U.S. Business Taxpayers reporting income using IRS Form 1120S who like to drill down into the tax forms my team prepares usually tend to get a little freaky over the Accumulated Adjustment Account (AAA) reported on Schedule M-2, specifically why the entry doesn’t tie out to what their books and records show for retained earnings.
Tag Archive for Enrolled Agent
The Foreign Account Tax Compliance Act, better known as FATCA, was enacted March 18, 2010 and requires filing IRS Form 8938. It is important to note that this foreign financial asset reporting requirement does not replace or otherwise affect a taxpayer’s obligation to file a FinCEN Form 114. Basically, if you are a US taxpayer holding foreign financial assets you must file IRS Form 8938 if you have an obligation to file IRS Form 1040 reporting income.
TaxConnections would like to introduce Dr. Daniel Erasmus, Managing Partner and Transfer Pricing Expert at Tax Risk Management.
An Enrolled Agent and a member of the US Tax Court Bar in all 50 states, his experience as international attorney has led him and his team to represent clients all over the world in tax controversies, especially transfer pricing in Africa.
These clients include:
Various US clients;
A major German car manufacturing company;
The 2nd largest beer brewer in the world; Read more
It’s November! I am always surprised by it’s arrival and the realization that it’s year-end tax planning time. The shortened day-light hours seem to make that certain without a doubt. So let’s roll-up our sleeves, get down to work and fine-tune possible last-minute strategies for lowering your 2015 tax bill.
Tax Brackets: Let’s take a quick look at the 2015 tax brackets, you will see from the table below that the top tax rate of 39.6% will apply to incomes over $$413,200 (single), $464,851 (married filing jointly and surviving spouse), $232,426 (married filing separately), and $439,000 (heads of households):
The 3.8% net investment income tax and/or the 0.9% Medicare surtax will also apply if you Read more
In Wole Odujinrin v. IRS Commissioner the petitioner, a hematology oncologist who represented himself, did not have adequate substantiation to support his petition and was not entitled to claim a net operating loss. He was also liable for an accuracy-related penalty under IRC 6662 – the expensive kick in the shorts.
This petitioner moronically showed up with little documentation in support of his claimed deductions and had inadequate evidence to show that he correctly assessed his 2009 tax liability. He testified that he relied on the advice of a tax practitioner but that person was not present to testify at trial nor provide an affidavit.
The Tax Court ultimately ruled in this case that the petitioner failed to establish a defense Read more
It was Walt Disney who said, “We keep moving forward, opening new doors, and doing new things, because we are curious and curiosity keeps leading us down new paths.” The world is shrinking and this quote has never been truer for us. Our professional lives no longer have the same boundaries as before. And we move for work and yes, the Internal Revenue Service (IRS) recognizes that and lo and behold lets us deduct moving expenses on our tax returns.
Read on… this truly gets more exciting (in a very tax nerdy way, if you know me!)
Requirements to Deduct Moving Expenses?:
Let me not get you too excited! Not everyone can deduct moving expenses. There are Read more
Here are some tips and tricks on how to pass the EA Exam, or any government type test, the first time. I will cover three important sections for success; 1) Pre-Test Studying Tips and Tricks; 2) Tips and Tricks for test Day; and 3) How to Break Down the Questions.
Tips and Tricks for Pre-test Studying
Have a study plan! This test is one of the hardest ones I’ve ever taken. But, with the possible exception of Part 2, there is nothing on here that a Tax pro with some experience under their belts can’t handle. So don’t freak out about the difficulty of the test. It’s hard, but you can do this!
You did it! You quit your job and started that small business that had always been your dream! Exciting times, thrilling ups & downs, you are your own boss–but wait, you do miss the paychecks that arrived regularly every other week. You also miss the medical benefits that the company paid for & that retirement plan you contributed to. What’s more, you also miss that extra oomph on your paycheck-the employer contribution to the company 401(k).
In this post on Employer Retirement Plans for Small Businesses, let’s closely examine the Individual 401(k). This is also known as the Solo 401(k). Unlike other retirement plans, a solo 401(k) is only for sole proprietors or S Corps who have no employees. A spouse can contribute if he or she earns income from the business.
It comes in both the Traditional & Roth version. Just like IRA’s, Traditional is money put away pretax & is taxable when withdrawn. The Roth 401(k) is funded with after-tax dollars & is tax free when withdrawn. One can also split the contributions between the two. Loans can also be taken against savings in 401(k)’s.
Why I like these plans?
•They are ideal to sock away large amounts of money in the good years.
•It helps you save both as an employer & an employee. Here’s how for 2013 – you can contribute a maximum of $33500 (Up from $33000 in 2012) as an employer AND $17500 (Up from $17000 in 2012) as an employee- not to exceed a maximum of $51000 (Up from $50000 in 2012) or 100% of the employee’s compensation, whichever is lesser. Read more
If you get a letter from the IRS, do not take it personally. The government just wants to make sure your return is accurate. However, it does mean it is time to make sure you have all of your documentation and supporting records in order.
The IRS conducts audits in three ways:
1. By Mail. You will be required to mail a form or additional information to the IRS.
2. At an IRS facility. Typically, you will bring your receipts, records and other documents to substantiate what is on your tax return.
