A Tax Consultant for All Seasons

Since I am soon to be the parent of a college student, I have been looking carefully at tax breaks for parents of college students. As I have written in previous blogs, there are 3 types of tax breaks you may qualify for. The Hope Credit, The Lifetime Learning Credit and thee Tuition and Fees Deduction.  All 3 have income restrictions. Visit the IRS website for details on these tax breaks.

Also thinking about these tax breaks and their income ceilings made me think about another decision most parents are faced with — saving  for retirement. How do these two things tie together?  They tie together through your decision of whether to have a Traditional IRA , 401K or Roth IRA.  Financial  planners generally say you should participate in s 401k if your company matches some portion of your contribution. If they do not, they suggest a Roth IRA. Generally I agree with that.

However, if you have student in college, especially in the first 2 years where you may be able to take the Hope Credit, it make sense to me to still contribute to your 401k or Traditional IRA. This would only be true if your income is close to those ceilings and your contributions could make a difference in whether or not you qualify for the credit.

You either need to do some calculations yourself, or contact an Enrolled Agent or other tax professional who can look at your situation and help you determination which type of retirement savings is best for you, especially during your child’s college years.

The IRS today published information to help small business owners understand statements they receive indicating discrepancies between payroll tax form they have filed and the W2s they issued. Read the information from the IRS below to find out more.

The Social Security Administration (SSA) and Internal Revenue Service (IRS) have an agreement to exchange employment tax data. SSA shares Form W-2 data with the IRS and the IRS shares Form 941, 943, 944, 945 (henceforth called Form 94X) and Schedule H data with SSA.

The Combined Annual Wage Reporting (CAWR) is a document matching program that compares the Federal Income Tax (FIT) withheld, advance Earned Income Credit (AEIC), Medicare wages, Social Security wages, and Social Security Tips reported to the IRS on the Forms 94X and Schedule H against the amounts reported to SSA via Forms W-3 and the processed totals of the Forms W-2.

When the Social Security and/or Medicare Wages reported to SSA on Forms W-2 are lower than the Social Security and/or Medicare Wages reported to IRS on Forms 94X/Schedule H, SSA contacts the employer, issuing Notice SSA-L-93-SM, Employer Questionnaire Discrepancy Between IRS and SSA Records, requesting information to help resolve the discrepancy. If the initial contact does not fully resolve the discrepancy, SSA follows up with Notice SSA-L-94-SM, Second Request Questionnaire SSA Has No Record of Employer Record. If, after two contacts, the imbalance is not completely resolved, SSA refers the case(s) to the IRS.

The inventory received from SSA into the CAWR program (known as SSA-CAWR cases) is reviewed by tax examiners who attempt to reconcile the discrepancy without contact with the employer. This includes additional research with SSA to determine if Forms W-2 were filed/corrected in the interim. The tax examiner review begins in April each year for the third preceding tax year (for example: during 2008 IRS is analyzing tax year 2005 SSA-CAWR cases).

If, after the initial case analysis, a discrepancy remains, the tax examiner issues Notice CP 253, Request for W-2 Not Filed with Social Security Administration. The CP 253 informs the taxpayer of a discrepancy between information reported on the employment tax returns (i.e.: the Forms 94X or Schedule H) and that reported on Forms W-2.

The tax examiner may issue Letter 99C, Wage Discrepancy Per SSA; Information/Verification Requested, in lieu of CP 253 when it is necessary to provide the employer with additional information.

The IRS must receive your response within 45 days of the date of the CP 253 or 99C Letter. If a response is not received within this timeframe the case will be closed, and the employer will be subject to the penalties outlined in the notice.

How To Prepare Your Response:

1. If you use the services of an accountant or payroll service provider you will need to provide them with a copy of the CP 253 or 99C Letter. They will not receive a copy from the IRS even if they receive copies of your other IRS notices.
2. Review your employment tax information and compare it to the issues raised on the CAWR notice/letter.
3. If you did not file all the required Form(s) W-2, submit them to the IRS, by attaching them behind the response page included with the CP 253 or Letter 99C.  Under IRC 6721(a), Failure to File Correct Information Returns, original Forms W-2 received in response to CAWR inquiry are subject to a penalty of $50 for each document submitted.
4. If you disagree with the issues on the notice/letter, provide your explanation in a signed statement. If the Form(s) W-2 were previously filed with SSA, please provide proof of timely submission.
5. If Forms W-2c or 941c will resolve the discrepancy, include them in your reply. Be sure that any adjustments made do not cause your account to be out of balance.
6. Mail or FAX your reply by the due date shown on the notice/letter.  Under IRC 6721(e), Failure to File Correct Information Returns with Intentional Disregard, taxpayers that do not respond to CAWR inquiry timely are subject to a penalty based on 10% of the aggregate difference between the employment tax returns filed with the IRS and Forms W-2 filed with SSA.

