PROFESSIONAL FREEDOM TAX SERVICE
Tax Service Blog
Tax Service Blog
|Posted on February 19, 2019 at 3:37 PM||comments (74)|
|Posted on December 6, 2014 at 12:31 PM||comments (52)|
Nobody wants to be audited. But about 1 in 150 of us will experience some type of audit in our lifetime. That’s the bad news. The good news is that if you avoid these six potential red flags, you may be able reduce your chances of getting the dreaded audit notice in the future.
1. You don’t disclose all of your income.
This one sounds like common sense, but you’d be surprised. The IRS gets copies of your W-2’s, 1099’s that report your interest, dividends, capital gains and losses from investments (sales of stocks, bonds, mutual funds, etc), compensation paid to you as a self-employed independent contractor, and other income items. Make sure you collect all of your statements from work, investments, etc., because they sure will. Also, when it comes to taxes, it’s smart to measure twice, cut once. Make sure that someone (whether it’s you or your accountant) double checks your return.
2. You have a big mouth.
Never, never brag (especially on social media) that you pulled a fast one on the IRS. In today’s economic climate, the IRS does more trolling than ever before — especially on social websites like Facebook and Twitter. Not to mention the fact that whistleblowers can earn some significant rewards (15% to 30% by filing form 211) for turning in cheats.
3. The dreaded home office tax deduction.
The home office tax deduction has been a long-standing audit red flag item. The IRS recently created a limited safe harbor that allows taxpayers to take a deduction of $5 per square foot up to 300 square feet. Remember to ask yourself whether an office is being provided for you by your employer even if you work a good amount out of the home — better safe than sorry.
4. You have an unincorporated business (Schedule C Sole Proprietor).
If your tax return includes Schedule C, which is used by sole proprietors and self-employed independent contractors to report their business income and deductions, you have a higher likelihood of being audited by the IRS. Schedule C filers are more likely to file an incorrect tax return, as many are self-prepared, and they tend to under-report income and over-report deductions. Also, as a Schedule C filer reporting operating losses over a period of years, the IRS could consider your business a hobby if you haven’t turned a profit over three of the last five years. If this happens, you could have your deductions disallowed by the IRS.
5. You make too much money.
Sounds like a high class problem, right? But the statistics back it up. As you make more money, you have a higher percentage chance of facing an audit- especially business owners that have an LLC or an S Corporation. Here are the odds:
6. You were too charitable.
Donating is great, but you run a higher risk when you claim above $500 in non-cash charitable donations. To mitigate this risk, be sure you file form 8283 and have very clear documentation. A good website to use for basic item valuations is www.satruck.com (see the Donation Value Guide).
Part of the auditing process is highly randomized, so you may not be able to avoid an audit regardless of how careful you are. But using these tips can help shrink your risk!
|Posted on March 26, 2014 at 2:05 PM||comments (36)|
During the current tax season, the Police Department has seen a drastic increase in fraudulent IRS related incidents and would like to caution residents who may be purchasing a Green Dot, or other prepaid debit card, under threat of prosecution for tax issues.
Several cases have been reported in which victims received phone calls from individuals claiming to be local law enforcement officers and/or agents with the IRS. In each case, the caller claimed the victim was delinquent in his/her tax payment and instructed the victim to purchase pre-paid debit cards in order to repay the taxes, threatening that the victim would be arrested if he/she failed to comply. During each of the incidents, the caller(s) have been concealing their phone numbers in order to give the appearance that the phone calls are originating from law enforcement or the IRS.
Neither the IRS, nor any law enforcement agency, will ever request payment over the telephone. If you receive any suspicious calls instructing you to provide money or personal information over the telephone, ask for a call back number and contact the local police department in order to verify the legitimacy of the caller. If you believe that you have been a victim of a similar scam, call the police or the IRS to report the incident.
|Posted on August 22, 2013 at 3:47 PM||comments (15)|
While federal tax rates stay the same regardless of where the taxpayer lives, the same is not true for state and local taxes. The tax burden of taxpayers living in different parts of the United States varies due to differences in state and local income taxes, property taxes, sales taxes and automobile taxes. So how does your city stack up?
