Author Archive for KerryCarron

Claiming Tax Back! Are You Eligible For the $1 Billion IRS Giveaway?

The IRS is giving away $1 billion! Yes, you read that correctly, one billion with a “b”. There is a catch, though, you must be one of the almost 1million taxpayers who have yet to file a 2008 income tax return AND this offer expires 4/15. If you’re interested in claiming tax back go see your income tax professional immediately! Additionally, you cannot E-File past due returns, however, your income tax professional can still prepare your taxes and print a paper copy for you to mail in.

Do your own taxes? Read this article about how it costs you more in lost refund than it would cost to have an income tax professional do your taxes in the first place.

Claiming Tax Back – An IRS Video

Here’s a video from the IRS for those interested in claiming tax back:

Claiming Tax Back – IRS Tips On Getting Your Past-Due Refund

With the news on tax refund delays it’s good to see the IRS is letting you know just in case you’re interested in claiming tax back.

 

Claiming Tax Back – Even If You Already Filed

Did you know?

On top of those who haven’t yet filed, if your taxes were prepared incorrectly, claiming tax back is as simple as having your income tax professional file Form 1040X. The only way to know is to see your income tax professional. No-one can guarantee that you will get more money back, but many professional tax preparation services offer “second looks” where for a small fee they will look over your past filed tax returns for errors made and determine if claiming tax back is right for you. They might also find erroneous deductions that your tax preparer could’ve taken for you which the IRS WILL catch. It takes a few years, but we’ve seen that audits don’t usually occur until about the 3-5yr mark, long after your refund has been spent. If you amend in time you can save yourself from excess interest and penalties.

Interested in claiming tax back? Click the image below to contact a Jefferson Franklin Tax Patriot to schedule an appointment today!

Claiming Tax Back

Why Married Filing Separately Is Like Committing Income Tax Suicide and Our Solution For You

Now that Valentine’s Day has passed, it’s time to talk about an income tax situation that will make you love your tax professional almost as much as you love your significant other!

 

At JFTS we get a lot of married couples who come to us looking to file their income tax return separately. After a few follow-up questions we find out that the reasoning is that one spouse has a past debt, either child support, student loans or a past tax debt, all of which can be taken from a tax refund. The couple feels that the only way to keep their refund is to file separate and they forget to realize that there is another way. It’s called Injured Spouse Allocation!

Injured Spouse Allocation

What is Injured Spouse Allocation?

It is a provision in the tax code that the IRS setup for this particular situation where one spouse has a past collectible debt that the other spouse is NOT liable for paying. This way couples do not have to commit “tax return suicide” by filing separately and killing their tax refund entirely just to make sure that their refund does not get taken away. The irony is that filing separate almost guarantees that NEITHER spouse will get a significant refund. WHY?

 

When you file separately one of the credits that is unavailable is the Earned Income Tax Credit(EITC or EIC). This is the credit that most low-mid income earners with children depend on for large refunds and can be up to $5751 for married couples who have 3 children and are usually between $25k-$35k in combined earned income. Another major credit that is unavailable to separate filers is the Adoption Credit. This credit, which just became refundable in 2010 and 2011, can be up to $13,360 for each qualifying child adopted. In addition to less available credits, the income tax brackets are higher, so an income level that might’ve been taxed at 10% for a joint couple might fall into the 15% level for separate filers.

 

In fact, we had a client in this situation who felt it was better to file separate instead of joint despite adopting two (2) special needs children. If they filed separately not only would neither spouse have been entitled to a refund, they both would’ve OWED money, a lot of money! However, thanks to Injured Spouse Allocation they received over $20,000 in federal refund! From this $20,000 only a small portion was applied to the “injured” spouse’s past debts and it was a happy ending.

 

For anyone who wants to file Injured Spouse Allocation, here’s what you need to qualify per IRS regulations:

  • File Married Filing Jointly(MFJ)
  • Only ONE spouse can have “legally enforceable” past-due debts which include: Federal Tax, State Income Tax, Child Support, Spousal Support, Federal Nontax Debt(i.e. Student Loans)

One situation that might complicate matter is if you reside in a “Community Property State”(AZ, CA, ID, LA, NV, NM, TX, WA or WI) at any time during the year. While this won’t necessarily disqualify you from Injured Spouse Allocation, it will reduce the benefit somewhat. Like ALL tax matters it is dependent on your specific situation and the only way to know is to speak with an income tax professional, such as a JFTS Tax Patriot.

