Are you receiving state payments (from IHSS and/or WPCS) to be a care provider for someone that lives with you?

If so, you may be eligible to amend your returns and potentially get a refund back.

IRS Notice 2014-7 states “that wages received by IHSS and WPCS providers who live with the recipient of those services are not considered part of gross income for purposes of federal income tax.”

The Department of Social Services can supply you with a form SOC 2298 Live-In Self-Certification Form. It is recommended that you file this as soon as possible with them so that they can supply you with the proper W-2 and/or 1099-MISC information for the upcoming tax season.

Talk to your tax consultant as soon as possible to see if this applies to you.

Funny… but not!

I rarely post another person’s article, or link to it, but let’s face it, Kelly Phillips Erb, Contributor to Forbes, wrote this too well and it’s funny… but not!

“Crime doesn’t pay. Despite using money from crime to temporarily fund a lavish lifestyle, Rashia Wilson of Tampa, Florida, learned her lesson the hard way this week. While she was briefly able to cash in on her crimes before landing a record prison sentence, the details of her spree read like a “What Not To Do” map when stealing from…”

Read more: How To Stay Out Of Jail: Lessons Learned From The ‘Queen Of IRS Tax Fraud’

Do I still owe franchise tax fees if…

“I’ve sold my business and I no longer have my corporation/LLC?”  The real question is did you sell your corporation or just its assets?  If you sold the assets and never closed out the corporation/LLC with the Secretary of State, the corporation/LLC is still responsible for paying the annual franchise tax fee to the Franchise Tax Board every year.  This can come as a nasty surprise to anyone whom receives a letter sometimes years later saying that they owe for all the preceding years.  If you sold the corporation, make sure that the Secretary of State knows that you are no longer in business and/or the responsible party and file a final tax return with the Franchise Tax Board during the appropriate tax season.  Either way, the broker or escrow office should inform you of what is required at the time of the sale.  If they don’t, you may want to ask them.

“I’ve kept the corporation/LLC name so that I can use it in the future again but I haven’t done any business in years?” I’ve heard this a few times and the same rule applies:  If you have left it open with the Secretary of State, you are still liable for the annual franchise tax fee.  It comes as no surprise that many shareholders/members are shocked to find out that they have this responsibility even if they don’t do anything with the business.  It is actually cheaper to dissolve the business at the time and later re-open it and/or rename it (if needed) than it is to pay a minimum of $800 a year just to keep that name.

So who actually owes the fees?  In reality, the corporation/LLC owes them.  As they are considered separate entities, you should not be the one to personally pay these fees. However, LLC’s may also be regarded as ‘disregarded entities’ so make sure you know which you have as the rules may be different and you may have to pay the fees in that case.

You should always discuss these types of scenarios with your tax professional.  Having the right information can save you thousands of dollars in the long run.

Eight options when you owe taxes.

You owe the IRS money.  If it’s a small enough amount, then you just pay it.  What are your options when it’s a large amount?

The IRS will work with you and you have eight options available to you.

Change your payroll check withholding.  While this may not help you this year, it would help you from potentially owing taxes in future years.  File a revised W-4 with your employer and have them withhold more in taxes by either lowering your number of dependents or having them withhold an additional dollar amount.

The IRS takes debit/credit card payments.  There may be an additional fee for the transaction through a third party but it may be a cheaper fee than the one that you pay to set up a payment plan with the IRS.

Payment plans are another way to go.  Otherwise known as an installment agreement.  You can set up an agreement with the IRS to pay monthly.  You can also set up a direct debit so that the payment comes out of your account on the same date every month and you’ll never miss a payment that way.  The fees for this type of plan is $105.  An additional fee of $52 is for the direct debit agreement.  If your income is below a certain level though, they will only charge $43.

Maybe you are getting a loan or think you can come up with the money soon?  Then ask for a short term agreement.  This means that you can pay the full amount in 120 days or less.

There’s the tax bill payments option too.  Here you receive a bill from the IRS.  Pay it as soon as possible as interest and penalties accrue every month.  If you can’t pay it all, a loan may be the best option as their interest may be less than the interest and penalties that you get from the IRS.

Have you heard about electronic funds transfer?  This is a great way to pay your tax bill by phone or you can set up an account through the EFTPS website.

The IRS has a program called Fresh Start.  If you are really struggling to pay your taxes, you should look into this program. Their objective is to make it easier for you to pay back taxes and avoid tax liens.

Last, but not least, is an offer in compromise.  This program allows you to pay less than the full amount you owe. If the IRS agrees to your offer, then be prepared to pay the new and agreed upon amount in full as payment plans are not an option.  This one is the most time consuming process.  Even if everything is filled out perfectly, it can still take the IRS quite a long time to respond to it.  While you can do this yourself, you may be better off paying your accountant to do this for you.  He will know what documentation you will need to support your application for the offer.