The top ten cities* with the highest tax burden for a hypothetical family of three making $50,000 in 2011:
#10 Boston, MA
Paul Revere made his famous midnight ride on horseback here — but today, trading in the horse for a car of your own would cost $303 in taxes per year. The total tax burden for our hypothetical family in Boston sits at 12.2%, or about $6,125 annually.
#9 Burlington, VT
Vermont’s largest city, home to the very first Ben & Jerry’s, was ranked by Forbes as one of the prettiest towns in America — and we’re sure its 42,500 residents agree. But at a 12.3% tax burden ($6,150 per year), it’s #9 on our list of the most taxed cities in America.
#8 Providence, RI
The city of Providence is known for its historic and cultural attractions; it was first settled in 1636 by Roger Williams and was one of the original Thirteen Colonies. As of the 2010 census, 178,042 people lived within the city of Providence — and our hypothetical family paid $6,034 in taxes in 2011. $3,876 was property tax alone.
#7 Louisville, KY
There’s much more to Louisville than just the Kentucky Derby, but while River City’s 741,096 residents enjoy the biggest party in the South, they’re probably not as keen on the 12.7% tax burden ($6,346).
#6 Chicago, IL
The 3rd most populous city in the US is the sixth most taxed. Whether they’re Cubs or Sox fans, our hypothetical family of three forks over $6,412 (12.8%) in taxes every year. That’s a lot of ballpark hot dogs.
#5 Los Angeles, CA
Though inhabitants of the City of Angels owe no income tax, sky-high property tax rates are responsible for the city’s #5 spot. Over $5,100 of our average family’s $6,634 tax bill is property tax.
#4 Columbus, OH
The capital of Ohio was named by BusinessWeek as the best place to raise a family in 2009 — and it’s home to five Fortune 500 companies, including the Limited Brands and Nationwide Mutual Insurance. 787,033 people lived here in 2010. In 2011, our average family of three paid more than $7,200 in state and local taxes.
#3 Philadelphia, PA
This former temporary U.S. capital was home to over 1.5 million people in 2010.
In addition to its rich history and excellent cheesesteaks, Philadelphia also boasts one of the highest tax burdens in the nation. In 2010, a typical family of three would have paid $8,327, or nearly 17% of their income in various state and local taxes.
#2 Newark, NJ
New Jersey’s largest city sits 8 miles west of Manhattan (#14 on the list of most-taxed cities). Our $50K family of three would pay $8,327 per year in taxes, a whopping 18.3% of their household income.
#1 Bridgeport, CT
Connecticut’s largest city is one of NYC’s outlying suburbs, and an average family of three forks over a staggering 24.5% of their income to state & local taxes. That works out to about $12,250, over $10,000 of which is property tax alone.
Okay, so the Northeast is expensive. And for the record, the least-taxed cities on the list were Billings, MT (6.4%), New Orleans, LA (5.7%) and Cheyenne, WY (4.3%).
|Posted on August 16, 2013 at 2:16 PM||comments (82)|
|Posted on July 30, 2013 at 12:08 PM||comments (37)|
The changes in computer, information and communication technology are influencing all aspects of the business world, from marketing and networking to research and development. Understanding and utilizing the advancements in the technology industry are vital for any business owner, worker, or investor if they want to continue growing their business and attracting new customers and clients.Accessibility
|Posted on July 11, 2013 at 11:28 AM||comments (17)|
First, does the Organization have an Appropriate Legal Form? The organization must be organized as a trust, a corporation, or an association.
When you incorporate the organization’s articles it must contain certain provisions. In addition, an organization's assets must be permanently dedicated to an exempt purpose. This means that if an organization dissolves, its assets must be distributed for an exempt purpose described in section 501(c)(3), to the federal government, to a state or the local government for a public purpose. To establish that an organization's assets will be permanently dedicated to an exempt purpose, the organizing document should contain a provision insuring their distribution for an exempt purpose if the organization dissolves.
Second, the organization must apply for a EIN (Employer Identification Number) You can apply for an EIN online at http://www.irs.gov/ or by completing Form SS-4. You may also obtain an EIN via telephone, by calling 1-800-829-4933.
Next, The organization must have an exempt purpose, it must be charitable, religious, scientific, literary, and/or nonprofit organizations.
Has the organization existed for at least three tax years?
