Tag Archives: tax tips

   IRS Tax Tips for Starting a Business

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When you start a business, a key to your success is to know your tax obligations. You may not only need to know about income tax rules, but also about payroll tax rules. Here are five IRS tax tips that can help you get your business off to a good start.

  1. Business Structure.  An early choice you need to make is to decide on the type of structure for your business. The most common types are sole proprietor, partnership and corporation. The type of business you choose will determine which tax forms you will file.
  2. Business Taxes.  There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax your business pays depends on the type of business structure you set up. You may need to make estimated taxpayments. If you do, use IRS Direct Pay to pay them. It’s the fast, easy and secure way to pay from your checking or savings account.
  3. Employer Identification Number.  You may need to get an EIN for federal tax purposes. Search “do you need an EIN” on IRS.gov to find out if you need this number. If you do need one, you can apply for it online.
  4. Accounting Method.  An accounting method is a set of rules that you use to determine when to report income and expenses. You must use a consistent method. The two that are most common are the cash and accrual methods. Under the cash method, you normally report income and deduct expenses in the year that you receive or pay them. Under the accrual method, you generally report income and deduct expenses in the year that you earn or incur them. This is true even if you get the income or pay the expense in a later year.
  5. Employee Health Care.  The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. A small employer is eligible for the credit if it has fewer than 25 employees who work full-time, or a combination of full-time and part-time. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities.The employer shared responsibility provisions of the Affordable Care Act affect employers employing at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees). These employers’ are called applicable large employers. ALEs must either offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees (and their dependents), or potentially make an employer shared  responsibility payment to the IRS. The vast majority of employers will fall below the ALE threshold number of employees and, therefore, will not be subject to the employer shared responsibility provisions.Employers also have information reporting responsibilities regarding minimum essential coverage they offer or provide to their fulltime employees.  Employers must send reports to employees and to the IRS on new forms the IRS created for this purpose.

   Taxpayer Tips: Best Practices for U. S. Tax Court

Taxpayers contesting IRS assessments of additional taxes, penalties and interest have a number of different options to contest and appeal those assessments. One of those options includes bringing a case to the United States Tax Court (Tax Court). Here are some Tax Court practice tips for taxpayers:

1. Know What Tax Court Is

Congress created the Tax Court as an independent judicial authority for taxpayers disputing certain Internal Revenue Service (IRS) determinations. Tax court is not controlled by or connected to the IRS even though the Tax Court’s authority, or jurisdiction, is limited to resolving taxpayer issues with the IRS. Similar to other Federal courts in the U.S., it is a court of record and records are made of all proceedings.

To initiate a case, a taxpayer files a petition with the Tax Court. Once proceedings begin, the taxpayer is then referred to as the “petitioner” and the Commissioner of the Internal Revenue is referred to as the “respondent.”

2. Understand How the U.S. Tax Court Operates

Tax Court operates on a calendar basis with its 19 presidentially appointed judges traveling the nation to conduct trials in a number of different cities. The judges themselves have expertise in matters of U.S. taxation and are qualified to apply U.S. tax law. There are no juries at these trials and the matter is tried by one judge. After the trial, a report is issued by that judge who sets forth the findings of fact and an opinion. The case is then closed based on the judge’s opinion.

3. Access Helpful Tools Specifically Created for Taxpayers by the Tax Court

The Tax Court website can be very helpful and provides a number of resources.  Recently, the Tax Court created a series of videos to educate taxpayers on Tax Court procedures and rules. The video series covers the following:

  • An overview of the U.S. Tax Court
  • Understanding the Process
  • An Introduction to the Unites States Tax Court
  • Filing the Petition
  • Pretrial Matters
  • Calendar Call and the Trial
  • Post-Trial Proceedings

The Tax Court website also offers a “Taxpayer Information” web page, which is structured into four sections and reads like an extensive frequently asked questions resource. The Taxpayer Information resource contains a glossary and links to Tax Court Rules and is very helpful.

4. Be Aware of Options for Taxpayers with Smaller Amounts in Dispute (under $50,000)

When the amounts are under $50,000 or the tax matter is less complex, taxpayers may consider representing themselves. It may be more cost-efficient and even more time-efficient in some cases.

