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What To Bring to Your Tax Appointment

Author: Jenny Shilling 

If you've already had your appointment with your CPA, you might have received an email requesting missing information. This email simply means you did not bring everything you needed with you to your appointment. To help you prepare for the future, or if you haven't yet met with your accountant, here is a helpful list of things you should bring when you have your meeting:

Personal Information

• Your social security number
• Your spouse's full name and social security number
• If you are divorced, your alimony information, and your ex-spouse's full name and social security number.
• Your tax returns for the past 3 years so that they may be checked over for errors - unless you are using the same accountant as they will have that information already.

Dependent's Information

• Birthdates and social security numbers
• Childcare records
• Income of other adults in your home (not your spouse if you are filing jointly)
• Copies of your divorce decree, or any other documents from your ex-spouse releasing their right to claim a child to you

Employment Information

• Form W-2
• 1099-Misc, Schedule K-1, income records to verify 1099s
• Expense records - check registers, credit card statements, & receipts
• Home office information

IRA & Retirement Information

• Amount contributed for 2012
• Traditional IRA basis
• Value of IRAs on December 31, 2012
• Social Security Information
• Pension & Annuity Income

Rental Information

• Records of income and expenses
• Rental asset information for depreciation.

Other Income

• Unemployment 
• State tax refund
• Gambling income
• Alimony
• Jury duty records
• Hobby income and expenses
• Prizes and awards
• Other 1099 income

Education Payments

• Scholarships and fellowships

Vehicle Information

• Mileage
• Parking & tolls

Savings & Investments

• Investment & dividend information
• Income from sales of stock or other property

Itemized Deductions

• Mortgage statements
• State and local income tax
• Real estate and personal property tax records
• Vehicle sales tax records
• HUD statements if purchasing/refinancing home
• Charitable donations
• Healthcare payments
• Expenses related to your investments
• Tax preparation costs
• Employment related costs
• Job hunting expenses

While the list is extensive, not everything will apply to you. Each tax return is unique to each person.  If you are still uncertain about what you need to bring, contact your accountant and ask. We are here to prepare your taxes and offer you a service. Answering your tax questions is part of that service.

Should you gather up everything you need prior to your appointment and still forget something, rest assured we will send you a missing information email.  At that point, all you will need to do is send in the information we are missing and your return will be filed for you. The tax specialists at the Tax Office Inc., look forward to seeing you at your tax appointments.  If you need an appointment, please contact us today!

IRS Notices Involving Your Tax Return

Author: Keith Huggett

It's deep into tax time now, and the IRS has been busy processing your returns. During the processing the IRS becomes aware of issues, if any, that arise with your return. It's at this time that certain notifications get sent out via the United States Postal Service. The IRS does not use email to communicate with taxpayers. The IRS has classified their notices by the type of tax form that they refer to. Simply put, any notices involving personal taxes, forms 1040, 1040A, 1040EZ, and their supplemental documentation, schedules, and forms are called individual filer notices. If the forms involved are IRS forms 941, 1065 or 1120 then the notices fall under the business filer category.

The IRS sends out millions of notices every year. Each letter will tell you what the letter is for, and why they are sending it to you. It is important to read these letters as soon as you receive them. The IRS often includes a "respond by" date in these notices. If you do not respond by the given date, it can, and often does, cause issues for you in the future. While receiving that initial notice from the IRS is intimidating, quite often the correspondence is due to a simple question that requires an answer. Your inital actions should be to read the notice, make a copy of it, and send it to your tax preparer for action.

Here are some of the notices you might receive from the IRS:

• CP05A - The IRS is examining your return and requires documentation.
• CP08  - You may qualify for the Additional Child Tax Credit and may be entitled to some additional money. 
• CP09 - The IRS records indicate that you may qualify for the Earned Income Credit but did not claim it.
• CP10 - The IRS has made a change on your tax return because they believe there is a miscalculation affecting your estimated tax payment you wanted applied to your taxes for next year.
• CP11 - The IRS has made a change on your tax return because they believe there is a micalculation affecting your return. You now owe the IRS due to this change.

There are many, many more notices that can be sent out by the IRS. The above lists only a few. The important issue to be aware of is that all of the issues shown above are easily taken care of. While it is true that not all IRS notices are so easy to take care of, if acted upon when first received your tax issue will be less complicated to take care of.

Remember, when dealing with IRS correspondence, following the directions that is provided for you is key to correcting the situation.  Each letter will provide you with the information that the IRS requires from you.  Be prompt in your response. Only give them what they ask for, nothing more or less. Keep copies of the notices for your records.

