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Are you filing your tax return with the correct filing status?

Wednesday, February 13th, 2013

It’s important to use the correct filing status when filing your income tax return. It can impact the tax benefits you receive, the amount of your standard deduction and the amount of taxes you pay. It may even impact whether you must file a federal income tax return.

In recent weeks, I’ve seen many tax returns that were prepared incorrectly with the wrong filing status in order to facilitate tax payers getting larger refunds in conjunction with the Earned Income Credit.  Taxpayer beware!  The IRS is onto this and they are looking more closely at filing status and the earned income credit.

Determining Your Correct Filing Status

Are you single, married or the head of your household? There are five filing statuses on a federal tax return. The most common are “Single,” “Married Filing Jointly” and “Head of Household.” The Head of Household status may be the one most often claimed in error.

The IRS offers these seven facts to help you choose the best filing status for you.

1. Marital Status.  Your marital status on the last day of the year is your marital status for the entire year.

2. If You Have a Choice.  If more than one filing status fits you, choose the one that allows you to pay the lowest taxes.

3. Single Filing Status.  Single filing status generally applies if you are not married, divorced or legally separated according to state law.

4. Married Filing Jointly.  A married couple may file a return together using the Married Filing Jointly status. If your spouse died during 2012, you usually may still file a joint return for that year.

5. Married Filing Separately.  If a married couple decides to file their returns separately, each person’s filing status would generally be Married Filing Separately.

6. Head of Household.  The Head of Household status generally applies if you are not married and have paid more than half the cost of maintaining a home for yourself and a qualifying person.

7. Qualifying Widow(er) with Dependent Child.  This status may apply if your spouse died during 2010 or 2011, you have a dependent child and you meet certain other conditions.

Eight Tax Benefits for Parents

Monday, February 11th, 2013

Although at times your children may cause you some gried, during tax time they may help you qualify for valuable tax benefits, such as certain credits and deductions. If you are a parent, here are eight benefits you shouldn’t miss when filing taxes this year.

1. Dependents. In most cases, you can claim a child as a dependent even if your child was born anytime in 2012.   For more information, see IRS Publication 501, Exemptions, Standard Deduction and Filing Information.

2. Child Tax Credit. You may be able to claim the Child Tax Credit for each of your children that were under age 17 at the end of 2012. If you do not benefit from the full amount of the credit, you may be eligible for the Additional Child Tax Credit. For more information, see the instructions for Schedule 8812, Child Tax Credit, and Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit. You may be able to claim this credit if you paid someone to care for your child or children under age 13, so that you could work or look for work. See IRS Publication 503, Child and Dependent Care Expenses.

4. Earned Income Tax Credit. If you worked but earned less than $50,270 last year, you may qualify for EITC. If you have qualifying children, you may get up to $5,891 dollars extra back when you file a return and claim it. Use the EITC Assistant to find out if you qualify. See Publication 596, Earned Income Tax Credit.

5. Adoption Credit. You may be able to take a tax credit for certain expenses you incurred to adopt a child. For details about this credit, see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6. Higher education credits. If you paid higher education costs for yourself or another student who is an immediate family member, you may qualify for either the American Opportunity Credit or the Lifetime Learning Credit. Both credits may reduce the amount of tax you owe. If the American Opportunity Credit is more than the tax you owe, you could be eligible for a refund of up to $1,000. See IRS Publication 970, Tax Benefits for Education.

7. Student loan interest. You may be able to deduct interest you paid on a qualified student loan, even if you do not itemize your deductions. For more information, see IRS Publication 970, Tax Benefits for Education.

8. Self-employed health insurance deduction – If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid to cover your child. It applies to children under age 27 at the end of the year, even if not your dependent. See IRS.gov/aca for information on the Affordable Care Act.

Let IRSAngel prepare and file your 2012 tax return.  We guarantee to maximize your credits and deductions.

