2012 - 2013 Key Tax Facts

2012 - 2013 Key Tax Facts

New taxes for top earners
The year 2013 will have several new wrinkles for individuals with incomes above $200,000 for single or $250,000 for couples; specifically, higher Medicare payroll taxes and the new Medicare surtax on net investment income.  People with MAGI greater than $200,000 for single or $250,000 for couples, may be impacted by a new Medicare surtax (3.8%) on net investment income. Taxpayers with earned income above $200,000 for single or $250,000 for couples, will pay a higher Medicare payroll tax (0.9%).

Year	2012	2013
Top marginal long-term capital gains and qualified dividend rate	15%	23.8%*
Top marginal ordinary income tax rate	35%	39.6%
Top rate on short-term capital gains and non-qualified dividends	35%	43.4%*
Personal exemption phaseout (PEP). (MAGI above $250,000 for single or $300,000 for married couple filing jointly)	None	Completely eliminates value of personal exemption for single earners with an AGI over $372,501 and couples filing jointly with an AGI greater than $422,501.
Pease itemized deduction phaseout.	None	All itemized deductions reduced by 3% of MAGI over $300,000 for married couples filing jointly ($250,000 for single filers)  to a maximum reduction of 80% in value.
*includes 3.8% Medicare surtax

Taxable income above $400,000 or $450,000 for couples
In addition to the higher taxes described in the table below, upper-income Americans may be subject to a new 39.6% marginal rate on taxable income over $400,000 for single or $450,000 for married couples filing jointly. Taxpayers may be subject to tax on capital gains and qualified dividends at a rate as high 20% to 23.8% if the Medicare surtax on net investment income applies. 

Source:  A taxpayer's guide to 2013
"The 2013 tax changes you can expect, and what you can do about them."
FIDELITY VIEWPOINTS – 02/27/2013

Internal Controls Review

Internal Controls Review

Companies should start by identifying the weaknesses in their financial processes and structures that make fraud easy, such as a lack of internal controls, loopholes in business processes, or the easy availability of check stock on-site.

Management should consider implementing some or all of the following:

• Separation of duties -- so that no one employee has sole control of the entire process.
• Manual controls -- so that fraud can’t slip by as part of an unmonitored process.
• Limited access to accounts and the ability to make payments -- so that staff can’t manipulate systems they’re not supposed to, and so that you’ll know exactly who could have made potentially fraudulent entries or changes.
• Require double signatures -- so checks can’t go out on the fraudsters say-so alone.
• Get daily check reports -- so that frauds can be caught quickly.
• Securely store check stock.

“Everything someone needs to steal money from your company or a client is right there on the check,” Lacerte noted, before adding that, while securing check stock was important, it would be far better to move beyond paper checks entirely. “Paper is one of the biggest problems when it comes to fraud. You have to go paperless.”

Electronic invoicing and payment solutions like Bill.com and others not only eliminate the weak spot of having check stock in the office -- they also offer many opportunities for limiting access, monitoring payment activity, enforcing payment controls and separation of duties.

Source: accountingTODAY

Rene Lacerte, Las Vegas (November 05, 2013)

Is Social Security Exempt from IRS Levy? No!

Is Social Security Exempt from IRS Levy? No!
IRS can take up to 15% of Social Security Disability payments.  
○ The types of Social Security payments that the IRS levies under the Federal Payment Levy Program (FPLP) include:
   • Retirement, Survivors, and Disability Insurance program payments. 
○ The types of Social Security payments that the IRS does not levy under the FPLP include:
   • Children’s benefits; 
   • Supplemental Security Income payments; and 
   • Lump sum death benefits
See IRS Pub 4418

No Levy is allowed to impose Economic Hardship
Though the statutes permit IRS to take away up to 15% of disability payments, the law does not permit IRS to take anything if doing so would impose an economic hardship. “Economic hardship” is defined as the inability to pay basic living expenses. The United States Tax Court has stated that no levy is permitted to impose economic hardship. See Vinatieri v. Comm., 136 T.C. No. 16 (Dec. 21, 2009).

Treasury and IRS recognize same-sex marriages

Treasury and IRS recognize same-sex marriages

• Washington, D.C. — The Treasury Department and the Internal Revenue Service have ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes, regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage. The ruling implements the federal tax aspects of the June 26, 2013 Supreme Court decision invalidating a key provision of the 1996 Defense of Marriage Act (DOMA). 

• Same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, and claiming the Earned Income Tax Credit or Child Tax Credit. Same-sex marriages legally entered into in one of the 50 states, the District of Columbia, a US territory, or a foreign country will be covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law. 

• Married same-sex couples generally must file their 2013 federal income tax return using either the “married filing jointly” or “married filing separately” filing status. Individuals who were in same-sex marriages may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations. The statute of limitations for filing a tax refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. Refund claims can still be filed for tax years 2010, 2011 and 2012. In addition, employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pre-tax and excludable from income. 

