Just like pretty much everything else in the world, the cost of doing business with the IRS has gone up. The good news is that some fees did not increase for calendar year 2014, but some fees have gone up by significant rates. Installment Agreement This is where you have a balance due to the IRS for unpaid taxes, penalties and interest, and you’re unable to pay the amount at the present time in a lump sum. So you set up an installment agreement with the IRS – where you agree to pay a set amount on a monthly basis until your balance is paid off. If you set up a direct-debit payment plan – where the payment is pulled directly from you bank account – the fee to set this up remains unchanged from 2013 at $52. This is the preferred method to set up such a plan, for […]
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Watch out for scams at tax time
You’ve probably seen news reports about how identity theft is rampant around the time tax returns are being filed. All sorts of nefarious schemes are out there, via the phone or email. The IRS recently published their Special Edition Tax Tip 2014-02, which details the warnings from the IRS about scams. The full text of the Tip is below. IRS Warns of Tax-time Scams It’s true: tax scams proliferate during the income tax filing season. This year’s season opens on Jan. 31. The IRS provides the following scam warnings so you can protect yourself and avoid becoming a victim of these crimes: Be vigilant of any unexpected communication purportedly from the IRS at the start of tax season. Don’t fall for phone and phishing email scams tha use the IRS as a lure. Thieves often pose as the IRS using a bogus refund scheme or warnings to pay past-due taxes. […]
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Penalty for Having No Health Insurance
Note: this provision has been repealed beginning with tax year 2019. As you may already be aware, individuals are required to carry health insurance on themselves and their dependents, as of January 1, 2014. This is the mandate set forth in the Affordable Care Act – and of course it’s an important part of making the whole Act work. Small businesses (less than 50 employees) have a similar mandate to provide coverage for employees beginning in 2015, or face penalties themselves. Without mandating insurance coverage for everyone, the system can’t sustain the lower-cost options for folks who desperately need the medical coverage. This includes folks who are not covered by any other means (employer, Medicare, Medicaid or individually-purchased policies) and who have medical problems that require costly care. With the mandate, healthier individuals will also have to pony up and purchase health insurance, so that the overall cost is spread […]
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Flex Spending “Use it or Lose it” is a Thing of the Past
If you have a Flex Spending Account (FSA) for healthcare expenses through your employer, you are familiar with the “use it or lose it” concept. Each year during December, it’s a mad dash to get that last-minute eye exam, or fill prescriptions, or what-have-you to use up the Flex Spending money before the end of the year. That tradition will, for many folks, be a thing of the past if their employers adopt the carryover rule now allowed by IRS. Traditionally, with a Flex Spending Account (FSA) for healthcare expenses you arrange with your employer to withhold a certain amount of money out of each paycheck and then as you incur expenses for healthcare throughout the year, you can be reimbursed for those expenses up to the amount of your annual withholding for FSA. The money withheld for the FSA is pre-tax, so it’s to your advantage to take part […]
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You’re Running Out of Time If You Want to Use These 13 Tax Provisions
Every year we say goodbye to certain things that we’ve come to know and love, and certain provisions of the tax law are not excluded from this treatment. Portions of the tax law are intentionally added with short life-spans, and others are retired from time to time as their intended use has either changed or been eliminated. Listed below are the tax provisions (according to the Joint Committee on Taxation) that will be expiring at the end of the year – some we’ll be glad to see go, others we’ll wish would stay around a while. Some will be extended by Congress, either at the last moment or on into the new year, as has happened in the past. Note: This article is aimed toward individual taxpayers rather than businesses, so I’ve only listed those provisions that will have impact on individuals. There are quite a few provisions expiring that […]
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So, What’s Going on at the IRS During the Shutdown?
