A Tax Consultant for All Seasons

Today the IRS published another warning about tax scams, unscrupulous tax preparers, and protecting your financial information.  Read the information below for important warnings. Anytime you have questions about  your taxes, contact a reputable tax professional such as an Enrolled Agent.The IRS has these tips to avoid falling prey to con artists.

Watch your personal and financial information very closely, particularly during electronic transactions. The IRS is among a growing group of government agencies and corporations whose names and Web sites are being copied by imposters posing as employees conducting official business and seeking your personal information.  Be aware that the IRS does not use e-mail to initiate contact with taxpayers about their accounts. Do not open links in unsolicited messages claiming to come from the IRS.

Not all scams come by way of the Internet or email.  The telephone is a low-tech source of scams.  Do not give away personal information to callers claiming to be from the IRS unless you have verified the caller’s identity.  You can confirm an IRS contact by calling 800-829-1040.

Thieves can use stolen personal data to access your financial accounts, run up charges on credit cards or apply for new loans. With a stolen identity a con-artist might try to use your Social Security Number to intercept your refund or falsify employment records, leaving the IRS with the impression that you did not report all of your income.

Some con artists earn their living by preparing false, and illegal, tax returns.  Make certain that all of the information on your tax return is accurate since you are responsible for its content regardless of who prepares your return.

Dishonest return preparers, promising unreasonably large refunds, can cause many headaches for you. Such preparers attract new clients by promising large refunds while skimming a portion of the inflated refunds and charging high fees for preparation services.  Choose carefully when you hire a tax preparer. As the saying goes, if it sounds too good to be true, it probably is.

In contrast to shady tax preparers, some con artists openly tell you that you do not have to pay taxes.  Be wary of anyone who encourages you to side-step your responsibility to file an income tax return or to pay the proper amount of tax due.

Some promoters make outlandish claims that taxes are not legal, that wages are not income, that a voluntary tax system means you can choose not to file or pay and that income tax returns violate your protection against self-incrimination or the right to privacy.  Often these promoters will use techniques that are strikingly similar to any other con-artist to charge a high fee to share their “secrets” with you.  Such arguments are false and have been repeatedly rejected by the courts.  You may end up paying for this mistake twice, first when you pay for the bad advice and second when you are faced with a higher tax bill plus penalties and interest.

For more information about these and other tax scams visit the IRS Web site at IRS.gov.

Remember that for the genuine IRS Web site be sure to use .gov.  Don’t be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Link:

• IRS Warns of New E-mail Scam

If you are planning on selling your home, read the important information below, published by the IRS. Especially, if you are in the military, you may find the information useful. An important note - be sure to file your return on time. If your return is filed in a timely manner and you had no capital gain above the exclusion, you do  not need to report the sale on your return.  If you do not file on time, the IRS will count as income the entire amount of the sale, until you prove otherwise.

Save yourself time and frustration and file your return on time. If you need assistance in preparing your returns, contact an Enrolled Agent or other tax professional.

During summer months, many people sell their home and move to a new location.  Many of those individuals will make a profit on the sale and still will not have to pay a single dime of additional income tax
to the IRS.

Generally, you have made a profit if the selling price of your home is greater than the price you paid to purchase the home.  That profit, considered a capital gain, is usually subject to income tax.  However, under certain circumstances the law allows you to exclude all or part of that gain from your income – that is, you may not have to pay tax on the profit.

Individuals may be able to exclude up to $250,000 of capital gain on the sale of their home, and married taxpayers filing joint returns may be able to exclude up to $500,000. The exclusion may be claimed each time that you sell your main home, but generally no more often than once every two years.

To qualify, you must meet both the ownership and use tests.

• Ownership Test: During the 5-year period ending on the date of the sale, you must have owned the home for at least 2 years.
• Use Test: During the 5-year period ending on the date of the sale, you must have lived in the home as your main home at least 2 years.

If you and your spouse file a joint return and both meet the use test, you normally will be able to claim the exclusion for married couples even if only one of you meets the ownership test.

If you do not meet these tests, you may still be allowed to exclude a reduced amount of the gain realized on the sale of your home.  But you must have sold the home for other specific reasons such as serious health issues, a change in your place of employment, or certain unforeseen circumstances such as a divorce or legal separation, natural or man-made disasters resulting in a casualty to your home, or an involuntary conversion of your home.

For sales after 2007, the maximum exclusion on the sale of a main home by an unmarried surviving spouse is $500,000 if the sale occurs no later than 2 years after the date of the other spouse’s death. However, this rule applies only if the requirements for joint filers relating to ownership and use were met immediately before the date of death, and during the 2-year period ending on the date of death, there was no sale or exchange of a main home by either spouse which qualified for the exclusion.