Circular 230 Notice

CIRCULAR 230 NOTICE

• Circular 230 notice: To ensure compliance with requirements imposed by the IRS and other taxing authorities, we inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. 
• Plain English: Taxpayers are ultimately responsible for their financial decisions. Invalid tax shelters, tax scams or frivolous tax positions cannot be made valid by a “too-good-to-be-true” attorney opinion letter. Reliance on a “too-good-to-be-true” attorney tax opinion letter is not a valid defense to violations of US tax laws. 
• Please be assured that this notice does not reflect any decrease in the quality of services or the amount of thought we put into our correspondence with you. 
• Please note: Conversations between us are not covered by attorney-client privilege. Therefore, an expectation of confidentiality between me and the IRS cannot be expected, nor exist for that matter. Consequently, the IRS can compel me to reveal anything that you disclose to me.

Tax Dispute Forums

Tax Dispute Forums

When it comes to tax disputes, there are three different forums in which to bring a lawsuit, and sometimes the choice makes a difference in the result.  

• Virtually all taxpayers choose Tax Court because they need not pay the tax to have their day in court. But one problem with Tax Court is that all of the judges are former tax lawyers, and these judges often dismiss technical arguments offered by taxpayers who don’t want to pay the tax.
• In contrast, wealthy taxpayers often choose to pay the tax and then sue in Federal District Court for a refund. Why? They prefer, as a judge, a former federal prosecutor who is less likely to be deferential to the IRS. 
• The third option is taken by a small minority of taxpayers: paying the tax and suing for a refund in the Court of Federal Claims in Washington, DC.  That occurs when that unique court has favorable precedent that sets it apart from the other courts or, at least, lacks unfavorable precedent.

Reference:  Bruce Givner, Esq., is a tax lawyer with the Los Angeles law firm of Givner & Kaye, A Professional Corporation. He can be reached at Bruce@GivnerKaye.com.

20 tax tips for small businesses

20 tax tips for small businesses
The Internal Revenue Service sent letters to thousands of small-business owners recently, questioning whether they underpaid their taxes last year. 

Titled “Notification of Possible Income Under Reporting,” the letters were mailed to small employers this summer requesting that they review and confirm that they accurately reported their income on their 2012 tax returns.

In response to this action by the IRS, American University professors Donald Williamson and David Kautter have created a list of “Tax Best Practices for Small Businesses,” a checklist designed to help small business entrepreneurs stay up to date on all tax-related issues, and away from the scrutiny of 
the IRS. 

Here’s what Williamson & Kautter recommend small-business owners should do: 

1. Keep good records about who is an “employee” and who is an “independent contractor.” 
2. Keep track of places where you may have "nexus" (“physical presence”) (even unknowingly), to properly comply with state rules governing sales and income tax collection. 
3. Invest in a good software accounting system — to track your records and regularly provide updates to new IRS rules. 
4. Hire a tax accountant who has experience in your type of business, whether it’s a coffee shop or a construction business. 
5. Keep good records on how much was paid and the date placed in service, for any equipment, vehicles or other business assets. 
6. Avoid using funds from employee payroll tax withholding (or any taxes, for that matter) as a short-term loan to tide your business over during a shortfall in your cash flow. 
7. One of the biggest traps for small-business taxpayers is estimated taxes — pay quarterlies on time, calculate quarterlies correctly, and know the safe harbors that can protect you against underpayments.  Miscalculating any of these steps can be a major headache, so small-business owners should speak with someone, most likely a tax accountant or enrolled agent, who knows the rules cold. 
8. If you are the owner, and your spouse, child, mother-in-law, or other close relative works in your business, you should make sure your relative abides by the same employment rules as your unrelated employees. When someone pays you in cash, it doesn’t mean that payment is nontaxable.
9. Select a “tax year” for your business that reflects the natural ebb and flow of your business’ receipts and disbursements. This way, you won’t get caught in a cash crunch when tax time comes. 
10. You (or your accountant) should retain all relevant tax records for at least three years, and if your records relate to property and depreciation, you should keep the records until the property is disposed of, plus an additional three years. 
11. Keep detailed records on how you use your personal or business-owned vehicle for business versus personal purposes. 
12. Hire a reputable third-party administrator (such as Fidelity or Vanguard) to manage your 401(k) plan and other tax-favored employee benefits. 
13. Make sure you (and your tax accountant) are familiar with the tax rules, including the favorable tax credits and deductions that are unique to your business. 
14. If it becomes necessary for your small business to open a foreign bank account in order to pay vendors or others in a foreign country, make sure you (and your tax accountant) are vigilant in following the new rules on foreign bank accounts enacted in the Foreign Account Tax Compliance Act, or FATCA. (FBAR reporting)
15. If your hope is that your business will continue after you die, under the leadership of another family member or designated heir, you should take steps to protect the business against a forced sale in order to pay inheritance taxes. 
16. Don’t become foolishly emboldened into thinking the IRS will have to “prove” you have done something contrary to the tax law. The "burden of proof" is always on the taxpayer, not the IRS. 
17. Become familiar with the tax rules surrounding starting, running, selling and shutting down a business. Determine whether you should operate as a Partnership, Corporation, S-Corp, LLC, or Sole Proprietorship. Your tax accountant should be closely familiar with these rules. 
18. Have a one-on-one conversation with your accountant about the Affordable Care Act. 
19. If you can’t pay the taxes you owe the IRS, or other tax agency, you should contact your accountant right away. The situation won’t get any better by ignoring it.
20. When someone pays you in cash, it doesn’t mean that the payment is nontaxable. The IRS has state-of-the-art statistical technology and models based on spending habits and bank accounts to build a case against alleged tax scofflaws.

