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Tax Filing Season to Begin January 23, 2017!

Posted by Admin Posted on Dec 14 2016

The IRS, in a recent News Release, announced that the federal tax filing season for 2016 will begin on Monday, 1/23/17, which means that electronic and paper returns will be accepted beginning on that day. According to the IRS, taxpayers claiming certain tax credits should expect a longer wait for refunds (until the week of 2/27/17). Beginning in 2017, the PATH Act requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC). The entire refund must be held, even if a portion is not associated with the EITC and ACTC, until 2/15/17. In 2017, tax returns are due on April 18, rather than the usual April 15, because of a weekend and the Emancipation Day holiday in the District of Columbia. News Release IR-2016-167.

Back-To-School Tax Tips

Posted by Admin Posted on Aug 17 2016

Private School Tuition and School Uniforms

The cost of private school or parochial school tuition is not deductible. However, the child care component costs of private school tuition for children under 13 may qualify the taxpayer for a tax credit. School uniforms are also not deductible even if they are required.

 

Before and After School Care Can Be Deducted

For a child under the age of 13, the cost of before or after school care may qualify the taxpayer for a tax credit if it is a qualifying expense.

 

Tax Deductions for School Fundraisers are Limited

You are required to reduce your deduction by the market value of any goods or services received in return for your charitable donation. 

 

Moving Expenses to Go to College are Not Deductible

Going away to college is not moving for a job and is not considered a moving expense deduction by the IRS. However, the expenses for moving from college for that first job may be eligible for the moving expenses deduction.

 

Earnings in 529 Plans are Not Federally Taxable

The earnings in 529 plans are not taxable. The money grows tax-free and withdrawals are not taxable as long as the money is used for eligible college expenses.

 

Use Tax-Deferred Accounts to Pay for Educational Expenses

You can use tax-deferred accounts (i.e., an Educational Savings Account) to pay for qualified educational expenses including books and computers for elementary, high school and college expenses.

 

Student Loan Interest is Deductible Above the Line

Student loan interest is generally deductible as an above the line deduction, meaning you do not have to itemize in order to claim the deduction. There is a student loan interest deduction of up to $2,500 for paying interest on a student loan used for higher education. The amount of the student loan interest deduction is gradually reduced if the taxpayer’s modified adjusted gross income is within a certain range.

 

American Opportunity Tax Credit

The American Opportunity Tax Credit can amount to $2,500 in tax credits per eligible student and is available for the first four years of post-secondary education at a qualified education institution. Up to 40% of the credit is refundable, which means that the taxpayer may be able to receive up to $1,000, even if they have no tax liability. Eligible expenses include tuition at an eligible institution, books and required supplies, but not room and board, medical expenses, insurance, etc. Income limits apply. The taxpayer is now required to have the 1098-T from the qualified educational institution to take the AOTC, and the credit has to be based on amount paid and not billed.

 

Lifetime Learning Credit

Up to a maximum of $2,000 credit for qualified education expenses paid for a student enrolled in an eligible educational institution. The credit is a nonrefundable credit of 20% of a maximum $10,000 in qualified education expenses. There is currently no limit on the number of years a taxpayer can claim the credit. Income limits apply. Please keep in mind, this credit does not allow for some of the items that are allowed for the AOTC. This credit is generally based on tuition and fees.

 

Tuition and Fees Deduction

The Tuition and Fees Deduction applies to qualified education expenses for higher education for an eligible student taking undergraduate, graduate or post graduate courses. The deduction gradually phases out after a certain income range. There is no limit to the number of years the credit can be claimed. 

 

Roth IRA

The income earned from summer and/or after school employment by the student can be contributed to a Roth IRA, which will grow tax-free. The earnings are taxable and subject to a penalty only if withdrawn before the age of 59 ½.

 

How Selling Your Home Can Impact Your Taxes

Posted by Admin Posted on Aug 02 2016

This Blog is brought to you by the IRS:

Usually, profits you earn are taxable. However, if you sell your home, you may not have to pay taxes on the money you gain. Here are ten tips to keep in mind if you sell your home this year.

 

  1. Exclusion of Gain.  You may be able to exclude part or all of the gain from the sale of your home. This rule may apply if you meet the eligibility test. Parts of the test involve your ownership and use of the home. You must have owned and used it as your main home for at least two out of the five years before the date of sale.

