How The FAST Act Can Affect Your Passport

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President Obama signed the FAST (Fixing American’s Surface Transportation Act) into law on December 4, 2015. Embedded within that law is one provision that can have serious consequences for passport holders who also have delinquent tax debt in excess of $50,000.

If you are an ex-pat living overseas or if you travel abroad for leisure and are delinquent on a tax bill of $50,000 or more, you could have difficulty renewing your passport.

The Secretary of State has the ability to deny a passport application or renewal to individuals who have been identified by the IRS as delinquent on their taxes.

As with most bills, this provision is tied to a bill that is unrelated to tax and IRS matters.

It is important for you to seek counsel if you are living overseas, travel abroad, have foreign income or assets, a spouse who is a non-US citizen, a foreign inheritance or stock options.

Only a licensed tax professional skilled in US tax laws and foreign tax matters is qualified to address your tax debt if you are a passport holder or will be applying for a passport in the near future.

Your tax professional can assess your overall tax scenario, including income or assets that could result in a significant tax bill now or in the future.

The IRS defines “significant” tax debt as $50,000 or more, indexed for inflation and including fees and penalties.

Don’t wait until your passport application or renewal is denied. If you travel abroad frequently and are delinquent on your taxes in excess of $50,000, we can help.

We will carefully assess your tax status, advise you if you qualify for tax relief or any of the other available options, and formulate a plan of action.

Get started today by contacting us using any of the methods described under the”Contact” tab on our website. Don’t let a large tax delinquent tax bill jeopardize your ability to travel or live overseas.

5 Tax Audit Myths You’ve Probably Heard

tax audit

 

Tax audits are a favorite topic for urban myths. Here’s the truth behind the hype:

A Tax Audit Is Intimidating: Unlike the grill sessions you’ve most likely seen on TV, most IRS audits are correspondence audits: you’ll receive a notice requesting additional information or clarification of information on your return. You provide the needed documentation, the revenue agent or clerk reviews it, and case closed.

Definitely not the sleeves-rolled-up interrogation session of urban myth!

You’ll Get Audited Right Away: In most cases the IRS will abide by the three-year statute of limitations–unless the return in question has substantial errors.

It can take a year or more for the IRS to wade through the millions of tax returns it receives before it determines your return is worth a second look. In the case of more complex returns with substantial errors, the IRS may reach back six years.

Tax experts suggest keeping tax records (income documentation, income/expense records) for up to six years for this reason.

Professionally-prepared returns are audit-proof: As much as we’d like to think this is the case, it’s not. If your tax preparer embellished your return, provided incorrect information, or attempted to claim deductions for which you’re not eligible, the IRS can and will come knocking.

Find a tax pro with an established track record in your community and who is good standing with both the IRS and the Better Business Bureau. Online review sites such as Yelp and Google are also helpful, along with recommendations from friends and colleagues.

Tax audits are common: Given the sheer volume of urban myths and audit-related horror stories, it’s safe to assume that tax return audits are common. The good news: only an average of 1 in 116 taxpayers will undergo a tax return audit.

Low-to-moderate earners won’t be audited: If you’re among those in the lower income brackets, this myth might be music to your ears. It’s just that: a myth. Unfortunately, an audit is an equal opportunity headache.

The IRS takes into consideration(among many other factors) the accuracy of the information on the tax return, not the taxpayer’s income status.

Certain deductions will trigger an audit: Have you heard the one about home office expense triggering an audit? Educational expense deductions or dependent care deductions? The good news is that certain deductions will not trigger an audit.

The IRS will, however, pay close attention to returns that are suspicious, inaccurate, or “beyond common sense,” so it pays to file an accurate and truthful return each year.

Tax season is fertile ground for rumors, urban myths and other scary stories surrounding tax returns and tax audits. The good news is that they are just that: urban myths and scary stories.

If you are in among the 1 in 116 to be selected for audit, chances are you will be facing a correspondence audit. Respond promptly to all requests for information, and when in doubt, enlist is a qualified tax pro.

We have IRS Enrolled Agents and tax attorneys on staff who can help. If you’re facing an audit or other serious tax matter and would like a tax pro by your side, get started today by scrolling to the bottom of our homepage and clicking the blue “start secure chat” button.

 

Protect Your Identity This Holiday Season

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It seems that no sooner do we finish chowing down on Thanksgiving, it’s time to shop. Black Friday, Small Business Saturday, and Cyber Monday are days in which retailers hope to boost their profits and bring in shoppers eager for a holiday deal.