For cases not in excess of $50,000, the taxpayer also has the option to choose to have the case conducted under the “small tax case” procedures. These procedures are simpler and less formal than those for regular cases. They are typically speedier too. This choice is made when the taxpayer files their petition with the Tax Court. However, and importantly, a small tax case may not be appealed to a Court of Appeals by the IRS or the taxpayer.

Low-income taxpayers should also be aware that low-income tax clinics exist in almost every U.S. state as well as the District of Columbia. These clinics offer free or reduced fee tax and tax representation services to taxpayers with incomes below certain thresholds and based on family size.

5. Representation Considerations When the Amount in Controversy Exceeds $50,000 or the Issue Is Complex

When the amount in controversy before the U.S. Tax Court is large or if the tax matter is complex, taxpayers may wish to seek seasoned representation from a tax professional, such as a tax attorney admitted to practice before the U.S. Tax Court.

While the Tax Court provides many resources for self-representation, the Internal Revenue Code and its accompanying regulations and procedures can be overwhelming. The IRS assigns attorneys from their Office of Chief Counsel to represent them who are well versed in both tax law and the rules and procedures of Tax Court. (Tax Court has just under 350 rules, which are updated and changed on a somewhat frequent basis.)

   Which Retirement Income Tax Strategy Is Right for You?

For many people, thinking about retirement simply means contemplating enjoyable ways of spending time during their golden years. What some people may not account for, however, is the impact taxation can have on savings, investments, and cash withdrawals.

Just as it is important to plan your investments—and it is never too soon to start—it is also wise to consider your strategy for withdrawals before you actually retire. This can help you align your anticipated tax burden with your financial goals, as well as give you ample time to consider your options.

In planning withdrawals from one or more retirement accounts, it is important to have a defined strategy for maintaining income and minimizing the impact of taxes, all while keeping your portfolio balanced appropriately for your risk tolerance. This is an excellent time to work with your financial advisor and/or tax professional, and no one strategy is right for everyone. With that in mind, here are four general strategies you may consider as you plan for retirement. (Please note that these are informational overviews only, and that the author does not provide legal or tax advice.)

1. Withdraw From Tax-Exempt Retirement Account Last

The least complex strategy of these four involves withdrawing from your accounts in an order that leaves tax-exempt accounts for last. In this scenario, you would first take required minimum distributions (RMDs) from your retirement accounts—thus avoiding any penalties for failing to withdraw your full RMDs.

Next, you would withdraw from taxable accounts until you have exhausted their balances. Utilizing taxable investments keeps more of your money parked where it has the potential to grow tax-deferred; any growth would enjoy higher potential for compounding interest, as taxes would not be levied until withdrawal.

Third, you would withdraw from tax-deferred traditional retirement accounts. This leaves your remainder, in this hypothetical scenario, invested in Roth accounts from which qualified withdrawals won’t be taxed, making them available without tax liability for predictable income, unexpected expenses, or passing on to your heirs.

This simple approach may be appealing, but it does come with at least one potential drawback: while withdrawing from tax-deferred accounts, your tax liability may increase enough to impact other aspects of your financial plan. If this concerns you, you may contemplate minimizing the likelihood of a shift in your tax bracket.

2. Withdraw From Multiple Account Types

If avoiding a higher tax bracket is important to you, you may consider dividing up each of your withdrawals among several account types. By withdrawing from multiple accounts at a time, taking a portion of your needed money from each, you may be able to balance potential gains with tax liabilities on withdrawals from tax-deferred accounts. The goal here is maintaining a targeted marginal tax rate—one you would select before with withdrawals and which you would likely have to revisit before each tax year.

Another consideration you may want to plan for: Social Security benefits, for which the IRS maintains a unique taxation formula. To limit tax liability on these benefits, you may want to organize your withdrawals around a strategy built for this purpose.

3. Minimize Tax Liability on Social Security Benefits

If you intend to minimize tax liability on Social Security benefits, you may consider distributing your withdrawals among multiple account types as you might if your goal was maintaining a targeted tax bracket. Social Security benefits are treated differently than ordinary income or investment gains by the IRS; as such, strategies for minimizing tax liability on Social Security benefits must account for additional income, whether from non-investment sources, retirement accounts or otherwise.