If you were on qualified official extended duty in the U.S. Armed Services, the Foreign Service, or the intelligence community, you may suspend the five-year test period for up to 10 years. You are on qualified extended duty when, for more than 90 days or for an indefinite period, you are:

• At a duty station that is at least 50 miles from your main home, or
• Residing under government orders in government housing.

Intelligence community members must serve on extended duty at a duty station that is located outside the United States.

If you are entitled to exclude the entire gain from the sale of your home, you do not need to report the gain on your federal tax return. However, if you are not entitled to exclude the entire amount of the gain, use Schedule D, Capital Gains and Losses, and Form 1040 to report the total gain, the portion that can be excluded, and the portion that is subject to capital gains tax.

For more information see IRS Publication 523, Selling Your Home, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov.  Don’t be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

I was recently asked about the tax implications of buying a home and renting it to a son or daughter. If your child uses it as his or her main residence and pays a fair rental price for it, then you can consider it as any other rental property.

 The rules really change is you decide not to make any profit from the rental. You then cannot deduct any loses. You can only claim expenses up to what you received in rental income.

 You best bet is to charge more than you are paying for the mortgage for rent, In some years, like years you have to make repairs, you may incur a loss. You will be able to deduct that loss (up to $25000) on you tax return, if you are considered to materially participate in handling the rental property. Material participation means you are actively involved in handling the property, such as collect rent, make repairs etc.

 While you may hesitate to profit from renting to your own child, the tax implication of not doing so are great. Their rental should be a fair price in your market and should show a profit(unless expensive repairs have to be made. For additional information, visit the IRS website or contact an Enrolled Agent or other tax professional.

I was recently asked whether you can claim a child as a dependent if they have income. The answer is, it depends. In this case, this was for their 21 year old daughter who is a full time student. Since she is under 24 and a full time student, she meets the residency test, even if she is not living at home. She meets all the other requirements such as relationship, citizenship, qualifying child. You also have to file your return Married Filing Jointly.

 Another issue is whether or not her absence is considered temporary as in a college student who lives away from home most of the year, but comes home for holidays.

 The next question now, is support. If your under 24 full time student pays more that 50% of her support(meaning food, rent, tuition..etc). In this case, she cannot be claimed as your dependent for income tax purposes. As long as you pay more 50% or more of her expenses, you can still claim her as your dependent.

 If the child is 24 or older, you then have to meet the income test. This means if she earns over the current years exemption amount which was $3400 for 2007, she does not met the income test and you cannot claim her.

 For the child who is under 24 if her absence is temporary and you pay 50% or more of her support then, yes, you can take her as a dependent. If she either pays more than 50% of her support or she is permanently living away from home, you cannot claim her as a dependent.

If you need further clarification on you dependency issues, visit the IRS website, or contact an Enrolled Agent or other tax professional.

I know it may seem early to be thinking about tax time, but if you are unsure about what deductions you may qualify for due to income ceilings, listed below are the new numbers.  New numbers for IRA, personal exemptions and Education Credits/Deductions are just of few of the items for which the IRS has updated the numbers for 2008.  All the information below may not apply to your situation, but some of it certainly will. If you have questions as to how this information applies to you, contact a tax professional, such as an Enrolled Agent, to help you plan ahead for 2008 tax season.

For 2008, personal exemptions and standard deductions will rise, tax brackets will widen and workers will be able to save more for retirement, thanks to inflation adjustments announced today by the Internal Revenue Service.

By law, the dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2008. Key changes affecting 2008 returns, filed by most taxpayers in early 2009, include the following:

