IRS Expands Taxpayer Relief

Posted on May 17, 2012 by admin

For a number of years the IRS has had programs aimed at helping struggling taxpayers remain in good standing and providing a path back to compliance for those taxpayers that have already fallen behind. In the past few months the IRS has expanded its Fresh Start initiative to offer assistance to a broader range of taxpayers.

The IRS penalizes taxpayers for failing to pay taxes due by the filing deadline, which creates even more of a burden for financially distressed taxpayers, but a new penalty relief provision provides relief to taxpayers in certain situations. Taxpayers who were unemployed at least 30 consecutive days at any time between January 1, 2011 and April 17, 2012 as well as self-employed individuals whose business was reduced 25 percent or more in 2011 due to the economy are eligible to seek penalty relief for the payment of their 2011 taxes. The relief provision allows the qualifying taxpayers to avoid failure-to-pay penalties as long as all tax payments are made by the extended filing deadline of October 15, 2012. In order to receive the six month grace period taxpayers will need to complete the new Form 1127A.

In addition to penalty relief the IRS is also expanding the qualifications for installment agreements. Installment agreements allow taxpayers who cannot pay their entire tax bill to make a series of payments over the course of months or years while facing reduced penalties on the amounts owed. Previously the IRS offered a streamlined installment agreement process to taxpayers owing $25,000 or less and allowed for a 60-month payment term. Under the changes to the Fresh Start program the IRS will now provide the streamlined process to taxpayers owing $50,000 or less and allow a maximum payment period of 72 months.

Not all taxpayers will qualify, but under these new provisions the IRS has expanded the programs in place to help struggling taxpayers meet their tax payment obligations.

Michael Anderson

Be Sociable, Share!

Posted in Tax Relief Act | Tagged , , , , , , , , , , , , , |

Leave a comment


Start Planning Now for Next Year’s Tax Return

Posted on May 16, 2012 by admin

Okay, now that the tax professionals have all had time to catch our breath from the past tax season, we are ready to start thinking about next year!  The following suggestions are from the IRS, where they remind us that being organized and planning ahead can save time, money and headaches in 2013. Here are a few things you can do now to make next April 15 (yes, the deadline in 2013 is indeed April 15th!) easier.

1. Adjust your withholding Why wait another year for a big refund? Now is a good time to review your withholding and make adjustments for next year, especially if you’d prefer more money in each paycheck this year. If you owed at tax time, perhaps you’d like next year’s tax payment to be smaller.

2. Store your return in a safe place Put your 2011 tax return and supporting documents somewhere secure so you’ll know exactly where to find them if you receive an IRS notice and need to refer to your return. If it is easy to find, you can also use it as a helpful guide for next year’s return.

3. Organize your recordkeeping Establish a central location where everyone in your household can put tax-related records all year long. Anything from a shoebox to a file cabinet works. Just be consistent to avoid a scramble for misplaced mileage logs or charity receipts come tax time.

4. Review your paycheck Make sure your employer is properly withholding and reporting retirement account contributions, health insurance payments, charitable payroll deductions and other items. These payroll adjustments can make a big difference on your bottom line. Fixing an error in your paycheck now gets you back on track before it becomes a huge hassle.

5. Shop for a tax professional early If you use a tax professional to help you strategize, plan and make financial decisions throughout the year, then search now. You’ll have more time when you’re not up against a deadline or anxious for your refund. Choose a tax professional wisely. You are ultimately responsible for the accuracy of your own return regardless of who prepares it.

6. Prepare to itemize deductionsIf your expenses typically fall just below the amount to make itemizing advantageous, a bit of planning to bundle deductions into 2012 may pay off. An early or extra mortgage payment, pre-deadline property tax payments, planned donations or strategically paid medical bills could equal some tax savings.

7. Strategize tuition payments The American Opportunity Tax Credit, which offsets higher education expenses, is set to expire after 2012. It may be beneficial to pay 2013 tuition in 2012 to take full advantage of this tax credit, up to $2,500, before it expires.
Remember, each household’s financial circumstances are different so it’s important to fully consider your specific situation and goals before making large financial decisions.

Donna H. Laubscher, CPA

Be Sociable, Share!

Posted in Tax Returns | Tagged , , , , , , , , , , , , , , , , , , , , , |

Leave a comment


United Kingdom Residents Investing in the U.S.

Posted on May 15, 2012 by admin

Non resident individuals investing in the U.S. may encounter many tax problems when their home country applies different tax treatment to an investment. One such example of this problem occurs when a United Kingdom investor becomes an owner or partner in a U.S. LLC.

