Archive for January 2011 – Page 2

Tax Brackets – Knowing Your Rates for 2010 and Planning for 2011

With the 2010 filing season upon us there are a few strategies you can still employ to adjust your tax bracket. A tax bracket is a defined threshold of “taxable” income levels taxed at a certain percentage(i.e. 10%, the lowest and 35%, the highest). The most common tactic is contributing to a retirement plan if you are on the borderline between two tax brackets or just want to lessen your liability. If you do not have the funds available to contribute to a retirement plan or utilize any other strategies to get your 2010 taxable income lower, then you need to start planning for 2011.

Thanks to the 2 year extension of the “Bush Era” Tax Cuts, the tax percentages have remained the same, however, the income thresholds have changed slightly. As stated in our article Death and Taxes – Do I Need To File A Return This Year? the standard deduction and exemption amounts from 2009 to 2010 remained virtually the same with the only difference being a bump of $50 for the standard deduction on Head of Household status from $8350 to $8400. For 2011 the exemption amount will go up $50 from $3650/individual to $3700/individual. The standard deduction will go up across the board, with the following increases for each respective filing status:

Single = +100 from $5700 in 2010 to $5800 in 2011

Married Filing Joint = +200 from $11,400 in 2010 to $11,600 in 2011

Head of Household = +100 from $8400 in 2010 to $8500 in 2011

Keep in mind that these rates are also important for those who itemize their deductions as you need to cross those thresholds in order to benefit from common itemized deductions such as mortgage interest, charitable donations and state/local taxes paid.

With that out of the way, here’s your 2010 Tax Brackets based on “taxable” income which is: Adjusted Gross Income – (Adjustments + Deductions).

Numbers below provided by the exception of MFJ/QW and MFS for 2011):

An example of tax planning strategy would be if you were MFJ and your 2010 taxable income was $118,000, which puts you in the 28% bracket. Say you expect a slight pay increase in 2011, you might want to find a way to deduct enough or get more adjustments to get you in the 25% bracket for 2011. In addition, for 2010, you could just contribute an extra $500 to your retirement plan(if you haven’t already maxed it out) to get you to the 25% bracket.

Knowing the RIGHT deductions and adjustments you can take is just another reason you NEED to contact us now to consult with a Tax Patriot so we can use our extensive knowledge of the tax laws to help you pay less! Remember, audits are usually the result of either improper/overstated deductions, adjustments or credits with the remainder being from understated income. The tax laws are complicated! This is why you need a professional who knows them and a full understanding of the tax laws is behind everything we do.

The Dreaded Audit – Tips From Tax Patriots On How To Avoid or Alleviate This Issue

This article is a response to a post on a business forum that posed the question- “Who here has been audited?”. Never a victim of an audit ourselves, we have seen way too many victims of poor tax services come for help in this time of need and here’s our take from experience in dealing with real-life audit representations:

  • What would you do differently to make the audit situation easier, if you had known it was coming?


We would have to look at the numbers in the return and see how proportionate the write-offs were to the income. If the numbers are disproportionate this WILL cause a red-flag with the IRS.

Another rule of thumb is your chances of being audited depend on WHO does your tax return in this order(from greatest to lowest): yourself or family member/friend using common tax software, store-front preparer, Certified Public Accountant(CPA), Enrolled Agent(EA).

Yes the IRS will usually look at an EA more favorably than a CPA. This is especially true in an audit representation because one of the two ways to become an EA is working for the IRS for 5 years(the other is passing the comprehensive EA exam).

  • What level of documentation did the IRS ask you to produce to prove your expenses/write offs?


They ask for actual invoices and credit card/bank statements with the date as well as name of Payee.

  • Did you find your Auditor to be flexible and willing to work with you?


For the most part they work with you, as long as you provide the right documentation. The problem is that most people come up with estimates on their write-offs and this gets them in trouble.
  • Did they fight you on any common write offs that many use (i.e. home office? Mileage? Food?)


As long as you give them a legitimate business purpose they usually won’t argue, however, it goes back to how proportionate your write-offs are to your income.


  • Did they try to pierce your corporate veil?


This pertains to business audits and usually they will not go this far. We have not had any experience with this in any of our audit representations.


  • Did you end up having to pay more? Less? The same?


For the most part clients end up paying more than they originally paid, however, we can negotiate with the IRS to limit the balance owed. One recent example was a client who got a $30k tax bill that was improperly calculated by the IRS and we got it down to $100.

Keep in mind that an audit is not the end of the world. If you have documentation that supports your write-offs then you are fine. Yes, it is a small inconvenience, but it is not as “dreaded” as most think. The sad reality is there are many tax cheats out there that ruin it for legitimate taxpayers and this is why you might be the “victim” of an overzealous auditor who wants to audit you because of one questionable deduction.

If you find yourself in an audit situation or want to make sure you’re taking your deductions correctly, please contact us for a FREE consultation and one of our Tax Patriots will assist you.

Finally, not all accountants are created equal and the following comment in regard to a so-called “professional accounting firm” was downright horrifying:

“It’s been my experience so far that even my accountants haven’t been able to provide me with information about how to handle an audit situation, so either they have never been through an audit or they were just not very communicative when I asked these questions.”

This example shows that this so-called professional accountant has either never been through an audit OR wants to withhold this valuable information until they get paid their exorbitant hourly rate, usually north of $150 per hour.