 

With all that said, when should you file Married Filing Separately(MFS)? Answer- ALMOST NEVER.

 

The only situation that would make sense filing separately is if there is a spouse who has left the state or country and there is no possibility of getting their signature on a joint return. Otherwise, even in cases of divorce or separation, if there are dependents involved there is a special filing status known as “Married, but Unmarried for Tax Purposes” and it is similar to the Head of Household(HOH) filing status. Since this is a complex income tax matter it is best to check with a Tax Patriot first to see if you qualify.

 

Hope this helps and if you enjoyed what you read please leave a comment or share this with your friends. Sharing is as easy as clicking on one of the links above to share on our preferred social media networks(Facebook, Twitter, Google+ and LinkedIn).

We Need To See Some ID! How To Tell If Your Tax Preparer Is “Legit”

Now that the IRS has finally instituted the Preparer Tax Identification Number(PTIN) requirements for paid preparers it is our duty to make sure that you know how to designate between the different professionals out there who prepare and file income tax returns for pay. In addition, we will show you samples of what IRS issued identification looks like.

 

It’s hard to believe that before 1/1/11 ANYONE could prepare and file an income tax return and it was not just limited to the usual professionals such as a Certified Public Accountant(CPA), Enrolled Agent(EA), Enrolled Actuary or State Licensed Tax Attorney. All you had to do was sign a return, use your Social Security Number and viola, you’re in business as a paid income tax preparer. Despite this new requirement there will still be income tax preparation services that find a way to operate around this guideline. Unfortunately, at this time there is no database to lookup a PTIN to make sure it is valid. The best course of action is to check with the IRS, either on irs.gov or by calling them at 1-800-829-1040.

 

To check on the credentials of most tax return professionals you can try the following methods per IRS.gov:

  • Enrolled agents, enrolled actuaries, and enrolled retirement plan agents can contact the IRS Office of Professional Responsibility at (202) 927-3397.
  • Certified public accountants can find contact information for all state boards of accountancy at www.nasba.org.
  • Attorneys can find contact information for all state bar associations at www.abanet.org.

In addition, we have found that some provisional PTIN preparers are confused as to what is an EA and a RTRP. I even asked a manager at a local store-front income tax service “Are you an Enrolled Agent?”. Her response “I have a license number, but I still need to take a test”. Well there are two tests, one which will be the minimum IRS requirement to become a RTRP and the more thorough examination to become an EA. Here’s the official distinction according to the IRS:

 

Is there a distinction between Enrolled Agents and Registered Tax Return Preparers? (posted 1/22/10)

Yes. The practice of enrolled agents before the IRS generally is not limited. The practice of Registered Tax Return Preparers is limited to preparing and signing tax returns for compensation and representing taxpayers before an Examination function of the IRS when the Registered Tax Return Preparer prepared the return under examination.

 

Here is what an IRS issued PTIN card looks like:

 

And an IRS issued Enrolled Agent(EA) card:

 

When it comes to tax professionals, the official stance of the IRS is:

 

“The IRS does not endorse any particular individual tax return preparer. For more information on tax return preparers go to IRS.gov.”

 

Go figure that they would have such a “politically correct” stance on this issue. The decision is yours, who would you trust the most to work on your taxes? A dedicated income tax professional such as an Enrolled Agent who focuses solely on income taxes and is required to take Continuing Professional Education(CPE) courses that are approved by the IRS OR a preparer who only abides by the minimum standards?

 

A great resource to look-up tax professionals is: TeaSpiller – Find An Accountant or Tax Pro

Big News for Small Business – Two Tax Benefits for 2011

After a long hiatus thanks to a busy tax season, we’re back with news you can use. Here at JFTS we believe that this year’s April 18th filing deadline is just the beginning and that there is still so much we can offer to help you prepare for 2011.

First off, this week marks Small Business Week at the IRS and one way you can take advantage as a small business owner is to participate in a free, 30-minute webinar titled “Small Business Advantage” to learn more about planning for 2011. The webinar is scheduled for tomorrow – Wednesday, May 18th at 2pm EST.

So far the biggest news is two provisions for 2011, one credit and one deduction, which are:

1) Health Care Tax Credit

In order to qualify an employer must:

  • cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate
  • have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
  • pay average annual wages to qualifying employees of under $50,000

Note that this applies to both for-profit and non-profit organizations that meet the above criteria.

