New (Tax) Year’s Resolutions

Untitled design(3)As 2015 winds down, tax season is gearing up. Here are some great ways to make sure things are looking up for you tax-wise in 2016.

1. Resolve to e-file

Electronically filing your tax return, or e-filing, has its rewards. No lost paperwork in the mail, no IRS employee errors as they manually process your return, and a faster turn-around for refunds. By e-filing your return, your information is transmitted directly to the IRS. A tax pro can e-file on your behalf, or you can take the DIY approach with many of the e-filing options available to consumers.

2. Know what you’ll owe

If your income changes considerably in 2016, chances are you’ll be facing a higher tax bill for 2016. Income sources such as bonuses, IRA distributions, purchase contracts, settlements, and certain gambling winnings can all nudge you into the next highest tax bracket.

Prepare in advance, if you can, by setting aside enough money in your savings account to cover the increased tax bill. By doing so, you’ll lessen the “sticker shock” on tax day, and can take care of your tax bill in one lump sum. By doing so, you’ll avoid penalties, fees, and possible hassles in dealing with the IRS.

A qualified tax pro can be of great help at a time like this, and can advise you in taking the steps necessary to address your higher tax bill in 2016.

3. Ask for help

If you’re facing back taxes, IRS collection actions, a large tax bill, or any other serious tax matter, 2016 is your year to ask for help. Very few people are equipped to wade through IRS tax code and to interpret and apply those regulations to their own tax scenario.

Enlisting a qualified tax pro to help you assess your individual tax matter can pay dividends in terms of peace of mind and a clearer idea as to what the IRS is requesting from you. A tax pro will help you understand complicated IRS tax code as it applies to your circumstances, and can advise you of the best course of action to take in dealing with the IRS.

The end of 2015 doesn’t have to mean the start of tax headaches in 2016. By e-filing, understanding how much you’ll owe and asking for help,  you can get ahead of the stressed-out masses waiting til the end of 2016.

By resolving to get a fresh start in the new tax year, your tax outlook for 2016 could look much brighter.

If you’re facing a serious tax issue, resolve to take charge by calling us at (888) 224-3004 or by clicking the white “Start Chat” button at the top of our homepage. We have qualified tax pros on staff who can help you make sense of your back taxes, IRS collection, or other serious tax matter.

Three New (Tax) Year’s Resolutions You Must Keep

Untitled design(3)If you’re creating your New Year’s resolutions, don’t forget to include resolutions for the new tax year. Getting off to a solid start with organization and sound tax planning practices will save you serious headaches at this time next year. Here are three New (Tax) Year’s resolutions to keep in mind as 2016 approaches.

1. Get organized

Now is the time to set up a filing and/or record-keeping system for all of your tax documentation, especially if you plan on itemizing your deductions in 2016, or are self-employed.

Keep all of your receipts and paperwork in one location, and set up a filing system that works best for you. Set aside a filing cabinet or folder if keeping papers copies of documents is more your style, or set up electronic folders if you plan on scanning your income documents.

If you are self-employed or have a side gig or tip income, set up a spreadsheet for recording your tips and miscellaneous income. Set up another spreadsheet for your expenses, and update it as the year progresses.

You will be able to refer to all of your records quickly when tax season rolls around next year.

2. File early

No one likes the idea of filing their taxes, but if you plan to file early, you can correct any errors you might find on your tax forms, such as your W2 or 1099 forms. Make sure these forms have your current address, and that your name and social security number are correct. By planning ahead of time, you can allow for the extra time should you need to have any of these forms corrected…no last-minute hassles.

Another benefit to filing early: you’ll get your refund earlier. As an early filer, you’ll also experience a quicker turn-around in processing and mailing your refund.

By filing early, you’ll also be less at risk for identity theft. The longer you wait, the more opportunity identity thieves have to file a fraudulent return in your name.

3. File for an extension

If you’re facing the Tax Year of Doom and the mountains of paperwork that goes along with it, consider filing for an extension. This is especially true if there are tax documents that will be delayed for any reason. If you know for certain that you will not be ready on tax day, filing an extension will relieve much of that tax-day stress.

An extension could buy you the extra time you need to get your tax documents in order and to receive documents that have been delayed for any reason (e.g. financial records related to a divorce, sale of property, trust or an estate). Your extension will expire on Oct. 15.