While the government is in hiatus, what’s going on at the IRS? Well, not a lot. As I understand it, none of the phone lines are being manned, so if you call in for any reason you wind up with the automatons handling your questions. The website is still in operation as well (at least partly). So, you may be able to do a few things, but you’re limited. For example, if you need a transcript of a prior year’s return, I understand that you can request this for yourself – but you can’t ask your accountant or anyone else operating as POA for you to request a transcript. I’ve experienced this myself in attempting to get a transcript for a client – I was shut down. (The same individual had trouble getting a transcript for himself, as the IRS records of his address didn’t match what he was entering […]
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Selling Your Home? Be Aware of These Half-Truths
Since selling a home is one of those events that many folks only do a few times in their lives, there is much uncertainty about what kinds of potential rules and laws may trip you up. Recent data suggests that the average American will buy and sell their primary home something like 10 times in their lifetimes – for many that number will be far less. There is a lot of information about the tax impacts of selling a home out there flying about on the internet, and some of it is mostly bunk. And much of what’s not bunk is limited in applicability. Below are a few half-truths about home sales that you want to understand before you sell your home, along with the explanation of the facts behind them, including how they may apply to your situation if at all. 1. If I sell my house I need […]
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Increase Your Income Tax Knowledge
If you find yourself stymied by the Income Tax Code (more power to you if you don’t!) and you’d like to get a better understanding of this very important area of your financial life, the IRS has many resources to help you improve your knowledge of taxes. At the risk of sounding churlish, I suggest that if you’re an incurable insomniac these resources can also be used in lieu of the strongest over-the-counter sleep aid drug with satisfactory results and few (if any) side-effects. The IRS recently published their Summertime Tax Tip 2013-21, which describes several of the resources available to help you gain a better understanding of income taxes. The text of the Tip follows, in its entirety: Explore a Quick and Simple Way of Understanding Taxes If you’re a student or teacher, the summer months may be a nice break from class, but they’re also a good time […]
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Review Tax Withholding In Time to Fix Problems
At this time of year, with a few months remaining on the calendar, it can be a good time to review your income and withholding to ensure that you will have enough in tax payments to ensure that you don’t get hit with underpayment penalties next year when you file your return. This can be a relatively simple activity – all you need to do is gather your most recent pay-stubs and all of your other income information together and produce an estimate of your tax burden. You’ll then compare the estimated tax with the amount of withholding and estimated tax payments that you’ve made up to date. To do the estimates, you can use the worksheets available within Form 1040-ES, as well as the IRS’s Withholding Calculator online tool. (click the links to go to the tool or form) If your withholding is significantly less than the estimated tax […]
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3 Reasons to use the new safe harbor home office deduction and two reasons not to
Home office workers! In case you hadn’t heard about it, the IRS made some changes to the way the home office deduction works for 2013. Essentially, you are now allowed to deduct a flat $5 per square foot of dedicated office space, with a maximum of 300 square feet. But this new “safe harbor” option isn’t for everyone. Listed below are three reasons this may be good for you, and a couple of reasons that you might want to use the old method. 3 Reasons It’s a Good Thing Depreciation recapture not needed any longer – if you are just starting out taking the home office deduction, you can forget about this concept of “depreciation recapture”. This is a required add-back (actually basis reduction) when you sell your home. If you took the old-style home office deduction, including depreciation of your home office space, you’ll still need to keep records of […]
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Tips When Renting Out Your Vacation Home
If you have a vacation home that you only use during for brief vacations throughout the year, you might have entertained the thought of renting out the home to defray some of your expenses. Using a property for mixed purposes – that is, partly as personal and partly as a rental (business use) – can lead to some complications with regard to your income taxes. This is due to the fact that the income earned from renting out the property is likely to be taxable income, which you will need to report on your income tax return. Of course, you’re allowed to deduct the expenses that are related to the production of income, and then you’re only taxed on the net income after the deductions. The IRS recently published their Summertime Tax Tip 2013-08, which provides some of the guidelines to keep in mind if you’re going to rent out […]
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Financial Record Storage and Safekeeping
We’ve all got reams of papers, paystubs, receipts, sticky notes and possibly even old matchbook covers with important financial information stored on them. It’s important to keep some of these documents safe, in order to provide proof of purchase, documentation for deductions, and the like. You never know when a significant event could occur in your home that could put these documents at risk. Fire, flooding, tornadoes, blizzards, and three-year-olds can emerge out of nowhere and could possibly destroy your important documents. We’ve discussed how long to keep these documents in the past. Recently the IRS published their Summertime Tax Tip 2013-04, which details some recommendations for safe storage of your documents. The text of the Tip follows. Keep Tax and Financial Records Safe in Case of a Natural Disaster Hurricanes, tornadoes, floods and other natural disasters are more common in the summer. The IRS encourages you to take a […]
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Last-Minute Tax Tips
Since today is D-Day for income tax filing, I’ve pulled together a few recent tips that the IRS published. These tips cover a few of the areas that you may find interesting, including how to get a six-month extension for your filing (but not for payment of tax), errors to avoid as you complete your tax return, how to make IRA contributions, and tips for the self-employed at tax time. This is a much longer post than I normally write, but I think it has a lot of very good and very timely information that will be useful today. The actual text of these tips are listed below, with the reference number of each tip. IRS Newswire IR-2013-38 Can’t File by April 15? Use Free File to Get a Six-Month Extension; E-Pay and Payment Agreement Options Available to People Who Owe Tax WASHINGTON – The Internal Revenue Service today […]
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What Income is Taxable?