Retailers aren’t the only ones who are enjoying the peak shopping season, however. Identity thieves and hacking syndicates look to the holiday season as their busy season, too. Major breaches such as the Target data breach in 2014 reminded us that identity thieves are no longer wannabe hackers hoping to get a few social security numbers; they’re now major syndicates who use sophisticated methods for obtaining our sensitive information.

Here are a few reminders for protecting your sensitive financial and personal information as you head out for some holiday shopping:

Shred any documents that contain your personal information such as bank statements, utility bills, credit card bills. Less sophisticated identity thieves will dumpster dive for documents that contain financial and personal information. If it has your name on it, shred it.

If you receive an email, phone call or text requesting your personal information, don’t respond. Identity thieves now rely on phishing, vishing, and smishing to trick unsuspecting consumers into handing over their personal information. The email, phone call or text will instruct you to click on your “bank’s” link and to fill out an online form. Don’t fall for it. 

Scammers posing as the IRS will also resort to the same tactics. When in doubt, call the bank or IRS directly yourself.

Never give your credit card number over the phone unless you are placing a telephone order yourself.  If you receive a phone call from a charity soliciting donations over the phone, better safe than sorry and hang up. If you can’t resist the tug on your heartstrings, tell the caller you’ll be more than happy to donate once you receive further information from them in the mail. Follow up on a site such as Charity Navigator to verify if the agency is legitimate before handing over a donation.

Use judgement when donating to a door-to-door collector or a storefront collector. While there’s nothing wrong with handing over some cash if the  spirit should move you, be leery of an organization that insist on donations via credit card or electronic transfer.

Next time: What you need to do if you’re the victim of identity theft.

Taxpayer Tips for New Grads

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If you’re a member of the Class of 2015, chances are you have a lot on your mind: Finding work, moving to a new city, or moving back home to save on expenses while you get on your feet. If you’re one of the lucky ones who has landed a full-time job right out of school, your tax scenario is going to change. Here are some tips to make your first tax season a stress-free tax season:

1. Your Student Loan Interest is Deductible

If you’re already making student loan payments, there is some relief in sight at the end of the year: you can deduct your student loan interest. The IRS allows you to deduct the lesser of $2500.00 or the actual amount you paid in interest. For example, if you paid $500.00 in student loan interest, you can deduct that from your taxable income. Your student loan servicer(s) will issue a 1098-E form at the end of the year that will state the amount of interest you have paid.

Be sure to notify your student loan servicer of any address changes so your statement will arrive in time.

The IRS has established guidelines for claiming this deduction:

  • You paid interest on a qualifying student loan during the 2015 tax year
  • You were legally obligated to pay interest on the qualifying student loan (meaning that you were the person primarily responsible for paying off the debt – if you were paying off your friend’s loan, or  your child’s loan, you may not qualify for the deduction).
  • You are not filing taxes as married, filing separately (any other filing status is eligible)
  • Your modified adjusted gross income is less than $70,000 (if you’re single) or less than $145,000 (if you’re married and filing a joint return)
  • You are not being claimed as a dependent on anyone else’s tax return

While the student loan interest deduction may not completely take the sting out of your student loan payments, it can help in decreasing your overall taxable income, which in turn will mean you’ll be owing less in taxes.

2. Claim Your Own Exemption

Chances are if you’re younger than 24, have been a full-time student with your parents paying your expenses, you haven’t had to worry about claiming your own exemption each year.

However, if your financial situation improves after graduation and you’re able to pay your own bills and living expenses, you can claim the standard deduction of $4000.00 on your tax return, reducing your overall taxable income by $4000.00 right off the top.

3. Fill Out Your W4

If you landed a job after graduation, you’ll need to fill out a W4. While it may be tempting to claim more than one deduction, you could end up owing even more money at tax filing time. Instead, claim only yourself, just as you would on your tax return. This will prevent you from getting stuck with a larger than average tax bill at the end of the year.

Graduating from college  and landing a job in this tough economy is an accomplishment to be proud of. Get your financial future off to a solid start by understanding your student loan interest deduction, personal exemption, and how to fill out your W4 form properly. Doing so will make your first tax season painless and you won’t get stuck with yet another bill that’s tough to pay: a sizable tax bill.

