Category Archives: Income Taxes

Do You Want To Know About Your IRS Account Balance? IRS Launches New Online Tool to Assist Taxpayers with Basic Tax Account Information

irs-online-toolThe Internal Revenue Service announced on December 1, 2016 (IR-2016-155) the launch of an online application that will assist taxpayers with straightforward balance inquiries in a safe, easy and convenient way.

This new and secure tool, available on IRS.gov allows taxpayers to view their IRS account balance, which will include the amount they owe for tax, penalties and interest.

It also should be pointed out that taxpayers may also continue to take advantage of the Continue reading

Did You Get a Letter in the Mail from the IRS? Here is What You Need to Do

IRS NOTICE OF PROPOSED CHANGEEach year, the IRS mails millions of notices and letters to taxpayers for a variety of reasons. This can be extremely upsetting when receiving this form of communication, whether it is from the IRS or any other taxing authority.  The following tips are presented to reduce your anxiety and to provide a specific action plan for any correspondence received from the IRS (or from your state or local taxing authority):

  • Don’t Panic: You can usually deal with a notice simply by responding to it. You should immediately contact your tax attorney, CPA or tax adviser to discuss this matter in more detail.
    • Tip: Waiting can only compound and complicate your tax problems.
  • Most IRS notices are about federal tax returns or tax accounts: Each notice has specific instructions, so read your notice carefully because it will tell you what you need to do.  Follow the instructions very carefully.  The goal here is to give a specific and detailed response to the tax issue in question.
    • Tip: Only respond to the particular issue and do not provide or discuss issues that are not being raised by the IRS.
  • Taxes You Owe or Payment Request:  Your notice will likely be about changes to your account, taxes you owe or a payment request. However, your notice may ask you for more information about a specific issue.
    • Tip: Do not assume that the taxes owed are correct. In many cases, the IRS calculates taxes without all the relevant facts.

Continue reading

Tax Positions of Presidential Candidates

Here is a neat info-graphic on the tax positions of the Presidential Candidates. Special thanks to MBACentral.org

Candidates_Tax_Proposals

2014 Year-End Tax Planning Guide For Businesses: Discover 9 Proven Tax Planning Strategies

Year-End Tax Planning For Business

Business Year-End Tax Planning

The arrival of year-end presents special opportunities for most small businesses to take steps in lowering their tax liability. The starting point is to run projections to determine the income and tax bracket for this year and what it may be next year.  Once this is known, decisions can be made as to whether any of the following planning tools should be employed to cut taxes before the tax year closes.

Last second tax law changes also must be considered.  It is also important to know that on December 19, 2014, the President passed the Tax Increase Prevention Act that extended many expired tax provisions some of which are discussed in more detail below.  Note that these tax breaks are only available through the end of  2014.  If any of these tax breaks are available to you, it would be prudent to take advantage of them before they expire.

Also keep in mind ordinary income tax rates for individuals can be as high as 35% to 39.6%  so members of flow through entities such as partnerships, limited liability companies (LLCs) and S Corporations need to recognize this and other tax changes and plan accordingly.

The following presents some year-end tax strategies that may prove helpful to  businesses of all shapes and sizes:

1. Accelerating or Deferring Income and Deductions as Part of a Year-end Tax Strategy

A good part of year-end tax planning involves techniques to accelerate or postpone income or deductions, as your tax situation dictates. The idea is to keep income even from year to year. Having spikes in taxable income in any one tax year puts you in a higher average tax bracket than you would be in if you had evened out the amount of taxable income between current and later year(s).  (Historical note:  For those of you old enough to remember, there was an income averaging rule built into the tax code that actually corrected for the inequity that can result in big shifts in income from year to year.  That provision has long been abolished.)

So every year, businesses can take advantage of the traditional planning technique that involves alternatively deferring income or accelerating deductions. For example, business taxpayers such as pass-through entities (limited liability companies, partnerships, S corporations, sole proprietorship) should consider accelerating business income into the current year and deferring deductions until 2015 (and perhaps beyond) if they expect income to rise next year. Continue reading

Year End Tax Planning Tips: Instantly Discover What You Can Do Now To Start Saving Taxes Before Year End With Proven Tax Attorney Strategies

Year End Tax Planning

As the year-end quickly approaches, there is still time to do year-end tax planning to generate significant tax savings.  As many of you know, changes to the tax laws in 2013 made many tax rates (subject to cost of living adjustments) and certain tax breaks permanent.  But some tax breaks expired in 2013 (discussed in more detail below) and Congress has not as yet revived them making year-end planning more complicated and frustrating. 