The same principle outlined in strategy #2 is at play here, but with one key difference: instead of targeting a specific tax bracket, you would focus on IRS thresholds for taxation on Social Security benefits. Your goal would be organizing withdrawals and resulting taxable income around maintaining your chosen bracket. As with each of the hypothetical scenarios here, this is a complex matter you should discuss with your tax professional and/or financial advisor.

If you find yourself wondering how these approaches could impact your capital gains tax rate, you might consider a strategy centered on capital gains tax liability.

4. Keep Capital Gains Taxation to a Minimum

Any increase in the value of your portfolio may be subject to capital gains taxes. As of the 2016 tax year, individuals in the 10% and 15% tax brackets were able to realize long-term capital gains or receive qualified dividends free of taxes. This means individuals with taxable income in these brackets for the 2016 tax year could have sold investments held longer than one year at a tax advantage during this period.

If a large percentage of an investor’s retirement assets were held in taxable accounts during this period, they could have incurred a potentially favorable tax scenario by selling longer-term stock holdings. This may not be true in any given year, and it is critical to keep abreast of IRS regulations on each aspect of your financial plan, as well as on each potential strategy you consider.

These are just a few of many potential strategies, and they are presented merely to help you start considering your options as you begin to outline a financial plan. Consult with a tax professional of your choice when considering the role that present and future taxes may play in your plans for retirement or otherwise.

Dellovo, Mateo

   IRS and Security Summit Partners Warn of Fake Tax Bills

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WASHINGTON — The Internal Revenue Service and its Security Summit partners today issued an alert to taxpayers and tax professionals to be on guard against fake emails purporting to contain an IRS tax bill related to the Affordable Care Act.

The IRS has received numerous reports around the country of scammers sending a fraudulent version of CP2000 notices for tax year 2015. Generally, the scam involves an email that includes the fake CP2000 as an attachment. The issue has been reported to the Treasury Inspector General for Tax Administration for investigation.

The CP2000 is a notice commonly mailed to taxpayers through the United States Postal Service. It is never sent as part of an email to taxpayers. The indicators are:

  • These notices are being sent electronically, even though the IRS does not initiate contact with taxpayers by email or through social media platforms;
  • The CP2000 notices appear to be issued from an Austin, Texas, address;
  • The underreported issue is related to the Affordable Care Act (ACA) requesting information regarding 2014 coverage;
  • The payment voucher lists the letter number as 105C.

The fraudulent CP2000 notice included a payment request that taxpayers mail a check made out to “I.R.S.” to the “Austin Processing Center” at a Post Office Box address. This is in addition to a “payment” link within the email itself.

IRS impersonation scams take many forms: threatening telephone calls, phishing emails and demanding letters. Learn more at Reporting Phishing and Online Scams.

Taxpayers or tax professionals who receive this scam email should forward it to phishing@irs.gov  and then delete it from their email account.

Taxpayers and tax professionals generally can do a keyword search on IRS.gov for any notice they receive. Taxpayers who receive a notice or letter can view explanations and images of common correspondence on IRS.gov at Understanding Your IRS Notice or Letter.

To determine if a CP2000 notice you received in the mail is real, see the Understanding Your CP2000 Notice, which includes an image of a real notice.

A CP2000 is generated by the IRS Automated Underreporter Program when income reported from third-party sources such as an employer does not match the income reported on the tax return. It provides extensive instructions to taxpayers about what to do if they agree or disagree that additional tax is owed.

It also requests that a check be made out to “United States Treasury” if the taxpayer agrees additional tax is owed. Or, if taxpayers are unable to pay, it provides instructions for payment options such as installment payments.

The IRS and its Security Summit partners — the state tax agencies and the private-sector tax industry — are conducting a campaign to raise awareness among taxpayer and tax professionals about increasing their security and becoming familiar with various tax-related scams. Learn more at Taxes. Security. Together. or Protect Your Clients; Protect Yourself.

Taxpayers and tax professional should always beware of any unsolicited email purported to be from the IRS or any unknown source. They should never open an attachment or click on a link within an email sent by sources they do not know.