Beware of Tax Scams This Filing Season – Phony Refund Scheme

Monday, March 5th, 2012

The Internal Revenue Service is warning senior citizens and other taxpayers to beware of an emerging scheme tempting them to file tax returns claiming fraudulent refunds.  The theme of this scheme promises refunds to people who have little or no income and normally don’t have a filing requirement.  The promoters of this scheme claim that they can obtain for their victims, often senior citizens, a tax refund or nonexistent stimulas payment based on the American Opportunity Tax Credit, even if the victim was not enrolled in or paying for college.

According to an IRS newswire, “in recent weeks the IRS has identified and stopped an upsurge of these bogus refund claims coming in from across the United States. The IRS is actively investigating the sources of the scheme, and its promoters may be subject to criminal prosecution. This is a disgraceful effort by scam artists to take advantage of people by giving them false hopes of a nonexistent refund,” said IRS Commissioner Doug Shulman. “We want to warn innocent taxpayers about this new scheme before more people get trapped.”

The promoters falsely claim that refunds are available even if the victim went to school decades ago. In many cases, senior citizens, people with very low incomes and members of church congregations are targeted with bogus promises of free money.

The IRS has also seen a variation of this scheme that incorrectly claims the college credit is available to compensate people for paying taxes on groceries.

Although thousands of these fraudulent claims have been stopped this scheme can still be quite costly for victims. Promoters may charge exorbitant upfront fees to file these claims and are often long gone when victims discover they’ve been scammed.

WARNING: All taxpayers, including those who use paid tax preparers, are legally responsible for the accuracy of their returns, and must repay any refunds received in error.  The bottom line is if it sounds too good to be true, it probably is.  You can’t earn $50,000 per year and think you are entitled to a $30,000 refund.

To get the facts on tax benefits related to education, go to the Tax Benefits for Education Information Center on IRS.gov.

Below are some tips from the IRS

To avoid becoming ensnared in this scheme, the IRS says taxpayers should beware of any of the following:

  • Fictitious claims for refunds or rebates based on false statements of entitlement to tax credits.
  • Unfamiliar for-profit tax services selling refund and credit schemes to the membership of local churches.
  • Internet solicitations that direct individuals to toll-free numbers and then solicit social security numbers.
  • Homemade flyers and brochures implying credits or refunds are available without proof of eligibility.
  • Offers of free money with no documentation required.
  • Promises of refunds for “Low Income – No Documents Tax Returns.”
  • Claims for the expired Economic Recovery Credit Program or for economic stimulus payments.
  • Unsolicited offers to prepare a return and split the refund.
  • Unfamiliar return preparation firms soliciting business from cities outside of the normal business or commuting area.

 

2012 Tax Return Preparation – Taxable or Non-Taxable Income?

Tuesday, February 7th, 2012

Although most income you receive is taxable and must be reported on your federal income tax return, there are some instances when income may not be taxable.

Below is a list of the following that do not have to be included as taxable income on your federal income tax return:

  • Adoption expense reimbursements for qualifying expenses
  • Child support payments
  • Gifts, bequests and inheritances
  • Workers’ compensation benefits (some exceptions may apply; see Publication 525, Taxable and Nontaxable Income)
  • Meals and lodging for the convenience of your employer
  • Compensatory damages awarded for physical injury or physical sickness
  • Welfare benefits
  • Cash rebates from a dealer or manufacturer

According to the IRS’s website, some income may be taxable under certain circumstances, but not taxable in
other situations. Examples of items that may or may not be included in your taxable income are:

  • Life insurance If you surrender a life insurance policy for cash, you must include in income any proceeds that
    are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are generally not taxable unless the policy was turned over to you for a price.
  • Scholarship or fellowship grant
    If you are a candidate for a degree, you can exclude from income amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify for the exclusion.
  • Non-cash income Taxable income may be in a form other than cash. One example of this is bartering, which is an
    exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.