Tomorrow: Even more New(Tax) Year’s resolutions

The New Tax Year Resolution You Must Make Right Now

calculator-1019743_1280Ignoring that past due tax debt will get your new year off to a stressful start

2015 will be history in a matter of days. If looking back on 2015 also includes an outstanding tax debt, addressing that tax debt needs to be at the top of your New Year’s resolutions list.

Penalties and fees

If you have not  yet paid your 2014 taxes, you’ve been racking up penalties and fees for each month of non-payment. The IRS assesses a non-payment penalty of 1/2 of 1 percent of the balance for each month after the initial due date. It may not sound like much, but it can penalties can add up to as much as 25 percent of the balance due.

That’s a lot if you’re on a tight budget, and penalties can add up quickly, not to mention past due notices from the IRS.

Don’t panic, and don’t ignore the IRS

Don’t assume the IRS will forget about those outstanding taxes, because their role is to collect tax payments from citizens. If you’re ignoring their written notices in hopes the IRS will forget and move on, it will never happen.

The IRS will become more aggressive with each passing month of non-payment. Regardless of where you are in this collection cycle, the IRS won’t forget. If you are facing asset seizure for non-payment of past due taxes, you need to take action immediately to protect your bank account and other assets.

Your best defense against the IRS

The bad news is you owe back taxes. The good news is that there are tax professionals who can help you. A qualified tax pro can determine if you’re eligible for an installment agreement, Offer In Compromise or Currently Non-Collectible status. A tax pro such as an Enrolled Agent or tax attorney can represent you in negotiations with the IRS.

One key advantage to hiring a tax pro: they know the complex IRS tax code inside and out, so you won’t have to. A qualified tax pro will also ensure your rights are upheld throughout the collection proceedings. They will also explain each step to you in terms that you can understand.

You won’t hear jargon or “legalese,” but you will hear an honest assessment of your financial circumstances and your options. Your tax pro can work with you in arriving at a payment arrangement you can live with over time.

If you’re facing 2016 with an outstanding tax bill, now is the time to take charge and take back your life. We have qualified tax pros on staff who can help you sort out your options, negotiate on your behalf with the IRS, and advise you every step of the way. Even better, they can translate that complex IRS jargon that might be difficult to interpret and understand.

If you’re ready to face 2016 with a clear plan of action, give us a call today at (888) 224-3004. You can also chat with us by clicking the white “Start Chat” button at the top of our homepage.

Either way, you don’t face to face past due taxes alone. We can help.

 

 

 

Changes to the 2015 Tax Code You Should Know

Part 2 of 2

OIC

In addition to changes in the rules surrounding certain deductions, some popular tax breaks were extended this year beyond their initial expiration date. Here’s a look at some of them:

  • Higher education tuition deduction. You may still be able to deduct between $2,000 and $4,000 of qualified tuition expense. This deduction applies to an accredited post-secondary career school, college or university.
  • Energy credits. If you made energy-efficient changes to your home, you’re in luck. Enhancements such as improved insulation and  upgraded energy-efficient heating/cooling systems are eligible for the energy credit.
  • Educator expense deduction. If you are a K-12 teacher who dipped into your own funds for classroom supplies, you’re in luck. You could deduct up to $250.00 in unreimbursed classroom expenses. You must be a full-time teacher and work 900 hours per academic year to be eligible.
  • Commuting tax breaks. If you take mass transit to work, you could be eligible for a tax break much like those who have employer assistance to cover parking costs. The current deduction is $130.00 per month.
  • Deduction for small business equipment purchases of up to $2 million. This will come in handy if you decide to purchase/upgrade your business equipment. Eligible expenses now include computers and work stations.
  • Work Opportunity Tax Credit. If you own a business, good help can be hard to find, and expensive to hire (training and on-boarding expenses for example. However, Uncle Sam has extended the Work Opportunity Tax Credit. You’ll be eligible for a credit equal to a percentage of wages paid if you hire a permanent worker from any one of these targeted groups: TANF, SSI and SNAP clients, qualified veterans, qualified summer youth program members, vocational rehabilitation clients, to name a few.

Understanding changes to the tax code or extension for tax cuts will go a long way during tax season this year. Since each individual tax scenario is different, we recommend that you consult with a qualified tax pro. He or she will answer your questions, help you determine your eligibility for certain deductions and exemptions, and can even file on your behalf.