   Tax Withholdings & Your W-4

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Did you get a large refund this past April? More than $1,000? Or perhaps you owed money and had to write a check you didn’t want to write? It may be time to sit down, sip your beverage, and learn a bit about how to adjust your tax withholdings.

Withholdings are the taxes your employer takes from your pay each check, and it all starts with your payroll department. It’s not too tough once you understand, and it’s better that you control your money.

There are a number of situations that would prompt you to want to review and possibly adjust your withholding:

When you experience life changes it’s time to look at how your taxes would be impacted. Marriage or divorce can change your tax situation and is a good reason to adjust your W-4. The addition of a dependent, by birth, adoption, or an elderly parent moving in and getting more than 50% of their support from you will qualify as an extra exemption. This last example is easy, and shows how one additional withholding allowance on the W-4 represents one more personal exemption on your tax return. On a side note – these life changing events should also trigger a review of your beneficiaries on any and all of your retirement accounts.

The purchase of a new home is likely to have the largest impact on your withholding. A $250,000 mortgage (at 4.5% 30yr fixed) will have just over $11,000 in tax deductible interest the first full year. Add another $4,000 for property tax. If your state income tax already put you at or near the standard deduction amount, then this $15,000 will translate to additional allowances on your W-4.

Having a side gig and a W-2 job may be reason to lower your withholding allowance for your W-2 job so you can pay in more taxes to offset taxes that are not withheld from your self-employment income.

   How to Remove Assets from a Taxable Estate

A simple and basic estate planning tool is a revocable living trust (RLT). Revocable means it can be changed; living, because you are alive; and trust which is a legal document. The point of a RLT is to protect your assets from probate, the long and drawn out process that can take sometimes a year to get the assets of a decedent to their intended heir.

A trust is made up of three parties: the grantor is the person making the trust, the trustee is the person that controls the assets, and the beneficiaries are those set to inherit the assets of the trust. An RLT WILL NOT remove assets from your taxable estate. It is just a simple way to avoid probate.

Then there is asset protection, and most business owners have done some form of it, by creating an LLC or a corporation. Asset protection planning is proactive legal action that protects your assets from future creditors, divorce, lawsuits, or judgments. This involves a series of legal and lawful techniques that can deter a lawsuit, provide settlement negotiation power, and help prevent the seizure of your assets in the event of a judgment.

Limiting liability is done through separating assets. When everything is tied to an individual’s name, all of the assets are at risk should he or she be a named defendant in a lawsuit. A slip and fall incident on a rental property can jeopardize the owner’s personal assets without legal separation through some kind of asset protection. This protection begins by separating risk and liability from one’s wealth in a financial plan. If you own rental properties, simple asset protection would be to form an LLC for each rental property. That way, if one rental property is sued, then the only asset at risk would be that one rental property.

Now let’s talk about the fun part – taxes with asset protection. First let’s discuss Grantor Retained Annuity Trusts (GRAT’s). GRAT’s simply freeze an asset and provide an annuity paid to the former owner of the asset. For instance, let’s say that you have a client that owns a business worth $2 million. It is his thought that the business will continue to go up in value. He has children that might want to take the business over in ten years. He simply forms a GRAT and places the shares of stock or units of membership into the GRAT (Note: you have to file as a Q-Sub if an S-Corporation). This freezes the asset at $2 million and pays the grantor (your client) an annuity of $200,000 a year. The only gamble that you are taking is if you die. If that happens, the asset in the GRAT goes back into your estate.

If you ultimately want to be charitable, you can form an Irrevocable Charitable Remainder Trust (CRT). You transfer an appreciated asset into an irrevocable trust. This removes the asset from your estate so no estate taxes will be due on it when you die. You also receive an immediate charitable income tax deduction for the value of the asset(s).

The trustee then sells the asset at full market value, paying no capital gains tax, and re-invests the proceeds into income-producing assets. For the rest of your life, the trust pays you an income. When you die, the remaining trust assets go to the charity(ies) you have chosen. That’s why it’s called a charitable remainder trust.