If you are uncomfortable dealing with the IRS in any way, contact your tax preparer. A professional tax service is ultimately qualified to deal with the IRS for you.  Tax specialists are trained to communicate with the IRS directly in your favor. Should you have any questions regarding IRS notices, contact us, The Tax Office, Inc. We will be happy to assist you.

What Are the IRS Rules for Qualification?

Author: Keith Huggett 

Times are tough all over. The economy is struggling to make a come back. Our paychecks have less in them.  People are having difficulty meeting their tax requirements.  If you happen to be one of those who are struggling with tax debts, you need to act before your tax debts balloon out of control.

In some cases, you have the option of trying to prove to the IRS that your are undergoing a hardship. While we always suggest that you obtain professional assistance when dealing with tax resoltution matters, and in this case, there is no difference, to apply for hardship status, you need to fill out IRS form 433A. This form is used to compile information about the state of your finances, your total monthly expenses for an extremely long list of items including:

• Food & Clothing
• Housing & Utilities
• Vehicle Ownership Costs (lease or ownership payments)
• Vehicle Operating Costs
• Health Insurance
• Child/Dependent Care
• Life Insurance

Also requested is the usual wages, other income, social security, banking information, credit history, etc.

Applying for hardship status isn't an easy process. Having professional tax assistance can help smooth the way with the IRS. Foreknowledge of the IRS rules can also assist you. The IRS sets the average amount for what is spent on basic items like food and clothing. The amount you spend on these basic items should fall below the national average.

Having assets that can be liquidated for ready cash will not help you. If you have such assets you should be paying off your tax debt, rather than applying for hardship status.  

The IRS will also require proof that you are undergoing a hardship. You need to be able to show the IRS that you are really struggling. Providing some kind of relevant documentation to prove your case is required. Did you recently lose your job? Are you limited is some way that prevents you from gaining employment? Keeping a copy of your termination papers and documents proving your ill health can help.

Proving that you are undergoing a hardship is one of the more difficult ways to resolve issues with the IRS. If you are unsuccessful at obtaining hardship status, there are other options available to you. Seeking professional tax assistance to discuss your options when you first receive notices from the IRS is in your best interest. Tax Resolution professionals, like the specialists at The Tax Office, Inc. are highly educated and work with the IRS on a daily basis. They can work with you and the IRS to get the best possible outcome for you.

Accidental Fraud or Committing a Crime?

Author: Keith Huggett 

Tax fraud. During tax season it's in the headlines right next to the advertisements for tax preparers. So what constitutes tax fraud? Why are so many people committing it? Or maybe the question is, do people know they are commiting fraud or is it nonintentional?

While most Americans legitimately try to file their taxes correctly and on time, there is a small percentage that intentionally avoid it or try to cheat in some way of their legal tax obligations. If you intentionally violate your legal duty to voluntarily file your income tax returns and/or pay the correct amount of income, employment, and excise tax due, you are committing a "tax fraud." Some of the ways you can break the tax laws and commit tax fraud include:

• Claiming false deductions
• Concealing or transferring assets or income
• Knowingly changing your income
• Over reporting the amount of deductions
• Possessing two sets of books
• Recording personal expenses as business expenses
• Using false amounts in books and records

In 2012 there were 1863 general tax fraud investigations initiated by the IRS Criminal Investigation Division. 1384 cases were recommended for prosecution. There were 1306 indictments. 897 cases resulted in sentences being passed. The average sentence involved 34 months spent in a federal prison, halfway house, home detention, or combination of all three.

From the 1920's to the present day there has been a long list of famous people convicted of committing tax fraud or tax evasion. This is most definitely not a "Who's Who" list you want to become a part of. Famous tax evaders:

• Al Capone - Wanted for a host of crimes but was convicted of tax fraud. Sentenced to 11 years in federal prison and fined $80,000.
• Pete Rose - Spent 6 months in prison for filing 2 false income tax returns. He was required to pay $366,000 in back taxes.
• Leona Helmsly - She was convicted of tax fraud and spent 4 years in prison.
• Walter Anderson - Has the honor of having the largest tax evasion case in the history of the United States. in 2006 he pleaded guilty to hiding approximately $365 million word of income through the use of aliases, offshore accounts and shell companies. He was sentenced to 9 years in prison and restitution of $200 million.
• Former Vice President Spiro Agnew - In 1973 he pleaded no contest to tax evasion and money laundering. He resigned, received 3 years of probation and paid a $10,000 fine. 