• The value of each personal and dependency exemption, available to most taxpayers, is $3,500, up $100 from 2007.
• The new standard deduction is $10,900 for married couples filing a joint return (up $200), $5,450 for singles and married individuals filing separately (up $100) and $8,000 for heads of household (up $150). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
• Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $65,100, up from $63,700 in 2007.
• The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $4,824, up from $4,716. The income limit for the credit for joint return filers with two or more children is $41,646, up from $39,783.
• The maximum Hope credit, available for the first two years of post-secondary education, is $1,800, up from $1,650 in 2007.
• The income limit for the savers credit is $53,000 for joint filers (up $1,000), $39,750 for heads of household (up $750) and $26,500 for singles and married persons filing separately (up$500). Low-and moderate income workers who contribute to a retirement plan, such as an IRA or 401(k), may qualify for the credit, which is available in addition to any other tax savings that apply.
• The contribution amount allowed for Roth IRAs begins to phase out for joint filers with incomes exceeding $159,000 (up from $156,000) and $101,000 (up from $99,000) for singles and heads of household.
• For contributions to a traditional IRA, the deduction phase-out range for an individual covered by a retirement plan at work begins at income of $85,000 for joint filers (up from $83,000) and $53,000 for a single person or head of household (up from $52,000).
• Participants in most employer-sponsored 401(k) plans and 403(b) plans for employees of public schools and certain tax-exempt organizations can contribute up to $15,500, unchanged from 2007. Individuals, age 50 or over, can make an additional contribution of up to $5,000, also unchanged from 2007.
• Individuals participating in SIMPLE retirement plans can contribute $10,500, unchanged from 2007. Those, age 50 or over, can make an additional contribution of up to $2,500, also unchanged from 2007.
• The annual contribution limit for most defined contribution plans rises to $46,000, up from $45,000 in 2007.

No, I don’t mean the Olympics. As I indicated in a blog a few days ago, the company I work for - Effectur was in the running for the Best Place to Work in the Triad.  There are 35,000 companies in the Triad area and they were divided into 3 groups, Small, Mid-Size, Large. Effectur was running in the Mid-Size Group. We came in second. While needless to say, I was disappointed in not winning First, I am still proud of what we accomplished.

It is still quite an accomplishment to even come in second place amoung so many businesses. It attests to the commitment of our management team to provide not only excellent customer service, but excellent employee service. To give you an idea, one the items that they brought up in the presentation, was that the President of our company sent an employee to a Ritz Carlton hotel so she could see how the Ritz treated people. He wanted her to experience their level of service so she could come back and provide that level of service to her fellow employees.How many companies are willing to do that!!

We may have taken second place, but we are tops on my list of the best places to work! I am proud to be an employee of a company that strives to treat both its customers and it’s employees with integrity, professionalism, and compassion.

If you or someone you know speaks Spanish and needs tax assistance, the IRS has a Spanish version of their website .IRS.gov/Espanol.  They also have several phone lines that offer assistance in Spanish.  Listed below are some of the items available on the Spanish version of the website and the different numbers where information in Spanish is available.

If they have a tax problem and need help, Effectur has someone who speaks Spanish and can help find a resolution that is right for them.

The IRS Spanish Web site offers tax forms, publications, and information. Interactive applications such as the following are available for individuals:

• The EITC Assistant (Asistente EITC) helps determine your eligibility for EITC.
• Where’s My Refund? (¿Dónde Está Mi Reembolso?) can help you determine the status of your federal tax refund.
• Where’s My Stimulus Payment? (¿Dónde está mi Pago del Estímulo Económico?) can let you know if your stimulus payment was sent or will be sent within the next week.

Toll-Free Telephone Assistance is available in Spanish on pre-recorded hotlines and from bilingual IRS representatives:

• The TeleTax line (800-829-4477) has recorded messages in Spanish that are available around the clock, covering more than 100 tax topics.
• The Refund Hotline (800-829-1954) provides information about a refund status in Spanish when caller provides the filing status and the exact refund amount expected.
• The IRS toll-free customer service line (800-829-1040) has Spanish-speaking representatives ready to help taxpayers.

For complete list of contact numbers check IRS.gov.

Many documents available in Spanish: Among the most frequently requested publications available in Spanish are Publication 1(SP),  Derechos del Contribuyente (Your Rights as a Taxpayer), and Publication 579(SP), Cómo Preparar su Declaración de Impuesto Federal (How to Prepare the Federal Tax Return,).  For a list of forms and publications in Spanish search the phrase “Formularios y Publicaciones” on IRS.gov.

Keeping Small Businesses in Mind: The Small Business link, Recursos Para Pequeñas Empresas, will lead business owners to information such as “SSA/IRS Reporter,” a newsletter that can be downloaded in English or Spanish. The summer 2008 edition has tips for new businesses, electronic filers, getting paperwork done right the first time, e-filing for small tax exempt organizations, extension filers, and much more.

Other important information for Spanish-speaking business owners can be found in Publication 966(SP), Opciones Electrónicas para pagar todos sus Impuestos Federales (Electronic Choices to Pay All Your Federal Taxes), and Publication 1518(SP) Calendario de Impuestos del IRS para la pequeña empresa y trabajadores por cueta propia (Tax Calendar for Small Businesses), a working tool filled with tax tips and deadline reminders.  Form 944(SP), which simplifies reporting requirements for business owners, is now available in Spanish, and when faced with challenges, it is good to know that information on disaster losses is also available in Spanish on IRS Publication 1600(SP).

