How to Make Your Tax Payments to the IRS Online

Posted on August 28 2014 by admin

Paying taxes is never fun, but it has just become a little easier since the launch of the new IRS Direct Pay system. The link is found on the IRS website at Direct-Pay. You can use Direct Pay to make payments on an individual tax bill or to make estimated payments online. There is no fee or pre-registration required and the system provides instant confirmation that your payment has been made.

Direct Pay payments come directly from your checking or savings account and Direct Pay does not retain bank information in the IRS systems after payments are made. It’s a good option if you’re behind schedule and are concerned about a late payment notice or if you’re looking for a quicker alternative to regular mail.

Just a reminder, Direct Pay is only available to individuals. Business payments still need to be made using EFTPS or using a credit card or debit card through a payment processing company on the IRS website.

If you are interested in other online payment options, the IRS website includes information regarding credit or debit card payment processors at Pay-Taxes-by-Credit-or-Debit-Card.
Information regarding using the Electronic Federal Tax Payment System is at EFTPS-The-Electronic-Federal-Tax-Payment-System.

Be sure to contact us if you have questions about tax payments or for solutions to all your financial questions.

By Melinda Nelson, CPA

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The IRS is NOT Issuing Arrest Warrants

Posted on August 27 2014 by admin

The IRS never contacts you via email. However, they have been known to contact taxpayers on the telephone.

And the latest round of scammers are taking that information and using it to their (criminally-inclined) advantage.

The latest phone scam has the victims being told that they owe money to the IRS. And if they do not pay via wire transfer or pre-loaded debit card, the threats begin. And not just any threat – the victims are threatened with arrest, deportation or revocation of your driver’s license.

The phone scammers have these following characteristics:

  • Use of fake names and IRS badge numbers. Generally, the names are fairly common names and surnames that they use to identify themselves.
  • They may already have the last four digits of your social security number.
  • The IRS toll-free number is spoofed to appear to be real.
  • Occasionally, bogus emails are also sent to help build up the big lie.
  • There may be background noise, mimicking a call center.
  • After the initial call, another person may follow up and pretend to be from the local police department of DMV, with caller ID supporting this claim.

If you are contacted by phone from a person identifying themselves as being with the IRS, please hang up and call 1.800.829.1040 immediately. That is the actual number for the IRS. If you don’t believe that any monies are actually due to the IRS, then report the scammer to the TIGTA at 1.800.366.4484.

By Donna H. Laubscher, CPA

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Dodging the Ice Bucket Challenge for a Charitable Contribution?

Posted on August 26 2014 by admin

Have you been challenged to dump a bucket of ice water on your head? If you have no idea what I am talking about, you must not be on social media, or any Internet sites, and therefore I don’t know how you got to my blog post. BUT… there is a challenge going around social media sites like Facebook, Instagram and Twitter, and it goes a little something like this: Someone challenges you to dump a bucket of ice water over your head within 24 hours (usually proven by posting videos on these social media sites), and if you fail to do so, you must donate $100 to the ALS Association. The videos are fun to watch, and you think, really, these people are avoiding contributing to a good cause? Well, some people are doing both, but yes, it is fun, and the ALS Association has gotten incredible exposure (and likely a lot of contributions) from this one quick-starting, fun way of free advertising.

However, what if you are the person who dares not or cannot accept the ice bucket challenge and would rather give the money to the ALS Association? Do you get a charitable deduction? There is a stipulation in the tax laws, looking to the “donative intent” of the contribution. In the Tax Court’s decision in Estate of O. J. Wardwell, 35 T.C. 443, it said “If a payment proceeds primarily from the incentive of anticipated benefit to the payor beyond the satisfaction which flows from the performance of a generous act, it is not a contribution or gift.” This could lead to someone believing that maybe no, my donation is not tax deductible because I get a benefit – not having to dump ice water over my head! However, courts have more recently applied a “quid pro quo test” to this concept, which states that the donor must assume they will receive a financial benefit from the contribution equal to his or her donation, to lack donative intent. Not dumping freezing cold water over your head definitely gives you no financial gain, only a physical one.