There are many, many more people on the list of famous people who have paid fines or back taxes to the IRS without serving time in prison. The consequences are not worth the effort it takes not to file your tax returns.

While the IRS knows the difference between a genuine mistake and intentional tax fraud, it pays to get your carefully prepared tax returns submitted on time. Or, if you can't get your return filed by April 15th, be sure to have your tax preparer file that extension.  

Filing your taxes can get complicated. Get help from experienced, professional tax preparers. When you are choosing your tax preparer, make certain it is a reputable company. You want to make certain you have the best for the job. April 15th is right around the corner.

Remember Al Capone?

Author: Keith Huggett 

Al Capone was found guilty of tax evasion - not paying taxes on his ill gotten wealth, estimated to be worth somewhere around $100 million back in 1927. That would be worth $1.2 billion in today's monetary value. For not paying his taxes, he received a sentence of ten years in federal prison and an additional year to be served in Chicago. He only served seven years and died in 1946. His conviction resulted in criminals and citizens alike paying their back taxes. In 1931, the year Capone was convicted, more than $1 million unpaid taxes were paid to the IRS.

Things have changed a lot since 1931. Now the IRS assesses penalties to your unpaid taxes along with accruing interest.  The longer you go without filing your taxes, the bigger the penalties and interest payment becomes.  

Initial penalties are assessed in one of two ways: Failure to file or failure to pay. Failure to file is assessed by the IRS at a rate of 5% per month or partial month up to a maximum of 25%. Failure to pay is assessed at a rate of 0.5% per month or partial month up to a maximum of 25%. If both penalties are assessed, the failure to file is reduced by the failure to pay.

Penalties get more complex if it is determined that fraud is involved. Criminal fraud, being illegal, will inflict heave fines, imprisonment, or both on the taxpayer.  There is also the possibility of civil fraud, which is also illegal, but not to the same extent as criminal fraud. It's penalties are only 75% of the portion of the tax underpaid attributed to the fraud. Still not worth the risk!

There are also penaltied that are applied for being negligent. THe penalty for not being careful or disregarding the tax rules is 20% of the portion of the underpayments attributable to the negligence. Seems a lot just for missing a few rules.

Filing a frivolous return can also get you into trouble. While you are filing your tax return, you are deliberately leaving out information necessary for filing the return, such as your social security number. The cost of filing frivolous returns is $500 per return. Why waste time sending in false returns?

So what we've learned here is that it is in your best interest to file your tax returns in a timely manner. If tax day is approaching too quickly fo your liking, you always have the option to file an extension. If preparing your taxes is out of your comfort zone, there are many options available to you, among them, seeking professional tax assistance.

If you are already behind the tax 8-ball, there are tax professionals who specialize in back taxes, lien removal, payment plans, and offers in compromise. The IRS may seem like the enemy but they will work with you to correct your situation. With an indication that you are ready to take some action all it requires is a phone call.

Six Rules That Affect Everyone Who Files a Tax Return

Author: Jenny Shilling 

Every year we file tax returns, yet each tax return is unique just as every person is unique. And every year the tax laws change making each return more and more complex. Oddly enough there are some rules that do not change. These are the rules regarding dependents and exemptions. More precisely, there are the rules defining dependents and exemptions.

Exemptions reduce your taxable income. There are two types: personal and exemptions for your dependents. 

• Personal Exemptions: You usually may claim one exemption for yourself on your return. You may also claim one for your spouse if you are filing a joint return. If you are filing separately, you may only claim one for your spouse if he or she had no gross income, is not filing a joint return, and was not the dependent of another taxpayer.
• Exemptions for your dependents: You can claim an exemption for your dependents. A dependent is either your qualifying child or qualifying relative. Your spouse is not your dependent. Your dependent's social security number is required as part of your return.
• If you claim someone as your dependent, they may still have to file their own tax return. It all depends upon the amount of their own income, both earned and unearned, their marital status, and any special taxes they may owe.  They may not claim a personal exemption on their own tax return. This is true even if you do not actually claim them as your dependent on your tax return. The fact that your could claim that person disqualifies them from claiming a personal exemption.

A person must pass several qualifying tests in order for you to claim them as your dependent. The IRS has publication 501 which details how a person is qualified to be your dependent.

Should you have any questions about dependents and exemptions, the tax specialists at the Tax Office Inc., are here to provide the answers. We can let you know if a person qualifies as your dependent or answer any other tax question you might have. 