If you or someone you know speaks Spanish, then think of the IRS when you need tax assistance.  We can help! ¡Podemos ayudar!

Remember that for the genuine IRS Web site be sure to use .gov.  Don’t be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

• El IRS en Español
• Formularios y Publicaciones
• Recursos Para Pequeñas Empresas

If you are receiving or about to receive disability benefits, you may be wondering if they are taxable. The answer is it depends. You may owe tax on none, part or all of you benefits depending on who paid the premiums. See the IRS guidelines below to determine if your benefits are taxable.

Generally, you must report as income any amount you receive for your disability through an accident or health insurance plan paid for by your employer.

If both you and your employer have paid the premiums for the plan, only the amount you receive for your disability that is due to your employers payments is reported as income. If you pay the entire cost of a health or accident insurance plan, do not include any amounts you receive for your disability as income on your tax return. If you pay the premiums of a health or accident insurance plan through a cafeteria plan, and the amount of the premium was not included as taxable income to you; the premiums are considered paid by your employer, and the disability benefits are fully taxable.

Refer to Publication 525, Taxable and Nontaxable Income, for more details. If the amounts are taxable, you can submit a Form W-4S (PDF), Request for Federal Income Tax Withholding, to the insurance company, or make estimated tax payments by filing Form 1040-ES (PDF), Estimated Tax for Individuals.

Amounts you receive from your employer while you are sick or injured are part of your salary or wages. Report the amount you receive on the line for Wages, salaries, tips, etc., on Form 1040 (PDF); Form 1040A (PDF); Form 1040EZ (PDF). You must include in your income sick pay from any of the following:

• A welfare fund.
• A state sickness or disability fund.
• An association of employers or employees.
• An insurance company, if your employer paid for the plan.

Payments you receive from qualified long-term care insurance contracts will generally be excluded from income as reimbursement of medical expenses received for personal injury or sickness under an accident and health insurance contract. Also, certain payments received under a life insurance contract on the life of a terminally or chronically ill individual (accelerated death benefits) can be excluded from income. Refer to Publication 907, Tax Highlights for Persons with Disabilities.

You may be able to deduct your out of pocket expenses for medical care above any reimbursements, if you are eligible to itemize your deductions. You will need to review Publication 502, Medical and Dental Expenses.

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Yes,  you certainly can, but you may not want to.  If you only owe the IRS a small amount, it would make sense to call the IRS yourself and set up a payment plan. However, if you owe the IRS a sizable amount, you may need representation. Does that mean you need to hirer a lawyer? No, but you may need an Enrolled Agent.  An enrolled agent can talk to the IRS on your behalf.  Why would you pay someone to help?

Did you know if you call the IRA yourself, they will ask you to commit to a larger amount that you might be comfortable with? They may ask for a lot of financial information, which depending on the amount you owe, you may not be required to give them.  Unless you are very sure you know all your rights and otpions, you may need an Enrolled Agent to represent you.  A CPA can also represent you before the IRS.

There are several option that you may qualify for, but the IRS representative you are speaking with, may not make you aware of these option. Their job is to have you repay what you owe as quickly as possible.  At Effectur, we  have many clients who were in a payment plan that they got themselves, but the amount is more than they can pay. We help negotiate a lower rate in many cases. What you have to pay depends on what you owe and what your net income is (income less expenses (the ones the IRS allows).

If you need peace of mind in dealing with the IRS, Effectur is here to help.

Today rather than talk about taxes, I want to talk about where I work. My employer (Effectur) is in the running for Best Place To Work in the Triad. (the Triad being our local tri-city area)  I share this information with pride.

If you have ever Googled any of the other tax resolution companies on the internet, you will see a lot of negative comments. You will quickly surmise that none of these are in the running as Best Place to Work.  Our management team has created an environment that is both employee and customer service oriented.

I am proud to work for a company that strives to stand out above the crowd.  A company that has as it’s mission statement “Providing Our Clients With Peace of Mind”.  I hope I will be able to blog next week to tell you we won first place. But even if we don’t, we were nominated and have been recognized for our company’s efforts to provide a fantastic place to work.  They are well aware that a great work environment inspires employees to do their best for their clients.

If you need assistance with a tax resolution problem, check out our web link above.  Google Effectur. Google other tax resolution companies too. Check with the BBB. Pick the one with the least complaints and the most satisfied clients. I know who that will be.