The President has signed the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). Some tax breaks have been made permanent, some have been extended through 2016, and some have been extended through 2019. See Expired Tax Provisions below for more details.

Overview:

This 2014 tax year will again be challenging as taxpayers will have to deal with the following recent tax law changes:

  • Higher marginal income tax rates
  • Higher capital gain tax rates
  • Restoration of the phase out of itemized deductions and exemptions: If your adjusted gross income exceeds applicable thresholds, certain itemized deductions are reduced.  The applicable thresholds for 2014 are $254,200 for singles, $279,650 for head of household and $305,050 for joint filers
  • The new 3.8 % Medicare tax on unearned income, including interest, dividends and capital gains. etc.  For more details please read 2013 Sneaky New Tax – Not Too Early to Plan for 3.8 % Medicare Tax on Investment Income
  • The new 0.9% tax on earned income in excess of $200,000 for single taxpayers and $250,000 for married taxpayers filing jointly
  • Same Sex Couples:  The recent Supreme Court decision in Windsor may result in same-sex couples with dual income paying more income taxes filing jointly than if they were still able to file singly. For more details on the tax implications for same-sex couples please read Same-Sex Marriage Tax Guide: 16 Essential Tax Rules and Tips

It is important to know that this year-end tax guide only provides an overview of various tax strategies and some of the more important tax provisions and by no means covers all tax minimization techniques.  Each taxpayer situation is unique and as a result tax strategies and projections should be developed for each client for the greatest results.

Where To Begin:

As a starting point, it is essential to know the customary year-end planning techniques that can cut income taxes.  It all starts with a tax projection of whether you will be in a higher or lower tax bracket next year. In some cases it is imperative to project income and expenses for multiple years to smooth income out over time to avoid higher tax brackets over an extended period.  This type of planning is beyond the scope of this discussion and should be explored directly with tax counsel.

Once your tax bracket for this year and next year are known, there are two basic income tax planning considerations:

  • Should income be accelerated or deferred?
  • Should deductions and credits be accelerated or deferred?

However, life is never that simple.  Tax laws always make for some real guesswork.  As discussed below, when it comes to certain deductions that have Continue reading

Weddings: Quick and Easy Tax Guide For Those Getting Married and Newlyweds

My Loving In-Laws-RITA AND JOE circa 1950

Rita and Joe, My Wonderful In-Laws, On Their Wedding Day, June 23,1950

The excitement, joy and anticipation of getting married can be almost overwhelming.  With the planning that goes into the wedding it is easy to overlook the tax implications of marriage.  Although taxes are probably not high on your summer wedding plan checklist, it is important to be aware of the tax changes that come along with marriage. Here are some basic tips that can help keep those issues under control.

Name Change:

The names and Social Security numbers on your tax return must match your Social Security Administration (SSA) records. If you change your name, it is imperative to report it to the SSA.

Change Income Tax Withholding:

A change in your marital status means you must give your employer a new Form W-4, Employee’s Withholding Allowance Certificate.

If you and your spouse both work, your combined incomes may move you into a higher tax bracket. Use the IRS Withholding Calculator tool at IRS.gov to help you complete a new Form W-4. See Publication 505, Tax Withholding and Estimated Tax, for more information.

To avoid problems and to get specific advice speak with your tax adviser.

Changes In Circumstances:

Marriage can have an impact on insurance. It is important that you report changes in circumstances, such as changes in your income or family size, to your health insurance company (or Health Insurance Marketplace).  You should also notify your insurance company when you move out of the area covered by your current insurance plan.

Address Change:

Let the IRS know if your address changes.

You should also notify the U.S. Postal Service. You can ask them online at USPS.com to forward your mail. You may also report the change at your local post office.