The start of tax season doesn’t have to mean unanswered questions and last-minute panic. As the old-school expression states, “Forewarned is forearmed.” The more you know in advance, the less likely it is you’ll be caught by surprise on tax day.

Tax Code Changes 2015 You Need to Know

Learning about changes to 2015 tax code can save you from “sticker shock” on tax day.

It seems that each passing year brings updates or changes to IRS tax codes, and 2015 is no exception. Here are a few of the tax code changes for 2015.

Crackdown on IRA rollovers: In years past, you could withdraw funds from one IRA, wait for 60 days, and then place those funds into another IRA. Effective this year, you are allowed only one IRA rollover per 12 month period. You could be penalized for any rollovers beyond the one-per-year limit.

ACA penalty: The Affordable Care Act, affectionately known as “Obamacare,” made health insurance accessible to a broader cross-section of people that were previously  ineligible for individual or government-based plans, or who had no access to employer-sponsored plans.

Taxpayers who decided to opt out were hit with a relatively mild $95.00 fee unless they could file for an exception to that provision.

This year, non-compliant taxpayers will see a penalty of at least $325.00 per person, a substantial increase from last year. If you plan on filing for an exemption, you’ll need to do so quickly as the IRS requires a certificate for some exemptions.

ACA exemptions granted on a case-by-case basis. This tool from healthcare.gov will walk you through a series of questions to help you determine whether or not you’re eligible for an exemption.

Foster Care payments for relatives: In previous tax years if you were a legal foster parent for a young relative and receiving payments from either MedicAid or a licensed government agency in exchange for foster care, you had to declare those payments as income each year. This was due in part to the provision that stated a relative could not be considered a foster child.

Beginning this tax year, if you have a younger relative living with you that is also your foster child, any payments received for non-skilled medical support can be excluded from your taxable income.

Great news for Pell Grant recipients: Pell Grant funds can now be allocated toward your living expenses instead of just toward tuition, fees and books. This change increases the actual amount of educational expenses you would report in claiming one of the higher education tax credits.

Tomorrow: Learn more about additional tax code  changes for 2015.

 

 

So When Does the IRS Initiate Collection Action?

OIC

 A quick IRS collection primer

If you’ve been a taxpayer for at least a few years, chances are you’ve heard IRS collection horror stories. After all, no one likes to hear from the IRS, and dealing with the IRS can be intimidating. One of the most popular reasons for hearing from the IRS is with regard to back taxes. What exactly takes place when dealing with an IRS back tax matter?

First of all, the taxes must be due and payable. Once you’ve prepared and filed your return (or had a tax pro do it on your behalf) you know right away whether or not you owe taxes. The IRS knows this as soon as they receive your return, so as they saying goes, “they’re on to you.”  You’ll need to pay any taxes due by the April 15th deadline in order to avoid late fees and penalties.

You’ll receive a Notice of Tax Due in the mail if you weren’t able to pay your taxes and submit them along with your return. This is s courtesy notice from the IRS, reminding you of your outstanding tax balance. You will have 10 days to pay the amount due or to make payment arrangements.

If the IRS doesn’t receive a response or payment from you, and if the tax bill is relatively small, you’ll receive a series of notices before they initiate collection action. The IRS has to conform to a strict series of policies and procedures before initiating collection action.

Each successive notice escalates in terms of urgency and in outlining the consequences for non-payment. Once your tax account reaches the collection stage, the IRS can and will become more aggressive in terms of recovering the debt you now owe them. At this stage, you do have the opportunity to set up an installment agreement or apply for an offer in compromise. Both of these require the help of a tax pro.

However, if you fail to respond to any IRS notice, or any other attempt to reach you, they will issue a Notice of Intent to Levy. In essence the IRS is informing you they can and will seize assets such as your bank account in order to satisfy your tax debt. 

However, you don’t have to let your outstanding tax bill get to that point. You do have the option of either negotiating with the IRS on your own or enlisting a tax pro to negotiate on your behalf. Despite the horror stories and urban myths, the IRS is willing to negotiate with taxpayers regarding an outstanding tax balance.

This is especially true if the balance due is relatively small. If you’re a rock star with hundreds of thousands of dollars in back taxes, then the IRS could be more aggressive in terms of collecting from you. 

If you’re facing an outstanding tax bill, don’t put it off for a moment longer. If the thought of dealing with the IRS gives you the cold sweats, we have tax pros on staff who are trained and qualified to negotiate with the IRS on your behalf, and to seek a payment arrangement you can live with.