That is why we believe in giving a free initial consultation and disapprove of the “traditional” CPA Firms as well as Tax Attorneys who have the “billable hours” model. Advice should be free! Services rendered and RESULTS are what should have a cost.

Taxes At Home – At Your Own Risk, Why You NEED A Tax Professional(video)

With tax time here, it is important to give you this information. In the time we live in it is great that you can buy a tax software for $79 that can do most simple returns, however, is it really worth the money? Watch this and decide for yourself:

As you can see the initial savings of doing their own taxes ended up costing this couple a lot more in the long-run!

Liberty Cost- $431
Liberty Refund- $1464
Net– $1033

PROS: Lower cost and higher refund than H&R Block

CONS: Took two preparers to do return. Preparer had too many questions and lacked confidence. According to CPA who double-checked, there were errors made. Liberty has no quality control system to catch errors.

H&R Block Cost- $463
H&R Block Refund- $1446
Net– $983

PROS: Highly trained, good quality according to CPA who checked work.

CONS: High cost, not ALL H&R Block offices are this level of quality.

TurboTax Cost- $79
TurboTax Refund- $229
Net– $150

PROS: Low upfront cost.

CONS: Refund much lower and net much lower than going with a professional. Improper deductions taken can lead to an IRS Audit. Missed deductions led to a lower refund.

Verdict– GO to a Tax Professional to get your taxes done!

Is it worth saving a few dollars for the risk of getting audited? NO!

Is it worth saving a few dollars and getting a lower refund, thus taking money out of your own pocket? NO!

Without knowing the exact situation of the couple in the video we can’t make any guarantees on cost or refund. We CAN make the guarantees that one of our Tax Patriots will give you the professional level of service that the H&R Block preparer gave and we will try our best to match Liberty Tax’s refund while giving you a fair price and making your NET gain as high as possible!

Don’t take our word for it, contact us now for a FREE consultation and decide for yourself if Jefferson Franklin Tax Services is for you!

Death and Taxes – Do I NEED To File A Tax Return This Year?

The short answer is PROBABLY. However, there are cases where you are not required to file, but it would be to your benefit to file. I’m sure if you’re used to getting a refund you tell yourself “taxes, what’s the big deal? I don’t pay any, I ALWAYS get a refund.” Well what you fail to understand is that refund comes from overpaying taxes and while it is great to get a check after the holidays to cover the damages for shopping for a huge family, this is money you should not have paid in the first place.

I am not advocating NOT paying your taxes, what I am saying there is you should not be paying too much. That is a topic for another post though and another great reason to schedule a FREE consultation with one of our Tax Patriots for tax planning purposes. For the purposes of this post, we want to inform you as to whether you NEED to file a return or not. For anyone who owes money it is an absolute must! While most put it off in hopes that the IRS will never catch you, they are like Elliot Ness, they always get their man and the longer you avoid filing the more you pay in late filing and late payment penalties in addition to the balance you already owe.

On the other hand, those who are not required to file are usually ones who will get a refund if they file and are only shooting themselves in the foot by not filing. For this year, 2011, it is the 2010 Tax Return(not 2011), here are the filing requirements, which are based on Filing Status, Age and Gross Income:

If you are ____ and your(combined- if married) income is greater than ____ you must file!(even if you’re expecting a refund)

In addition, if you are blind there is an additional “standard deduction”, which means a bonus deduction from your Adjusted Gross Income that is non-taxable. For Tax Year 2010 this “standard deduction” has stayed the same for all filing statuses except for Head of Household, where it went from $8350 to $8400.

If you are a dependent of someone else, these numbers will be different as you will not be able to claim your own “exemption”, another amount of income that is non-taxable, which for 2010 is $3650. Additionally you also need to factor in unearned income, a topic one of our Tax Patriots can assist you in better understanding.

For more information as to whether you need to file or not, please contact a Tax Patriot for a FREE consultation and we will let you know whether or not you need to file or if you would like to find out for yourself, go here on the IRS website and answer the questions to see if you need to file or not.

*Married Filing Jointly is by far the WORST filing status and must be avoided at all costs! If you are considering this status you NEED to consult with a Tax Patriot to discuss potential alternatives.

Skype for iPhone – Convenient Tax Consultation at Your Fingertips!

Welcome to 2011 everyone!

To ring in the new year, we have been given wonderful news at Jefferson Franklin Tax Services. Our preferred video conferencing service, Skype, is now available on the iPhone!

Now for anyone who already owns an iPhone, you might be saying “I’ve had the Skype App for a while now, big deal?” Well if you ever tried to video chat, you would’ve noticed that this option was not available until now. This is crucial as here at Jefferson Franklin Tax Services we strive to make tax preparation and tax consultation more convenient using Skype, a free and secure service you can download here. With this service, you can meet with one of our Tax Patriots from the convenience of your own living room or ANYWHERE in the world with the peace of mind that your consultation will be safe and secure!

For more information on this breakthrough event, check out this article: Skype for iPhone Adds Two-Way Video Calling

Keep in mind that two-way conferencing via the iPhone can only be done on models with front-facing cameras. You can still do one-way conferencing with any iPhone model so you can meet your JFTS Tax Patriot face-to-face whether you’re in your living room in the Phoenix Area, a library in New York City or anywhere else that you have a 3G or Wi-Fi connection.

Stay tuned for more helpful tips on how we can fulfill your tax consultation and preparation needs!