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Tuesday Tax Tip: Self Employment

If you are self-employed, you normally carry on a trade or business. Sole proprietors andindependent contractors are two types of self-employment. If this applies to you, there are a few basic things you should know about how your income affects your federal tax return. Here are six important tips from the IRS:

  • SE Income. Self-employment can include income you received for part-time work. This is in addition to income from your regular job.
  • Schedule C or C-EZ. You must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040. You may use Schedule C-EZ if you had expenses less than $5,000 and meet certain other conditions. See the form instructions to find out if you can use the form.
  • SE Tax. You may have to pay self-employment tax as well as income tax if you made a profit. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to figure the tax. If you owe this tax, attach the schedule to your federal tax return.
  • Estimated Tax. You may need to make estimated tax payments. Try IRS Direct Pay. People typically make these payments on income that is not subject to withholding. You usually pay estimated taxes in four annual installments. If you do not pay enough tax throughout the year, you may owe a penalty.
  • Allowable Deductions. You can deduct expenses you paid to run your business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business.
  • When to Deduct. In most cases, you can deduct expenses in the same year you paid, or incurred them. However, you must ‘capitalize’ some costs. This means you can deduct part of the cost over a number of years.

IRS Tax Tip 2016-23, February 19, 2016

Tuesday Tax Tip: Tax Scams

Each year, people fall prey to tax scams. That’s why the IRS sends a list of its annual “Dirty Dozen.” Stay safe and be informed – don’t become a victim.

If you get involved in illegal tax scams, you can lose money or face stiff penalties, interest and even criminal prosecution. Remember, if it sounds too good to be true, it probably is. Be on the lookout for these scams:

Identity theft. Identity theft, especially around tax time, is at the top of the “Dirty Dozen” list again this year. The IRS continues to aggressively pursue criminals who file fraudulent returns using someone else’s Social Security number. The IRS is making progress on this front. Remain vigilant to avoid becoming a victim.

Telephone scams. Threatening phone calls by criminals impersonating IRS agents remain an ongoing threat. The IRS has seen a surge of these phone scams in recent years as scam artists threaten taxpayers with police arrest, deportation, license revocation and more. These con artists often demand payment of back taxes on a prepaid debit card or by immediate wire transfer. Be alert to con artists impersonating IRS agents and demanding payment.

Phishing.  Phishing scams typically use unsolicited emails or fake websites that appear legitimate but are attempting to steal your personal information. The IRS will not send you an email about a bill or tax refund out of the blue. Don’t click on strange emails and websites that may be scams to steal your personal information.

Return Preparer Fraud. About 60 percent of taxpayers use tax professionals to prepare their returns. While most tax professionals provide honest, high-quality service, there are some dishonest ones who set up shop each filing season to perpetrate refund fraud, identity theft and other scams. Be on the lookout for unscrupulous tax return preparers. Choose your preparer wisely.

Offshore Tax Avoidance.  Hiding money and income offshore is a bad bet. If you have money in offshore banks, it’s best to contact the IRS to get your taxes in order. The IRS offers the Offshore Voluntary Disclosure Program to help you do that.

Inflated Refund Claims.  Be on the lookout for anyone promising inflated tax refunds. Also be wary of anyone who asks you to sign a blank return, promises a big refund before looking at your tax records or charges fees based on a percentage of the refund. Scam artists use flyers, advertisements, phony store fronts and word of mouth via trusted community groups to find victims.

Fake Charities. Be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. If you are making a charitable contribution, you should take a few extra minutes to ensure your hard-earned money goes to legitimate and currently eligible charities. IRS.gov has the tools you need to check out the status of charitable organizations. Be wary of charities with names that are similar to familiar or nationally-known organizations.

Falsely Padding Deductions on Returns. Don’t give in to the temptation to inflate deductions or expenses on your tax return. Think twice before overstating deductions such as charitable contributions, inflating claimed business expenses or including credits that you are not entitled to receive, such as the Earned Income Tax Credit or Child Tax Credit. Complete an accurate return.

