From IRS.Gov: IRS Offers Tips to Taxpayers Preparing for Hurricanes, Floods and Other Natural Disasters
WASHINGTON — With Hurricane Preparedness Week, May 7 to 13, now in progress and the start of the Atlantic hurricane season looming on June 1, the Internal Revenue Service today offered advice to taxpayers who may be affected by these types of storms, as well as other natural disasters. The IRS also wants taxpayers to know that the agency is here to help, including offering a special toll-free hotline to people in federally declared disaster areas, staffed with IRS specialists trained to handle disaster-related issues.
Don’t Forget to Update Emergency Plans
Because a disaster can strike any time, be sure to review emergency plans annually. Personal and business situations change over time, as do preparedness needs. When employers hire new employees or when a company or organization changes functions, they should update plans accordingly and inform employees of the changes. Make plans ahead of time and be sure to practice them.
Create Electronic Copies of Key Documents
Taxpayers can help themselves by keeping a duplicate set of key documents including bank statements, tax returns, identifications and insurance policies in a safe place such as a waterproof container and away from the original set.
Doing so is easier now that many financial institutions provide statements and documents electronically, and financial information is available on the Internet. Even if the original documents are provided only on paper, these can be scanned into an electronic format. This way, taxpayers can download them to a storage device such as an external hard drive or USB flash drive, or burn them to a CD or DVD.
It’s a good idea to photograph or videotape the contents of any home, especially items of higher value. Documenting these items ahead of time will make it easier to claim any available insurance and tax benefits after the disaster strikes. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings.
Photographs can help anyone prove the fair market value of items for insurance and casualty loss claims. Ideally, photos should be stored with a friend or family member who lives outside the area.
Check on Fiduciary Bonds
Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.
IRS Ready to Help
In the case of a federally declared disaster, an affected taxpayer can call 866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues.
Back copies of previously filed tax returns and all attachments, including Forms W-2, can be requested by filing Form 4506, Request for Copy of Tax Return. Alternatively, transcripts showing most line items on these returns can be ordered through the Get Transcript link on IRS.gov, by calling 1-800-908-9946 or by using Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript or Form 4506-T, Request for Transcript of Tax Return.
Find other hurricane preparedness tips and more information about Hurricane Preparedness Week on the National Weather Service web site.
he tax deadline for most taxpayers was Tuesday, April 18, 2017. The IRS has some advice for taxpayers who missed the filing deadline.
File and pay as soon as possible. Taxpayers who owe federal income tax should file and pay as soon as they can to minimize any penalty and interest charges. For taxpayers due a refund, there is no penalty for filing a late return.
Use IRS Free File. Nearly everyone can use IRS Free File to e-file their federal taxes for free. Taxpayers whose income was $64,000 or less can use free brand-name tax software. Those who made more than $64,000 can use Free File Fillable Forms to e-file. This program uses electronic versions of IRS paper forms. Fillable forms work best for those who are used to doing their own taxes. Taxpayers can file -- even if they missed the deadline -- using free options on IRS.gov through the Oct. 16 extension period.
File electronically. No matter who prepares a tax return, taxpayers can use IRS e-file through Oct. 16. E-file is the easiest, safest and most accurate way to file a tax return. The IRS will send electronic confirmation when it receives the tax return and issues more than nine out of 10 refunds in less than 21 days.
Pay as much as possible. If taxpayers owe but can’t pay in full, they should pay as much as they can when they file their tax return. IRS electronic payment options are the quickest and easiest way to pay taxes. IRS Direct Pay is a free, secure and easy way to pay a balance due directly from a checking or savings account. Pay any owed amounts as soon as possible to minimize penalties and interest.
Make monthly payments through an installment agreement. Those who need more time to pay taxes can apply for a direct debit installment agreement through the IRS Online Payment Agreement tool. There’s no need to write and mail a check each month with a direct debit plan. Taxpayers who don’t use the online tool can still apply on Form 9465, Installment Agreement Request. Get the form at IRS.gov/forms.
File as soon as possible to get a refund. Taxpayers who are not required to file may still get a refund if they had taxes withheld from wages or they qualified for certain tax credits like the Earned Income Tax Credit. Those who don’t file their return within three years could lose their right to the refund.
Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.
The 2016 tax return preparation season is finally upon us! We can now electronically file your tax returns as soon as you have all of your 2016 tax documents. W-2's, 1099's and most 1098's are required to be mailed to the taxpayers by January 31, 2017. If you do not receive your tax documents by the first few days of February, we suggest that you contact your employers and financial institutes to request a copy. Feel free to contact us with any questions at all.