A family limited partnership (FLP) used to be one of the most valuable asset protection strategies for a family whose members wanted to preserve their assets while retaining control over them. FLP’s were set up much like traditional limited partnerships with “general partners” (frequently parents) and “limited partners” (usually the children). General partners manage the partnership’s assets, make investment decisions, share in the FLP’s income, and are responsible for the FLP’s debts. Limited partners have an ownership interest in the FLP and share in income generated by the FLP, but they have little or no control over the FLP’s activities and are responsible for the FLP’s debts, only to the extent of his or her ownership interest.[1]

I don’t subscribe to the old school FLP strategy. All 50 states now accept limited liability companies (LLC). Estates or trusts can hold a mix of assets, some with potential liabilities associated with them. For example, a trust may hold marketable securities, cash, and real estate with potential environmental or tort liabilities. The marketable securities and cash could be at risk for the liabilities associated with the real estate. However, if the estate or trust held the real estate in a single-member LLC, the other assets of the estate or trust would be insulated from liabilities because the total exposure would not exceed the value of the real estate.

If an LLC is formed by family members, and certain assets owned by the family have inherent liabilities associated with them (e.g., a service station or a factory), multiple LLC’s can be formed to isolate the family’s other assets from potential liabilities of the high-risk assets. The family members could transfer their proportionate interests into each parcel of real estate to a separate LLC in exchange for membership interests in each LLC. They would then transfer their membership interests in each real estate LLC to another LLC, which would hold marketable securities and other assets that the family wanted to be held by an entity. This upper-tier LLC would be isolated from any liabilities associated with the real estate because the liability would be contained within each lower-tier LLC.

If the older family member transfers all the assets to an LLC and takes back all of the membership interests, he or she would not make a gift to anyone. After the creation of the LLC, the older family member would be free to make gifts of the membership interests and claim the appropriate discounts. [The Tax Court ruled favorably in Mirowski, where the decedent (shortly before her unanticipated death) formed a single member LLC and within days thereafter, made transfers of interests into the LLC to her daughters.] Care should be taken in the drafting of the LLC so that no rights lapse for the transferred or retained membership interests under IRC § 2704(a) and that the membership interests are not subject to an applicable restriction under IRC § 2704(b) or IRC § 2703. If a married couple formed the LLC, and one of the spouses provided most or all of the assets, yet they received equal membership interests, any gift on formation argument would be neutralized by the marital deduction. See sections 804 and 805 for a discussion of IRC §§ 2703 and 2704.

Intentionally Defective Grantor Trusts (IDGT’s), are probably my favorite thing to use. Estate tax planners have long employed intentionally defective grantor trusts to freeze the value of an asset for estate tax purposes, while transferring assets out of the estate, free of gift tax. An IDGT does this: it allows for a complete transfer to a trust, but it is defective for tax purposes. The trust is irrevocable, which means that it can’t be changed and is removed from the taxpayer’s taxable estate. The best part is the grantor has no perceived powers. Even though the IDGT is irrevocable and would ordinarily have to get an employer identification number (EIN) and file a return, because the grantor retains certain other powers, the trust, although irrevocable, is treated as a grantor trust for income tax purposes. As a result, the grantor, though not a beneficiary, is taxed on all the trust’s income, even though he or she is not entitled to any trust distributions. Making it defective.

As you can see, there are a number of ways to protect assets and avoid the estate tax at the same time.

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[1] John J. Pembroke & Associates LLC

By Craig W. Smalley, MST, EA On May 15, 2017

   Why we put off filing our taxes and how to stop it.

dont mess with taxesThe 2017 tax filing season has been officially underway for just more than a week. Lots of folks have already filed their returns.

And, according to ecstatic posts on social media, some have received their refunds.

Other taxpayers, however, are waiting to file.

Form-ulaic delay: Why the delay. In a lot of cases, folks haven’t yet received their W-2s, 1099s and other documents with the data necessary to fill out 1040s.

As soon as those arrive, which should be soon since today, Jan. 31, is the deadline for many tax statements to be sent, they’ll complete their 2016 tax returns.

Still others will wait until April 18 (yes, the filing deadline this year is again tailor-made for procrastinators) or even Oct. 16 (yes, the extended due day is later, too) if they file Form 4868 to get six more months to fill out the appropriate tax forms.

Such tax procrastination comes even from those who will, eventually, get refunds.

So why do we put off tax tasks? Here are three big reasons.