Worry not if you elect to forego the freezing cold shower that could only be found after dumping an ice bucket over your head. Donate to a good cause and rest easy in the most recent court cases that no financial gain was received by you to make a donation, and therefore your contribution is tax deductible. Who is up for the challenge??

By Julie K. Weissmueller, CPA

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When Mortgage Interest May Not be Deductible

Posted on August 21 2014 by admin

We all assume that we can deduct interest paid on our personal residence, but that is not always the case. Personal versus business interest generally is not deductible. Section 163(h) prohibits an individual taxpayer from claiming a deduction for personal interest. One of the limited exceptions to this general rule is a deduction for home mortgage interest. However, there are specific rules to be considered “qualified” residence interest.

Qualified residence interest is interest that is paid during the tax year on acquisition and/or home equity indebtedness with respect to any qualified residence. A qualified residence includes the taxpayers’ principal residence and one other residence, for example, a vacation home. Acquisition indebtedness means indebtedness which is incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer and is secured by such residence. Secured debt means:

  • The residence is security for the payment of the debt.
  • In the event of default, the residence could be subjected to the satisfaction of the debt with the same priority as a mortgage or deed of trust.
  • The debt is recorded in accordance with applicable State law.

In a recent court case, a couple was denied a deduction for mortgage interest. They borrowed funds from a parent and signed a mortgage note on their primary residence. The document was not notarized or recorded. They later signed a document with a bank for another mortgage. The bank was unaware of the existence of the other indebtedness. The bank mortgage was secured by the property and that mortgage was recorded. Failure to record the first mortgage exposes the mortgage to potential defeat by third parties without actual notice of the mortgage. The taxpayers in this case did not satisfy the second and third elements of a secured debt. They lost the deduction for $19,230 of interest paid to the parent. They were only entitled to a deduction of $1,138 reported by the bank on Form 1098, Mortgage Interest Statement.

Be especially careful with a related party loan. It may be presumed to be a gift rather than a loan. Proper documentation and recording of the debt is essential.

By Andrea L. Hejnal-Hilger, CPA

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Change to One IRA Rollover Per Year Rule

Posted on August 20 2014 by admin

The IRS withdrew a proposed regulation from 1981, Prop. Regs. Sec. 1.408-4(b)(4)(ii), which allowed taxpayers with multiple IRAs to make one rollover per year from each IRA. Following the Tax Court’s holding that the limit of one IRA rollover per year applies on an aggregate basis and not on an IRA-by-IRA basis, beginning in 2015 taxpayers will only be able to make one rollover per year no matter how many IRAs they own.

The Service announced that the new rule will not apply to any rollover that involves a distribution that occurs before January 1, 2015, and that it will update IRS Publication 590, Individual Retirement Arrangements (IRAs), which still provides that the limitation is applied on an IRA-by-IRA basis.

Sec. 408(d)(3)(A)(i) permits a tax-free rollover of funds in a taxpayer’s IRA as long as the amount distributed to the taxpayer is paid into an IRA for the taxpayer’s benefit within 60 days, subject to the one-rollover-per-year limit of Sec. 408(d)(3)(B). The Tax Court in Bobrow, T.C. Memo 2014-21, held that the limit applies to all of a taxpayer’s IRAs, in the aggregate, and that the petitioner in the case, who had made more than one rollover from more than one IRA during the tax year, was taxable on the full amount of the second rollover.

The IRS reiterated that the new interpretation of Sec. 408(d)(3)(B) will not affect an IRA owner’s ability to transfer funds from one IRA trustee to another (as opposed to the taxpayer’s receiving a check and depositing the funds in another IRA account within 60 days) because those transactions are not considered rollovers under Rev. Rul. 78-406 and therefore are not subject to the one-a-year limit.

By Pamela Wheeler, EA

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IRS Limits Direct Deposits to Combat Refund Fraud

Posted on August 19 2014 by admin

Income tax refund fraud and identity theft continues to plague taxpayers and the IRS. In 2013 alone the IRS had to issue 770,000 tax return PIN numbers to taxpayers who had fraudulent tax returns filed under their social security number.

One method the IRS will use to stop payment of fraudulent refunds is the new limit on direct deposits. Effective January 2015, the IRS will limit the number of refunds electronically deposited into a single financial account or pre-paid debit card to three.