As tax season begins, the Internal Revenue Service, the states and the tax industry remind taxpayers to be on the lookout for an array of evolving tax scams related to identity theft and refund fraud.
Every tax season, there is an increase in schemes that target innocent taxpayers like yourself by email, by phone and on-line. The IRS and Security Summit partners remind taxpayers and tax professionals to be on the lookout for these deceptive schemes.
If you receive an unexpected call, unsolicited email, letter or text message from someone claiming to be from the IRS, here are some of the tell-tale signs to help protect yourself.
The IRS Will Never:
When a taxpayer sells stock they report the transaction on Schedule D: Capital Gains and Losses. If you sell the stock for more than what you purchased it for you have a gain. If you sell the stock for less than what you purchased it for you have a loss.
There are two types of capital gains: long-term, and short term. Long-term capital gains receive special tax treatment; they are taxed at a lower rate than your ordinary income. However, in order to receive this special tax treatment you must hold onto the stock for more than a year. Short-term capital gains receive no special tax treatment are and taxed at your ordinary income rate.
You may sell stock at a loss and those losses can be used to offset gains over the course of the year. For example, if you have $3,000 of gains and $2,000 of losses then your net gain reported on your tax return is $1,000. The amount of losses you can deduct in a given year are limited to $3,000. For example, if your net loss is $5,000 then you can deduct $3,000 in the current year and carry the remaining $2,000 loss forward into future years.
Are you looking to leave the corporate world and start your own business? One of the first things to consider is how to structure your new company. Today we will look at the most basic type of business entity: the sole proprietorship.
A sole proprietorship is the easiest type of business to form. In fact, unless you plan on hiring an employee right away then a federal identification number (FEIN, or EIN) from the IRS is not necessary. Just make sure to open a separate bank account so that all business transactions will be separate from personal transactions. If you plan on using credit cards to pay for expenses then designate one or two that will only be used for business purposes going forward to ease the burden when it comes time to put together your financials.
The main advantage of a sole proprietorship is the tax reporting requirements. Instead of filing Form 1065 or Form 1120-S, which are complex and 5+ pages in length, a sole proprietorship can file their taxes on Schedule C. Schedule C is a two-page form where that lists business income and business expenses for the year. No Balance Sheet is required.
The main disadvantage of a sole proprietorship is the self-employment tax. Not only will your business profit be subject to income tax, it will be subject to an additional 15% self-employment tax. For example, a business that earns $100,000 will pay roughly $15,000 in self-employment tax and income tax at their individual tax rate. Forming an S-Corporation can eliminate at least 50% of the self-employment tax.
Sole proprietors must make estimated tax payments at the end of each quarter to the IRS and applicable states to cover at least 90% of their current year tax liability or 100% of their prior year tax liability to avoid penalties and interest on their tax return.
There is a common misconception that if total income is X then tax liability must be Y based on whatever tax bracket the total income falls into. In fact, it could not be further from the truth. In the U.S. we have what is called a "progressive" tax system. The first X of taxable income is subject to a tax rate of Y, then the next X of taxable income is subject to a tax rate of a different Y.
Let's look at an example. In 2014, single taxpayers are taxed at a rate of 10% on their first $9,075 of income. From $9,076 to $36,900 income is taxed at a rate of 15%. If a single taxpayer had total income of $35,150 they may assume that the tax liability is $35,150 * 15% = $5,272.50. However, in order to correctly calculate the tax liability we must first subtract the standard deduction of $6,200 and the personal exemption of $3,950, leaving them with taxable income of $25,000, which is over $10,000 less than the original $35,150. Then, we calculate the total tax liability based on $25,000 of taxable income:
For the first $9,075: 9,075 * 10% = $907.50
For the remainder: (25,000 - 9,076 = 15,924), 15,924 * 15% = $2,388.60
A total of: 2,388.60 + 907.50 = $3,296.10 tax liability
In our example, the single taxpayer's actual tax liability is $2,000 less than the tax liability they would have calculated by multiplying total income by the 15% tax bracket. The actual tax rate is just 9%.
There are three main types of tax forms individuals in the U.S. use to file their returns: Form 1040EZ, Form 1040A, and Form 1040. We have elected to dedicate this blog post to discussing the differences between them.
