May 24, 2013

Posts Comments

IRS Tax Collection Growing Increasingly Harsh

March 31, 2011 By

The National Taxpayer Advocate (NTA) annual report to Congress cites the primary issues taxpayers are facing to be the harsh collection techniques used by the IRS and calls for a need to reform tax law. Every year, the Tax Code mandates the NTA’s report to address the most critical changes needed. This report to Congress is intended to lessen the problems that taxpayers encounter.

Nina Olson, the NTA in 2011, pointed out that tax reform was the utmost pressing issue for tax administration. The NTA also mentioned that the latest IRS data indicates that taxpayers are spending a stunning amount of time annually—upwards of 6.1 billion hours per year—on efforts to adhere to filing compliance. As Olson put it, “If tax compliance were an industry, it would be one of the largest in the United States. To consume 6.1 billion hours, the ‘tax industry’ requires the equivalent of more than three million full-time workers.”

Additionally, the NTA discussed growing concern about the rise of the IRS’s “severe” actions of enforcement. Olson claims this is putting strain on taxpayers. According to the report, the IRS’ efforts to collect are ineffective at their goal to institute sustained taxpayer compliance due to the supposed harsh techniques currently being implemented.

One key area cited that the techniques on filing protected liens against has risen to well over a million taxpayers—that compared with only 168,000 IRS tax liens in Fiscal Year 1999. It has risen to an astounding 550% since that time. The number of IRS liens filed is growing at an increasing pace as well. This may contribute a detrimental effect onto the housing market, credit ratings, and the unemployment rate.

Since 2001, Nina Olson has been the NAT (National Taxpayer Advocate). Her work is executed on in service to the TAS (Taxpayer Advocate Service) and is overseen by the Commissioner of Internal Revenue (currently Doug Shulman). What are your thoughts on these figures and reports?

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , ,

Will an IRS Levy Be Placed on my Car?

March 30, 2011 By

If you are worried about an IRS levy, chances are you do not have to worry about losing your car. Your real concern should be your liquid assets: wages and bank accounts.

However, the IRS is allowed to issue a levy on your car, but you have to give them a reason to do it. Usually, you would have to provoke this severe of an action by refusing to cooperate in a manner that the IRS views as extreme. To avoid this, you can openly communicate with an IRS officer.

If your car is not high in value, the chances of the IRS placing a levy on it are even slimmer. This is not necessarily out of the goodness of their hearts, but because of the Internal Revenue Code. The Internal Revenue Code section 6331(f) prohibits uneconomical levies. If you are driving the car you have had for years and it is only valued at $4,000, it is of little value to the IRS. However, if you have tax debt and you drive a Lamborghini, the circumstances are understandably a little different.

Additionally, consider how you use your car. You probably take it to work, take the kids to school, and go to the grocery store. The Internal Revenue Code section 6343(a) also prohibits the IRS from placing a levy on anything if it will cause you an economic hardship.

Furthermore, unless a Revenue Officer has actually contacted you, the chances that your vehicle will be seized are even lower. The IRS places the cases many people who have not paid their taxes in the IRS Automated Collection Service. In order to actually seize your car, your case will have to be more personalized and the IRS will have to contact your local law enforcement.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , , , ,

Self Employed Tax Relief and Tips for Freelancers

March 29, 2011 By

Are you self-employed? Are you a freelancer or someone who owns their own business? Here are some tips and strategies to guide the taxpayer who is in need of self-employed tax relief. Every taxpayer could always use ways to help save money when it comes to paying out to the IRS during the time for filing those tax returns.

You, the taxpayer, are responsible and in control of your taxes through how much income you generate when you are self- employed. The advantage to this is also the reductions towards paying the IRS with any losses you have from business, rental properties, and freelancing. One good way of reduction is shifting taxable income into non-taxable income and take advantage of tax credits for those who are self-employed.