Get started today by either giving us a call at (888) 224-3004 or by clicking the white “Start Chat” button at the top of our homepage. You don’t have to go it alone. We can help.

When Hard Times Hit Close to Home: Short Sales and Your Taxes

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Although the economy is showing signs of life is most parts of the country, there are still some consumers struggling to regain financial footing lost in the recession. Plunging home values, long stretches of unemployment and ongoing under-employment can wreck havoc on your finances. If you’re contemplating a short sale of your home, there are possible tax implications.

What is a short sale?

Let’s assume your mortgage balance is $500,000 and you can no longer continue to make your mortgage payments. Your lender agrees to allow you to sell your home for $450,000, which is $50,000 less than your loan balance. Once the sale is complete, you’re out from under your mortgage and your home.

What will happen next?

The mortgage company or lender cancels the remaining $50,000 as part of the short sale. They will issue a 1099-C Cancellation of Debt form to you at the end of the year, and you will need it to file your taxes.

How will it affect my taxes?

Typically when a debt is cancelled (e.g. car loan, credit cards) you’ll need to claim the cancelled debt as income. For example, if a credit card company cancels an old $5,000 credit card debt, you’ll need to declare that $5,000 as income on tax day.

In theory, the same rule applies for any cancelled mortgage debt due to short sale or foreclosure. However, there are two key  exceptions to that rule:

  • Insolvency: If your debts (liabilities) exceed your assets, you’re considered insolvent and the cancelled debt is exempt from being taxed as income.
  • Bankruptcy: If the short sale was discharged through a bankruptcy, it isn’t considered taxable income.

Dealing with a short sale is complex, even for the most financially sophisticated consumer, so if you’re contemplating a short sale or if you’ve already had a short sale of your home, it’s time to enlist a tax pro who can advise you based on your individual income circumstances and tax scenario.

He or she can provide valuable input regarding the changes in your tax scenario and  how to reduce your overall tax liability.

If you’re facing IRS collection or any other serious tax matter, we have tax pros on staff who can help. Get started today by either giving us a call at (888) 224-3004 or by clicking the white “start chat” button on our homepage. Don’t go it alone. We can help.

Life After Bankruptcy: Filing Your Taxes

Photo: Melenchon
Photo: Melenchon

Bad things can happen to good people: Illness, job loss, catastrophic medical expenses and natural disasters can wreck havoc on individual finances. In some cases, the only solution is to file for bankruptcy protection.

Bankruptcy not only affects your finances and credit rating, you’ll also have to take a different approach to filing your taxes. Here’s a brief look at those changes. Remember, if you are facing bankruptcy, it’s best to consult with a bankruptcy attorney for advice regarding your individual circumstances.

Once a consumer (also known as the debtor) files for bankruptcy, they are in effect turning over their affairs to a trustee. The trustee will then act on the debtor’s behalf in managing any non-exempt assets used for repaying creditors.  This arrangement forms an estate, much like an estate for an incapacitated or deceased person.

The debtor will file their customary 1040 form, and either the debtor or the trustee will file the 1041 form, which is the estate’s tax return.

Chapter 7: This form of bankruptcy is for individuals and married couples. In this case, there will be no trustee, since there are no assets that can be used to repay creditors. The tax scenario changes in that the debtor will not only file their 1040, they will also file their 1041 form on behalf of the bankruptcy estate.

Chapter 13: This is also for individuals and couples who have non-exempt assets that can be used for repaying creditors. The trustees manages these assets and utilizes them for repayment. Any tax refunds, for example would be used for repayment to creditors via the bankruptcy estate each year until creditors are paid off.

You will file your regular 1040 form, and the bankruptcy trustee will file the 1041 form on behalf of the bankruptcy estate.

Although post-bankruptcy tax filings are best handled by a qualified tax professional, learning about a bankruptcy’s impact on your tax scenario will hopefully demystify the process for you.

The decision to file for bankruptcy is never easy, and it takes careful consideration under the guidance of a qualified bankruptcy attorney.

By filing on behalf of yourself and the estate, there is less chance for errors or omissions when it comes to filing taxes in the wake of a bankruptcy filing. Plan carefully, enlist a bankruptcy attorney and a tax advisor, and you can begin to rebuild your finances over time.