Courtesy:  accounting today | October 2013 accountingtoday.com

Donald Williamson & David Kautter

Government Shutdown Continues to Affect IRS Operations

Government Shutdown Continues to Affect IRS Operations
According to the IRS website, "all taxpayers should continue to meet their tax obligations." Regular filing deadlines will remain in effect during the shutdown. Individuals and businesses are encouraged to file electronically because those returns will be processed automatically. Paper returns will not be processed until full government operations resume but still must be postmarked by the deadline. On the other hand, tax refunds will not be issued until operations return to normal.

Live telephone customer service agents have been furloughed and the IRS's walk-in taxpayer assistance centers are closed. The Taxpayer Advocate Service is also closed. Tax audits are also not considered essential and are suspended until the shutdown comes to an end.

For more information on the government shutdown click The shutdown, the IRS and your taxes.

In preparation for a possible shutdown, the IRS on September 26 released a shutdown contingency plan that describes agency actions and activities for up to five business days during the shutdown. If the shutdown lasts longer than five business days, the deputy commissioner for operations support will reassess IRS activities and make any needed adjustments to personnel.

According to the IRS, no live telephone customer service assistance will be available; however, most automated toll-free telephone applications will remain operational. IRS walk-in Taxpayer Assistance Centers will be closed.

While federal government offices are closed, people with appointments related to examinations (audits), tax collection, and appeals or Taxpayer Advocate Service cases should assume their meetings are cancelled. IRS personnel will reschedule those meetings at a later date.

During the shutdown, automated IRS notices will continue to be mailed; however, the agency will not be working on any paper correspondence during this period.

How Does Federal Shutdown Affect Taxpayers?
The IRS provided the following basic steps that taxpayers should follow during the shutdown:

• Taxpayers should continue to file and pay taxes as normal. Individuals who requested an extension of time to file should file their returns by October 15, 2013.
• All other tax deadlines remain in effect, including those covering individuals, corporations, partnerships, and employers. The regular payroll tax deadlines also remain in effect.
• Taxpayers can file their tax returns electronically or on paper – although the processing of paper returns will be delayed until full government operations resume. Payments accompanying paper tax returns will still be accepted as the IRS receives them.
• Tax refunds will not be issued until normal government operations resume.
• Tax software companies, tax practitioners, and Free File will remain available to assist with taxes.

The IRS also provided a list of services that will be available, albeit limited, until the shutdown is over:

• For taxpayers seeking assistance, only the automated applications on the regular (800) 829-1040 telephone line will remain open.
• The IRS website will remain online, although some interactive features may not be available.
• IRS Free File partners as well as tax software companies will continue to accept and file tax returns.

The IRS said in a Web page about the shutdown that it is not sending out levies or liens, either those generated systemically or those manually generated by employees.

References:  

accountingWEB Jason Bramwell
accountingWEB Michael Cohn 
CNN Money

2014 Tax Tables

2014 Tax Tables

Busy Tax Season: 5 Steps to Recovery

Busy Tax Season: 5 Steps to Recovery  Here are five ideas to try, adapted from “Grow on Purpose: The Nine Disciplines of Sustainable Growth” by Doug Autenrieth.

1. Pay attention to your diet.
You don’t need complex formulas or rules.
• Choose natural foods, simply prepared, as they are the most nourishing. If you must have commercially prepared foods, pick ones with ingredients that you can pronounce.
• Combining protein with carbs is the secret key to extending the energy burn.
• Small meals eaten every three to four hours will keep you going without the subsequent crash. Try scheduling regular snack times into your daily planner!
• Watch your intake of stimulants—if you are tired, your body needs rest, not another espresso.

Willpower, attention and focus all run on blood sugar. To be blunt, by skipping meals, or eating highly processed foods out of a vending machine, you are doing a disservice to your clients.

2. Allow yourself to rest.
Continuous strain without a period of rest and recovery leads to break-down and is not constructive. This includes long hours in the office. Be honest with yourself: are you genuinely productive at the end of a 14-hour work day, or just active?

Rest comes in many forms. Sleep. Nap. Walk outside. Do all three and come up with more! If doing all that seems dramatic, start with small steps that are an improvement over your “normal” —resolve to leave the office a half hour earlier than you typically would. Take a half-hour lunch break outside the office.

Going without adequate rest during a demanding time inevitably means that your best performance remains out of reach. Want to make better decisions and be more productive? Get a good night’s sleep and take breaks.

3. Create time for exercise.
Physical movement can provide a great re-set and a welcome respite. It keeps your body fluid, flexible and healthy. It can offer a different prospective. This step is easiest if you choose an activity you enjoy—in other words, don’t commit to daily jogging if running is not your thing. Try biking, swimming, yoga or kick-boxing instead. Once you have found something that works for you, continue to show up for training regularly.