All other items—including income such as wages, salaries, tips and unemployment compensation — are fully taxable and must be included in your income unless it is specifically excluded by law.

These examples are not all-inclusive. For more information, see Publication 525, Taxable and Nontaxable Income, which can be obtained at the IRS.gov website or by calling the IRS at 800-TAX-FORM (800-829-3676).

Tax Return Preparation in New York for Same Sex Marriages

Wednesday, January 4th, 2012

As of July 24, 2011, New York enacted the Marriage Equality Act making the gender of the partners of a marriage irrelevant. This means the state cannot consider gender when deciding on benefits, rights, or responsibilities connected with marriage and no application for marriage can be denied based on the gender of the partners to be married.  Federal law does not recognize same sex marriage and therefore same sex couples are excluded from federal benefits and protections.

The new state law requires all married couples, same sex or opposite sex, to file married (filing jointly or filing separately). The federal law does not allow same sex partners in a marriage to file married. They must file single, or if applicable, head of household.

The process for compiling a tax return for the married same sex couple is complicated. Each person must prepare and file a federal return as single (or head of household). Then a combined federal return must be prepared (not filed) as if the marriage was recognized by the federal government. It will be this return that is used to create a New York State married filing jointly return.

IRS Angel: Local Angel Helping the Community Solve Their Tax Problems.

Monday, January 2nd, 2012

Yael Lazar wears the same piece of statement jewelry every day— a necklace with an  angel charm. And what a statement it makes.
Yael is an attorney who specializes in tax resolution, tax preparation and audit representation. The necklace was a thank you present given to her by one of her very elated clients. In fact, it was her clients who helped her come up with the name IRSAngel for her law firm.  After a few of them dubbed her their IRSAngel, it stuck. Yael says, “That is who I am, that’s what I’m about. I’m here to save you, protect you and resolve your IRS issues in a positive way.”

Many television commercials for large, national firms describe how they will fight for their clients and take the IRS down. Yael cautions that may not be the best approach, as the IRS doesn’t take too kindly to being threatened. Not to mention that a lot of the
national tax services don’t have attorneys on staff and may not be qualified to give legal  advice. To a lot of these places, clients may end up being just a number. Not at IRSAngel.

Yael prides herself on being available to her clients. When a call is placed to the IRSAngel offices, Yael herself often answers the phone. Her warm nature and infectious laugh immediately puts one at ease— something that’s very important for someone facing troubles with the IRS. By the time they call, prospective clients are facing a lot of stress and feel a heavy burden. According to Yael, “My clients are great people who have gotten themselves into an unfortunate situation, but there’s always a solution. They
may not know how to find it, which is where I come in.”

A typical IRSAngel client is someone who prepares a tax return, realizes they’re going to owe money and delays filing because they simply don’t have the money at the time. Many of them say that they won’t file now because they’re going to save up the money to
pay. More often than not, life gets in the way. With mortgage payments, credit card bills and everyday expenses, it becomes difficult to save the money and the situation snowballs.

While it seems easy to understand how someone could find themselves in this predicament, the IRS is not known for being understanding. Regardless of the circumstances, not filing your taxes can result in the ultimate cost— your freedom. It is a federal offense that is punishable by up to one year in prison for each year not filed. Many people don’t realize that there are payment options. In many cases, a monthly payment to the IRS may be less expensive than a client’s credit card bill.

Being a local firm is a great benefit to IRSAngel clients. With identity theft still a big concern for most people, it’s understandable that people would be uneasy about sending sensitive financial information through the mail. With the large, national firms this is
a necessity as many times there’s not a local office. Yael has clients that stop in to hand deliver their paperwork. Not only do they feel more at ease, but it also allows them to have a more personal relationship with her. Having a personal relationship with clients is such a big priority of Yael’s that she’s chosen to limit how many clients she takes on. At any given time, she’s working on about 20-30 open cases that require immediate attention and 80-100 others that are at different stages. As she puts it, “It would be great to have 300+ open files, there certainly is no shortage of clients with tax liens filed against them, but I don’t want anything slipping through the cracks and I don’t want to lose that personal touch.”

