They’re everywhere, online tax preparation commercials. They seem easy enough for the smiling folks on the screen and they all seem to guarantee a big refund and lifelong happiness for all involved. But is online tax preparation a good idea?
Here are four reasons you should consider having a professional do your taxes:
A professional tax preparer whether they are an enrolled agent, certified public accountant or tax attorney is just that, a professional, and that may be just what you need if your tax needs go beyond a W-2. Did you buy or sell stock at a profit or loss? Do you own property other than your residence? Are you a freelancer or consultant? Professional tax preparers are trained to understand tax laws and will do everything they can within these laws to reach the best possible outcome.
A professional tax preparer is responsible for any returns he or she files. So any mistakes made on their part will result in being held liable for additional penalties or amendments. This means any tax preparer worth their salt will be meticulous and thorough. They have almost as much invested in your return as you do.
What is your time worth to you? It is a good question to ask yourself when it comes to preparing tax returns. Even software programs require time. Plus, the outcome is directly related to information being entered correctly by the taxpayer. To save time and energy the services of a paid professional may be something to consider.
A tax professional can prepare you for a good tax year after you file your return. Sure you can find tips and hints online but they’ll be general and may not have enough detail. Meeting in-person (or even by phone) with your preparer results in advice unique to you and your needs and they can point out future deductions that are relevant to you.
If you make one or more mistakes on your taxes, you are going to have to file an amended tax return. Penalties and interest can be really high and it can be nerve-wracking to have to deal with the IRS. You don’t need to stress and can rest easy knowing that you have all your taxes done and less of a chance of an audit. Hiring a tax preparer can pay off not just with money but with piece of mind.
At Alliance Financial and Income Tax we believe that our clients are also our partners. We help them realize their goals, provide for family, grow a successful business or plan for a sound retirement. Please call us and find out more about how we can help you.
New IRS regulations — known as Section 6050W and enacted as part of the Housing and Economic Recovery Act of 2008 — went into effect at the beginning of 2011 and significantly impact the payment card industry. As a merchant, you should understand how Section 6050W affects you and your business.
Report Transactions to IRS
Under Section 6050W, all payment settlement entities — including merchant services providers and financial institutions — are required to report their merchants’ annual gross payment card transactions processed by credit, debit or co-branded cards and third-party network transactions (flexible spending accounts, for example) to the IRS on newly-created 1099-K forms; each merchant will receive a copy of the form. This information, which is accumulated monthly, will be used by the IRS to verify financial data it receives from other sources.
Form 1099-K will be sent to merchants on or before Jan 31, 2012, for activity in 2011.
Compliance with 6050W To comply with this new regulation, payment settlement entities need to have up-to-date records of their merchants’ legal business names, addresses and taxpayer identification numbers (typically the EIN). This information must match the merchants’ filed tax forms in order to be valid. Expect your payment processor to ask you to provide a Form W-9 with this information.
Merchants who fail to provide their taxpayer ID number could be hit with a backup withholding equal to 28% of their gross payment card transactions.
Planning Ahead
Now that the first reporting period has begun, merchants should be proactive when it comes to compliance — especially since the financial consequences of non-compliance could be steep.
Merchants should start by reviewing their bookkeeping and accounting practices. One area of concern that you as a merchant should be aware of is that while the new law requires payment settlement entities to report merchants’ gross payment card transactions, Form 1099-K may not directly reconcile to the monthly processing statements. The statements reports are “net,” while Form 1099-K reports gross for IRS accounting purposes. Therefore, chargebacks, refunds and credits will be included in the reported amount. Additionally, cash-back transactions will also be included in a merchant’s gross amount. If merchants have additional questions regarding this new regulation and how it may impact them and their business, they should seek advice from a tax professional.
For additional questions contact Tim Miller of Merchant First at (816) 853-2644 or via e-mail at Timm@MerchantsFirstPS.com
The Child Tax Credit is available to eligible taxpayers with qualifying children under age 17. The IRS would like you to know these eleven facts about the child tax credit.
1. Amount With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under age 17.
2. Qualification A qualifying child for this credit is someone who meets the qualifying criteria of seven tests: age, relationship, support, dependent, joint return, citizenship and residence.
3. Age test To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2011.
4. Relationship test To claim a child for purposes of the Child Tax Credit, the child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
5. Support test In order to claim a child for this credit, the child must not have provided more than half of his/her own support.