4. Build in some mental stimulation (not of the accounting variety).
The work that you do in the office can be challenging, but you also need a different kind of mental stimulation. Think of things outside your work that lift you up, challenge you, fascinate you and provide a creative outlet. That could mean resurrecting a hobby, having a stimulating conversation in a local coffee shop, experimenting with a new recipe in the kitchen or coloring with your child. I like to cook. What do you look forward to?

5. Choose a spiritual practice. Then practice!
You may think of yourself as a spiritual person—or not. You may belong to a religious community. You may be an atheist. No matter where you are on that scale, connecting with yourself and the world around you can be a source of energy. Whether it is prayer, meditation or fishing, find something that connects you to the rest of the creation and make that your practice. If you think you are too busy for meditation, you’ve got it backwards. To paraphrase the Dalai Lama, if you have much to do, you better meditate twice as long.

These practices are about self-care. They are not selfish. Think you don’t have the luxury to take care of yourself during your busiest time? You don’t have the luxury not to. If you expect exceptional performance, resolve to take exceptional care of yourself first.

Source:  Accounting Today, September 04, 2013, By Natalia Autenrieth

Hobby Loss vs. Business Checklist

Hobby Loss vs. Business Checklist
Criteria of a business vs. hobby:  There are numerous standards that the courts use in determining whether your activities constitute a business or hobby.  Generally, it is based on the facts and circumstances of each case.[a]  You must show that you entered the activity with the objective of making a profit.[b]  This is true even if there was a small chance of making a huge profit.[b]

Whether or not an activity is presumed to be operated for profit requires an analysis of the facts and circumstances of each case.  Deciding whether a taxpayer operates an activity with an actual and honest profit motive typically involves applying the nine nonexclusive factors contained in Rev. Reg. §1.183-2(b).  Those factors are:

1. The manner in which the taxpayer carries on the activity: If the activity is carried on "in a business like manner and maintains complete and accurate books and records" it is indicative of the activity being for profit.
2. The expertise of the taxpayer or his advisors: "Preparation for the activity by extensive study of its accepted business, economic, and scientific practices, or consultation with those who are experts therein, may indicate that the taxpayer has a profit motive where the taxpayer carries on the activity in accordance with such practices." 
3. The time and effort expended by the taxpayer in carrying on the activity: If a taxpayer devotes a significant amount of time to the activity, it indicates the activity is for profit. The fact that a taxpayer does not devote a significant amount of time to the activity does not adversely affect the for profit determination so long as the taxpayer "employs competent and qualified persons to carry on such activity." 
4. Expectation that assets used in activity may appreciate in value: If the taxpayer expects to profit from the activity, this indicates it is for profit.
5. The success of the taxpayer in carrying on other similar or dissimilar activities: "The fact that the taxpayer has engaged in similar activities in the past and converted them from unprofitable to profitable enterprises may indicate that he is engaged in the present activity for profit, even though the activity is presently unprofitable." 
6. The taxpayer's history of income or losses with respect to the activity: "Where losses continue to be sustained beyond the period which customarily is necessary to bring the operation to profitable status, such losses, if not explainable, as due to customary business risks or reverses, may be indicative" that the activity is not for profit. "A series of years in which net income was realized would of course be strong evidence that the activity is engaged in for profit." 
7. The amount of occasional profits, if any, which are earned: "Substantial profit, though only occasional, would generally be indicative that an activity is engaged in for profit, where the investment or losses are comparatively small." Also, "an opportunity to earn a substantial profit in a highly speculative venture is ordinarily sufficient to indicate that the activity is engaged in for profit." 
8. The financial status of the taxpayer: "The fact that the taxpayer does not have substantial income or capital from sources other than the activity may indicate that an activity is engaged in for profit." 
9. Elements of personal pleasure or recreation: "The presence of personal motives in carrying on of an activity may indicate that the activity is not engaged in for profit... It is not, however, necessary that an activity be engaged in with the exclusive intention of deriving a profit." 

The majority of all court decisions indicate that you are required to have an honest profit objective when you undertake this venture.  Thus, if you have a sincere purpose of eventually reaping an overall profit, you will be deemed to have a business motive.[c]   

The Courts have looked at the following factors in deciding if your endeavor is a business or a hobby:   
    1.  Business plan:  Most court decisions have looked favorably on taxpayers who prepare business plans showing projected estimated income and expenses of their endeavor.[d]  The key is to project an overall business profit.  In addition, the projected numbers should have some reasonable basis in reality.  You should; therefore, document how you estimated each of your figures.  If your business contains inventories, you should certainly have enough inventory on-hand to meet your goals.