It may be tough to figure out which parts of your income you’ve received over the year are taxable, and what parts are not taxable. This is because certain kinds of income may seem like they should not be taxed (but they are), while other items of income seem like they should be taxed (but they’re not). The IRS has published a Tax Tip to help understand which income is taxable and which is not. The complete text of IRS Tax Tip 2013-12 is detailed below. Taxable and Nontaxable Income Most types of income are taxable, but some are not. Income can include money, property or services that you receive. Here are some examples of income that are usually not taxable: Child support payments; Gifts, bequests and inheritances; Welfare benefits; Damage awards for physical injury or sickness; Cash rebates from a dealer or manufacturer for an item you buy; and […]
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What You Need to Know About the Alternative Minimum Tax (AMT)
When you have high taxable income and certain deductions and exclusions from income, you may be subject to the Alternative Minimum Tax, or AMT. This is a nearly flat-tax, which excludes a higher amount of income from the regular income tax. For 2012 taxes, the exclusion of income is $50,600 for singles, and $78,750 for married couples. The “nearly flat” tax rate starts at 26% and the upper end rate is 28%. Under the AMT, no deduction is allowed for the standard deduction, or for personal exemptions. State and local taxes are also not allowed to be deducted from your income. Your other itemized deductions are allowed, at least to a certain extent. Recently the IRS issued their Tax Tip 2013-17, which lists Five Facts to Know About AMT. The actual text of this Tip is below. Five Facts to Know about AMT The Alternative Minimum Tax may apply to […]
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Knowing which tax form to file
When filing your own tax returns, it can be confusing to figure our which form you should use. If you are using tax preparation software, most often this choice is made for you, but if you’re doing it the old-fashioned way, you need to know which form to file. The IRS recently issued Tax Tip 2013-04, which helps you to choose the correct form to file. The actual text of the Tip follows (I’ve cleaned up a few formatting issues): Choosing Which Form to File IRS e-file makes it easy for taxpayers to choose which tax form to file. Tax software automatically chooses the best form for your particular situation. Most people e-file these days, but if you prefer taking pen to paper, the IRS has some tips to help you choose the right form. Taxpayers who choose to file a paper tax return should know that the IRS no […]
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Choosing a Tax Preparer
It’s that time of year again – time to do your income taxes. While lots of folks will opt for the “box”, using one of the many do-it-yourself options like TurboTax, Tax Cut and others, many folks will choose to go to a professional tax preparer to have their returns prepared. There are several types of professionals who are qualified to prepare your tax return: Certified Public Accountants (CPAs), attorneys, Enrolled Agents (EAs), and unenrolled tax preparers. You’re likely familiar with CPAs and attorneys, so I won’t go into explaining them. Enrolled Agents (EAs) are enrolled with the IRS and empowered to represent taxpayers before the IRS. This type of professional must pass a rigorous series of exams to be enrolled, and then must complete 72 hours of continuing education every three years to remain enrolled. CPAs, attorneys and EAs (as well as Enrolled Actuaries) are among a group known […]
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IRS Announces A New Home Office Deduction Option for Tax Year 2013
For folks who work out of their homes, including home-based businesses and telecommuters among others, there is a new alternative available starting with the 2013 tax year for claiming the Home Office Deduction. This new method saves a lot of extra recordkeeping and simplifies the filing process considerably. In the past (including tax year 2012 which you’ll file by April 15, 2013), to take the home office deduction you are required to fill out Form 8829, Expenses for Business Use of Your Home. This form requires you to compile all of your expenses for your home and then allocate those expenses to the portion of your home that is used “regularly and exclusively” for business purposes. IMPORTANT NOTE: For your 2012 tax return (which you’re filing in 2013) you must use Form 8829 as usual. The new method will be available on your 2013 tax return which you’ll file in […]
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Getting a Transcript From the IRS
Often when dealing with an issue regarding a prior year’s tax return it is necessary to get a copy of the information that the IRS has on record for your return as filed. Of course, you should always keep a copy of your original return, but in the absence of an original, the IRS’s record, known as a “transcript”, stands as the only way for you to have access to the filed information. A couple of months ago the IRS sent around their Summertime Tax Tip 2012-18 which details how you can request and receive a transcript for a prior year’s return. The actual text of IRS Summertime Tax Tap 2012-18 follows: How to Get a Transcript or Copy of a Prior Year’s Tax Return from the IRS Taxpayers should keep copies of their tax returns, but if they cannot be located or have been destroyed during natural disasters or […]
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IRA Distributions Are Not Subject to the New 3.8% Surtax
As you may be well aware, beginning in 2013 there will be a brand spanking new tax added to unearned income if your Modified Adjusted Gross Income is greater than $200,000 for Singles, and $250,000 for Married Filing Jointly. Married folks filing separately are affected above a $125,000 threshold. This surtax is to help bolster the Medicare system, and it applies specifically to unearned income. What’s important to know is that IRA distributions (among other things) are not included as impacted by this new surtax. This means that when you make significant IRA distributions (beginning in 2013), such as to convert to a Roth IRA, this surtax will not be applied to your distribution. Other types of unearned income that are specifically exempted from this surtax includes tax-free interest and other payouts from retirement plans such as 401(k) plans, deferred compensation plans, and pension plans. Income that is subject to […]
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