Another way that IRSAngel provides personalized service? Yael can look out her office window and see the IRS building. She describes her relationship with revenue officers as “wonderful working” relationships. Knowing many of them personally, she’s able to pick up the phone or meet with them to come up with a solution that works for her clients as well as for the IRS.

Her clients tell her that she has a natural ability to put them at ease, a sincere nature and a calming effect. One can feel this come across when she talks about how much she loves her clients and loves helping them. Because she genuinely cares, Yael doesn’t just
solve the immediate tax issue at hand. She finds out about her clients’ long-term goals and counsels them on sound financial practices. When they leave her office, they’ll have a financial plan to move forward so as not to find themselves in trouble with the IRS again.

These days, it seems nothing is immune from scams that are designed to steal your identity. The IRS is no exception to this, with a rash of tax scams occurring in the past few years. “If it sounds too good to be true, it probably is,” Yael says with a laugh. Flyers
and advertisements for free money from the IRS, suggesting that the taxpayer can file with little or no documentation, have been appearing in community churches around the country. Promoters are targeting church congregations, exploiting their good intentions and credibility. These schemes also often spread by word of mouth among unsuspecting and well-intentioned people telling their friends and relatives. Promoters of these scams often prey upon low income individuals and the elderly. An elderly client once contacted her because she had been the victim of such a scam.  The promoter of this scam was able to help her obtain a $234,000 refund, even though her annual income was only $48,000. According to Yael, “Like anything else, you can’t get out more than you put in. It’s important to keep in mind that the IRS will never email you and they won’t ask for your Social Security number in such an email.” When in doubt, always talk to a tax attorney before acting.

A New York native, Yael grew up in Queens. It’s there that she learned the importance of helping others, one of the core values that
her parents instilled. She also credits her strong work ethic and great attention to detail to her upbringing.  It’s this need to help others that’s inspired Yael in her latest undertaking, a charitable foundation called Angels for Austin. Austin is an eleven year old boy that she knows personally who is suffering from a rare medical condition called Landau-Kleffner syndrome (LKS). After seeing the child mistreated by the legal and medical communities, Yael decided to step in. She feels that her voice is for those who can’t speak for themselves. In this case, it’s quite literal as Austin lost his ability to speak around age six. As founder and Board Chair, Yael leads the way in the Angels for Austin mission to provide children suffering from LKS with whatever they may need, whether it be an attorney, advocate or financial assistance. All support given to families is needs-based. It’s Yael’s hope that Angels for Austin will bring awareness to LKS and be a resource for families afflicted with this rare disorder.

With so much time devoted to helping others in her professional life, it’s no different at home, not that Yael would have it any other way. Her husband and three daughters are what drive her to work so hard. However, one of the perks of being an entrepreneur is that she can strike a balance between running her own business and being there for all of her kids’ school trips and activities.  Having three daughters, Yael feels it’s her job to build up their confidence and self-esteem, something that she thinks many young girls struggle with. “I tell them that confidence will lead the way. Just believe in yourself.” She wants for her girls what she’s been able to find for herself. The advice she gives them for their future is to “find what your passion is and do that. Success will come easier if you’re doing something you love.” With a laugh, she says, “I sound like a Hallmark card.”

When she does find a little time for herself, she can be found outdoors. In the winter, she hits the slopes to snowboard. During the summer months, she can be found relaxing on the beach or sailing. She describes the summer as her favorite season because “people are just happier.”

Her bright outlook on life is complemented by her long, curly bright red hair. In fact, the only time she becomes upset is when she talks about some of the ways she’s seen clients suffer. She gets noticeably distressed when describing new clients who have been levied by the IRS. “They’re taking their paycheck, they can’t pay their mortgage or put food on the table. The real reason that upsets me so much is because it means they waited too long. It distresses me that they didn’t come to me sooner because I never would’ve let it get to that point.”