 

  1. Exceptions May Apply.  There are exceptions to the ownership, use and other rules. One exception applies to persons with a disability. Another applies to certain members of the military. That rule includes certain government and Peace Corps workers. For more on this topic, see Publication 523, Selling Your Home.

 

  1. Exclusion Limit.  The most gain you can exclude from tax is $250,000. This limit is $500,000 for joint returns. The Net Investment Income Tax will not apply to the excluded gain.

 

  1. May Not Need to Report Sale.  If the gain is not taxable, you may not need to report the sale to the IRS on your tax return.

 

  1. When You Must Report the Sale.  You must report the sale on your tax return if you can’t exclude all or part of the gain. You must report the sale if you choose not to claim the exclusion. That’s also true if you get Form 1099-S, Proceeds From Real Estate Transactions. If you report the sale, you should review the Questions and Answers on the Net Investment Income Tax on IRS.gov.

 

  1. Exclusion Frequency Limit.  Generally, you may exclude the gain from the sale of your main home only once every two years. Some exceptions may apply to this rule.

 

  1. Only a Main Home Qualifies.  If you own more than one home, you may only exclude the gain on the sale of your main home. Your main home usually is the home that you live in most of the time.

 

  1. First-time Homebuyer Credit.  If you claimed the first-time homebuyer credit when you bought the home, special rules apply to the sale. For more on those rules, see Publication 523.

 

  1. Home Sold at a Loss.  If you sell your main home at a loss, you can’t deduct the loss on your tax return.

 

  1. Report Your Address Change.  After you sell your home and move, update your address with the IRS. To do this, file Form 8822, Change of Address. Mail it to the address listed on the form’s instructions. If you purchase health insurance through the Health Insurance Marketplace, you should also notify the Marketplace when you move out of the area covered by your current Marketplace plan.

Reporting Gains and Losses from Gambling

Posted by Admin Posted on Sept 30 2015

Going to the casino can certainly be fun but we all know how unpredictable winning and losing can be. Reporting these “winnings” and “losses” on your tax return can quickly become confusing especially if you go to the casino fairly often.

This can get even more confusing when you have been issued a Form W-2G from a jackpot that you may have won. More times than not, the amount shown on your Form W-2G is NOT the amount you won that night or even what you actually left the casino with.

For example, you start your session of play with $1000.  On your last pull with that original $1000, you win a $3000 jackpot. You receive a Form W-2G for the $3000 and decide to keep playing.  After you spend another $1000, you decide to pack up and leave the casino.

Ask yourself, “does the Form W-2G accurately reflect your winnings for the night?”

NO!                                                        

You spent $2000, which means you won only $1000 (referred to as your “wagering gain”).  Now comes the tricky part….how do you report that on your tax return???

The IRS receives a copy of your Form W-2G, and it states you won $3000. The IRS wants to see you put $3000 on the front page of your tax return.

So, you do what a majority of people do….put $3000 on Form 1040, Line 21 and put $2000 on Schedule A Itemized Deductions Line 28. Easy, right?

But what if Schedule A doesn’t apply to you because the Standard Deduction is higher?

What if you collect Social Security and your Social Security gets taxed more because you have $3000 on Line 21?

There is much more advantageous way to report this. Following IRS Chief Counsel Advice 2008-011 is the reference material you’ll need to properly report “wagering gains” and “wagering losses.”  And, if you aren’t interested in reading that, then simply come see us.

Record keeping is very important, so here’s a few tips:

  • Keep a log sheet of each visit to the casino (include date and how much you came into the casino with).
  • Log your wagering gain or loss per visit to the casino.
  • Maintain copies of all Forms W-2G.
  • Obtain a players card to assist with record keeping, and request a year end statement from the casino.

 

What Happens if the IRS Audits a Taxpayer's Business?

Posted by Admin Posted on Aug 19 2015

The IRS is aware that small business owners sometimes misclassify items and may select business tax returns for an audit. This is generally done through random selection and does not indicate that the taxpayer or preparer made errors; this simply means that the IRS would like to review the return to ensure its accuracy.