 

 

Tackle Tax Day By Getting Organized In Advance

Photo: Ladyheart/morguefile
Photo: Ladyheart/morguefile

2015 is winding down and tax season will be here before you know it. Want to free yourself from the stress of last year’s tax day? Start organizing your paperwork now to get a jump on tax season. Your tax return prep will be painless by keeping these tips in mind:

Organize All of Your Records.

You’ll need to refer to last year’s return, so make sure you have a copy of that tax return handy. If you used DIY tax prep software, print out a copy of last year’s return and put in a safe place. Place it in a file, along with all documentation for income, expenses, and deductions:

*Paystubs: You’ll be comparing the year-end figure on your paystub with the information on your W2. Hang on to your current paystubs in the meantime.
*Receipts for deductions: If you’re going to itemize deductions, save all of the related receipts ( e.g., child/dependent care, homeowner’s deductions,  medical/dental expenses).
*Receipts for business-related expenses: meals, mileage, supplies, payroll, office equipment, insurance, home office expenses.
*Award letters for unemployment and disability insurance
*Documentation verifying amount of child support you’ll be receiving or paying
*Bank statements verifying interest income and mortgage payments
*1098 and 1099 forms
*Social security income verification

Tuck everything away in a folder, adding to it as you receive receipts other needed documents. Use a productivity app or spreadsheet program to document income and expenses. When tax day rolls around, you can transfer the totals from the app or spreadsheet onto your tax return.

Remember you’ll need to report all of your income: base wages, tips, side-gig income, gambling winnings, and so on. Careful record-keeping of your income will prevent tax day errors later on.

Of course, everyone’s tax scenario is different, so if you have questions regarding your specific tax needs, it’s best to talk with a qualified tax advisor well in advance of tax season to make sure you’re on the right track.

With 2015 winding down and the busy holiday season just weeks away, it’s easy to set aside tax matters for another day. However, tax season will be here before you know it, so advance preparation is the key to avoiding a stressful tax day experience. Plan ahead, organize your documents, and tax day will go much more smoothly.

Volunteer Vacations: Are They Tax Deductible?

You’ve maybe heard of “voluntourism” in which you travel to a different area as part of a research team or volunteer crew. Alternative Spring Break programs are becoming more popular, too, as more and more students would rather be of service during spring break than be hung over. Here ‘s a look at the tax rules surrounding this type of volunteer work.

IRS Publication 526 offers a more comprehensive take on the situation, but in a nutshell, it’s all in the nature and purpose of your trip:

Scenario 1: You decide to travel to a hurricane relief zone to assist with re-building and relief efforts. You spend a week handing out supplies, preparing meals, and playing with kids of displaced families at the relief center. You pay out of pocket to travel to the hurricane relief zone.

You can generally deduct your travel expenses, if you are working on behalf of a charitable organization such as the Red Cross or similar. You can also deduct the cost of meals and lodging. Remember, though, the burden of proof is on you to demonstrate that the trip was strictly for volunteer work and not a vacation.

Scenario 2: You sign up for a trip to Costa Rica that includes 3 days working on an archeological dig and two days for leisure activities.

You won’t be able to deduct the expenses attached to the archaeological dig due to your two days to vacation on your own for personal enjoyment.

Scenario 3: You take a group of youth camping as part of a charitable organization. You’re in charge of overseeing their activities, as well as setting up and breaking camp at the end of the trip. You are also responsible for transportation to and from camp.

If this trip is attached to a charitable youth organization such as scouting or other youth-oriented group, you are allowed to deduct travel and food expenses for this trip.

However…in each of the three scenarios, you must be on duty “in a genuine and substantial sense throughout the trip.” In other words, if your volunteer stint was limited to clearing breakfast dishes in the morning and prepping dinner at night while hanging out during the day,  the IRS could disallow your trip-related expenses.

If your volunteer stint required you to be on duty, as in the case of the camping trip in Scenario 3, you’re in luck: you can deduct those trip-related expenses.

Since these programs are fairly new, the IRS is going to scrutinize related expenses more closely than that check you write to the Boys and Girls Club last year. Be sure to keep all of your related receipts, logs, and other paperwork that can prove you were on duty for a substantial period of time.

It would be a good idea to get a letter from one of the officers of the charity, explaining the extent of your role.This will come in especially handy if you performed your volunteer work out of town.

