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Archive for Tax Provision/Tax Reporting

How To Account For Social Security And Medicare Tax On Unreported Tip Income

If you work in an industry where it is customary to receive a portion of your income from customer tips, you are required to pay Social Security and Medicare taxes on those earnings. However, it is only possible to pay these taxes during the year if you report your tip income to your employer. If you receive cash and charge tips of $20 or more per month from any one job, you are required to report these to your employer. If you did not report all of these tips to your employer, you are required to report and pay the additional Social Security and Medicare taxes that should have been paid on these unreported tips. This you do as follows:

• You must complete Form 4137, Social Security and Medicare Tax on Unreported Tip Income. This form is used to calculate the tax in these unreported tips. Read more

What To Do If You Haven’t Filed A Tax Return

Filing a past due return may not be as difficult as you think.

Taxpayers should file all tax returns that are due, regardless of whether full payment can be made with the return. Depending on an individual’s circumstances, a taxpayer filing late may qualify for a payment plan. It is important, however, to know that full payment of taxes upfront saves you money.

Here’s What to Do When Your Return Is Late

Gather Past Due Return Information

Gather return information and contact me via TaxConnections. You should bring any and all information related to income and deductions for the tax years for which a return is Read more

How Long Are You On The Hook For A Tax Assessment?

A frequent question from taxpayers is:

How long does the IRS have to question and assess additional tax on my tax returns?

For most taxpayers who reported all their income, the IRS has three years from the date of filing the returns to examine them. This period is termed the statute of limitations. But wait – as in all things taxes, it is not that clean cut. Here are some complications:

You file before the April due date – If you file before the April due date, the three-year statute of limitations still begins on the April due date. So filing early does not start an earlier running of the statute of limitations. For example, whether you filed your 2014 return on February 15, 2015 or April 15, 2015, the statute did not start running until April 15, 2015. Read more

Making Citizenship-Based Taxation Reform Easy

Making Citizenship-Based Tax Reform “Easy”

Heitor David Pinto wants to “make it easy” for Congress to move from citizenship-based taxation (CBT) to residence-based taxation (RBT).

Pinto thinks CBT is “absurd.” And he aims to help Congress change it.

Because of CBT’s complexity and because it’s a low priority for Congress, Pinto was concerned Congress might take a long time or might not do tax reform at all for Americans abroad.  But, Pinto hopes “if it’s mostly done already, they might do it faster.”

When the naturalized American citizen immigrated to the United States from Brazil a Read more

National Football League Is Giving Up Its Tax-Exempt Status

With all the distractions of deflated footballs, player misconduct and the safety of the game, the NFL is volunteering to give up its tax-exempt status.

The NFL As A Non-profit Entity

The National Football League (“NFL”) which you figure makes millions in revenue every year is recognized by the IRS as a tax-exempt entity and does not pay income taxes as any for-profit-company would.

Section 501(c)(6) of the Internal Revenue Code provides for the exemption from  tax entities which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual. Read more

Deducting Medical and Dental Expenses

It is very important that you keep adequate records of all your medical and dental expenses incurred, because if you incurred substantial expenses, you may be entitled to claim a deduction on your tax return. You can deduct medical expenses for yourself, your spouse, and all your dependents on your tax return. It is very important to note, however, that you can deduct these expenses only to the extent that they exceed 10% of your adjusted gross income. (For taxpayers 65 and older, up to tax year 2016, they can deduct expenses that exceed 7.5% of their income).

Deductible medical expenses include the following:

• Doctors, dentists, and other medical practitioners’ fees. Read more

Innocent Spouse Relief

Many married taxpayers choose to file a joint tax return because of the benefits to be derived from this filing status. On a joint return, both taxpayers are jointly and individually responsible for the tax and any interest or penalty due on the return, even if they later divorce. This is true even if a divorce decree should state that your former spouse will be solely responsible for any amounts due on previously filed joint returns.

The situation can exist, then, where one spouse could be held responsible for all the tax due, even if all the income was earned by the other spouse. In cases like this, the IRS, in the interest of equity may allow a spouse in such a situation to be relieved of tax, interest, and penalties that are due on the joint tax return. Read more

New Developments (As of December 23, 2014)

Recently, there have been several important IRS and court opinions affecting various areas of taxation.

A. Distribution of benefits to estate beneficiaries.

An executor was aware that the estate would owe significant taxes but instead of distributing the assets to the beneficiaries, he had the estate distribute money to himself and other heirs. As a result, the estate did not have enough funds to pay the taxes. The IRS put a lien against other property owned by the executor. The executor appealed the IRS decision to a Pennsylvania District court. The court upheld the IRS decision stating that the executor is personally liable for depleting the assets of the estate [Stiles, D.C., PA]. Read more

Two Weeks To Benefit from the Recently Passed Tax Extenders Bill!

This past Friday, December 19, 2014, President Obama signed into law the Tax Increase Prevention Act of 2014 (HR 5771) which passed the the Senate on December 16th, 2014, that retroactively extended certain tax incentives which had expired on December 31, 2013 for one year.

Individual Tax Extenders:

– Research and experimentation credit;
– 50% first-year bonus depreciation;
– Increased expensing limits ($500,000/$2 million) for section 179 property;
– 15-year depreciation life for qualified leasehold improvements, qualified restaurant Read more

Over 50 Provisions Retroactively Extended On 12/19/14

On December 31, 2013, 57 provisions in the federal tax law expired. Many had expired before and been renewed. While there was discussion in the congressional tax committees since at least April 2014, as well as votes, no consensus was reached until early December. The House passed the bill – H.R. 5771, the Tax Increase Prevention Act, on December 3 by 378-46. On December 16, the Senate passed it by a vote of 76-16. On December 19, President Obama signed the bill. The Joint Committee on Taxation estimates the cost of H.R. 5771 for one year as about $81 billion, but only $42 billion for ten years (because some of the items, such as bonus depreciation involved timing of deductions).

The extension means, for example, that if a business purchased new equipment in the first 50 weeks of 2014 not expecting to be able to claim 50% bonus depreciation on it (because Read more

The House Passes Tax-Extenders Bill

On December 3, 2014, the House passed “The Tax Increase Prevention and Reconciliation Act of 2014” (TIPRA) by a vote of 378 to 46. This bill includes a temporary one-year extension of many favorable tax provisions and a laundry list of technical corrections, including extension of:

• The education deduction for teachers;

• Exclusion from taxable income of discharge of qualified principal residence indebtedness;

• Mortgage insurance premiums treated as a mortgage interest deduction; Read more

Church Exemption From Filing Form 990 Challenged

Churches are exempt from having to file Form 990 with the IRS. This exemption has been in place since the early 1940’s when Form 990 was adopted, and non-profit organizations were required to file the form with the IRS. This was brought about by a concern that tax-exempt organizations were using their status to engage in unfair competition with for-profit businesses. Churches have held to be exempt, as to do so would violate the First Amendment to the Constitution.

The Freedom From Religion Foundation (FFRF) has filed suit in a federal district court in Wisconsin, alleging that it was required to file a “detailed application” (Form 1023) and pay a fee before obtaining tax exempt status, and has also been required to file “detailed, intrusive and expensive annual reports” (Form 990) in order to maintain that status. Read more