In addition to this, the IRS may audit a business for several other reasons including:

  • A taxpayer may be selected through computerized underreporting. The IRS matches what is reported on a taxpayer’s return and information they have obtained and determine if differences exist.
  • A taxpayer is an employer who failed to file payroll tax returns or make timely payroll tax payments throughout the year(s).
  • A taxpayer misclassified W-2 employees as independent contractors.

When preparing for a business audit, documents and records that support reported items must be gathered. Taxpayers ought to be well organized in order to help the audit run smoothly and progress quickly.

In addition, taxpayers should create a list of various issues found while preparing for the audit; if a taxpayer is unable to support items reported on a tax return or a tax professional identifies other possible issues the taxpayer should write them down.

Next, it is important that taxpayers never falsify information or act unprofessional. The IRS simply wants to verify information reported on a tax return.

Finally, don’t delay the audit. Respond to all IRS notices and requests in a timely manner. Request extensions if deadlines cannot be reached. Delaying an audit will frustrate all parties involved and may cause the IRS to want to investigate further.

If you are being audited or have received any IRS notices regarding changes to a tax return please do not hesitate to contact us at office@cpafirm.cc or 763-786-7899.

Hobby vs. Business

Posted by Admin Posted on July 21 2015

Everyone has a hobby of some sort, and many people are fortunate enough to make money from participating in that hobby. What often gets overlooked is reporting that hobby income on a tax return. Here are some things to consider relating to hobby income:

 

  • Is the activity being pursued as a hobby or as a business? A business pursues to make a profit from the activity where a hobby is done for more recreational purposes. There are nine factors to consider when determining if the activity is aimed at profit.
  • You may be able to deduct ordinary and necessary expenses in relation to hobby income. These expenses are just that: ordinary and necessary. They are expenses that are common/appropriate and ought to be expected when pursuing a particular hobby. Generally there are limits on these expenses. If your expenses exceed your income you have a loss from the activity but you can’t deduct that loss from your other income.
  • You must file Schedule A along with your tax return in order to deduct hobby expenses. The expenses may fall into three categories each with their own special rules.
  • Activities pursued as businesses may be on the hook for additional self-employment taxes. They may also have more beneficial deduction circumstances than businesses.

 

If you have any questions or would like to learn more about hobby income don’t hesitate to call us at (763) 786-7899. We will gladly answer any questions/concerns you may have!

Combined Business & Vacation Travel

Posted by Admin Posted on July 07 2015

If you go on a business trip within the U.S. and add on some vacation days, you know you can deduct some of your expenses. The question is how much.

First, let’s cover just the pure transportation expenses. Transportation costs to and from the scene of your business activity are 100% deductible as long as the primary reason for the trip is business rather than pleasure. On the other hand, if vacation is the primary reason for your travel, then generally none of your transportation expenses are deductible. Transportation costs include travel to and from your departure airport, the airfare itself, baggage fees and tips, cabs, and so forth. Costs for rail travel or driving your personal car also fit into this category.

The number of days spent on business vs. pleasure is the key factor in determining if the primary reason for domestic travel is business. Your travel days count as business days, as do weekends and holidays if they fall between days devoted to business, and it would be impractical to return home. Standby days (days when your physical presence is required) also count as business days, even if you are not called upon to work on those days. Any other day principally devoted to business activities during normal business hours is also counted as a business day, and so are days when you intended to work, but could not due to reasons beyond your control (local transportation difficulties, power failure, etc.).

You should be able to claim business was the primary reason for a domestic trip whenever the business days exceed the personal days. Be sure to accumulate proof and keep it with your tax records. For example, if your trip is made to attend client meetings, log everything on your daily planner and copy the pages for your tax file. If you attend a convention or training seminar, keep the program and take some notes to show you attended the sessions.

Once at the destination, your out-of-pocket expenses for business days are fully deductible. Out-of-pocket expenses include lodging, hotel tips, meals (subject to the 50% disallowance rule), seminar and convention fees, and cab fare. Expenses for personal days are nondeductible.

Hiring Your Child

Posted by Admin Posted on June 24 2015

If you’re running your business you probably have a lot on your plate and those chores around the office just can’t seem to be completed. If you have children that need a job you ought to consider hiring them! This can provide some nice benefits for both you and your children.

If the family business is a sole proprietorship or a partnership with only you and/or your spouse as the owners/partners, your children may be exempt from Social Security tax until the 18th birthday! I’d recommend check the child labor laws first before putting them to work though!

