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

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.

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!

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.

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!

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.

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.

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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) and his wife can qualify for low income tax credits.

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 – for both of them.

The correct solution to this really depends on a case by case analysis and for this one filing “Married Filing Separate” would work in his case, however, the wife should have filed the same and instead of trying to “cheat” to get the low income tax credits he would have had less exposure to audit.

Unfortunately, this doctor did not get the proper level of service until it was too late and it cost even more in audit representation service and the pain/headache of actually going through the audit. Needless to say the doctor did find a competent and trust-worthy service provider the next time around and avoided additional costs and pain.

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.

UPDATE: I received my Enrolled Agent(EA) license in March 2014.

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.

If you work as a waiter/waitress or in any type of service job where tips are a major part of your income, you WILL be taxed on them. Even if you receive them in cash, the IRS has a way of calculating your tips based on your hours worked. This is known as an “allocated” tip.

There are some exceptions, but here’s some tips from the IRS themselves:

1) Tips are subject to federal, Social Security and Medicare taxes. This includes “non-cash” tips such as tickets or prizes which have a cash value.

2) Tips received both in cash and from credit card transactions, whether they are direct or through a “tip-jar” where you split the total tips with fellow servers.

3) If you receive more than $20 in any one month, you should report these tips to your employer for tax purposes. This way you can have your taxes withheld and either get a refund or lessen your balance due at the end of the year.

4) You should keep a log of your tips. The IRS provides Publication 1244, Employee’s Daily Record of Tips and Report to Employer for you to keep this log.

Keep in mind that there is no way for the IRS to know exactly how much you received in tips, however, an easy way to trigger an audit is to not report ANY tip income. Is it worth the money, time and hassle of an audit to save a few dollars on your taxes?

If you work a service job and depend on tips to make a living, please contact us and we will steer you in the right direction so that you will not have to pay more taxes than you should.

I spoke recently with a friend who is a professional affiliate marketer. We got to the subject of taxes and mentioned a certain CPA that our Tax Patriots greatly admire and see as a authority on tax information. The irony was that the information he mentioned was the Section 179 depreciation which was one of the “bonus depreciation” provisions available in 2009 where a small business could deduct the full cost of most depreciable purchases such as heavy machinery or furniture.

Thanks to the passage of the “Tax Relief Act of 2010” in December these provisions remain. The irony is that this does not affect him as an affiliate marketer unless of course he had an office with expensive furniture or a server room since practically all of the furniture and computer equipment of a standard home office can be written off as “Office Expenses” on either a Schedule C or K-1.

The relevance of this discussion goes to show that businesses are very concerned with deductions, some to the point that they will justify an unnecessary expense by stating “oh, it’s a tax write-off.” Well if you make enough of these purchases you’ll have another issue to deal with- BANKRUPTCY.

I know this is over-dramatic, but the reality is that some businesses care more about deductions than profits. An example would be if you were on the fence about purchasing new computers because there’s a great sale going on where you can pickup ten  $1000 laptop computers for $500/ea, however, you won’t need them until you expand next year. You buy it, knowing that you can deduct this expense, but tax time comes and you realize that the $5000 you spent on laptops have put your company in the red and you will have to close up shop.

Again, this is a theoretical example, but it goes to show that deductions need to be weighed against revenue forecasts. If you see a need for the item in question in the next year or so, the deal is too good to pass up and your revenue forecasts show that you’ll be able to cover the cost of the equipment then go for it! Otherwise, hold off.

Another example would be a subscription service where you are billed monthly, whether it is web hosting or a merchant account. Both of which are rather minuscule, however, can add up and put a business on a shoe-string budget in jeopardy. A better example would be leasing an office. In today’s economy, it’s a buyer’s market and office space can be had for next to nothing. When your business has no revenue, “next to nothing” is still something. In addition, there are great alternatives such as “virtual offices” where you rent a shared office at a much lower monthly rate than typical office spaces until you can justify the cost of a traditional store-front or office space.

Bottom line is check your own bottom line before making purchases. Talk to a JFTS Tax Patriot who can help advise on the expected tax savings of business purchases. This way you can weigh costs and tax savings against your revenue projections so that the next purchase you make is out of necessity, not impulse and certainly not because “it’s deductible”.