Excessive Claims for Business Credits. Don’t make improper claims for fuel tax credits. The credit is generally limited to off-highway business use, including use in farming. It is generally not available to most taxpayers. Also avoid misuse of the research credit. If it doesn’t apply to your business and you don’t meet the criteria, don’t make the claim.

Falsifying Income to Claim Credits. Don’t invent income to erroneously claim tax credits. A scam artist may try to talk you into doing this. You should file the most accurate tax return possible because you are legally responsible for what is on your return. Falling prey to this scam may mean you have to pay back taxes, interest and penalties. In some cases, you may even face criminal prosecution.

Abusive Tax Shelters. Avoid using abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. Be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, seek an independent opinion regarding these complex situations or offers. Most taxpayers pay their fair share, and so should you.

Frivolous Tax Arguments.  Using frivolous tax arguments to avoid paying taxes can have serious financial consequences. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying taxes. The law is crystal clear that people must pay their taxes. For decades, the federal courts have consistently upheld the tax laws. The penalty for filing a frivolous tax return is $5,000.

Tax scams can take many forms beyond the “Dirty Dozen.” The best defense is to remain alert. Additional information about tax scams is available on IRS social media sites, including YouTubeand Tumblr, where you can search “scam” to find all the scam-related posts.

IRS Special Edition Tax Tip 2016-03, February 22, 2016

What You Need to Know about Taxable and Nontaxable Income

IRS Tax Tip 2016-20

All income is taxable unless a law specifically says it isn’t. Here are some basic rules you should know to help you file an accurate tax return:

  • Taxable income.  Taxable income includes money you earn, like wages and tips. It also includes bartering, an exchange of property or services. The fair market value of property or services received is normally taxable.

Some types of income are not taxable except under certain conditions, including:

  • Life insurance.  Proceeds paid to you upon the death of an insured person are usually not taxable. However, if you redeem a life insurance for cash, any amount you get that is more than the cost of the policy is taxable.
  • Qualified scholarship.  In most cases, income from a scholarship is not taxable. This includes amounts used for certain costs, such as tuition and required books. On the other hand, amounts you use for room and board are taxable.
  • Other income tax refunds.  State or local income tax refunds may be taxable. You should receive a Form 1099-G from the agency that paid you. They may have sent the form by mail or electronically. Contact them to find out how to get the form. Report any taxable refund you got even if you did not receive Form 1099-G.

Here are some items that are usually not taxable:

  • Gifts and inheritances
  • Child support payments
  • Welfare benefits
  • Damage awards for physical injury or sickness
  • Cash rebates from a dealer or manufacturer for an item you buy
  • Reimbursements for qualified adoption expenses

Source: What You Need to Know about Taxable and Nontaxable Income

Tax Payer Bill of Rights

It’s tax season and as many American individuals are busy filing their Tax Returns, some may need to contact the IRS with questions, and for help. Did you know there was such thing as a Taxpayer Bill of Rights?

Every taxpayer has a set of fundamental rights. You should be aware of these rights when you interact with the Internal Revenue Service.

The “Taxpayer Bill of Rights” takes the many existing rights in the tax code and groups them into 10 broad categories. That makes them easier to find and to understand.

The Taxpayer Bill of Rights includes the following:

  1. The Right to Be Informed.
    Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.
  2. The Right to Quality Service.
    Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS and to speak to a supervisor about inadequate service.
  3. The Right to Pay No More than the Correct Amount of Tax.
    Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.
  4. The Right to Challenge the IRS’s Position and Be Heard.
    Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.
  5. The Right to Appeal an IRS Decision in an Independent Forum.
    Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.
  6. The Right to Finality.
    Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.
  7. The Right to Privacy.
    Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections, and will provide, where applicable, a collection due process hearing.
  8. The Right to Confidentiality.
    Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.
  9. The Right to Retain Representation.
    Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.
  10. The Right to a Fair and Just Tax System.
    Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.

 

Phishing Scams – Remain Vigilant With Your Personal Data

social security

It’s Tax Time and this year there are several new phishing schemes to try and obtain your personal data during Tax preparation season. One of the newest is a phishing scheme via email, asking you to update your e-services information with the IRS.

The IRS Security Awareness Tax Tip Number 5 reminds us that “E-services will never ask you to do this. If you receive an email or requests like this, do not click on the links or take any other action. It is important to keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. Never click on strange emails or links seeking updated information.”