Fortunately, most of her clients don’t let their situation get quite that bad. At the end of the case, Yael frequently hears “I feel so much better” from her clients. To her, that’s what it’s all about. “I love seeing a happy client with their IRS problems resolved
in a way that exceeded their expectations.”

 

 

Is your student loan forgiveness taxable?

Thursday, December 22nd, 2011

If you owe money and either the lender forgives your debt or someone else pays your debt, usually the result is taxable income to you. The tax law calls this concept “income from discharge of debt.”  An example of this in today’s economic climate would be your mortgage loan being forgiven in the case of a short sale.

Although a discharge of debt generally results in income, the income from cancellation of certain student loans is excluded from gross income when the debt discharge is under a loan provision requiring the student to work for a certain period of time in certain professions.

The IRS reviewed a state-sponsored program enabling healthcare professionals who agreed to work in underserved areas to have all or part of their student loans forgiven. The IRS concluded that the loan forgiveness, or any payments to the healthcare workers that were used to repay the student loans, did not result in taxable income. The payments also are not subject to withholding, employment taxes or other reporting requirements.

The IRS analyzed the tax consequences of payments made to participants who were in similar programs but were not required to either have outstanding educational loans or use the payments to discharge or repay any such loans. The IRS concluded that these payments reflected employment incentives or compensation and were taxable to the recipients.

Unsure whether your student loan forgiveness is taxable, call the IRS Angel at 516 683-1313 for your answer.

‘Tis the season to be generous: Are you gifting as a tax strategy this year?

Wednesday, December 21st, 2011

Do you have extra money this holiday season and feeling really generous this year?  Make a year end gift to your family or friends.  The tax code allows every person to give any other person up to $13,000.00 for 2011 without incurring any gift tax.  This annual exclusion amount doubles to $26,000.00 per recipient, if your spouse consents to gift splitting.

Annual exclusion gifts remove the amount of the gift and future appreciation in the value of the gift from your estate. These gifts shift the income tax obligation on the property’s earnings to the donee, who may be in a lower tax bracket.  This is a great way for parents to give part of their estate to their children and grandchildren each year without creating a tax burden and being able to see their children enjoy the gift while they are still alive.

Now here’s the technical stuff you need to know:

A gift by check to a noncharitable donee is considered a completed gift for gift and estate tax purposes on the earlier of:

1. The date on which the donor no longer has sufficient control under local law to have the power to change the check’s disposition, or

2. The date when the donee deposits the check (or cashes it against the donee’s available funds) or presents the check for payment, if it is established that:

  • The check was paid by the drawee bank when first presented to that bank for
    payment; The donor was alive when the check was paid by the drawee bank;
  • The donor intended to make a gift;
  • Delivery of the check by the donor was unconditional; and
  • The check was deposited, cashed or presented in the calendar year for which
    completed gift treatment is sought and within a reasonable time of issuance.

For example, a $10,000 gift check given to and deposited by your daughter on Dec. 31, 2011, is treated as a completed gift for 2011 even though the check does not clear until 2012 – assuming the donor is still alive when the check is paid by the drawee bank.

So this holiday season you can help your children buy a house by giving them the downpayment or support your grandchildren’s eductation by gifting them money for college tuition.  Happy Holidays to all from the IRS Angel.

IRS HELP – Mileage Allowance for 2012

Tuesday, December 20th, 2011

The Internal Revenue Service today issued the 2012 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 55.5 cents per mile for business miles driven
  • 23 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged from the mid-year adjustment that became effective back on July 1, 2011. However, the medical and moving rate has been reduced by 0.5 cents per mile.

If the actual costs of using your vehicle is greater than the standard mileage rates, you can deduct your actual costs.

If you need additional tax help regarding deductions you are entitled to, call us at IRS Angel.