1. Afraid of the tax process: Fear is part of it. That’s understandable. Taxes, in general, can be — are — scary.

A lot of us are afraid of making a mistake on our taxes. That’s understandable, too.

Taxes can be complicated, even when you use tax software or hire a tax professional. And everyone, and everything, makes mistakes, including taxpayers, tax software and tax pros.

But an error or two can be corrected (yay 1040X!), either by you when you catch it early or later when the IRS finds it. It’s better to get your taxes done by deadline rather than not file at all.

And fear of tax errors can breed even more errors. By putting off your tax task until the last minute, you’re likely to find yourself in a rush, bringing to mind that old saying haste makes waste.

It’s better to give yourself (or your tax preparer) enough time to file your return as accurately as possible than to force finish your 1040 at the very last minute.

2. No money: While it’s true that some who get refunds also delay filing, most tax procrastinators owe the U.S. Treasury. If you don’t have the cash to cover that tax liability, you’re not going to be in a big hurry to fill out your return.

So you reason that by putting off your filing, you’ll have more time to come up the money to pay your tax bill. That could be true. Or not.

If you’re still short as April arrives, file by the deadline anyway and pay what you can.

Then set up a payment plan with the Internal Revenue Service to cover the rest. It’s much cheaper in the long run to pay some interest on an installment plan than to face penalties for filing late or not filing at all.

3. Habits are hard to break: Some folks are just in the habit of putting off their taxes. They fully intend to do them, but later. And later it is every year.

I can see that. If you don’t file until mid-April every year, you’ve already got that space set aside in your head and literally on your calendar to deal with your filing then.

And if you push your returns until October, the idea of doing them again early in the next year is inconceivable. You just did that a few months ago!

Justifiable document delays: Some of us have legitimate reasons for postponing tax filing.

We’re waiting for tax documents we need to complete our returns. Although most of those, like the W-2 and 1099-MISC, are required to at least be on their way to taxpayers by Jan. 31, if they’re sent by snail mail, it could take a week or so for them to arrive.

Other documents get even longer before they must be sent.

Small business owners, especially sole proprietors, also can benefit from not rushing into filing.

You need to make sure you have all your business expense receipts in order, have all the info necessary to claim your mileage and home office, and have taken advantage of your retirement plan contributions.

Extra time to add to a retirement account: While anyone with an IRA, either Roth or traditional, can contribute to that account for the previous tax year by the April filing deadline, self-employed folks have even longer.

You can open and contribute to a simplified employee pension, or SEP, retirement plan up to your return’s due date, including the October filing deadline if you sought that extra time.

Not only do the extra six months give you added days to complete your 1040 and Schedule C, you also have more time to come up with the money to go into your self-employed retirement account by the later deadline.

And it definitely is worth contributing to your self-employed retirement plan, regardless of whether you do it sooner or later, for two reasons.

First, your future retirement will be better because of your contributions today to your account.

Second, money you put into your self-employed retirement plan is an above-the-line deduction that can make a difference in lowering your tax bill.

Procrastination solutions: Regardless of why you’re putting off filing, try to understand your motivations. If they’re justified, fine. Take the time you need to do your taxes right.

But if you’re just screwing around because you simply don’t want to file, get over it. Yes, I say that to myself, too.

Then buckle down and get your tax return to the IRS. The American Institute of CPAs has some suggestions on how to stop procrastinating.

   The IRS Taxpayer Bill of Rights and You

Taxpayers have fundamental rights under the law. The Taxpayer Bill of Rights presents these rights in 10 categories, which can help taxpayers when they interact with the IRS. This post highlights a list of taxpayer rights and the agency’s obligations to protect them.

1. The Right to Be Informed.
Taxpayers have the right to know what is required to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices and correspondence. They have the right to know about IRS decisions affecting their accounts and clear explanations of the outcomes.

2. The Right to Quality Service.
Taxpayers have the right to receive prompt, courteous and professional assistance in their dealings with the IRS and the freedom to speak to a supervisor about inadequate service. Communications from the IRS should be clear and easy to understand.

3. The Right to Pay No More than the Correct Amount of Tax.
Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties. They should also expect the IRS to apply all tax payments properly.