The Top 4 Things You Need to Know

Author: Keith Huggett 

The Earned Income Credit was implemented in 1975. If you earned $50,270 or less in 2012, you may qualify for the EITC. According to the IRS, one in five eligible taxpayers fail to claim their EITC every year.

Here are the top four things you should know about the Earned Income Credit:

• The EITC is valuable. It not only reduces the federal tax you owe, but could result in an refund. Depending upon how much you make and the number of qualifying children in your household, if you qualify, the credit could be worth up to $5,891.

• The maximum amount of income you can earn and still get the credit has increased. You may be able to take the credit if:

• You have three or more qualifying children and you earned less than $45,060 ($50,270 if married filing jointly),

• You have two qualifying children and you earned less than $41,952 ($47,162 if married filing jointly),

•  You have one qualifying child and you earned less than $36,920 ($42,130 if married filing jointly), or

• You do not have a qualifying child and you earned less than $13,980 ($19,190 if married filing jointly).

• Your adjusted gross income also must be less than the amount in the above list that applies to you

• Check your eligibility. If your financial, marital, or parental situations change from year to year, you need to review the EITC eligibility rules. 

• Filing your return. In order to claim the EITC, you have to file your tax return. You must also include Schedule EIC when you file your form 1040. Your professional tax preparer will assist you with this process.

• Know the qualifications. You should understand the qualifications of the EITC before trying to claim it, including:

• You cannot claim if your filing status is Married Filing Separately.

• You must have a valid Social Security Number for yourself and your spouse if filing as a married couple.

• You must have earned income.

• Married couples and single people without children may qualify. If you do not have children you must also meet age and residency requirements as well as dependency rules.

• Special rules apply to members of the U.S. Armed Forces in combat zones. Members of the military can elect to include their nontaxable combat pay as earned income for the purpose of computing the EITC. The combat pay remains nontaxable.

• Your investment income must be $3,200 or less.

There are other qualifications that will affect the amount of the credit. If you have more than one qualifying child, it will modify the amount of your adjusted gross income limit. Having an experienced tax preparer to answer your tax questions is very important. He can make certain that no mistakes occur when filing your return and claiming your tax credits.

Should you have any questions regarding the Earned Income Tax Credit, the Tax Specialists at The Tax Office Inc., have the answers. We are ready to provide you the quality tax service you deserve. Contact us now.

A Few Tips to Save Money Throughout Your Life

Author: Jenny Shilling 

Throughout your life there are steps you can take that will minimize your taxes and make it easier to achieve financial security. You know the old saying, "A peny saved, is a penny earned." Here are the some of those steps:

• With your first job, contribute to a tax-advantaged retirement plan. It's never to early to start saving up for your retirement. You can cut your current tax bill and get a head start on building up a nest egg for your retirement. Also, statistics show that only 5 out of every 100 retirees are financially independent.
• Filling out your W-4 correctly is very important. If you withhold correctly you should receive the appropriate amount of money in your paycheck. What you do with these funds is up to you. Getting cash back at tax time is not necessarily the goal. When you have the correct withholdings, you have the opportunity to invest your pay and let it grow.
• While you are young, filing your taxes is fairly straightforward. However, you do have the option to take certain deductions besides the standard deduction. You may be able to deduct moving expenses, student loans or health savings account contributions, if they apply.
• As you mature and family becomes a part of your life, homeownership comes into play.  Mortgage interest and real estate taxes may cause you to start itemizing your deductions. If you don't yet have enough deductions to itemize, you can "bunch" certain deductions together into every other year to increase your tax savings.
• If you work and pay for child care you may be eligible for the child care credit. You may also be eligible for the earned income tax credit. There is also the child tax credit for children under age 17.
• If eduction expenses loom ahead, there are many ways to build a college fund to help pay for college expenses. Speaking with your tax preparer is the best way to decide which one is the best for you.
• Hiring your child to work for you is one of the best ways to save money. The business can take a deduction for the wages paid to your child and the child pays little or no tax on his earnings.
• If you happen to provide care for your parent you may be eligible to claim a dependency exemption. You must provide over half of the support of your parent. 
• Invest to take advantage of lower long-term capital gain tax rates. You can cut your tax bill by holding an appreciated investment long enough to qualify for long-term rather than short-term capital gain tax treatment.
• Plan your capital gain transactions. You may save taxes by indentifying the stock you're selling and choosing the stock with the hiyghest tax basis.
• Consider tax-exempt investments as a means of cutting your income tax. Comparing the yield on tax-exempt investments with taxable alternatives will show you where to invest.
• Maximize your retirement plan contributions. With employer matching, deductible contributions and tax-deferred growth, you should deposit as much as possible. Save as much as you can while you can.
• Swap investment or business property instead of selling it. If you can exchange property for "like-kind" property in a tax-deferred exchange you can delay the tax until you sell the replacement property. This can be a good way to trade up to more valuable property. Speaking with your tax preparer is highly advised before undertaking such a prospect.
• When you borrow money, see if you can set up the loan in such a way as to have the interest be deductible. Business, home mortgage and investment interest is all deductible. 
• Retirement brings about the payout of your retirement plan. You have the option to roll it over into an IRA or to do something else entirely. Speaking with your financial planner or tax advisor is suggested prior to making a decision.