All freelance writers (or freelance employment regardless if it is article-writing or decoding Visual Basic or any type of work done for a company) are sole proprietors. This means that freelancers are self- employed through means of contracting their skills. All income and expenses related to self-employment can be done with the 1040 Schedule C. Then there is the 1099-MISC (Miscellaneous) form that is needed as well. This form is similar to a W-2 form for a self employed taxpayer. The biggest tip here is that on the schedule C form line 1, your total income must be greater or equal to that reported on your 1099- MISC form. If the Schedule C form is less than the reported wages on the 1099-MISC, the IRS will issue an audit. Be sure to report all wages whether or not you receive a 1099 form to fill out.

A freelancer also has the added expenses of high speed internet, computers and other various business related expenses that can be used for tax deductions and tax relief, provided that these items are strictly for use towards your business as a freelancer. Check the IRS website at: http://www.irs.gov/businesses/small/selfemployed/index.html for more information.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , , , , , ,

How to Handle IRS Investigations of Offshore Accounts

March 25, 2011 By

The IRS is starting to “crack down” on wealthy or well-to-do taxpayers who have offshore bank accounts. How to handle the IRS regarding amnesty issues is just to be honest. Simply, do not lie about whether or not you have an account offshore (if you do indeed have one). Not only is it a criminal offense to withhold from the IRS, but there could be felony charges up to $25,000. Let us remember that all forms of cash, stock, bonds, accounts, property, and gifts to others in the means of property, jewelry and other forms of value are taxable income and we must report them all. As we can all agree, pretty much anything and everything is taxed, and the IRS gets their share of the percentage to put into the Treasury. Ultimately, forthrightness it is a wiser decision.

However, there are still some wealthy taxpayers that decide to not report all bank accounts and the correct amounts in their offshore accounts. The IRS has its work cut out for them to find and collect taxes on these offshore accounts.

The risks for taxpayers hiding offshore accounts are higher and the IRS is finding them as they go “International” (as they dig deeper to find undisclosed offshore accounts). Now, taxpayers who have offshore accounts have to pay the IRS anywhere between 5-25% of the total amounts in the offshore account(s). If the IRS finds the accounts that were not reported, the 5-25% is only the beginning as they crack down on taxpayers; the penalties are stiff and can get worse. In the end it is always safer and better to just be honest and report every and all account(s), including any offshore ones, to avoid the inevitable penalties.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , , , , ,

Who Benefits from the IRS Payroll Tax Holiday?

March 24, 2011 By

For 2011, the checks that are issued for tax return processing may be a little larger than usual. If that is the case when you receive yours, it is not in error. There is a new benefit called Payroll Tax Holiday. This is a one-time tax break that was issued by “The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.” Payroll taxes will still be incurred; they will just be set at a lower rate for this tax season than normal.

Employer IRS payroll tax contributions on the federal level will not change and will maintain the 6.2% rate. On the other hand, employees will benefit from a reprieve. The contributions due by employees will be reduced 2%. That is, whereas the normal 6.2% Social Security contribution would apply on income levels up to $106,000, these individuals will only be subject to a 4.2% Social Security taxation. Keep in mind that Medicare contributions, which are not subject to a wage cap, will not be affected by the Payroll Tax Holiday.

This is beneficial to those in the middle and upper income level taxpayers. Those who earn $50,000 would be eligible to the 2% savings of $1,000. A jointly filed married couple earning $100,000 would receive their 2% savings of $2,000.

However, lower income taxpayers do not reap the benefits since the Payroll Tax Holiday was implemented in lieu of the Making Work Pay Credit. Because this credit was a fixed $400 for taxpayers filing separately and $800 for couple that are married, the full credit was given to lower income taxpayers regardless of whether they earned even very small amounts. Since the Payroll Tax Holiday works via a percentage, the resulting check is naturally lower for families whose income is lower.

Individuals who are self employed experience a break as well, by way of the Payroll Tax Holiday. Whereas they would normally be required to pay 12.4% in self-employment tax, they will only have to relinquish 10.4% of their earnings for Fiscal Year of 2010.