4. The Right to Challenge the IRS’s Position and Be Heard.
Taxpayers have the right to object to formal IRS actions or proposed actions and provide justification with additional documentation. They should expect that the IRS will consider their timely objections and documentation promptly and fairly. If the IRS does not agree with their position, they should expect a response.

5. The Right to Appeal an IRS Decision in an Independent Forum.
Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including certain penalties. Taxpayers have the right to receive a written response regarding a decision from the Office of Appeals. Taxpayers generally have the right to take their cases to court.

6. The Right to Finality.
Taxpayers have the right to know the maximum amount of time they have to challenge an IRS position and the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS concludes an audit.

7. The Right to Privacy.
Taxpayers have the right to expect that any IRS inquiry, examination or enforcement action will comply with the law and be no more intrusive than necessary. They should expect such proceedings to respect all due process rights, including search and seizure protections. The IRS will provide, where applicable, a collection due process hearing.

8. The Right to Confidentiality.
Taxpayers have the right to expect that their tax information will remain confidential. The IRS will not disclose information unless authorized by the taxpayer or by law. Taxpayers should expect the IRS to take appropriate action against employees, return preparers and others who wrongfully use or disclose their return information.

9. The Right to Retain Representation.
Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.

10. The Right to a Fair and Just Tax System.
Taxpayers have the right to expect fairness from the tax system. This includes considering all facts and circumstances that might affect their underlying liabilities, ability to pay or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.
The IRS will include Publication 1 when sending a notice to taxpayers on a range of issues, such as an audit or collection matter. IRS offices display the rights for taxpayers and employees to see.
Publication 1 is available in English, Chinese, Korean, Russian, Spanish and Vietnamese.
All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

   10 Easy End of Year Tax Tips to Increase Your Tax Refund

It’s hard to believe that the holiday season is already upon us and the year will be coming to a close soon! Now is a great time to make some end of season tax moves to help lower your tax bill and increase your tax refund come tax time. Once the year ends, so do most of your opportunities to reduce your 2016 taxes.

Here are 10 quick and easy end of year tax tips you still have time to take advantage of:

1. Get organized. Sooner rather than later! It’s never too early to gather receipts for tax deductible expenses and sources of income. Doing it now will help you ensure you’re not forgetting anything significant and help you see a better snapshot of your finances ahead of the new year.

2. Defer Bonuses. If your hard work paid off this year and you are expecting a year-end bonus, this extra money in your pocket may bump you up to another tax bracket and increase your tax liability. If you can hold off on seeing any extra income this year, see if your boss will pay you your bonus in January. You will still receive it close to year-end, but you won’t have to pay taxes on it when you file your 2016 taxes.

3. Accelerate Deductions & Defer Income. There are a handful of tax deductions that are recognized the year in which you pay them. For example, if you own a home and get a mortgage interest deduction, and if you make an extra mortgage payment on December 31, you can claim that additional tax deduction on this year’s taxes. This lets you take the deduction immediately rather than wait an additional 12 months, when you do your taxes for next year.

4. Donate to charity. The holidays are a great time to clean out clothes and household goods while giving to those in need. You can help someone in need and reap benefits of a tax deduction for non-cash and monetary donations donated to a qualified charitable organization. If you volunteer at a qualified charitable organization, don’t forget that you can deduct your mileage (14 cents of every mile) driven to charitable service. Make these donations count on your taxes by donating by December 31st. Even if you make a donation by credit card, you do not have to pay it off in 2016 to receive the tax deduction.

5. Take a class. Taking a course to advance your career and build your business is also a great way to boost your tax refund. Paying for next quarter’s tuition by December 31st may give you a valuable tax credit up to $2,000 with the Lifetime Learning Credit.

6.  Maximize your retirement. Another great way to reduce your taxable income while building your nest egg is to make a contribution to your retirement savings account. Whether you contribute to a 401(k) or a Traditional IRA, you can take a dollar for dollar reduction in your income and also save for the future. Additionally, the self-employed who contribute to SEP IRAs can deduct up to 25% of compensation or $53,000 for 2016.

7.  Spend your FSA. If you have a Flexible Spending Account and you have money left, get caught up on your doctor’s visits. The old “Use it or lose it” rule may not still apply, but if you have unused money in your FSA account on December 31st, you may only be able to carry over up to $500 into your 2016 FSA or your plan may limit the amount of time to 2 1/2 months after the end of the plan year to use your funds.