Back to school!

I want to thank you all for the ongoing support during the last couple of years while I studied to be an Enrolled Agent.  It was a long road but it was worth it!

As you know, summer is almost over and you have a child going away to college soon.

Here are a few things about how your college student will affect your taxes.

As long as you are still supporting them, and they are attending school full time, and they meet the age guidelines, you can still claim them on your taxes.

There are also a few credits available to you now.

The American Opportunity Tax Credit can be up to $2500 per eligible student!  This credit is available for the first four years of post-secondary education.   60% of the credit lowers your tax bill while the other 40% is refundable, meaning that you could get up to $1000 back as a refund!  Qualified expenses for this credit include tuition and fees, course related books, supplies and equipment. Recently, the law extended this credit through December 2017!

The Lifetime Learning Credit has no limit on the number of years it can be used for an eligible student.  You may be able to claim up to $2000 on your federal tax return for qualified expenses.

You cannot claim both credits for the same student but you can use one credit per each student if there is more than one eligible college student in your household.

If you have student loans in your name, then you may be able to deduct student loan interest from your taxes.  The deduction can lower your taxable income up to $2500.

Education benefits are subject to income limitations and may even be completely phased out depending on your income.

If you have any questions, call me directly at 881-235-5406.

 

 

Tax preparers deserve a break!

I don’t usually link to other articles but I found it both interesting and educational.  Most taxpayers think we just sit there, enter the numbers in the tax program and “Voilà! Your tax return is complete.”  If it were that easy, wouldn’t you be doing your own taxes already?

We have to study tax changes. We have to, in California at least, get tested and registered.  We have to deal with bumps in the road every last quarter of the year like waiting for Congress to get their stuff together and finish their Christmas vacation (although if i had been President, I would have told them “No vacations, no pay until you have finished!”) Then there’s the IRS and state entities that have to update their forms, then the programmers of the tax programs and the list continues.

So here you go, straight from the mouths of accountants:

Let’s Never Do That Again

Horse Farming – A Business or a Hobby?

As tax season is upon us, I thought it might be beneficial for horse owners and businesses to see whether you can claim your horse activities as a business and what factors will determine that.

The American Horse Council reports in “Tax Tips for Horse Owners” that the taxpayer cannot deduct expenses of an activity which are greater than income from that activity if the activity is “not engaged in for Profit”. In other words – A hobby- cannot be deducted against income from any sources. On the other hand, if an activity is engaged in for profit ( a business rather than a hobby), losses are fully deductable against other income.

In determining whether an activity is engaged in for profit, all facts and circumstances with respect to the activity are taken into account. These facts and circumstances must indicate that the taxpayer entered into the activity or continued the activity with the objective of making a profit. If a profit is made in two years during a seven year period, it will generally be presumed that the taxpayer has a profit motive.

The IRS regulations list certain factors which are considered in determining whether an activity is engaged for profit. All factors are considered, not only the ones listed in the regulations.

The factors normally considered are:

  • How does the taxpayer carry on the activity – is it in a business-like manner? Do they maintain complete and accurate bookkeeping records, carry on the activity in a similar manner to other activities of the same nature which are profitable and changes operating methods with the intent to improve profitability.
  • The expertise of the taxpayer or his advisors.
  • The time and effort taken by the taxpayer in carrying on the activity. If the taxpayer only devotes a limited amount of time, does he employ others to meet his goals?
  • Will assets such as land and horses appreciate?  Does the taxpayer intend to profit from that?
  • The success if the taxpayer in carrying on other similar of dissimilar activities.
  • The taxpayer’s previous income or losses associated to the activity.
  • The amount of profits in relation to the losses and in relation to the amount of the investment and the value of the assets used in the activity.
  • Substantial income from sources other than the activity, particularly if the losses from the activity generate substantial tax benefits.
  • Elements of personal pleasure or recreation, however pleasure derived from the activity is not considered sufficient cause to classify the activity as not engaged in for profit.

Presuming that an activity is a business:

Horse businesses, unlike most other businesses, have to show a profit in two years out of a seven year period in order to be considered a business.  This applies to the second profit year and all years thereafter within the seven-year period beginning with the first profit year. If it is a new activity, two profit years during any of the first seven years of operation will classify it as a business activity for all those seven years – provided the taxpayer makes a special election by the due date of the tax return for the third tax year in the seven year period.

If there are no profits shown in two years during a seven- year period, it doesn’t necessarily rule it out as a business.  If nothing can be presumed the taxpayer must rely on the factors listed in the regulations or other facts and circumstances.  The taxpayer should be able to demonstrate that the business will be profitable in the future, even if it hasn’t been for a number of years.

Any capital gains or any other sales relating to the activity are taken into consideration when determining a profit or loss year for purposes of the presumption.

If you want more information, email me a message through our contact page.