Change In Filing Status:

If you’re married as of December 31, that’s your marital status for the entire year for tax purposes. You and your spouse can choose to file your federal income tax return either jointly or separately each year.

Note: Once married, neither of you can file using single status.

Generally and in most cases, married filing jointly results in a lower amount of taxes due.  However, you may want to figure the tax both ways to find out which status results in the lowest tax.

Filing Status For Same-Sex Couples:

If you are legally married in a state or country that recognizes same-sex marriage, you generally must file as married on your federal tax return. This is true even if you and your spouse later live in a state or country that does not recognize same-sex marriage. See Same-Sex Marriage Tax Guide: 16 Essential Tax Rules and Tips for a more detailed discussion. Continue reading

The Biggest (Tax) Loser: Misguided Gifts of Real Estate By Uninformed Do It Yourselfers, Realtors & Attorneys

gift, income tax, estate planning

“Son, I am sick and getting old, so fill out a deed to transfer my house into your name now.”

With the increase of the federal estate tax exemption to $5,340,000 in 2014, most taxpayers are not subject to federal estate taxes.  The focus for many now has shifted to the income tax implications that arise when wealth passes to the next generation.  With no regard to the income tax implications, many times elderly people get the idea that the transfer of real estate to children during their lifetime is a good idea in trying to avoid probate and to make things easier for loved ones. Even uninformed realtors, attorneys and other financial advisers sometime make such a recommendation without knowing the tax impact.  However well-meaning, this uninformed strategy can have disastrous income tax results for the children recipients of such ill-conceived lifetime gifts.

Basis Rules:

It is important to understand the following income tax basis rules for calculating gain or loss:

  • Lifetime Gifts:  Children who receive lifetime gifts take a carryover basis in the property received.  The carryover basis is determined by what the maker of the gift originally paid for the asset plus any improvements made to the property.
  • Bequest At Death:  Beneficiaries who receive assets at the decedent’s death get a step up in basis to the date of death value of such assets received.

Basis Rules:  Illustrating How These Rules Operate

Example:  DIY Dad wants to avoid probate and to transfer during his lifetime his real estate to his son, Sad Son.  DIY Dad bought his house in the 1970s for $17,000 and made improvements during the years of $23,000.  As a result his adjusted basis is $40,000.  The house is now worth $540,000.  To save lawyer fees, DIY Dad asks Sad Son to draft a deed to transfer the property.  Sad Son does so and DIY Dad signs the deed and has it recorded with the recorder of deeds.

  • Since this was a lifetime gift, Sad Son takes a carryover basis for the house of $40,000.  Sad Son sells the house for $540,000 shortly afterwards and has a capital gain of $500,000 which he surprisingly  and shockingly learns from his accountant will cost him $100,000 (20% x $500,000) in federal taxes alone.  His accountant tells him there will also be state income taxes on this gain. Since Sad Son is a Pennsylvania resident, he will pay an extra $15,350 in Pennsylvania income taxes.  Total Taxes: $115,350.
    • Form 709:  Any lifetime gifts of over $14,000 require the filing of a Form 709, United States Gift Tax Return, in the year of the gift.  It should also be noted the IRS now checks recorded deeds.  For more on the IRS policing this area please see IRS Checking Real Estate Transfers For Unreported Gifts.
  • Alternate Universe:  DIY Dad consults with his tax/estate attorney who drafts a will that provides for the transfer of his house at death to Sad Son. Sad Son (who now legally changes his name to Happy) Son, has a basis of $540,000 upon his receipt of the house from the estate.  Happy Son, now sells the house and has zero, yes, zero capital gain (Sale Price $540,000 less basis of $540,000 = 0)!
    • Note: Certain states have inheritance taxes.  For example, in Pennsylvania there would be a 4.5% inheritance tax on the real estate, but this is a smaller cost than the capital gains tax that results from taking a carryover basis via a lifetime gift.
  • Fall Back Solutions:
    • If Sad Son stays in the house long enough to qualify the house as his primary residence and all statutory requirements for exclusion are met, he may then exclude $250,000 of the gain on the sale of the house once he sells the house.  If married and all statutory requirements are satisfied,  Sad Sam may be entitled to a $500,000 exclusion. Continue reading