3. At your home or business. An auditor visits your home or business to verify your return.
To get through an audit smoothly consider the following common-sense rules:
• Consider hiring help! You can be represented by an attorney who has experience in IRS Audits and processes, a CPA or a federally authorized enrolled agent.
• Know your rights. Before your audit, read “Your Rights as a Taxpayer” in my Tax Library.
• Be Honest. Lying to the IRS can trigger heavy fines and even jail time.
• Get organized. You will generally have more credibility if you can answer questions and produce what is asked of you. If you need time to get your act together, you or your representative may typically request a postponement.
• Stick to the topic. Whether you are answering a question or responding to a request for records, only give the IRS what it requests.
• Take notes. Keep track of the examiner’s questions and your answers.
• Be courteous. Do not be hostile. If you think you are being treated unfairly, share your feelings with the examiner’s supervisor.
• Consider an appeal. If you disagree with the auditor’s findings, you might first try talking to a supervisor. You can also send a protest letter to the IRS Office of Appeals within 30 days of receiving the report.
Being selected for an IRS audit isn’t simply a matter of chance. Certain factors can make your tax return stand out from the rest.
To help you cut the risk of an audit, use a tax preparation service,
The IRS pays more attention to some returns than others, so it’s important to understand the factors that may elevate the likelihood that auditors take an interest in your situation.
If you’re audited, don’t be surprised if you have to make additional payments for invalid deductions or expenses. It’s easy to make mistakes, so be sure to keep all your documentation in case you get audited.
Here are eight potential red flags that could alert the IRS — and some survival tips if you come under scrutiny.
1. High incomes. According to a recent IRS report on its enforcement activity, your chance of being audited substantially increases once your income crosses $200,000.
2. Large itemized deductions. Deduct every penny you’re entitled to — but realize that if your itemized tax deductions are bigger than the IRS’ target range for people at your income level, your return may get a second look.
3. Home offices. You can only take a home office deduction if you meet all of the qualifications, including regularly and exclusively using part of your home as your principal place of business. For example, if your office doubles as the kids’ playroom, you’re generally unable to deduct it. For details, see IRS Publication 587.
4. Missing investment income. You know the IRS Form 1099 that financial services companies send you that summarizes your interest and dividends for the year? The IRS also gets that information. Make sure your return properly includes this information.
5. Incomplete returns. If your return is missing a few pieces, the IRS may wonder what else you forgot. Although you still must enter the correct information, a tax-preparation service that calculates figures you enter may help you avoid certain clerical errors that raise auditors’ eyebrows.
6. Business losses. In a tough economy, business losses are more common — but they’re still something the IRS likes to double-check. Make sure your expenses are legitimate and eligible to be deducted and that your business isn’t just a thinly disguised hobby.
7. Charitable deductions. You’ll need a canceled check or dated receipt for any cash contributions, and contributions of $250 or more require written acknowledgement from the charity. If you made a noncash contribution valued at more than $5,000, you’ll need an expert appraisal to back up your claim.
8. Medical expenses. For 2012, you can deduct these costs only to the extent they’re greater than 7.5% of your adjusted gross income, and it’s important to keep detailed records. Also remember you can’t deduct the cost of over-the-counter medicine, health club dues or most cosmetic surgeries. For 2013, the percent-of-AGI hurdle for those 64 and younger is climbing to 10%.
If you’re doubtful about the decisions you’re making when completing and filing your tax return, consider hiring a professional. Spending some money for expert guidance today could help you avoid paying increased taxes and penalties tomorrow.
What Is An Enrolled Agent (EA) And Why Is This Designation Superior To Certified Public Accountant (CPA)
The Enrolled Agent (EA) is arguably the longest standing professional tax designation. Although at times overshadowed by other tax professionals EA’s are the only federally licensed tax practitioners who specialize in taxation.
The EA was established in 1884 when Congress acted to regulate persons who represented citizens in their dealings with the U.S. Treasury Department. Only Enrolled Agents, Attorneys and CPA’s have unlimited rights to represent taxpayers. Enrolled Agents focus specifically on the US Tax Code.
To become a candidate for the EA designation one must pass the Special Enrollment Exam (SEE), a three-part examination covering Individuals, Businesses, and Representation, Practices and Procedures. If successful an EA candidate is then subjected to a rigorous background check conducted by the IRS. Once approved as an EA each person must fulfill annual continuing education requirements.
Empowered by the U.S. Department of the Treasury, Treasury Circular 230 provides the rules of practice for Enrolled Agents as well as certified public accountants, and tax attorneys; with oversight provided by the Office of Professional Responsibility (OPR).
Due in large part to the stringent testing required to become an enrolled agent and the requirements to maintain the license, there are only about 46,000 practicing enrolled agents.
Basically Enrolled Agents are federally authorized with licenses issued by the US Treasury enabling practice in all states in the United States. Alternatively CPA’s are state licensed and as such can only practice in the states where they are licensed.
Ultimately though the biggest difference is that the most astute CPA’s rely on the expertise of Enrolled Agents when seeking clarity on the US Tax Code.