The benefit is:

  • worth up to 35 percent of a small business’ premium costs in 2010 (25% for non-profit employers) and increases to 50 percent (35 percent for tax-exempt employers) on 1/1/14.
  • phased out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.

2) Accelerated Write-Offs

For 2011 there will still be accelerated depreciation available for most qualifying business property purchased and put into service for 2011. This includes both 50% and 100% deductions.

Prior to making any major purchases, please talk with your tax professional first to see if you can qualify for an accelerated deduction. We will post an update later this week as we get more information on this particular deduction.

Until next time, have a great off-season and don’t forget that setting up a consultation with a Jefferson Franklin Tax Patriot is easy, convenient and secure. So contact us today and we’ll assist you with your tax needs.

Bartering & Your Taxes – 4 Tips On How To Report Barter Income

In the tough times that small businesses are going through today, many business owners are choosing to levy payments for goods and services by bartering.  It’s important to recognize that the fair market value of the goods or services provided or exchanged is still taxable income.

By definition, bartering is the exchange of products or services for another in lieu of paying cash. However, the fair market value of the goods and services must be reported as part of the business at the end of the year.

Here are 4 essential tips on how bartering affects your tax return:
1.     Barter Exchange: Barter usually functions where businesses trade products or services among themselves. No matter whether the business has a physical location or operates over the internet, it is normally required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, at the end of the year to its clients and to the IRS.
2.     Barter Income: For the purposes of tax reporting, barter dollars are equal to real dollars. You must report the fair market value of the products of services exchanged on your tax return.
3.     Taxes: The income generated through bartering is taxable in the year it is performed. Your barter may result in ordinary business income, capital gains or losses, or you might have a nonrefundable personal loss. It may result in liabilities for income tax, self-employment tax, employment tax, or an excise tax.
4.     Reporting: Generally, the rules for reporting bartering services vary based on which form of bartering takes place. You should report this type of income on Form 1040, Schedule C Profit or Loss from Business, or on other business returns such as Form 1065 for Partnerships, Form 1120 for Corporations, or Form 1120-S for Small Business Corporations.

If you are uncertain about how to go about reporting your barter income as part of your tax return, please contact one of our trained and knowledgeable Tax Patriots who can help you understand and file such returns.

Missing a W-2? Here is what you do!

Missing a W-2? Here is what you do!

In order to file your 2010 tax return, you need to have all of your financial and tax documents including all your W-2 employment forms. You should receive Wage and Tax Statement, Form W-2, from each employer you worked for in 2010. January 31st, 2011 was the deadline for employers to send you a 2010 W-2 earnings statement.

If you know you should have received a W-2 from a certain employer but haven’t received it, you can follow these steps:

1.   Contact Your Employer: Contact the employer to inquire if and when your Form W-2 was mailed out to you. Make sure they have your correct address on file and have sent it to the right place. Otherwise, it may have been returned to them. After talking to the employer, allow a couple of weeks for them to resend or issue your Form W-2.
2.   Contact the IRS: If you still have not received your Form W-2 by February 14th, contact the IRS for help. The number to reach them is 1(800) 829-1040. You must provide them with your full name, address, city and state, zip code, Social Security Number, phone number, and the following additional information about the employer:
a.   Employer’s name, address, city, state, zip code and phone number
b.   Dates of employment
c.    An estimate of your wages earned and federal tax withheld during your 2010 employment there. You should base your estimate on your final pay stub or leave-and-earnings statement, if that’s possible.
3.   File Your Return: Even if you do not receive your Form W-2, you still have to file your return or request for an extension to file by April 18th, 2011. If you do not receive your Form W-2 by the due date, you may use Form 4852, Substitute for Form W-2. Attach Form 4852 to your return, with your estimated income and withholding taxes as accurate as possible. Your return may be slightly delayed in order to verify the information.
4.   File a Form 1040X: Occasionally, you might receive your missing Form W-2 after your taxes have already been filed using Form 4852. If the information you reported differs from the information reported on the W-2 by a lot, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

To be certain you are doing everything correctly, contact one of our trained Tax Patriots to help you with any questions and concerns. We can provide you with the necessary forms and instruct you on how to fill them out and file them correctly.

You can also download Form 4852, Form 1040X and their instructions from the IRS website.

Is Your Income Taxable or Non-Taxable? You might be surprised!