Let's start with Form1040EZ. Form 1040EZ is the most basic of the three. Unlike Form 1040A and Form 1040, Form 1040EZ is a single page and contains just 14 lines for data entry. How does an individual qualify to file this condensed form? For starters, taxable income must be less than $100,000. Married couples may use this form, but they cannot have any dependents. In addition, your interest income may not exceed $1,500 and there can be no other adjustments to income other than the Earned Income Credit.
Form 1040A is a more robust form that allows for additional schedules/forms (Schedule B for Interest and Dividends, Schedule 8812 for the Child Tax Credit, Form 2441 for Child Care Expenses, and Form 8864 for Education Credits) and is two pages in length with 51 lines for data entry. However, much like Form 1040EZ, taxable income cannot exceed $100,000 and you may not itemize deductions. In addition, Form 1040A may not be used if you have income from self-employment.
Form 1040 is the most complex and difficult tax form of the three, spanning two pages and containing 79 lines for data entry. Additional schedules/forms include: Schedule A for Itemized Deductions, Schedule C for Business Profit & Loss, Schedule D for Capital Gains and Losses, and Schedule E for Supplemental Income & Loss. You must use Form 1040 if taxable income exceeds $100,000, you elect to itemize deductions, or have income from self-employment.
PDF of Form 1040EZ: http://www.irs.gov/pub/irs-pdf/f1040ez.pdf
PDF of Form 1040A: http://www.irs.gov/pub/irs-pdf/f1040a.pdf
PDF of Form 1040: http://www.irs.gov/pub/irs-pdf/f1040.pdf
Every year we get questions from clients regarding the home office deduction on their tax return. Today we will attempt to tackle some of these questions and provide clarity on a complex tax concept.
What is considered a home office? It is an area in your home that is used exclusively for business. You cannot claim your couch that you watch television on as a home office even if you do work there. It can be an entire room or a section of a room. For example: a desk, chair, computer, and printer in the corner of your bedroom will qualify as long as it is used strictly for business purposes.
What if you have a brick and mortar location? You can still claim a home office deduction but only if it is used regularly for administrative and management duties. What are administrative and management duties? Sending invoices, paying bills, ordering supplies, setting appointments, and keeping your books are examples of tasks that will allow you to take the home office deduction.
What are the deductible expenses related to your home office? If you are a home owner you may deduct mortgage interest, property taxes, and depreciation. Other expenses that can be deducted include: insurance, utilities, repairs, and rent.
What portion of the deductible expenses can you claim on your tax return? This can be calculated by dividing the total square footage of your home by the total square footage of your home office. For example: If you home was 2,000 square feet and your office was 100 square feet you would be able to deduct 5% (100 / 2,000) of mortgage interest, property taxes, depreciation, insurance, utilities, and repairs.
Where do you report the home office deduction on your tax return? Schedule C businesses will use Form 8829 while S-Corporations can reimburse their owner-employee through an accountable plan. If your Schedule C business was not profitable then the home office deduction is not allowed and is carried forward to offset future profits.
Schedule A, Itemized Deductions, is a tax form for individuals that supplements Form 1040. If you are a homeowner or work in a state with a high income tax Schedule A will likely apply. It is beneficial to itemize deductions if the total amount will exceed roughly $6,000 for single taxpayers and roughly $12,000 for married couples.
The first section of Schedule A is for medical and dental expenses paid for out-of-pocket. Unfortunately, you are only able to deduct these costs once they exceed 10% of your income. For example, if a married couple earned $100,000 then they are only able to deduct medical expenses in excess of $10,000. If they incurred $11,000 of expenses then their deduction would be $1,000.
The next section of Schedule A is for taxes paid. Taxpayers are able to deduct the greater of state income taxes paid or state sales taxes paid. While the majority of individuals will take the deduction for state income taxes, those who live in a state without an income tax (Texas and Florida come to mind) will be able to deduct sales tax instead. Real estate property taxes are also included in this section.
The following sections of Schedule A are for mortgage interest, which is reported on Form 1098 if you are a home owner, and gifts to charity. Taxpayers can deduct the amount of cash and property donated to qualified charities, which include: religious organizations, Boy Scouts, Girl Scouts, Red Cross, United Way, nonprofit hospitals, and governments. If the gift amount is greater than $250 you must have a written statement from the charity.
The final sections of Schedule A are for casualty and theft losses, unreimbursed employee expenses, tax preparation fees, and other miscellaneous deductions.