As always, volunteer expenses must be attached to a qualified 501 (c) (3) organization in order to meet IRS guidelines.

Volunteer work, whether performed at home or across the continent, benefits both you and the charity. Make sure you can claim your related expenses by fully understanding the IRS guidelines governing volunteer expenses. When in doubt, consult a tax advisor prior to tax day.You can also consult IRS Publication 526 for more information.

 

Moving On Up: Tips On Deductible Moving Expenses

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You did it. After a long job search and lots of dead-end interviews, you landed a great new gig. Unfortunately, you’ll have to pull up stakes and move in order to be closer to this great new job. Good news: some of your moving expenses can be claimed as deductions on your tax return, which in turn will lower your overall tax liability. Read on for more information.

Requirements

First and foremost, your move must be for work-related reasons only. Ditching the old neighborhood in and of itself won’t cut it. You’ll also have to start your new job within 365 days of your move date.

Here’s where it can get tricky: your new job has to be at least 50 miles away from your old home. For example, if your old gig was 30 miles away from your old home, your new job will have to be at least 80 miles away from your old location.

If you’re unemployed, however, and if your move is strictly for a new job, you’re exempt from the distance requirement.

Qualified Expenses

These expenses are deductible moving expenses:

  • Connection fees for the utilities in your new home
  • Costs associated with disconnecting utilities and services at your old residence
  • Shipping costs, including truck rental fees, vehicle towing, shipping costs for sending household good to your new location.
  • First 30 days of storage fees if you rent a storage unit to stash your furniture and other goods
  • Lodging expenses near your new home if you can no longer stay in your old home and you’re not yet allowed to take occupancy in your new home

Check out IRS Publication 521 for more detailed information.

The How-To:

On tax day, be sure to complete and attach form 3903 to your return. Add up the total and transfer it to page 2 of your 1040 form. The overall deduction will lower your tax liability and in some cases, increase the amount of your return.

Landing a great new job in a new location can be stressful and exciting at the same time. Keep in mind that most of your moving costs will be tax deductible, provided they meet the requirements above.

 

What You Need to Know About The October 15th Deadline

vecezy.com
vecezy.com

 

Last April, the tax deadline was staring you in the face and you just weren’t ready. You kept calm and filed an extension that gave you leeway until the October 15th deadline. You may not still be ready for whatever reason. Here are some important facts about the October 15th deadline.

Q: I’m not going to make the October 15th deadline. Can I still file my return?

A: Great news! You can still file your return after the deadline. However, you won’t be able to file online. You’ll  need to file your return by mail. Send the return via certified mail with a return receipt to be on the safe side. If there is ever a question as to whether or not the IRS received your return, you have proof that is was in fact received by them. Whew! Now they can take it up with their in-house staff.

Q: What is going to happen to my refund? Will I still get it or will the IRS withhold it because I filed late?

A: The good news is that you will still get the full amount of your refund from the IRS. However, it will take a few weeks for you to get the refund since you had to file by mail. It can take up to 8-12 weeks to get your refund.

Q: What about penalties if I owe taxes?

A: Here’s where it can get a little tough, especially if you’re on a tight budget to begin with: You will end up owing an additional 5 percent of the balance due, under the failure to file penalty or late filing penalty. You also may have to pay an extra 0.5 percent of your balance due for each month that your taxes were unpaid. You will essentially pay two penalties in the end: one for late filing and one for late payment of your taxes.

The thought of missing the extended deadline can be stressful. By filing your return as soon as you can after the deadline and by understanding the penalties involved if you owe taxes, you will have a clearer idea of the consequences of filing past the extended deadline. At the same time, if you are entitled to a refund, you will receive the full amount with no penalties deducted for filing a late return.

Automated Auditing AKA Robo-Auditing

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It seems that everything is automated: dinner is interrupted by irritating robo-calls, job applications and resumes are passed through an impersonal applicant tracking system, and UPC codes have replaced price tags in stores.

With all this automation, it should come as no surprise that our tax returns are also passed through an automated system. The good news is that automation means faster refund processing, but the bad news means you’re at risk of a “robo-audit.”

Immediate Computer Scanning

Once you electronically file your tax return (called e-filing), within minutes it is scanned by an automated system that checks for missing or fraudulent information. If the system encounters missing, incorrect, or what appears to be fraudulent information, your return will be flagged for an audit.