Paper refund checks will be mailed to the taxpayer for the fourth and subsequent refunds automatically. In addition, taxpayers also will receive a notice informing them that the account has exceeded the direct deposit limits and that they will receive a paper refund check in approximately four weeks if there are no other issues with the return. Taxpayers can track their refunds at Where’s my Refund?

Per the IRS, the vast majority of taxpayers will not be affected by this limitation, and taxpayers are encouraged to continue to use direct deposit. It is the still fastest, safest way for taxpayers to receive refunds.

The direct deposit limit will prevent criminals from easily obtaining multiple refunds. The limit applies to financial accounts, such as bank savings or checking accounts, and to prepaid, reloadable cards or debit cards.

The new limitation also will protect taxpayers from preparers who obtain payment for their tax preparation services by depositing part or all of their clients’ refunds into the preparers’ own bank accounts. The new direct deposit limits will help eliminate this type of abuse.

By Melinda Nelson, CPA

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Tips for Gambling Income and Losses

Posted on August 14 2014 by admin

Whether you like to bet on horses, roll the dice or pull the slots, your gambling winnings are taxable. You must report all your gambling income on your tax return. If you’re a casual gambler, odds are good that these basic tax tips can help you at tax time next year:

  1. Gambling income. Gambling income includes winnings from lotteries, horse racing and casinos. It also includes cash prizes and the fair market value of prizes like cars and trips.
  2. Payer tax form. If you win, you may get a Form W-2G, Certain Gambling Winnings, from the payer. The IRS also gets a copy of the W-2G. The payer issues the form depending on the type of game you played, the amount of your winnings and other factors. You’ll also get the form if the payer withholds taxes from what you won.
  3. How to report winnings. You must report all your gambling winnings as income. This is true even if you don’t receive a Form W-2G. You normally report your winnings for the year on your tax return as ‘other income.’
  4. How to deduct losses. You can deduct your gambling losses on Schedule A, Itemized Deductions. The amount you can deduct is limited to the amount of the gambling income you report on your return.
  5. Keep gambling receipts. You should keep track of your wins and losses. This includes keeping items such as a gambling log or diary, receipts, statements or tickets.

It is all fun and games to win at gambling, but remember that these winnings need to be reported. If you have any additional questions, please do not hesitate to contact our office.

By Danette Hefty, EA

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Don’t Lose Your Deduction: Substantiating Vehicle Use

Posted on August 13 2014 by admin

Tax law surrounding business vehicles can be convoluted (or any tax law for that matter). The following will give you guidance on what you may need to present to the IRS if your vehicle use deduction is ever challenged.

A taxpayer must maintain adequate records or other corroborative evidence to support the business portion of auto expense. To meet this requirement, a taxpayer should maintain an account book or log (or similar statement of expense or trip sheet) that establishes each business expense.

The Internal Revenue Code generally disallows any deduction unless the taxpayer can substantiate by adequate record or sufficient evidence of the (1) amount of an expenditure (or mileage for vehicles), (2) time and place of use, (3) business purpose, and (4) business relationship. Failure to comply with this requirement can result in loss of the deduction. Also, merely applying signage or other advertising onto the vehicle does not convert what would otherwise be personal use to business use; adequate substantiation is still needed.

The taxpayer may substantiate vehicle expenses by maintaining both:

  1. An account book, diary, or similar record; trip sheets; expense reports; or other corroborative evidence.
  2. Documentary evidence including receipts, paid bills, and similar information.

The detail required to document business use varies depending on specific facts and circumstances. For example, an individual who regularly drives an established route to make deliveries can satisfy the adequate record requirement by recording the length of the delivery trip once, with a notation of the date of each trip if the date is further substantiated by receipts or similar records. In some cases, a log maintained for part of a year may suffice to establish the taxpayer’s pattern of business use. Most taxpayers can maintain a log or record for a portion of the year if it can be demonstrated that the period for which the record was maintained is representative of the vehicle’s business use for the entire tax year. Additionally, if adequate records or sufficient evidence are unavailable due to circumstances beyond the taxpayer’s control, the substantiation requirements will be deemed satisfied if the taxpayer presents credible evidence supporting the deduction.