Clearly, the Payroll Tax Holiday is a nice benefit for most every taxpayer—although, alas, it is only temporary.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , , , , , ,

Make Sure to Make Work Pay with Your 2011 IRS Tax Return

March 23, 2011 By

Many taxpayers are eligible for the Making Work Pay tax credit on their 2010 tax returns. This credit is based on your earned income for 2010. When filing your taxes, it is important to consider several factors to be sure that you receive the total portion of the credit for which you are eligible.

The credit is available for up to $400 for individual taxpayers, and up to $800 for taxpayers who are married filing jointly. This IRS tax credit is refundable. Many workers have already seen the benefit of the Making Work Pay tax credit in their paychecks, which is reflected in lower federal employee tax withholdings.

Taxpayers whose adjusted gross income in 2010 was over $95,000 as an individual or $190,000 married filing jointly are not eligible for the credit. Furthermore, taxpayers who can be claimed on someone else’s return as a dependent cannot claim the credit. Also, taxpayers who are nonresident aliens or do not have a social security number cannot claim the credit.

How you file for the Making Work Pay tax credit depends on which form you file for your federal income tax return. If you file a 1040 or 1040A, you will claim the credit on Schedule M. By using Schedule M, you will be able to determine whether you have already received the full benefit of the credit through the abovementioned deductions of federal withholdings from your paycheck. If not, you may be due the full amount or a portion of the amount.

If you file using 1040-EZ, use Line 8 which is on the back of the form. You will also be able to determine whether you have already received the full benefit of the credit through lowered federal deductions on your paychecks and to figure the remaining amount due. It may be beneficial to get tax help to correctly claim the credit.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , , , , , ,

Just Your Luck: Federal Income Tax on Gambling

March 22, 2011 By

On any return on an investment, you have to pay federal income tax. If you think of gambling as an investment, then you know you have to pay taxes on what you win. You have to spend money to make money, right? Even if you do not think of it that way and just happened to hit the jackpot when you went to your friend’s bachelor or bachelorette party in Las Vegas, the IRS considers your winnings a part of your taxable income.

Reporting requirements depend on the type of gambling that you do and the ration of money you win to the wager you place. If you make over $600 at a horse track and the winnings are at least 300 times your bet, if you win $1,200 or more at bingo or sitting at a slot machine, or if you win $1,500 or more in keno, you owe taxes. In these situations, the payer must get your Social Security number to let the IRS know about your surprise extra income.

And no matter how good your poker face is, the IRS will get their income tax from your winnings. Sponsors are required to report winnings of $5,000 or more.

If you win the above amounts, you will pay 25% federal tax up front. If you refuse to give the payer your Social Security number, they can withhold up to 28% to give to the tax collector. To report your winnings, you will use Form W-2G.
However, just because the payer does not report your winnings does not mean you don’t have to. Uncle Sam still calls that money income, and you have to report it on your 1040. You can also, however, report your gambling losses on Schedule A if you itemize. You can only count as many losses as you won, though. If you spent $100 and won $20, you can only deduct $20. Make sure that your losses are higher than the standard deduction.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , ,

Can You Include Your Hobby in Your Federal Income Tax Return?

March 21, 2011 By

Many people maintain a hobby to help relieve stress, to give them something fun to do, and to relax. Some may go hiking or knit scarves while others build birdhouses or carve surf boards. The lucky ones can make money off of their hobby! If you do earn an income from your hobby, you may be able to make that hobby pay for itself by deducting the expenses on your federal income tax return.

If you make money off of your hobby, it is considered a part of your taxable income. This means that you can also deduct the costs of your hobby from your taxes as an itemized expense. To deduct these items, you will use Schedule A and the expenses must amount to more than 2 percent of your adjusted gross income.