The IRS Gets Social

Through online activity scanning, the IRS now has the ability to read your social media feeds as a way of cross-referencing your social media activity with the information on your tax returns. Did you clear $800 in the Lottery, post a picture of the winning ticket on your Instagram account while neglecting to report the winnings on your tax return? There’s a chance you could hear from the IRS, and it won’t be in the form of a congratulatory letter.

If the IRS suspects fraud, they can and will check your emails, credit card statements and other online activity for sources of hidden income that you failed to report on your return.

Robo-Auditing Criticism

Unfortunately, automated auditing is here to stay. If you’re an honest tax payer with nothing to hide on your returns, automated auditing can still  create unnecessary hassles and delays.  Automated auditing has come under fire and with good reason:

Invasion of Privacy: Critics of automated auditing feel that online social media profiles, bank account information, emails and other electronic activities should be off-limits to the IRS. In an age of dwindling privacy, people feel they are losing control over what they feel is private information.

Delayed Tax Refunds: This hits particularly hard if you are a low-income tax payer who relies on their tax refund to catch up on bills or to purchase other necessities.

Unfair Practices: According to US News and World Report, low-to-moderate income taxpayers are robo-audited at a higher rate than their wealthier counterparts, due in part to a higher number of low-income taxpayers claiming the Earned Income Tax Credit. This is the case even in legitimate returns where there is no intent to commit fraud.

Tomorrow: What You Can Do About Automated Auditing

Let This One Go To Voicemail: Suspicious IRS Calls

 

No one likes to hear from the IRS; notices are written in hard to decipher jargon and an IRS communication rarely conveys good news. What if the IRS calls you? What then?

First and foremost, don’t fall for it. It’s a scam.  The IRS never initiates communication over the phone. If the IRS needs to get in touch with you, they’ll send a letter.

At the same time, if you get one of these phone calls during a busy day, you’ll get caught off-guard. Chances are, you’ll get one of these calls during peak tax season or shortly beforehand when you might be a little on edge in the first place, especially if you end up owing a sizable tax debt. A typical call might follow this pattern:

  • You receive a phone call from an IRS agent, advising you that you owe the agency a past due tax debt and will demand immediate payment by credit or debit card.
  • If you refuse to cave in, the caller becomes more aggressive. They’ll threaten to call the police, stating you’ll be arrested and jailed for refusing to pay.
  • You’ll be threatened with suspension of your driver’s license or if you’re an undocumented person or recent immigrant, they’ll threaten you with deportation.
  • You’ll be told you’ll lose your home and other important assets if you don’t pay.

At the same time, you’ll think the call is legitimate because the caller can:

  • Provide a last name and badge number
  • State the last four digits of your social security number

You’ll hear sounds in the background that are similar to a busy office or call center, and your caller I.D. will reflect either the local law enforcement number or IRS phone number. Don’t fall for it: scammers will spoof authentic phone numbers in order to catch you off guard and lead you to believe that despite your gut instincts, the call is real.

You might even get an email shortly after you receive one of these calls, complete with IRS insignia. Don’t open it. It can contain malware that can compromise your computer or mobile device  if opened. It’s also a phishing attempt, in which scammers gather sensitive data by asking you to provide bank account information or credit/debit card information.

These scammers target older adults  and recent immigrants. You may not fall for this scam, but your parents or relatives might. Make sure they’re aware of this common scam, which has cost taxpayers millions of dollars over the years.

Authentic IRS Communications

If the IRS needs to contact you, they will send a letter via first-class mail or certified mail. They will never call or email you regarding your account. The letter will have a code that indicates its purpose: a CP501 letter, for example, indicates the agency suspects your identity information has been compromised and they are requesting that you verify your address and other pertinent details.

If you receive an IRS letter and are still suspicious, you can call the IRS directly at 1-800-829-1040. They’ll be able to confirm that they sent the letter. They will never ask for sensitive information over the phone.

Rip-off artists and scammers look for easy targets: older adults, recent immigrants, and busy people who are too rushed and stressed to ask key questions before providing sensitive information regarding their finances or bank accounts. Once thieves have that information, they can wreck havoc with your finances.

Remember that if the IRS is initiating communications with you, it will be done via letter sent by first-class or certified mail. They will never call or email you when they first make contact.

Don’t get caught off guard. By learning how rip-off artists commonly reach their targets, you can avoid becoming a victim of one of the most costly consumer scams in recent years. Knowledge is your best defense.