If not, then new organizations must give financial statements for the current year and proposed budgets for the next two years, including a detailed breakdown of revenue and expenses. A section 501(c)(3) organization provides this information on Part IX, Form 1023 which will be discussed below.
Once the above three are complete, now you must complete and sign the correct application and attached exact copies of the organization's organizing documents .
To be recognized as exempt, an organization must submit a completed, signed, and dated application. If an organization is seeking recognition of exemption under section 501(c)(3) of the Code, it must complete and file Form 1023, Application for Recognition of Exemption.
Please note. Organizations described in section 501(c)(3) are commonly referred to as charitable organizations.
The organization must not be organized or operated for the benefit of private interests, and no part of a section 501(c)(3) organization's net earnings may inure to the benefit of any private shareholder or individual.
Please note. A user fee is required for applications. User fees are discussed in part XI on Form 1023.
If you have completed everything above, then you are now ready to submit the organization's completed application to the following address:
Applications shipped by express mail or delivery service should be sent to:
|Posted on June 18, 2013 at 11:28 AM||comments (16)|
Identity Theft and Tax Returns
FS-2013-3, January 2013
The Internal Revenue Service is taking additional steps during the 2013 tax season to protect taxpayers and help victims of identity theft and refund fraud.
Stopping refund fraud related to identity theft is a top priority for the tax agency. The IRS is focused on preventing, detecting and resolving identity theft cases as soon as possible. The IRS has more than 3,000 employees working on identity theft cases – more than twice the level of a year ago. We have trained more than 35,000 employees who work with taxpayers to recognize and provide assistance when identity theft occurs.
Taxpayers can encounter identity theft involving their tax returns in several ways. One instance is where identity thieves try filing fraudulent refund claims using another person’s identifying information, which has been stolen. Innocent taxpayers are victimized because their refunds are delayed.
Here are some tips to protect you from becoming a victim, and steps to take if you think someone may have filed a tax return using your name:
Tips to protect you from becoming a victim of identity theft
If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost or stolen purse or wallet, questionable credit card activity or credit report, contact the IRS Identity Protection Specialized Unit at 800-908-4490, extension 245 (Mon. - Fri., 7 a.m. - 7 p.m. local time; Alaska & Hawaii follow Pacific Time).
If you believe you’re a victim of identity theft
Be alert to possible identity theft if you receive a notice from the IRS or learn from your tax professional that:
If you receive a notice from IRS and you suspect your identity has been used fraudulently, respond immediately by calling the number on the notice.
If you did not receive a notice butbelieve you’ve been the victim of identity theft, contact the IRS Identity Protection Specialized Unit at 800-908-4490, extension 245 right away so we can take steps to secure your tax account and match your SSN or ITIN.
Also, fill out the IRS Identity Theft Affidavit, Form 14039. Please write legibly and follow the directions on the back of the form that relate to your specific circumstances.
In addition, we recommend you take additional steps with agencies outside the IRS:
Help if you have reported an identity theft case to the IRS and are waiting for your federal tax refund
The IRS is working to speed up and further streamline identity theft case resolution to help innocent taxpayers.
The IRS more than doubled the level of employees dedicated to working identity theft cases between 2011 and 2012. As the IRS enters the 2013 filing season, we now have more than 3,000 employees working identity theft issues. Despite these efforts, the IRS continues to see a growing number of identity theft cases.
These are extremely complex cases to resolve, frequently touching on multiple issues and multiple tax years. Cases of resolving identity can be complicated by the thieves themselves calling in. Due to the complexity of the situation, this is a time-consuming process. Taxpayers are likely to see their refunds delayed for an extended period of time while we take the necessary actions to resolve the matter. A typical case can take about 180 days to resolve, and the IRS is working to reduce that time period. While the identity theft cases are being worked, the IRS also reminds victims that they need to continue to file their tax returns during this period.
For victims of identity theft who have previously been in contact with the IRS and have not achieved a resolution to their case, they can contact the IRS Identity Protection Specialized Unit, toll-free, at 800-908-4490. If victims can’t get their issue resolved and are experiencing financial difficulties, contact the Taxpayer Advocate Service toll-free at 877-777-4778.
It is a top priority for the IRS to help victims and reduce the time it takes to resolve their cases. In addition, the IRS continues to aggressively expand its efforts to protect and prevent refund fraud involving identity theft before it occurs as well as work with federal, state and local officials to pursue the perpetrators of this fraud.