6. Dependent test You must claim the child as a dependent on your federal tax return.
7. Joint return test The qualifying child can not file a joint return for the year (or files it only as a claim for refund).
8. Citizenship test To meet the citizenship test, the child must be a U.S. citizen, U.S. national or U.S. resident alien.
9. Residence test The child must have lived with you for more than half of 2011. There are some exceptions to the residence test, found in IRS Publication 972, Child Tax Credit.
10. Limitations The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies by filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax and any alternative minimum tax you owe.
11. Additional Child Tax Credit If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.
Many people may not realize the Social Security benefits they received in 2011 may be taxable. All Social Security recipients should receive a Form SSA-1099 from the Social Security Administration which shows the total amount of their benefits. You can use this information to help you determine if your benefits are taxable. Here are seven tips from the IRS to help you:
1. How much – if any – of your Social Security benefits are taxable depends on your total income and marital status.
2. Generally, if Social Security benefits were your only income for 2011, your benefits are not taxable and you probably do not need to file a federal income tax return.
3. If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status (see below).
4. Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet. Your tax software program will also figure this for you.
5. You can do the following quick computation to determine whether some of your benefits may be taxable:
First, add one-half of the total Social Security benefits you received to all your other income, including any tax-exempt interest and other exclusions from income.
Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.
6. The 2011 base amounts are:
$32,000 for married couples filing jointly.
$25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouse at any time during the year.
$0 for married persons filing separately who lived together during the year.
If you have any questions please do not hesitate to contact us.
Schedule C is the form that unincorporated sole proprietor businesses use to report their income and expenses as part of their individual tax returns. Schedule Cs have been center stage in recent IRS “tax gap” estimates.
The tax gap is defined as the amount of tax liability faced by taxpayers that is not paid on time. This past January they released the tax gap figures for 2006. You might say that 2006 was quite a ways back, but you have to remember returns are filed in the subsequent year and then the information must be compiled and analyzed. Thus, most Treasury reports based on filed tax returns are based on information from several years back.
The 2006 report essentially mirrors the 2001 report, except the tax gap has increased from $345 billion to $450 billion. Of that $450 billion, approximately $372 billion is attributed to underreporting in the following categories:
Non-business underreporting 73
Schedule C underreporting 193
Overstated deductions, exemptions & credits 42
Payroll taxes 20
Corporate income tax 39
Estate tax 5
Since Schedule C underreporting represents the largest category, and over half of the underreporting, it is no wonder that the audit rate for Schedule C returns has increased substantially and is among the highest of the rates. Based on 2010 IRS figures, Schedule Cs have a 300% higher chance of being audited than either a partnership or an S-Corporation. Of the Schedule Cs audited in 2010, the average adjustment exceeded $9,000.
Among the areas of underreporting are:
Personal Expenses – Over-deductions attributable to the inclusion of non-deductible personal expenses and the failure to allocate for personal use of a vehicle.
Underreporting Income – Failure to include all income. To counter this problem, the IRS has initiated merchant card and third-party reporting that will provide the IRS with all income from credit card sales.
Worker Misclassification – Misclassifying workers as independent contractors instead of treating them as W-2 employees, and thereby avoiding the employer’s share of payroll, unemployment, and other taxes. The IRS currently has a Voluntary Classification Settlement Program in effect that allows eligible taxpayers to voluntarily reclassify their workers for federal employment tax purposes. Voluntary programs usually precede more aggressive compliance measures.
Failing to Issue Information Returns – Generally, businesses are required to issue 1099s for fees they pay to individuals other than employees or to corporations. This is a huge area of non-compliance and denies the IRS the ability to ensure the payees are properly reporting their income. In an audit where a 1099 should have been issued and was not, the IRS will generally disallow the deduction for those services. The 2011 Schedule C asks two catch-22 questions: “Did you make payments that would require you to file a Form 1099?” followed by “If yes, did you or will you file all required Forms 1099?”
Hobby Losses – Some businesses are actually hobbies where there is no real intention of ever making a profit. Businesses deemed to be hobbies have special rules that limit the expense deductions to the income and require the deductions to be taken as an itemized deduction on Schedule A. Watch for a future article on hobby losses that will appear in the March newsletter.
If you have questions related to your Schedule C or we may be of any assistance, please give this office a call.