8. Buy low, sell low? Chances are you have a few investments in your portfolio that have gone down in value, but did you know you can recognize your losses and use them to offset investment winners? To do this, you need to sell the losing investments and offset your losses against your gains recognized. If your losses exceed your gains, you can apply $3,000 of that against your regular income. Any extra will then be passed onto the next tax year.

9. Estimate your household income for Marketplace Insurance. Are you applying for a subsidy or discounted insurance in the Health Insurance Marketplace this open enrollment season? If so, you will have to project your 2017 household income and family size when you apply. Start looking into any changes that may take place in 2017 (growing your family, job promotion, heading into retirement, etc.) These changes may affect the amount of subsidy you are given to help you pay for insurance.

10.  Increase Your Marketplace Premium Tax Credit. If you received assistance for Marketplace Insurance in the form of an Advanced Premium Tax Credit, one smart move you can make is to lower your adjustable gross income by contributing to your retirement plan, which may increase the premium tax credit you’re eligible for when you file your 2016 taxes.

And of course the best tip is to contact your local Dallas CPA Firm.  CPA’s can advise you and tailor personal tax strategies based on your income, family, life events, and so much more.  So give us a call today!

   Year End Small Business Tax Tips

When the year begins to wind down, many small businesses wonder if there are any last-minute tax tips that can save some money when they pay taxes. After all, once the year is up you may lose the ability to claim certain deductions or benefits, so it makes sense to ensure you’re taking advantage of every opportunity available. Here are some small business tax tips that can work for year-end planning, but can also come in handy at any time throughout the year!

Take Advantage of Cash Accounting

Many small businesses employ cash accounting. This simply means you don’t pay tax on income until you receive it, and you can’t deduct an expense until the money is spent. So at the end of the year you might be able to accelerate a purchase before the year ends or tell a customer they can wait until January to pay their invoice. Structuring when money comes in and goes out at the end of the year can provide a little tax help.

Save Money for Your Business

Owning a business not only gives you the luxury of working from home and having your own schedule, but you can deduct things you may not have ever dreamed of like the car you purchased for your Uber business, supplies, and electronics. If you made purchases that are directly related to your business you can deduct them from your business income and save money for you business. You also may want to think about purchasing that iPad and other computer equipment you’ve been needing for your business before the end of the year.

Make a Donation

Just like individuals can make tax deductible charitable contributions, so can businesses. You have until December 31st to make those contributions, so if you’ve got old office equipment or other items going unused, find a place to donate them. If you’re simply looking to make a cash donation you can find a number of worthy charities as well. As long as it’s a qualified charitable organization and you maintain proof of the contribution it will count.

Retirement Plan Contributions

The easiest thing you can do is to make a retirement plan contribution. As long as you haven’t already maxed out your contributions this is a no-brainer. Don’t have a retirement account? Then set one up and make a contribution. Bonus tip: If you are self-employed you can contribute to a SEP IRA and save on your taxes. A SEP IRA is a type of traditional IRA for self-employed individuals or small business owners. Business owners with one or more employees and anyone with freelance income, can open a SEP IRA.

The advantage of a SEP IRA over a traditional or Roth IRA is a larger contribution limit. For 2016 business owners can contribute up to 25% of income or $53,000, whichever is less.  In addition, contributions are tax-deductible for the business.

Save on Health Insurance Premiums and Your Taxes

Although you may not have the luxury of having employer provided health insurance, you can purchase in the Health Insurance Marketplace or your state Marketplace during open enrollment and may find that you are eligible for an advanced premium tax credit to help you pay for health insurance. There’s an additional bonus, you can also deduct premiums paid as a business expense.

Get Organized

While this might not put money right into your pocket, it can save a lot of time. And time is money. Use the end of the year to get your business finances organized. Sure, you may not need to file for a few more months, but there are tools to help you easily organize your business income and expenses like QuickBooks Self-Employed.

Don’t worry about knowing tax laws for self-employed. At tax-time, your local Dallas CPA can answer questions about your business income and expenses and notify you of business tax deductions you qualify for.  So give us a call today!