According to the US Tax Laws, generally, most of your income is considered taxable but in some situations, certain types of income can be either only partially taxable or not at all taxable.

In order to help you understand the difference between taxable and non-taxable income, here are some familiar examples of income not taxable by law:

Ø  Adoption Expense Reimbursements (qualifying expenses only)

Ø  Cash Rebates

Ø  Child Support Payments

Ø  Compensatory Damages for Physical Injury or Sickness

Ø  Gifts & Inheritances

Ø  Meals & Lodging for the convenience of your employer

Ø  Welfare Benefits

There are times when certain types of income are taxable and not in others. Such items include:

Ø  Life Insurance: Surrendering a life insurance policy for cash would mean you must report as income any part of it above the cost of the policy itself. However, if you are paid the life insurance policy due to the insured’s death, it is not taxable income unless it was given to you for a price.

Ø  Non-cash Income: Non-cash income could be considered taxable in some situations. For example, an exchange of property or services, or bartering, should be included in taxable income on a Form 1040 by both parties at the fair market value of the goods or services.

Ø  Scholarship Grant: If you are studying toward a degree, amounts you receive as qualified scholarships can be excluded from taxable income. However, any amount used for room and board do not qualify for exclusion.

Unless specifically excluded by law, all other income including wages, tips, salaries and unemployment compensation must be reported as it is fully taxable by law. To find out more about taxable tips please read this article: Don’t Forget The Tab – Your Tips Are Taxable!

The examples given are not all-inclusive. For more information on how this affects your taxable income, please contact one of our knowledgeable Tax Patriots to help you determine which parts of your income may or may not be taxable.

Contact us for your FREE consultation today and get the most out of your taxes!

Need A Copy of Your Previous Year Tax Return? Here’s How!

There are several reasons to request previous year’s tax information. One of which is for purchasing a home or making any other substantial purchase. Another is if you are delinquent in filing your tax returns or just want to amend a previous year return. In this case you will need a copy of all information transmitted to the IRS such as W2’s or any of the various 1099 forms. This comes in handy if you worked multiple jobs or had a few savings or investment accounts that you might have left off of your return. Do you want to get audited? Of course not! An easy way for this to happen is to leave something off of your return that the IRS already has a copy of. Not only could you be setting yourself up for an audit, but what if you worked a job that you had taxes withheld and are actually due for a larger refund?

The IRS has a great article with 9 things you need to know about getting prior year’s tax returns. If you don’t want to read, here’s an easy to understand run-down(with links to the exact IRS forms needed):

-Obtaining copies of your federal return is FREE and there are 3 ways: web, phone or mail.

-There is no charge for transcripts, you can get these for the current year(usually after 2/15) or the previous 3 years.

-The transcript shows line items from your return as it was filed and includes any forms and schedules that were filed along with your return. It does not show any changes made after filing.

-A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data – including marital status, type of return filed, adjusted gross income and taxable income.

-To request a transcript online, go to the IRS Website, specifically: Order A Transcript. To order by phone, call 800-908-9946 and follow the prompts in the recorded message.

-If you prefer to receive a transcript via mail you can request a 1040, 1040A or 1040EZ tax return transcript by completing IRS Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript. Businesses, partnerships and individuals who need transcript information from other forms or need a tax account transcript need to use Form 4506T, Request for Transcript of Tax Return.

-If you order online or by phone, your tax return transcript should arrive within 5 to 10 days after the IRS receives your request. A mail request, however, takes much longer and can take 30 calendar days for delivery of a tax account transcript if you order your transcripts by using Form 4506T or Form 4506T-EZ.

-For an actual copy of a previously processed tax return, there is a $57 fee for each tax year that you order. If you need an actual copy you must complete Form 4506, Request for Copy of Tax Return, and mail it to the IRS address listed on the form for your area.  Copies are usually available for the current year and go back as far as the past six tax years. It can take up to 60 days to receive an actual copy of your return.

Thanks for checking this out!

Keep in mind you can usually amend your previous 3 years of tax returns if you found that you can get a larger refund OR if you did not file, but by doing so you will qualify for a refund through either excess with-holdings or refundable credits you qualify for. These are some of the top-notch services that a JFTS Tax Patriot can assist you with.

Accountants Are Like Doctors – You Need To See A Specialist!

If you had a heart condition, would you go to your primary care doctor or a cardiologist?

Easy question, huh?

They why when it comes to taxes, do most people say “I’ve got an accountant who handles that.