Furthermore and “especially in families that use the same computer, students should be warned against turning off any security software in use or opening any suspicious emails. They should be instructed to never click on embedded links or download attachments of emails from unknown sources.”

For more tips on talking to your family about security online and at home, visit https://www.irs.gov/uac/Talk-to-Your-Family-about-Security-Online-and-at-Home

The Affordable Care Act

This month, as 2014 comes to a close, we are taking a look back at some of the most important blog topics we have covered both in case you missed them, and to help you prepare for 2015!

The Internal Revenue Service has recently released the maximum fine amounts for those persons who forego health care coverage.The-Health-Care-Reform-and-Medicare-resized-600.jpg

Individuals earning below the tax filing threshold of $10,150 will not pay a penalty. Others earning above $10,150 will pay based on earnings over the tax threshold of $10,150.

For taxes filed for the year 2014:

  • Individuals earning between $10,150 and $19650, there is a flat penalty fee of $95 per adult (47.50 per child under 18). Thus, a single adult making $19,000 would pay $95 (1×95); a family of two adults at $19,000 would pay $190 (2×95); and a family of one adult and one child at $19,000 would pay $142.50 (95+47.50). The maximum penalty per family with a household income below $19,650 is $285.
  • Individuals earning above $19,650, will be required to pay a penalty equal to 1% of their annual income. For example, a single adult employee earning $40,000 per year would be required to pay $400 (40,000×1%). Whereas, a family of six with two adults each making $50,000, the total income would be $100,000. Therefore the family would pay $1,000 (100,000×1%).

The maximum penalty for 2014 is $2,448 per individual annually, which is 1% of a yearly income of $244.800. Earnings above that for individuals are capped at the individual maximum penalty.

The maximum family penalty issued by the IRS was $12,240 for a five-member family, and will only impact households with a combined yearly income of $1.2 million or more.

*Remember these penalty rates are only for the year 2014, and will increase in 2015 and beyond. The 2015 penalties will be the greater of $325 per person or 2% of total income. 2016 Rates will rise further to the greater of $695 per person or 2.5% of total income. The years following 2016, the penalty rates will be adjusted according to inflation.

Call HR Strategies today for assistance! 770-339-0000 or visit our website at www.hr-strategies.com.

Refusing Health Care Coverage? Be Prepared to Pay

The Internal Revenue Service has recently released the maximum fine amounts for those persons who forego health care coverage.The-Health-Care-Reform-and-Medicare-resized-600.jpg

Individuals earning below the tax filing threshold of $10,150 will not pay a penalty. Others earning above $10,150 will pay based on earnings over the tax threshold of $10,150.

For taxes filed for the year 2014:

  • Individuals earning between $10,150 and $19650, there is a flat penalty fee of $95 per adult (47.50 per child under 18). Thus, a single adult making $19,000 would pay $95 (1×95); a family of two adults at $19,000 would pay $190 (2×95); and a family of one adult and one child at $19,000 would pay $142.50 (95+47.50). The maximum penalty per family with a household income below $19,650 is $285.
  • Individuals earning above $19,650, will be required to pay a penalty equal to 1% of their annual income. For example, a single adult employee earning $40,000 per year would be required to pay $400 (40,000×1%). Whereas, a family of six with two adults each making $50,000, the total income would be $100,000. Therefore the family would pay $1,000 (100,000×1%).

The maximum penalty for 2014 is $2,448 per individual annually, which is 1% of a yearly income of $244.800. Earnings above that for individuals are capped at the individual maximum penalty.

The maximum family penalty issued by the IRS was $12,240 for a five-member family, and will only impact households with a combined yearly income of $1.2 million or more.

*Remember these penalty rates are only for the year 2014, and will increase in 2015 and beyond. The 2015 penalties will be the greater of $325 per person or 2% of total income. 2016 Rates will rise further to the greater of $695 per person or 2.5% of total income. The years following 2016, the penalty rates will be adjusted according to inflation.

Call HR Strategies today for assistance! 770-339-0000 or visit our website at www.hr-strategies.com.

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