    2.  Your own statements:  IRS will use your own statements against you.  Thus, don't ever say, "I'm in this only to save taxes or costs, or to get a discount."  In addition, don't have your business plan showing only estimated losses.[e]  

    3.  Manner in which you conduct your activity:  This is probably the single most important factor that IRS uses in judging a business intent from one where there is no expectation of profit.You must conduct your activity in a business-like manner.  Thus, you need to keep a diary and maintain complete and accurate books and records.[f]  Keep separate books and records and bank accounts for your business.[g]

    4.  Run your activity like a similar profitable business:  You should also try to show that your activity is being carried on in a similar manner to other profitable activities.[h] Here is where the principle of duplication is critical.  If you conduct your activity like other successful people in the same business, you have a stronger argument that you have conducted your activity like a business with the expectation of making a profit.  In addition, if you follow the path of successful people, your chances of becoming successful are also enhanced.  Adopt similar marketing efforts to those who are successful.[i]  Thus, you

• Advertise your business
• Have business cards with your business address on it
• Maintain a business telephone listing
• Purchase and use promotional literature
• Use a variety of marketing strategies[j]

    5.  Your prior business experiences can help or hurt:  Your prior business experience in this industry can make a big difference to the IRS.  If you have no prior experience in this endeavor, it is more questionable as to whether you ever had a profit motive.[k]  The courts have held that this lack of prior business experience can be overcome by:

• Extensive study
• Listening to training tapes
• Taking seminars
• Attending training meetings, etc.[k]

You can never get enough training.  Document all training and lectures attended.  Document all help from other successful persons in your business.  The documentation should be in your diary.

    6.  Thoroughly investigate your venture before starting it:  Few good business people start a business without a good prior investigation of the business and any related companies.  It is, therefore, very vital that you conduct a thorough prior investigation of your respective business and company prior to entering the business.[l]

    7.  Get expert advice:  You should consistently consult with experts and other successful people or distributors in your business in order to constantly improve profits.[m]  It goes without saying that you should document their advice and ordinarily follow the advice.

    8.  Devote some time in a regular manner to your activity:  Although you certainly do not need to conduct your activity full-time; the more time and effort, the better.  Cases have shown that as little as on (1) hour per day on the average was substantial enough to support a profit motive.[n]

Businesses are conducted in a regular manner, hobbies are not.  One hour a day for four days a week is better than eight hours once every two weeks.[o]

    9.  Your history of losses/income and steps taken to improve profits: Without question, your expenses can certainly exceed your income in a business.  Absent unforeseen circumstances[p] you should do everything to turn those losses into profits.[q]  However, you should watch out for expenses that are unreasonably excessive when compared to your endeavor's income.  Thus, in one case, an Amway distributor's accounting fees alone exceeded his entire gross income.  There were other items of expenses that also grossly exceeded the income.[k]  The court held that the distributor's activities constituted a hobby and limited all deductions to that income.

Excessive personal unreasonable expenses could be used against you by the IRS as "lack of business profit motive." (e.g. too much Travel & Entertainment expense).  Recent cases note that although you do not have to make a profit, you should have some gross income yearly.  If there is no income provided at all, this is indicative of a hobby.

It is essential that you document:

• All training
• Consultations with experts and other successful people in your business,
• All marketing activities,
• The reasons for all trips noting the business intent and the necessity for this trip in order to "combine personal pleasure with business travel."

Again, the important point is that your activity must be conducted in a business-like manner.

    10.  Amount of income from other sources:  Although it may not seem fair, the greater your income from other sources, the less likely your loss from your activity may be deemed a business loss.[r]  Although this is certainly not a determinative factor, if you have substantial other income from other activities, you need to more closely dot your i's and cross your t's.

    11.  Watch out for certain "inherently suspicious activities":[s]  Certain activities are inherently more suspect by the IRS because of significant personal pleasure involved.  These include:

• Antique collecting
• Stamp collecting
• Traveling
• Writing
• Ministerial duties
• Record recording
• Raising show horses
• Training and showing dogs
• Automobile racing
• Thoroughbred racing

If you find yourself in one of the above-mentioned activities, you must pay careful attention to the "business vs. hobby" factors mentions since your endeavor is inherently suspect.

Business vs. Hobby Loss Checklist

1. Try to have a profit in at least 3 out of 5 consecutive years.  This is not mandatory, but nice to have.
2. Document business intent by sending a letter to your manager or sponsor/company as to why you have entered the business emphasizing your desire to make a long term profit career.
3. Make a business plan showing projected income/expense.
4. If your business contains inventory, always have enough on hand to justify your goals and business plan.
5. Don't make any "improper" statements such as "I'm in this only to save taxes."
6. Keep a good diary and maintain accurate books and records.
7. Utilize advertising, telephone business listings and a variety of marketing strategies.
8. Before entering your business, conduct an investigation of the industry and of any companies that you are thinking of associating with.  Document your steps in this investigation.
9. Keep getting trained and getting tips on operating your business.  This shows that you are constantly trying to make a profit.
10. Document any consulting with successful people or "experts" in your business.
11. Work your business regularly at least one hour a day, four to five times a week.  This should be documented in your diary.
12. Clearly document the reason for making business trips.
13. Be especially careful if you are in one of the "inherently suspicious activities."