 

Don’t Overlook Last-Minute Deductions

paperwork-1538658-1279x852(1)Wrap the year up right by getting a jump on tax day planning

Part 4 of 4

By now, you’ve become familiar with some tax breaks that you hadn’t thought of before. In part 4 of this series, we’ll take a look at even more tax breaks. 

As with any tax matter, it’s best to check with a licensed tax professional with any questions regarding your eligibility for a specific tax deduction. 

1. Accounting and tax prep fees: If you paid for tax prep software or paid a tax pro to prepare and file your taxes, you can deduct any fees associated with that service. 

You may also deduct any fees associated with representation during an IRS audit or for any other tax-related matter. 

You would list these fees under “miscellaneous deductions” on  the Schedule A attachment for your federal tax return. 

2. Substance abuse treatment: These costs can be deducted under the “medical and dental expense” portion of schedule A. 

3. Legal fees connected to alimony: While you can’t deduct all of the legal fees associated with divorce, you can deduct the portion of legal fees that were associated with either receiving or paying alimony. 

4.  Mortgage prepayment penalties and late fees: If you paid off your mortgage early and were hit with a prepayment penalty, you can deduct that penalty under the “mortgage interest” portion of Schedule A. 

If you made any late mortgage payments, you can also deduct your late payment penalties under “mortgage interest. 

5. Personal liability insurance: If you must carry personal liability insurance as part of your employment or business, you can deduct any premium costs that are not reimbursed by your employer. 

As with any tax matter, it’s best to check with a licensed tax pro regarding your unique tax scenario. You’ll need to meet certain income percentage guidelines to claim most of the deductions mentioned in this series. 

Getting an early start to end of year tax planning will save you time and headaches in the long run.

If you will be claiming any itemized deductions for the tax year, be sure to keep any receipts or records connected with your deduction(s).

You’ll need them to prepare your tax return and you’ll  also need to keep them beyond tax day in the event your return is selected for an audit. 

 

 

 

 

Don’t Overlook These 5 Tax Breaks

Freeimages/Paige Foster
Freeimages/Paige Foster

Don’t overlook these last-minute tax breaks

Part 3 of a 4-part series

Year-end tax planning may yield some pleasant surprises in the form of tax breaks you hadn’t thought of before. Take a look at these five possible tax breaks and see if they may be an option for you. 

Always check with a qualified tax pro to see if you meet the requirements for any of these tax breaks. 

1.  Earned Income Tax Credit (EITC): While this credit is only available if your income falls within the low to moderate range for your household size, don’t count it out if you’ve had some significant changes to your earnings this year. Those changes can include:

  • Job loss or layoff
  • Significant cut in pay or hours
  • Disability

If you’ve experienced any of these events this year, chances are you struggled with significantly less income than in prior years. Check with a tax pro to see if you are eligible for the EITC for this year. 

2.  Jury duty fees paid to employer: If your employer pays your full salary while you’re on jury duty, they may ask you to turn over your jury duty fees (paid to you by the court) when you return to work. 

Even though jury fees are  miniscule in comparison to your income,   the IRS still regards them as taxable income. Be sure to deduct those fees from your taxes, so you aren’t taxed on money that was passed directly to your employer. 

Be sure to save any statement or receipts verifying the jury duty payments.

3. State taxes you paid last year: If you ended up owing state income tax last year, be sure to include that amount on this year’s return as an itemized deduction. You may also include any estimated quarterly income taxes you’ve paid as well. 

4. Self-employed health insurance premiums: If you’re self-employed, you know firsthand that insurance coverage isn’t cheap. The IRS understands this and allows for self-employed workers to deduct insurance premiums for medical, dental and long-term care insurance. 

This deduction includes insurance premiums paid for yourself and your dependents. You can include this figure as an itemized deduction on Schedule A of your 1040 tax form. 

5. Protective clothing required for work: If your line of work requires you to wear protective clothing, you’re in luck. Items such as hard hats, goggles, work boots, and fire-retardant outer wear are just some of deductible items. 

There is a catch, however. The clothing items can’t double as street wear, and they must be required by your employer. You’ll deduct the cost of these items on Schedule A of your federal tax return. 

As with any deduction, always check with a tax pro to see if you’re eligible. 

These easily overlooked tax breaks can take the sting out of tax day. Gather your receipts and tax records, talk with a tax pro, and get ready to enjoy a lower tax liability for your 2015 taxes.