References/Related Topics

• What Are Employment Taxes?
• Internal Revenue Manual 4.19.4 Part 1, Part 2, Part 3
• Publication 15, (Circular E) Employer’s Tax Guide (PDF)

Now there are even more scams out there pretending to be the IRS and trying to get your rebate. On the local news last night, a woman in our area had fallen victim to an email scam. It pretended to be from the IRS and sent her to a website that look very much like the IRS home page. The email asked for a lot personal information including Social Security Number, debit card info, even mother’s maiden name.

The IRS won’t ask you your SSN, they already know it! Plus the IRS does not use emails to communicate. Most often they communicate thru the mail and will sometimes call if you are delinquent on paying your taxes. If someone calls and says they are from the IRS and begins asking you personal information, and you are unsure the person is who they say they are, ask for a call back number and then call them or ask them for some type of verification.  If you are directed to a website, be sure it is irs.gov, not org or com or anything else.

For more information on scams both by phone and email, follow the link to the IRS website.

The IRS published another warning about an email scam that pretends to be from the IRS. It asks for personal information. The link listed above gives details about a variety of scams that have been reported to the IRS and explains ways you can report suspicious emails.

Be aware the IRS will not contact you through emails and request personal information. In most instances the IRS communicates though the mail or on the phone.  If the communication refers to a website, be sure it is www.irs.gov, not .org or .com…etc. If you have a question about an email you received, follow the instructions in the link above.

As the Big Day draws near, you may be panicking. What if I can’t pay all the taxes I owe. You wonder if you should file. The answer to that question is a big YES. Even if you can’t pay some or all of the taxes due, you should still file. If you don’t file, you will receive a failure to file penalty. Don’t think that the IRS might not realize you haven’t filed. Remember, they have every W2, 1099-Misc, 1099-INT, 1099-DIV, 1099-R that you received and it is easy for them to see that you had a filing requirement.

Every day, in my job as an Enrolled Agent, I work with client’s who have neither IRS Website or contact an Enrolled Agent to represent you before the IRS.

The IRS has published a list of tips for all those procrastinators out there. Take a look at all these tips and tips in the next few blogs to help you get  your return finished and filed on time.

• Consider filing electronically instead of using paper tax forms
• Put all required Social Security numbers on the return
• Double-check your figures
• Sign your form
• Attach all required schedules
• Send your return or request an extension by the April filing deadline

Taxpayers filing paper returns should also double-check that they have correctly figured the refund or balance due and have used the right figure from the tax table.

Taxpayers must sign and date their returns. Both spouses must sign a joint return, even if only one had income. Anyone paid to prepare a return must also sign it.

People sending a payment should make the check out to “United States Treasury” and should enclose it with, but not attach it to the tax return or the Form 1040-V, Payment Voucher, if used. The check should include the taxpayer’s Social Security number, daytime phone number, the tax year and the type of form filed.

By the April due date, taxpayers should either file a return or request an extension of time to file. Remember, the extension of time to file is not an extension of time to pay.

Forms and publications and helpful information on a variety of tax subjects are available around the clock on 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.

• Form 1040-V, Payment Voucher (PDF 47K)
• Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return (PDF 50K)
• Official Payments Corporation
• Link2Gov

Here are some important tips from the IRS for avoiding problems at tax time. The most important tip is FILE YOUR TAXES! Although you have to pay your taxes, not paying is not a crime. Not filing your returns, however, is a crime. Be sure to contact a tax consultant if you need help filing your returns of if you have prior year unfiled returns.• Don’t Procrastinate Resist the temptation to put off your taxes until the very last minute. Your haste to meet the filing deadline may cause you to overlook potential sources of tax savings and will likely increase your risk of making an error.

• Visit the IRS Online In fiscal year 2007, there were more than 214 million visits to IRS.gov and 1.35 billion page views. Anyone with Internet access can find tax law information and answers to frequently asked tax questions.

• Don’t Panic if You Can’t Pay If you can’t immediately pay the taxes you owe, consider some stress-reducing alternatives. You can apply for an IRS installment agreement, using our new Web-based Online Payment Agreement application on IRS.gov. The Web-based application allows eligible taxpayers or their authorized representatives to self-qualify, apply for, and receive immediate notification of approval. You also have various options for charging your balance on a credit or debit card. There is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee. Electronic filers with a balance due can also file early and pay their taxes directly from their checking or savings account on the April due date with no service fee.