The United Kingdom Inland Revenue service has traditionally regarded U.S. Limited Liability Companies as being opaque for tax purposes. In other words a United Kingdom resident shareholder of an LLC is taxed on the basis of what is distributed from the LLC rather than the profits that arise within the LLC. Such distributions are taxed as though they are dividends. This can create various timing and double taxation problems as the two jurisdictions will rarely tax the same sum in the same tax year.

The position is further complicated by the system of foreign tax credits that is used in the United Kingdom. Under this system, tax credits are streamed so that a tax credit on profits cannot be set against a tax credit from dividends. Therefore a United Kingdom resident shareholder in a U.S. LLC could be taxed twice; firstly on profits arising in the U.S. and secondly on distributions received in the United Kingdom, without any foreign tax credit being available.

A recent tax case has been making its way thought the United Kingdom tax courts on precisely this issue. The original decision at the First Tier Tax Tribunal was that a Delaware registered LLC was somewhere between a Scottish Partnership and a Company. The Tribunal therefore concluded that the profits should be treated as partnership income. As a result the U.S. tax paid was allowed as a tax credit against the United Kingdom tax liability as the LLC was transparent for tax purposes.

The United Kingdom Inland Revenue promptly appealed and the case was heard over the summer at the Upper Tier Tax Tribunal. The outcome was that the decision was reversed with the Tribunal concluding that the LLC was indeed a Company and that no U.S. tax credit would be available in the United Kingdom. The judge did however concede that this was partly based on the membership agreement of the LLC. The analysis hinged on whether the members of the LLC had a proprietary right to the profits of the business. The Tribunal decided that they did not and therefore the LLC could not be regarded as being transparent.

This is undoubtedly an unsatisfactory area of U.S./United Kingdom taxation in which significant injustices can arise. In this case an illustrative profit of $100 was reduced by $45 dollars in U.S. tax and $22 in United Kingdom tax resulting in an effective tax rate of 67%.

Debra Callicutt, CPA

This article is written by Geraint Jones Private Client Tax Partner at Reeves & Co LLP London. Geraint specialises in all aspects of personal tax particularly relating to non domiciled and non resident individuals.  He can be contacted on +44 (0) 20 7382 1877 or by email on geraint.jones@reeves.co

Be Sociable, Share!

Posted in Foreign Taxes, International Taxation | Tagged , , , , , , , , , |

Leave a comment


IRS Accepting Applications for Low Income Taxpayer Clinic Grants

Posted on May 10, 2012 by admin

The Internal Revenue Service recently announced the opening of the 2013 Low Income Taxpayer Clinic (LITC) grant application process.

Applications for grants, which will be awarded for the 2013 calendar year, must be electronically filed, postmarked, sent by private delivery service, or hand-delivered to the LITC Program Office in Washington, D.C. by June 15, 2012.

The LITC grant program is a federal program administered by the Office of the Taxpayer Advocate at the IRS, led by National Taxpayer Advocate Nina E. Olson.  The LITC program awards matching grants of up to $100,000 per year to qualifying organizations to develop, expand, or maintain a low income taxpayer clinic.  The LITC program funds organizations that serve low income individuals who have a tax controversy with the IRS and organizations that provide outreach and education to taxpayers who speak English as a second language (ESL).  Applicants may apply as either type of organization, or both.  Although LITCs receive partial funding from the IRS, LITCs, their employees, and their volunteers operate independently from the IRS.  Examples of qualifying organizations include:

• Clinical programs at accredited law, business or accounting schools whose students represent low income taxpayers in tax disputes with the IRS; and
• Organizations exempt from tax under Internal Revenue Code Section 501(a) that represent low income taxpayers in tax disputes with the IRS or refer those taxpayers to qualified representatives, or that provide outreach and education for ESL taxpayers.

All applications are welcomed and will receive full consideration.  The LITC program is particularly interested in receiving applications from organizations in areas that are currently underserved.  In the areas that are underserved, the IRS encourages applications from new clinics or from existing clinics wishing to expand their coverage to underserved areas.
 
Copies of the 2013 Grant Application Package and Guidelines, IRS Publication 3319, can be downloaded from this website or ordered by calling 1-800-TAX-FORM (1-800-829-3676).

Applicants may file electronically at www.grants.gov. Those applying electronically should use the Funding Number TREAS-GRANTS-052013-001.

Questions about the LITC Program or grant application process can be addressed to the LITC Program Office at (202) 622-4711 (not a toll-free call) or by e-mail at LITCProgramOffice@irs.gov.