Footnotes:

[a]  Rev. Reg. §1.183-2(a)
[b]  Rev. Reg. §1.183-2; Floyd Fisher, TC Memo 1980-183 (1980)
[c]  Maurice Dreicer, 28 TC 642, Aff'd. 702 F.2d 1205 (CA Dist Col. 1983). 
[d]  Rev. Reg. §1.183-2(a); Jonas R. Bryant vs. Comm'r, 928 F.2d 745 (6th Cir. 1991)
[e]  Harry Van Scoyoc, TC Memo 1988-520 (1988)
[f]   Rev. Reg. §1.183-2(b)(i)    
[g]  Frank Suiter, TC Memo 1990-447 (1990); Charles J. Givens, TC Memo 1989-529 (1989); Joseph Ransom, TC Memo 1990-381 (1990) (Amway Distributor); Frank Harris, TC Memo 1992-638 (Mary Kay)
[h]  Rev. Reg. §1.183-2(b)(i)     
[i]  C. Fink Fisher, 50 TC 164 (1968), Acq.
[j]  Sheldon Barr, TC Memo 1989-69 (1989)
[k]   Rev. Reg. §1.183-2(b), Joseph Ransom, TC Memo 1990-381 (1990); Abdolvahab Pirnia TC Memo 1992-137 (1992)
[l]  Wenzel Tirbelmen, TC Memo 1992-137 (1992)
[m]  Rev. Reg §1.183-1(b)(2) 
[n]  Sherman Sampson, TC Memo 1982-276 (1982)
[o]  Percy Winfield, TC Memo 1966-53 (1966)
[p]  Rev. Reg §1.183-2(b)(6)  
[q]  Rev. Reg §§1.183-2(b)(6)&(7)  

[r]  Rev. Reg §1.183-2(b)(8)

[s]  Rev. Reg §1.183-2(b)(9)
References:   

• Botkin, Sanford, Tax Strategies for Business Professionals, The Tax Reduction Institute
• Rev. Reg. §1.183 

SFR - Substitute for Return

SFR - Substitute for Return

• When a taxpayer does not file a return for one year or many years, frequently the IRS will file the return(s) for you.  These educated guesses are called "proposed assessments."  If you get a letter from the IRS, and it says "Notice of Proposed Assessment" at the top of the letter, then you have just received a personal invitation from the IRS to file your back taxes.  
• When the IRS files a Substitute for Return (SFR), most of the time the taxpayer will end up owing significantly more in back taxes than if they had filed themselves.  SFRs do not take into account all of the allowable exemptions and deductions available to the taxpayer.  People are free to arrange their financial affairs in such a way to take advantage of tax laws.  Because the IRS may not know every tax deduction and credit you qualify for, the only way the IRS can accurately know how much you owe, is for you to tell them, by filing a tax return.
• When the IRS files a return for you, they are not doing so to to make your life easier or to do you a favor. Without a return filed, no tax debt will officially show up in the IRS records. The IRS files SFR so that they can assess a tax debt on delinquent filers, contact them about their past due tax returns and begin collection activity if necessary.
• When the IRS files an SFR for a taxpayer, it is most often, but not always, beneficial to the taxpayer to re-file the return and have the back tax debt assessed properly. For people with large amounts owed, this can often reduce the amount of taxes to a level which is more reasonable to pay back. In some cases, however, it may not be a benefit to the taxpayer to re-file the return and it may actually be better to just accept the SFR return filed by the IRS.
• An SFR does not start the running of the limitations period on assessments and collection.
• IRC §6501(b)(3) Return executed by Secretary 
• Notwithstanding the provisions of paragraph (2) of section 6020(b), the execution of a return by the Secretary pursuant to the authority conferred by such section shall not start the running of the period of limitations on assessment and collection.
• IRC §6501(c)(3) No return 
• In the case of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.
• But a taxpayer may still get a CSED after the execution of an SFR. Under Internal Revenue Manual 5.1.19.3.15, if the IRS chooses to do an SFR, and the taxpayer fails to respond to the subsequent 90-day notice, then the IRS makes a deficiency assessment. The ten-year limitations period starts to run on that date.

IRM 5.1.19.3.15 (01-01-2006)
Substitute for Return

1. When a taxpayer fails to file a timely income tax return or files a false or fraudulent return, the Service may execute a return under the authority of the IRC 6020(b) deficiency procedures. If the taxpayer fails to respond to the 90 day notice, the Service makes a deficiency assessment. The Service may also make a deficiency assessment if the deficiency is upheld by the Tax Court. Upon that assessment, the 10 year period of limitations on collection, provided for in IRC 6502(a)(1) begins.
2. If the taxpayer later files their own "original" return showing a tax liability smaller than the assessed liability, and that return is accepted by the Service as filed, the tax liability may be reduced to show the amount of tax reflected on the taxpayer's return. The original CSED date remains intact.
3. If the taxpayer's "original" return reflects more tax than that assessed from the statutory notice based on the section 6020(b) return, then an additional assessment is input for the increased amount. In this scenario, the original CSED remains intact and a second CSED will be systemically established based on the additional assessment.

Newlyweds Tax Tips

Newlyweds Tax Tips
From the IRS

Late spring and early summer are popular times for weddings. Whatever the season, a change in your marital status can affect your taxes. Here are several tips from the IRS for newlyweds.