• Request an Extension of Time to File – But Pay on Time If the clock runs out, you can get an automatic six month extension of time to file to October 15. However, this extension of time to file does not give you more time to pay any taxes due. You will owe interest on any amount not paid by the April deadline, plus a late payment penalty if you have not paid at least 90 percent of your total tax by that date. See IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return for a variety of easy ways to apply for an extension. Form 4868 is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Taxpayers needing Form 4868 should act soon to be sure they have the item in time to meet the April deadline.

Heed this advice and save yourself a lot of money and stress later on. The next two blogs will be about what the IRS does if you don’t file and the consequences of not filing.

The IRS has issued a warning about tax scams. Be sure to read the information below to avoid getting caught up in one of these issues. Also, beware of scams about the stimulus package. The IRS will not contact you through email asking for your Social Security Number or banking information. Also, if you are asked to go to a website for the IRS that does not in in .gov, then it is not the IRS website. The IRS website is www.irs.gov. If you get caught up in one of these and end up owing the IRS, you may need someone to negotiate for you with the IRS. Effectur has seasoned employees who can provide you with IRS help.

Don’t fall victim to tax scams. These schemes take several shapes, ranging from promises of large tax refunds to illegal ways of “untaxing” yourself.

The IRS suggests that you remember three important guidelines:

• You are responsible and liable for the content of your tax return.
• Anyone who promises you a bigger refund without knowing your tax situation could be misleading you, and
• Never sign a tax return without looking it over to make sure it is accurate.

Beware of these common schemes:

Return Preparer Fraud:
Dishonest tax return preparers can cause many headaches for taxpayers who fall victim to their ploys. Such preparers derive financial gain by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Choose carefully when hiring a tax preparer. As the saying goes, if it sounds too good to be true, it probably is. No matter who prepares your tax return you are ultimately responsible for its accuracy and for any tax bill that may arise due to a questionable claim.

Identity Theft:
It pays to be choosy when it comes to disclosing personal information. Identity thieves have used stolen personal data to access financial accounts, run up charges on credit cards and apply for new loans. The IRS is aware of several identity theft scams involving taxes or scammers posing as the IRS itself. The IRS does not use e-mail to contact taxpayers about issues related to their accounts. If you have any doubt whether a contact from the IRS is authentic call 800-829-1040 to confirm it.

Frivolous Arguments:
Promoters have been known to make outlandish claims that the Sixteenth Amendment concerning congressional power to establish and collect income taxes was never ratified; that wages are not income; that filing a return and paying taxes are merely voluntary; and that being required to file Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy. Don’t believe these or other similar claims. Such arguments are false and have been thrown out of court. Taxpayers have the right to contest their tax liabilities in court, but no one has the right to disobey the law.

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 IRS.gov.
Links:

• The Truth about Frivolous Tax Arguments
• Tax fraud alerts
• Return preparer fraud — prosecutions

If you have decided that you don’t want to prepare your own return, you have probably made a wise decision. A professional tax preparer can save you a lot in both money and stress. Just keep in mind that you need to chose your tax professional carefully. Remember that no matter who prepares your returns, you are ultimately responsible for what is on your return. An error that a tax preparer makes on a return does not absolve you of responsibility. If there are errors, penalties and interest will apply.

Here are some important points to keep in mind.

• A paid tax preparer must sign any return he or she repairs. They must also include their ID number.
• Always carefully review your return to be sure that all information you submitted was included and that nothing was included that you did not submit.
• Always sign your return after it has been completed. Never sign a blank return and always sign in pen.
• Avoid tax preparers that claim that can get you large refunds. There methods may not be legal and could cost you a great deal of money and hassle.
• Ask what their credentials are. Are they a CPA, Enrolled Agent , or have some other type of credentials?
• Be sure the tax preparer you choose is willing to answer your questions and should ask you quite a few in return.

Don’t let what seems like an amazing deal lure you into choosing someone who is not qualified to do your returns. A tax preparer who belongs to a professional organization that requires continuing education especially some credits in professional ethics is a good sign. Most tax preparers only prepare current year returns. If you have unfiled returns for prior years companies like Effectur can help.

The amazing team of employees at Effectur has once again come up with a hysterical video of IRS humor. This one is a take off an Al Pacino scene from the movie “Any Given Sunday”. Visit this blog and view this humorous look at life inside the IRS. Let’s just hope one of these intrepid “IRS agents” isn’t heading out that door after you! If you think it might be you they are after, contact our talented team of tax consultants.