Whenever you make big decisions about financial and tax planning, you should consider speaking with a professional tax specialist. From youth through retirement all of the choices you make can have an affect on your financial future. Consider the suggestions in this article and if you have any questions, please contact us to discuss the tax cutting options most suited to your particular situation.

You May Be Missing More Than You Know

Author: Keith Huggett

Deductions are like finding extra money in your wallet, that you didn't know you had in there. It's always nice to have extra money. When you're filing your taxes, you want to get every deduction you qualify for. The best place to start is with your previous year's tax return.

By looking at last year's return you'll be able to see what deductions you qualified for then, and see if you are still entitled to the same type of deduction this year. If you do not qualify for the deduction, you should make certain that you understand why, Ask your tax preparer if the statute has changed or if your status has changed.

Have you had a prosperous year? This can change deductions for you as well. Did you buy or sell a home? Gain or lose a rental property? Did you make a million on the stock market? All of these things and many more can change what you can write off as a tax deduction as well as change your tax bracket.

When you see your tax preparer, make certain you bring in your documentation. This will help you to defend your deductions. If you have medical expenses that are deductible it helps to have documentation to back it up.

While your qualified and experienced tax preparer should certainly be well ahead of the game in knowing which deductions apply to you, it never hurts to be prepared when you go into the office to get your tax return prepared. A helpful deduction checklist can be downloaded here to help get you started.  Should you have any questions, the Tax Specialists at The Tax Office, Inc., are ready with the answers. Contact us now.

The Responsibility for What Goes Into Your Tax Return Ultimately Lies On You

Author: Keith Huggett 

When tax season comes around, the thought about who is going to prepare your taxes this year becomes a more pressing decision. Your financial status may have changed. You may have married, bought or sold a home, or had fantastic luck on the stock market. Or, things might have gone the other way. Either way, it's time to decide who is going to prepare your tax return. When choosing your tax preparer there are many qualifications you should consider. Here are the top ten:

1. What are your preparer's qualifications? Does your taxman belong to any professional organizations? Does he continue his education in any way?
2. What is his professional history like? The Better Business Bureau is there for a reason. See if there have been any issues raise with the BBB, the IRS, or the Board of Accountancy.
3. Will you be able to contact your preparer after the 15th? What happens if the IRS decides to audit your return?
4. Will there be any service fees? You should be able to receive your entire refund, assuming you are getting a refund. 
5. Provide documention. A reputable preparer is going to ask you for your tax documents. He is also going to be asking you questions about your documents and receipts, and any qualifications you may have for deductions, credits and other tax issues.
6. If you are ever asked to sign a blank return, that is a big clue to walk away.
7. Be sure to review your return with your preparer, before you sign it. Also be sure to ask questions, should you have any. Your preparer is there to answer your tax questions.
8. Your tax preparer needs to sign the return and include their PTIN.
9. You have the option to e-file your return. This is the easier and quicker option for filing your tax return. You may also choose to paper file, however, the IRS prefers e-filing.
10. Report abusive tax preparers to the IRS.You can report abusive tax preparers and suspected tax fraud to the IRS on Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or altered a return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. Download the forms on the IRS.gov website or order them by mail at 800-TAX-FORM800-TAX-FORM FREE (800-829-3676800-829-3676 FREE).

Choosing a tax preparer is often a worrisome task that comes up once a year. Either you stick with the preparer you have had for years, whether you think they are going a good job or not, because it's easier than finding a new one, or you do your taxes yourself, or perhaps you go to one of the large franchise tax services. 

At the Tax Office, Inc. our highly educated tax specialists go the extra mile to make certain that you are taken care of. If you have unanswered tax questions, contact us.