For more information about the organizations receiving funding in 2012, see Publication 4134, Low Income Taxpayer Clinic List.  This publication is also available by calling 1-800-TAX-FORM (1-800-829-3676), or can be found at your local IRS office.

Donna H. Laubscher, CPA

Be Sociable, Share!

Posted in Tax Reporting, Tax Tips | Tagged , , , , , , , , , , , , , , , |

Leave a comment


Frivolous Tax Arguments: The Voluntary Nature of the Federal Income Tax System

Posted on May 9, 2012 by admin

Probably for as long as we’ve had an income tax, people have tried to argue reasons why it is not applicable to them. Most recently I recall an article about a man who told IRS he was a resident of “heaven” and thus owed no taxes in the U.S.  Most arguments however, I think are a little less imaginative and a little more creative.

Probably one of the most common frivolous arguments made to IRS is that the filing of a tax return is “voluntary”.  Proponents of this argument point to the IRS itself and their Form 1040 instruction book that says the tax system is voluntary.  Additionally, the Supreme Court’s opinion in Flora v. United States is often quoted for the proposition that “our system of taxation is based upon voluntary assessment and payment, not upon distraint”.  However here’s the fatal flaw in these arguments:

The word “voluntary”, as used in Flora and in IRS publications, refers to our system of allowing taxpayers initially to determine the correct amount of tax and complete the appropriate returns, rather than have the government determine tax for them from the outset.  The requirement to file an income tax return is clearly set forth in code sections 6011(a), 6012(a), et seq., and 6072(a).

In United States v. Tedder, the court clearly stated that “although Treasury regulations establish voluntary compliance as the general method of income tax collection, Congress gave the Secretary of the Treasury the power to enforce the income tax laws through involuntary collection”.  Failure to file a tax return can result in criminal penalties, including fines and imprisonment, as well as civil penalties.

Dale Jensen, CPA

Be Sociable, Share!

Posted in Tax Tips | Tagged , , , , , , , , , , , , , |

Leave a comment


Expansion of Private School Tuition Organization Tax Credit Program

Posted on May 8, 2012 by admin

Effective retroactively to taxable years beginning from and after December 31, 2011, Arizona has amended the provisions relating to the contribution to private school tuition organizations. For years prior to 2012, Arizona taxpayers could take a tax credit on their state tax return and a deduction on their federal tax return. The maximum tax credit was $ 500.00 for individual filers and $ 1,000.00 for joint filers.

The latest provision doubles the maximum tax credit to $ 1,000.00 for single and heads of household filers and $ 2,000.00 for joint filers. The tax credit is not refundable.  Any unused credit may be carried forward for five taxable years. The tax credit may be claimed in the year that the contribution is made or in the previous year if the contribution is made by April 15th.

Taxpayers are prohibited from taking the tax credit if they designate their contribution for the direct benefit of a dependent or student beneficiary as a condition of their contribution or agrees with another taxpayer to designate their respective contributions for the benefit of the other’s dependent.  However, the taxpayers may take the tax credit if they recommend a student for a scholarship.  The School Tuition Organization cannot award based on the recommendation and must certify that it did not award any scholarships based solely on a donor’s recommendation.

If you are subject to the Alternative Minimum Tax (AMT), the Arizona tax credits are a great way to not only lower your state income liability, but also benefit from a charitable deduction on your federal income tax return. In this case, the tax benefits received exceed the out-of-pocket cost.

Please check with your tax advisor to see if you would benefit from the expansion of the private school tuition organization tax credit program.

George Woodard, CPA

Be Sociable, Share!

Posted in Credits, Tax Returns, Tax Tips | Tagged , , , , , , , , , , , , , , , |

Leave a comment


5 Tips to Help Determine if your Social Security Benefits are Taxable

Posted on May 3, 2012 by admin

Many people may not realize the Social Security benefits they received in 2011 may be taxable. All Social Security recipients should receive a Form SSA-1099 from the Social Security Administration which shows the total amount of their benefits. You can use this information to help you determine if your benefits are taxable. Here are five tips from the IRS to help you:

1. How much – if any – of your Social Security benefits are taxable depends on your total income and marital status.

2. Generally, if Social Security benefits were your only income for 2011, your benefits are not taxable and you probably do not need to file a federal income tax return.

3. If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status (see below).

4. You can do the following quick computation to determine whether some of your benefits may be taxable:
• First, add one-half of the total Social Security benefits you received to all your other income, including any tax-exempt interest and other exclusions from income.
• Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.