Next, your children will typically be in a lower tax bracket than some others you could hire to take over the office chores. This means the income that would be taxed at your higher rate is passed down to your child’s lower tax rate. Instead of paying higher taxes and giving them a weekly allowance with the money you do end up with, this allows you to give them more money while benefiting from their work!

Here is what this could potentially look like (with simplified numbers and rates):

 

You are in the 28% tax bracket and you have to pay self-employment taxes. You have cleaning, filing, data entry, and other chores to be done. Upon hiring your child, you can deduct his/her wages against your business income. If you pay your child $11,800 here is what your savings would look like for 2015:

Tax Savings - Wage Deduction:
     -
 Federal tax (11,800 x 28%)                         $      3,304
     - SE tax (11,800 x 15.3%)                                     1,805
     - Your savings                                                        5,109

Your child's tax:
     - Wages                                                            $  11,800
     - Standard deduction                                              6,300
     Taxable income                                                    5,500
     Federal tax                                                             (550)

Total savings for the family:                              $     4,559

You could also help your child put away $5,500 into an IRA and bring the taxable income to $0!

NOTE: these wages paid to your child also are not subject to MN Unemployment taxes.

Phone Scams

Posted by Admin Posted on Jan 06 2015

The tax season is approaching quickly which means that it is scam season as well. We are reminded to keep an eye out for the several aggressive phone scams claiming to be the IRS that are present during tax season. Many scammers will try to con you by demanding money to pay taxes or by saying you’re due a refund in order to lure you into giving them your banking information.

Last year, the IRS issued several warnings about these scams, signifying how pervasive they had become. The scams were reported to be very aggressive, and the elderly were targeted often. Victims were threatened with arrest, their utilities being shut off, revoked driver’s licenses, or deportation. These scammers were often very insulting and hostile in order to scare their potential victims.

If unsuccessful with their first attempts of luring victims in with big refunds or amounts due immediately, scammers would often call again with new strategies. Fake names and IRS badge numbers, finding the last four digits of victim’s SSN, and pretending to be the DMV or local police have all been tactics used to pressure victims into forfeiting their money or information to these scammers.

Fortunately, the IRS has given us several ways to spot a scam immediately. The IRS says they will never:

·         Call about taxes owed without first mailing an official notice.

·         Demand that you pay taxes without giving you the chance to question or appeal the amount owed.

·         Require you to use a specific payment method, such as a prepaid debit card, credit card, check etc.

·         Ask for credit or debit card numbers over the phone.

·         Threaten to bring in local police or other law-enforcement to have you arrested for not paying.

If you identify a call as fraudulent you can report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484 or at www.tigta.gov

If you have any questions, or if you get a call and are wary, don’t hesitate to contact us immediately for help.

What to Know About Non-cash Donations

Posted by Admin Posted on Nov 25 2014

Getting rid of that big pile of clothes that you never wear anymore? Or perhaps you’re purchasing a new computer or car and want your old one to be put to good use. Either way, donating might just be a good way to reduce your taxable income. Donating may certainly add up for a nice deduction!

 

When donating things other than cash, especially in large quantities, there are several steps that must be followed so you don’t lose your eligibility for the deduction!

 

The rules to substantiate your donations kick in when your total contributions (noncash) are greater than $500. Once this occurs, you are required to keep written records for each item donated. These records must include:

 

·         The approximate date that the property was acquired, as well as how it was acquired (bought, gifted, won, etc.);

·         A description of the property in reasonable detail;

·         The cost/basis of the property;

·         The fair market value of the property at the time it was donated; and

·         The method used in determining the property’s fair market value.

 

In addition to these rules, clothing or “household items” may not be deducted unless the items are in good used condition or better. One way to keep record of this is to have pictures of the items at time of donation as well as keeping any appraisal records for the item.

 

Next, donated items valued greater than $5,000 must also have a “qualified appraisal” and a fully completed appraisal summary must be attached to your tax return.

 

There are horror stories of some taxpayers losing significant charitable deductions due to poor records. Don’t add to them! Be sure to follow the rules and keep all your receipts!

 

Feel free to contact me at sriley@cpafirm.cc if you have any questions or concerns regarding your donations.

Welcome to Our Blog!

Posted by Admin Posted on Nov 29 2012
This is the home of our new blog. Check back often for updates!