We understand record keeping for vehicles can be cumbersome. However, we do encourage you to keep the best contemporaneous records as possible. This will ensure your valuable vehicle deduction won’t be reduced or eliminated.

By Scott Clouse, CPA

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What is a “myRA” Account?

Posted on August 12 2014 by admin

For those of you who may have missed parts or all of the State of the Union address given by President Obama on January 28, 2014, you may be interested in learning about the “myRA” account. Starting near the end of 2014, the U.S. Department of Treasury will come out with a recently developed retirement savings account for individuals. This account is designed to be an affordable and safe way to start saving for retirement. It is for individuals who want to begin saving for retirement but can only afford small contributions and do not have access to an employer-sponsored plan.

To Begin

To open a myRa account, you need to first make sure you qualify. If your tax filing status is single, your annual income must be less than $129,000. If you are married however, your combined income must be less than $191,000. You must make an initial contribution of $25 in addition to contributions each pay period of $5 or more. The plan would be offered through your employer who will not have to pay anything for the program.

The Benefits

This account will function as a Roth IRA in the sense that it will accrue earnings from after-tax dollars and the money withdrawn will be tax free. There will also be no fees associated with the account. The account will invest in government savings bonds and is going to be federally backed by the U.S. government, meaning investors will not lose their principal investment. This account is low risk and will earn interest at about 2% on average. If you end up not working for the employer you initially signed up with, you can take it with you because the myRA is a portable account.

The Catch

Any contribution withdrawals will be without penalty; however, any interest withdrawn before the age of 59 ½ will be subject to tax or penalties like traditional Roth IRAs. Also, once the balance of the account reaches $15,000 or has been active for 30 years, you will be required to rollover the account to a private sector IRA. As with other IRAs, there is a limit on the contributions of $5,500 per year. Lastly, employers cannot make contributions or matching contributions to the employees’ accounts.

By Kelsey Olsen

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Going to the Chapel… Wedding Tax Tips

Posted on August 7 2014 by admin

Planning that big wedding this summer? While taxes may not be high on your list of things to do before you walk down the aisle, be aware of the tax issues that come along with your marriage.

Name change: The name and Social Security number on your tax return must match your Social Security Administration records. If you change your name, report it to the SSA. To do that, file Form SS-5, Application for a Social Security Card. You can get the form at SSA.gov, or call 800-772-1213, or stop by your local SSA office.

Tax withholding: A change in your marital status means you must give you employer a new Form W-4, Employee’s Withholding Allowance Certificate. If you and your spouse both work, your combined incomes may move you into a higher tax bracket. Use the IRS withholding calculator tool at IRS.gov to help complete your new Form W-4.

Health Insurance Premium Tax Credit: If you receive advance payment of the Premium Tax Credit this year, it is important that you report changes in circumstances, such as change in your income or family size, to your Health Insurance Marketplace. You should also notify the Marketplace when you move out of the area covered by your current Marketplace plan.

Address change: Let the IRS know if your address changes. To do this, file Form 8822, Change of Address, with the IRS. You should also notify the U.S. Postal Service. This can be done online at USPS.com to forward your mail or report the change to your local post office.

Change in filing status: If you are married as of December 31, you are married for the entire year for tax purposes. You and your spouse can choose to file your federal income tax return either jointly or separately each year. You may want to figure the tax both ways to find out which status results in the lowest tax.

If you are a same-sex married couple and legally married in a state or country that recognizes same-sex marriage, you generally must file as married on your federal tax return. This is true even if you and your spouse later live in a state or country that does not recognize same-sex marriage. See IRS.gov for more information on this topic.

By Pamela Wheeler, EA

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Welcome


There is nothing more complex than the world of taxes. We know this and yet we chose careers where we face these issues everyday. We get questions day in and day out about new tax laws, forms and news items and how they affect everyday people and businesses. Well, here at Henry & Horne, LLP we have set out to do what we do best; help everyday people understand what is going on in the world of state, local, federal, estate and international taxation. We will provide these weekly posts and we encourage you to give us feedback on those posts as well as letting us know what else you would like to know more about. Welcome to "Tax Insights." We hope you find this blog informative and worthy of your time.


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