5. The 2011 base amounts are:
• $32,000 for married couples filing jointly.
• $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouse at any time during the year.
• $0 for married persons filing separately who lived together during the year.

Scott Clouse

Be Sociable, Share!

Posted in Social Security, Tax Reporting | Tagged , , , , , , , , , , , , |

Leave a comment


What are the Chances that Your Return Will be Audited?

Posted on May 2, 2012 by admin

Did you know that only a small percentage of all the individual tax returns filed each year will be audited?  The selection process is done mostly by a computer model setup by the Internal Revenue Service.  This model was designed to look at millions of tax returns and comparing “norms”.  Norms is defined as those numbers reported on your tax return that fall outside average numbers.  When this occurs your chances of being audited increase greatly. 

Another piece to the model is that averages for tax returns have been broke down into groupings.  Individual tax returns are divided into groups based on the type of work you do and the dollar amount of income you report.  An example would be:  The IRS expects to see a certain amount of itemized deductions on tax returns reporting between $50,000 and $100,000 of income.  Doctors with a certain specialty in a given geographic area are expected to report a certain amount of gross income.  The groups, breakdowns, and average dollar amounts are a closely guarded secret by the Internal Revenue Service.

Business tax returns are grouped by the type of business and their geographic location.

If your income during a given tax year is unusually low or your deductions are unusually high, you could attach an explanation to your tax return.  After the computer selects a return for a possible audit, an employee of the IRS examines the return to see if the computer made a correct selection.  Your attached statement may keep you from getting a nice letter from the IRS.

Congress has mentioned that they are alarmed by the IRS estimate that about $350 billion is lost to those people who choose to cheat on their tax returns.  It is said that the IRS has been given a larger budget to do more audits.

No one is immune to being audited.  Your best defense is always a good offense, which is keeping accurate records and preparing a tax return that falls within the boundaries of the laws in which we are given to operate.   And, if you are preparing your own tax return and you have questions, please reach out to a qualified CPA firm.  We are here to help!

Danette Hefty, EA

Be Sociable, Share!

Posted in Audit, Tax Returns | Tagged , , , , , , , , , , , , , , , , , , , |

Leave a comment


Taxable or Non-Taxable Income?

Posted on May 1, 2012 by admin

Although most income you receive is taxable and must be reported on your federal income tax return, there are some instances when income may not be taxable.

The IRS offers the following list of items that do not have to be included as taxable income:

• Adoption expense reimbursements for qualifying expenses
• Child support payments
• Gifts, bequests and inheritances
• Workers’ compensation benefits (some exceptions may apply; see Publication 525, Taxable and Nontaxable Income)
• Meals and lodging for the convenience of your employer
• Compensatory damages awarded for physical injury or physical sickness
• Welfare benefits
• Cash rebates from a dealer or manufacturer (exceptions may apply in a business setting)

Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your taxable income are:

• Life insurance - If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are generally not taxable unless the policy was turned over to you for a price.

• Scholarship or fellowship grant - If you are a candidate for a degree, you can exclude from income amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify for the exclusion.

• Non-cash income - Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.

All other items—including income such as wages, salaries, tips and unemployment compensation — are fully taxable and must be included in your income unless it is specifically excluded by law.

Scott Clouse

Be Sociable, Share!

Posted in Tax Returns | Tagged , , , , , , , , , , , , , , , , , , , , , |

Leave a comment


California Nonresident Withholding – Small Business Withholding Tool

Posted on April 26, 2012 by admin

The California Franchise Tax Board released Form 1018, Small Business Withholding Tool to help businesses navigate the complicated withholding process for payments to nonresidents. The Tool describes the steps to take “Before you make a payment”, “At the time you make a payment” and “After you make a payment” to a California nonresident of California source income.

Form 1018 is shown below or can be found on the FTB website at https://www.ftb.ca.gov/forms/misc/1018.pdf.

Small Business Withholding Tool

If you pay California source income1 to a California nonresident2, generally, you must withhold on all payments that exceed $1,500 in a calendar year. If you backup withhold for the Internal Revenue Service, you must also backup withhold for us on California source income. Backup withholding applies to California residents and nonresidents who do not provide a taxpayer identification number or do not certify exemption from backup withholding when required.

Use these three stages to determine when you need to withhold. For forms go to ftb.ca.gov and search for

Contact your Henry & Horne, LLP professional for additional information about California Nonresident Withholdings for businesses.

Melinda Nelson, CPA

Be Sociable, Share!

Posted in Tax Tips | Tagged , , , , , , , , , , , , , |

Leave a comment


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.

Web Designer Phoenix | Arizona website Design | Web Design Phoenix