• It’s important that the names and Social Security numbers that you put on your tax return match your Social Security Administration records. If you’ve changed your name, report the change to the SSA. To do that, file Form SS-5, Application for a Social Security Card. You can get this form on SSA.gov, by calling 800.772.1213 or by visiting your local SSA office.
• If your address has changed, file Form 8822, Change of Address to notify the IRS. You should also notify the U.S. Postal Service if your address has changed. You can ask to have your mail forwarded online at USPS.com or report the change at your local post office.
• If you work, report your name or address change to your employer. This will help to ensure that you receive your Form W-2, Wage and Tax Statement, after the end of the year.
• If you and your spouse both work, you should check the amount of federal income tax withheld from your pay. Your combined incomes may move you into a higher tax bracket. Use the IRS Withholding Calculator tool to help you complete a new Form W-4, Employee’s Withholding Allowance Certificate. See Publication 505, Tax Withholding and Estimated Tax, for more information.
• If you didn’t qualify to itemize deductions before you were married, that may have changed. You and your spouse may save money by itemizing rather than taking the standard deduction on your tax return. You’ll need to use Form 1040 with Schedule A, Itemized Deductions. You can’t use Form 1040A or 1040EZ when you itemize.
• If you are married as of December 31, that’s your marital status for the entire year for tax purposes. You and your spouse usually may choose to file your federal income tax return either jointly or separately in any given year. You may want to figure the tax both ways to determine which filing status results in the lowest tax. In most cases, it’s beneficial to file jointly.

For more information about these topics, visit IRS.gov. You can also get IRS forms and publications at IRS.gov or by calling 800-TAX-FORM 800.829.3676

Tax Resolution | Tax Problems? Past or Present...

Tax Resolution | Tax Problems? Past or Present...
Has it been awhile since you filed a tax return?
• Feeling guilty? Scared?
• Don't know what to do or where to turn?
• Past Due Taxes are a Serious Problem!
• Do you even need to file? Yes.

Your first step to solving these problems is calling our office...
We will help you with the following:
• Settle your tax debt with the IRS for your reasonable collection potential (RCP)
• Handle all negotiations with the IRS for you
• Protect your paycheck and assets from the IRS
• Negotiate an affordable monthly payment plan to the IRS
• Discharge tax liens from your credit and property
• Negotiate with the IRS even if you have never filed a tax return!
• Prepare past due returns.

  

Volunteer

If you come forward and voluntarily file your missing tax returns, the system works more in your favor. Since nearly three out of four tax returns filed are due a refund, there is a good chance that the IRS might owe money to you. The only catch is that if you don't ask for your refund within three years, the IRS isn't going to give you what was yours in the first place. We are available to help you file your returns and, if necessary, act as your representative before the IRS. We work for you, not the IRS. Sometimes things just happen. If there is a good reason for not filing a tax return, some of the penalties can be reduced. Generally, if the IRS owes you a refund there are no penalties at all.

Scared of Volunteering?
If the IRS decides to come looking for you, life can become very difficult and frequently embarrassing. There is a chance that your employer might be requested to send part of your paycheck to the IRS instead of handing your paycheck to you. Your bank account could be frozen or even seized. A lien could be placed on your house. In the worst case, you could face criminal prosecution.  

What if you owe money?

Installment Agreements -- If you can pay the full amount within five years, you should be able to set up a monthly payment plan and make regular installment payments.  The IRS is now accepting Partial Payment Installment Agreement (PPIA).

What if you owe a lot of money?
Offer in Compromise -- If you owe so much money that you will never be able to pay your tax liability, we may be able to work out a compromise where the IRS will accept less than you actually owe. If the IRS accepts your Offer-in-Compromise (OIC), your total tax liability including interest and penalty is considered paid in full. An OIC is a mathematical formula, NOT an amnesty program. Professional assistance is strongly recommended when compromising a tax liability. 

Professional assistance

Don't be afraid to ask for help. By law, you have the right to professional representation. Only an Enrolled Agent, certified public accountant or attorney can represent your case before an IRS Collections Officer. Remember, your representative is working for you.

The IRS has ten (10) years from the date of a tax assessment to collect a debt from the taxpayer.

• The date the collection statute expires is called the Collection Statute Expiration Date or CSED.  IRC §6502 provides that the length of period for collection after assessment of a tax liability is ten years. 
• When the CSED date passes, the IRS is barred from attempting to collect your tax debt unless you waive the enforcement of the statute.

• When Does the Collection Statute Start to Run?
  • The statute starts on the day an IRS assessment is made.
  • Generally, the dates of assessment are as follows:
    • Filed tax returns – The date you mailed the tax return plus six weeks.
    • Audit Adjustments (agreed) – The date you signed the auditor’s report plus three weeks.
    • Audit Adjustments (unagreed) – The date the appeals process and the tax court process (if any) is completed and the tax court judge has issued his or her ruling.