What does your accountant do?

Are they a specialist? Or just a “primary care giver“?

For most people their accountant is a CPA. Want a surprise?

While a CPA is the highest designation you can receive in accounting, it may not be the best certification for tax issues.

First off, the CPA exam covers all aspects of accounting, taxes are only a small part of this exam. In addition, a CPA is never required to take another tax course for the rest of their lives. In fact, their Continuing Professional Education(CPE) requirements to maintain their CPA status can be on any accounting subject.

Secondly, if an accountant is learning about bookkeeping, records and auditing, how much time can they really spend on taxes?

This is much like a doctor: A cardiologist ONLY studies hearts.

A tax professional ONLY studies taxes.

With this in mind, the top professional designation for a tax preparer is the Enrolled Agent(EA). First off, the exam for enrolled agents is ONLY on taxes and it is 3 parts:

1) Personal
2) Business
3) Ethics.

Secondly, an Enrolled Agent is required to take 72 hours of continuing education every 3 years to maintain their license and they can ONLY take tax related courses approved by the IRS.

Third, the other way to become an Enrolled Agent is to work for the IRS for 5 years, so as an EA, you have the knowledge of an IRS veteran.

***********************

Another accounting phenomenon is the bookkeeper with an associates’ degree who gets a Paid-Preparer Tax Identification Number(PTIN) and presents themselves as a “full service accountant“. Until 2010 anyone could get one simply by filing a form with the IRS. Thankfully, they have cracked down on this and now require any PTIN holders to either be enrolled(EA, CPA or several other licensed financial professionals such as Tax Attorneys or Actuaries) or pass a competency exam prior to receiving or renewing their PTIN.

This might be the type of accountant that is mentioned in the best-selling book “The Millionaire Fastlane: Crack The Code To Wealth and Live Rich For A Lifetime” by MJ Demarco. On page 286 he mentions:

Don’t be an idiot like me. Still green, I remember my first accountant, found right out of the Yellow Pages – not from referral, but blind hope. It didn’t take long to see that she wasn’t concerned with tax planning. No questions about my business or my concerns, just zeal to complete the forms and get it done. Additionally, most of her clients were Slowlaners who dabbled with W-2s and 401ks rather than corporations. Great pick, MJ. I needed someone with a Fastlane business mindset and I committed to finding one. After interviewing and investigating a half-dozen accountants, I found one whose clients were primarily business owners.

Based on our experiences, we’re guessing the first accountant was most likely either:

a) the book-keeper posing as a tax professional, who only knows how to balance books, thus the inability to properly interview a client.

OR

b) a CPA who does taxes 3 months out of the year to earn extra money and is more concerned with records and auditing than caring about the most important aspects of working with a tax client- INTERVIEWING and CONSULTING.

****************

Case study:

A doctor finds his tax professional through referrals of fellow doctors. He hires someone whose clients are primarily doctors.

His tax professional advises him to file “Married Filing Separately” while his wife files “Single” so he can avoid burdening his wife with taxes on her salary (her salary is significantly lower than his).

Sadly, this particular doctor gets taken to the cleaners. Not only does the “professional” firm charge him a pretty penny (around $5k), but they make the rookie mistakes mentioned above.

Result: An audit.

The correct solution to this is to file “Married Filing Joint” and file for “Innocent Spouse” protection.

Unfortunately, this doctor did not get the proper level of service until it was too late. Needless to say the doctor did find a competent and trust-worthy service provider who cleaned up the other one’s mess and did it for a fraction of the cost.

The moral to the story:

A tax professional can save you. Big time!

Some personal info:

As a Tax Patriot, I am currently licensed with a PTIN and in the process of studying for the Enrolled Agent exam. In the mean-time I am working under the guidance of my father, our founder and lead Tax Patriot, a CPA/Enrolled Agent with over 30 years of experience.

Our lead Tax Patriot has seen everyone from minimum wage employees to multi-millionaire business owners. Our specialty, or niche, is taxes. We have helped people from all walks of life. But we just focus on taxes.

This approach is different from many accountants, who work with specific “niches” or occupations/endeavors. Their philosophy is to provide the best service by being a one-stop shop for all accounting needs, but specializing in a certain demographic.

It is a viable approach.

But which is the better for getting your taxes done: Being a jack of all trades for one specific occupation or niche?

Or focusing just on taxes?

Contact us for a FREE consultation and find out for yourself.