If the hobby seems like it is more than just something you occasionally do, it may be beneficial to create a sideline business around it. There are tax benefits of doing it this way because it allows you to write off more in deductions. It is also not as complicated as it may seem! You can still use Form 1040 to report your profits with your traditional income if you are the sole proprietor.

The IRS employs two primary tests to determine whether an endeavor is a hobby or a business: one is whether you turned a profit in the last three of five years. The other is a subjective test based on your behavior in running the business; an examination of the way you conduct your business and how much time you devote to it, whether you depend on the income, the knowledge you have in running the business, and the element of personal pleasure in conducting your business activities. In other words, it is important to make a “good faith” effort to conduct your hobby as a legitimate business to avoid problems with the IRS.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , , , , ,

Three Changes that Can Give Tax Help

March 18, 2011 By

There is tax help that can save or break a taxpayer. This year, with so many tax cuts, breaks, and changes made by President Obama and Congress, many taxpayers are confused as to what and how this affects them. Not all of the new tax law changes are good: some are stricter and do not help get tax breaks whereas the few changes that were made indeed do help many taxpayers. Below are a few tax changes that can affect each taxpayer differently according to income and other deciding factors:

  • Inflation Adjustments – During the past few years, inflation has been low, which thanks to the tax break of increasing the Tax Bracket (income level guideline), many taxpayers are able to earn more in income than the previous year of 2009 and not be adjusted to a higher income tax bracket. Check to make sure you qualify now as there were some taxpayers who did not qualify for certain tax credits and/or deductions due to tax bracket levels (this year you may be in a different tax bracket that may entitle you more tax help and relief).
  • Extended Tax Breaks – Many of the taxes that expired in 2009 have been extended for the tax year 2010. This includes for example the Education Credit. This tax credit has been extended this year for those who have education or college expenses.
  • No Phase-Outs for High Income Taxpayers – This tax often times can be confusing for many. In the past few years, if your income exceeded certain income levels such as the Tax Bracket and other deciding factors based on both wages and AGI (Adjusted Gross Income), then personal exemptions and itemized deductions were limited down further. This year, there are no such reductions and the taxpayer who has higher income levels than that of low or medium income brackets can enjoy all of the tax write-offs that he/she is entitled to.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , , , , ,

The Nitty without the Gritty of the New Tax Bill and Tax Relief

March 17, 2011 By

On December 17, 2010, Congress approved a bill with which Obama extended the Bush tax cuts for everyone, including even the wealthiest Americans. Obama also added some further allowances. This tax bill will cost $900 billion. All politics aside, what does this tax bill mean for you?

Notably, the income tax brackets will remain the same, rather than going up, for at least two more years. Furthermore, the alternative minimum tax (AMT) was adjusted to allow 21 million taxpayers to avoid this tax who would have otherwise had to pay it. Had this adjustment not been made, singles making over $33,750 and married couples making $45,000 jointly would have to pay higher taxes. Additionally, your social security taxes have been reduced from 6.2% to 4.2% as an employee. The employer portion remains at 6.2%, which means that if you are self-employed, you will be paying the employer portion of 6.2% plus the lower 4.2%, which means if you make $50,000, you’ll pay $1,000 less. The deal also allows businesses to write off some capital expenses and extends unemployment for another 13 months, which is intended to benefit seven million people.

This bill also discontinued the return of a 55% estate tax after the first $1 million. Instead, it is 35% after the first $5 million. In addition, the capital gains tax of 15% remains in place, versus the scheduled rise to 20% for capital gains. Dividends would have been taxed as income. Furthermore, there is the American Opportunity Tax Credit of $2,500 if you make under $80,000 or $160,000 with your spouse, 40% of which is refundable if you have no tax liability. This may mean some tax relief for you.

The child tax credit of $1,000 has been extended, including a refundable portion for low income families. Taxpayers making under $75,000 singly and $110,000 jointly can get the full credit, and after that the credit phases out.

www.limonwhitaker.com

Filed Under: Our Blogs Tagged With: , , ,
« Older Posts