an estate attorney can be worth his or her weight in gold. If you are simply unsure about tax related issues even if you have an estate attorney, you may need a tax professional such as an Enrolled Agent to prepare those returns for the decedent. Below I have included some important information from the IRS that may answer some of your questions about your responsibilities as they relate to tax matters..
A personal representative (fiduciary) is responsible for filing certain tax returns for a person who has died, and for the decedent’s estate. The personal representative may be required to file the final income tax return and any returns not filed for preceding years. They also may have to file the income tax return for the estate, and the estate tax return.
The filing requirements that apply to individuals will determine if a final income tax return is required for the decedent. Refer to Publication 17, Your Federal Income Tax, for additional information.
Whether income must be included or deductions may be taken on the final return is determined by the method of accounting used by the decedent. Most individuals use the cash method. Under this method, the final return should show only the items of income the decedent actually received, that were credited to his account, or that were made available to him without restriction before death. Generally, expenses the decedent paid before death should be deducted on the final return. If the decedent used the accrual method, refer to Publication 559, Survivors, Executors, and Administrators, and Publication 538, Accounting Periods and Methods, for further information.
Please add the word “Deceased” after the decedent’s name in the name and address section of the final return. Also, please add the date of death across the top of the final return. If the decedent is due a refund, it may be necessary to file Form 1310 (PDF), Statement of Person Claiming Refund Due a Deceased Taxpayer, with the return. If you are a surviving spouse filing a joint return, or a court appointed or certified personal representative filing an original return for the decedent, you do not have to file Form 1310. Personal representatives must attach to the return a copy of the court certificate showing the appointment.
If a personal representative has been appointed, that person must sign the return. If it is a joint return, the surviving spouse also must sign it. If you are a surviving spouse filing a joint return and no personal representative has been appointed, you should sign the return and write in the signature area, “Filing as surviving spouse.” If no personal representative has been appointed and there is no surviving spouse, the person in charge of the decedent’s property must file and sign the return as “personal representative.”
Please refer to the Form 1041 Instructions to determine if a Form 1041 (PDF), U.S. Income Tax Return for Estates and Trusts, is required to be filed.
You may have to file Form 706 (PDF), United States Estate (and Generation Skipping Transfer) Tax Return. Please refer to the Form 706 Instructions to determine if a Form 706 is required to be filed.
If you are planning on making changes in your business structure, you may have a lot of questions about what changes will require you to file for a new EIN. A colleague of mine has written a series of 4 blogs that goes over important information. Rather than rehash the information, I am providing a link to his blog. The blogs answer many questions you may have and provide helpful links to the IRS website. If you have additional questions about how your business is changing, contact an Enrolled Agent or other tax professional.
What do you do if you need copies of your prior year W2’s and you cannot get them from your employer? The IRS maintains some of the information from those W2s for ten years and you can request the information free of charge. (State tax withholdings are not kept on file by the IRS) If you need a copy, you will need to complete a Form 4506-T. You need to complete this form which is a request for a copy of your entire tax return. You must include a $39 fee for each year you are requesting. For additional information visit the IRS Website.
If you need this information in connection with a Social Security Administration issue, you can request the W2 information from them. Call 800-772-1213 or visit their website.
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