• What Will Cause the Collection Statute to be Extended?
  • The Collection Statute can be extended (tolled) by one or more of the following acts or situations:
    • The filing of a bankruptcy petition - The statute is extended for duration of the bankruptcy proceedings.
    • The filing of an Offer in Compromise - The statute is extended for duration of the Offer or one year, whichever is greater.
    • The filing of requests for relief – The statute is extended when a taxpayer files for a Collection Due Process (CDP) hearing, Innocent Spouse Relief and any other form of relief that requires the IRS to suspend collection enforcement while it reviews the validity of the underlying assessment.
    • The signing of a waiver extending the statute - The statute is extended to date indicated in signed waiver. Never sign a statute extension without first consulting your tax advisor.
    • The taxpayer is out of IRS jurisdiction – The statute is extended for duration taxpayer was out of IRS jurisdiction.

• Example:  10-year period begins to run with the date of the “assessment,” not the tax year for which taxes are due. For example, if the return for 2005 is not filed until 2008 and the tax is assessed in 2009, the 10-year period begins to run in 2009 and expires in 2019.  Ten years is not always the limit. There are a number of other ways the 10-year collection period may be extended. For example, during the period an Offer in Compromise is pending, the statute of limitations is extended accordingly. Similarly, if bankruptcy is declared, while the bankruptcy proceeding is pending, the 10-year statute of limitations on collection is extended by the duration of the bankruptcy proceeding.

• Many types of court actions may also suspend the running of the 10 years. The filing of an IRS levy or a judgment entered in a Federal Court in a suit by the Department of Justice can also extend the 10-year period. The IRS can ask the Department of Justice to institute a collection proceeding in Federal District Court. If such a proceeding is begun and the United States Government prevails, then the statute of limitations on collection on that judgment is extended for the period generally allowed to collect such judgments, and such judgments can be renewed subject to the discretion of the Court.

• If the tax return was prepared by the IRS (Substitute For Return - SFR) under the authority of IRC §6020(b) the statute of limitations on assessment and collection shall not apply. IRC §6501(b)(3) Rev. Reg. §301.6501(b)-1(c).

• What options are available to me to solve my tax problems?
  Among services we offer:
  • Currently Not Collectible (CNC) - When the taxpayer cannot afford to pay the IRS monies due to a lack of assets and low income or no income (e.g. recently laid off due to current economy, divorce, illness) then the IRS will deem the taxpayer Currently Not Collectible (CNC) (Code 53) and agree that their tax liability will be suspended for the time being.  
  • Installment Agreement (IRC §6159) - A monthly payment plan set up to pay back the taxpayer's tax liability. The IRS has guidelines as to what amount they will accept and the time frame they will accept it in (usually sixty months). A financial affidavit (Form 433-A) is required from the taxpayer before the we can negotiate an installment agreement.   Under an installment plan, you make monthly payments on your tax debt for up to five years.  This is something you can do on your own.  The IRS fee to set up an installment plan is $105, or $52 if you agree to have payments automatically debited from your bank account. Approval is automatic for taxpayers who owe $10,000 or less and are in good standing with the IRS.
  • Offer in Compromise (IRC §7122) (We do legitimate offers!) - An offer to the IRS to lower the total tax liability owed by the taxpayer due to financial constraints. This is a very popular solution advertised on TV.  Under the offer program, the IRS agrees to accept less than you owe.  But to obtain a permanent reduction in your tax debt, it's not enough to show the IRS that you can't pay your tax bill.  You must also prove you've exhausted all of your financial resources and have little hope of raising money in the future.
  • Penalty Abatement - The IRS assesses penalties and interest on tax liabilities so over time taxes due years ago can increase from hundreds to thousands of dollars. The IRS will sometimes lower or eliminate these fees with a well worded request.  The IRS won't grant penalty abatement without reasonable cause.  For example, a widow who filed her tax return late because her husband died shortly before April 15 might qualify for penalty abatement.  If you believe you can show extenuating circumstances, you can apply on your own or ask your tax preparer to file a request on your behalf.  
  • Bank Levies/Wage Garnishment Release - The IRS will collect their monies due by any means necessary. They may take all your assets with a levy or garnish up to 70% or your wages.  We can negotiate with the IRS to have these released in as little as 4 business days.
  • Audit Representation - If you are currently being audited and you don't know why, it is very important to be represented by a tax professional who can get to the bottom of the problems and fix them. We can have your past audit reopened if you feel you did not get a fair shake.

I have unfiled taxes from previous years but no longer have my records from those years. Can you help me?

We can prepare your past unfiled tax returns by requesting your IRS wage transcripts and completing a tax questionnaire. Six (6) year filing requirement for past-due returns per IRM 4.12.1.

Is there anything I need to do before I can solve my tax problems?

Before the IRS will accept any negotiations to solve your tax liability you will need to be in compliance with any unfiled tax returns. Any unfiled taxes up to ten years ago may be required to be prepared and filed with the IRS.

If you owe the IRS money, you have options:

• Talk to a enrolled agent who has experience dealing with IRS collection issues. If you already have a tax preparer, he or she may be able to help you or refer you to someone who can.
• If you can't afford to hire a tax professional, you may qualify for a Low-Income Tax Clinic. 
• If you have tried unsuccessfully to resolve your problems with the IRS, you may be able to get help from the Taxpayer Advocate's office. For more information, go to IRS Taxpayer Advocate, or call 877-777-4778.