For more information, see the special identity theft section on IRS.gov and IRS Fact Sheet 2013-2, IRS Combats Identity Theft and Refund Fraud on Many Fronts.
|Posted on December 19, 2012 at 10:54 PM||comments (49)|
Struggling to find a job? If you’re an accountant, computer systems analyst or event coordinator, there's a good chance your luck will change in 2013.
These three professions are among the best jobs that require a bachelor's degree for 2013, according to a new study by CareerBuilder and Economic Modeling Specialists Intl. (EMSI).
The study used EMSI’s rich labor market database, which pulls from over 90 national and state employment resources and includes detailed information on employees and self-employed workers, to find the 18 top jobs for 2013, based on the occupations with the most jobs added since 2010.
“The list identifies occupations that are on an upward trajectory regarding employment,” says Matt Ferguson, chief executive of CareerBuilder. “Job seekers can gain insights into where companies are expanding and opportunities that are available.”
|Posted on October 12, 2012 at 6:50 PM||comments (19)|
What’s your net worth?
On the surface, that might sound like a silly question—how many of us walk around knowing the exact figure for the ratio of our debts to our assets? But calculating your net worth isn’t the dry, academic exercise it might sound like. Calculating your net worth means taking a long, hard look in the mirror and accurately assessing your financial situation. It’s the first step on the process towards more advanced financial planning, like saving for retirement or paying off your debts.
Resources, such as worksheets or calculators, exist to help you calculate your net worth. The worksheets ask you to add assets on one side of the page—things like cash on hand, cash in checking, market value of your home, market value of your property and the value of your retirement account, among other assets. Then once you have that total, you subtract the total of your liabilities to get to your net worth. Liabilities are the balance owed on your loans—from student loans to credit card to mortgages—as well as unpaid utilities and back taxes, among other money you know you’re going to have to pay in the future.
For instance, your net worth calculation might look like this:
Assets VS LiabilitiesCash in checking: $2,000, Student loans balance: $11,000, Cash in savings: $5,000, Balance owed on credit cards: $1,150, Value of car: $10,000, Balance owed on car loan: $8,000, Value of 401(k): $16,000, Balance owed on other loans: $2,000. Total Assets: $33,000Total Liabilities: $22,150
Subtract total liabilities ($22,150) from total assets ($33,000) = $10,850
In this example, your total net worth is $10,850.
You may find that the number is negative, meaning you have more liabilities than assets. Don’t be discouraged! While it’s not a rosy picture of financial health, you can’t fix the problem until you know the extent of the damage. Remember that net worth is unique to your situation, and a negative number doesn’t always mean your affairs are out of order. For instance, a doctor just graduating med school is likely buried in student debt, but due to the steady future income stream and employability conferred by the new degree, a negative net worth isn’t as bad as it appears. That’s what we found when we saw that NerdWallet recently challenged five contestants in the personal finance reality show ‘So You Think You Can Finance’ to create a net worth statement. Many of the contestants are young and just making the jump to financial independence—so the majority of them came up with a negative net worth number. Of course, it’s better to have a positive number—your net worth is an accurate way to measure how much money you truly have, so the larger your net worth number, the more well-off you are right now.
Once you have assessed your net worth, the next level is to figure out how to get from your current state to where you want to go. Again, it’s a highly individual process, but for many it will include creating a time line for becoming debt-free, as well as creating or optimizing a retirement savings plan. Let’s take the example of Jia, one of the contestants on ‘So You Think You Can Finance’. She did a great job on the net worth challenge – but the judges questioned whether she was ready to build on her net worth foundation to achieve her long-term financial goals. Had she begun incorporating her retirement savings into what she described as a balanced and healthy net worth picture? Also, she talked a lot about how her plans for marriage to her boyfriend figured into the future—but how would he fit into the financial picture? Deciding on joint accounts, prioritizing joint expenditures and aligning future savings is a key part in building on a basic net worth statement. Below are additional examples.
Subtracting your liabilities from your assets may seem like a simple math problem, but a well-thought out net worth statement is an important foundation you can build all your future financial planning on top of. So go ahead and calculate your financial worth, and let us know in the comments how you’re going to use it to plan your financial future!