ARE YOU READY TO FILE THOSE TAXES

Most taxpayers are chomping at the bit, ready for all those W-2's to arrive so they can get there taxes done. Fielded several calls tonight with anxious taxpayers checking to see if they could file with just there last pay stub. Everybody is in the same boat, times are tough and everyone is short on cash.

Before you make that trip to the tax office, make sure you have all your W-2's, 1099's if you worked as and independent contractor. If you have money in a savings account, bring that interest statement along. Please don't forget the children's social security cards and date of birth, you would be amazed at the number of rejections we get just because the names, birth dates and social security numbers don't match what the Social Security Administration has on file.

Just as a reminder for those new parents out there, if you've just had a child, your child can not be claimed as a dependent without a social security number. If you haven't received their card, contact the Social Security Administration and ask for a print out with the number on it.

If you own your home, there's mortgage interest and real estate tax that can be claimed. How about the drug store, did you get a list of the medication that you brought in 2007? And charitable contributions, do you have receipts, bring them along. Now you better call and make an appointment, the next two weeks are going to be busy with folks like you, ready for that refund.

P Harker Tax Advisor4/Tax Prep
http://www.effectur.com
http://www.blogcatalog.com/directory/business

SOME GOOD READING

Have you ever visited the North Carolina. Gov site? If you want some good reading material it's better than "Cops" or "Law and Order" and I'm a huge fan of both shows.

There are stories after stories of people that have been sentenced to jail for various tax charges and the North Carolina Department of Revenue is not playing around. One story stuck in my mind about a lady that was a professional preparer and was charged with 34 counts of aiding or assisting in the preparation of fraudulent income tax returns and two counts of attempting to evade or defeat the state’s individual income tax.

As part of her sentence, she was also ordered not to prepare or file tax returns for others. The state’s evidence showed that she was a paid tax preparer and completed both original and amended North Carolina individual income tax returns for clients that she knew were false.

She also told several of her clients that she had worked for the Internal Revenue Service and the North Carolina Department of Revenue, although she had never worked for either agency.

Check out the nc.gov site and look under press releases for The Revenue Department

P. Harker, Tax Advisor4/Tax Preparation
www.effectur.com

FRIVOLOUS CLAIMS

The Internal Revenue Service issued a notice that lists four additional erroneous legal positions that taxpayers should refrain from using as an excuse to avoid paying their taxes.

An individual or group may not avoid paying their fair share of taxes by making “frivolous” legal arguments such as those listed in this notice. The IRS publicizes these frivolous claims to help taxpayers understand the law and avoid penalties.

Notice 2008-14 lists positions identified as frivolous for purposes of the penalty under section 6702 of the federal tax code for filing a frivolous tax return or submitting to the IRS a frivolous request for a collection due process hearing or application for an installment agreement, offer-in-compromise, or Taxpayer Assistance Order.

Taxpayers who file a tax return or make a submission based on a position listed in this notice are subject to a $5,000 penalty. This notice adds to the positions listed in Notice 2007-30, 2007-14 I.R.B. 883. The positions that have been added are found in paragraphs 9(g), 11, 14, and 25.

The four new frivolous claims pertain to the following:

Misinterpretation of the 9th Amendment to the U.S. Constitution regarding objections to military spending.
Erroneous claims that taxes are owed only by persons with a fiduciary relationship to the United States or the IRS.
A nonexistent “Mariner’s Tax Deduction” (or the like) related to invalid deductions for meals.
Certain instances of misuse or excessive use of the section 6421 fuels credit.
In 2006, Congress increased the penalty for frivolous tax returns from $500 to $5,000. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.

Notice 2008-14 along with additional information providing the truth about frivolous arguments can be found on IRS.gov

And you thought not being compliant was a tough situation to be in.

P Harker, Tax Advisor 4/Tax Preparation
www.effectur.com

CANCELLATION OF DEBT

Generally, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income. You have no income from the canceled debt if it is intended as a gift to you. A debt includes any indebtedness for which you are liable or which attaches to property you hold.

If the debt is a nonbusiness debt, report the canceled amount on Form 1040, line 21. If it is a business debt, report the amount on Schedule C or Schedule C-EZ (Form 1040) (or on Schedule F, Profit or Loss From Farming (Form 1040), if the debt is farm debt and you are a farmer).

Form 1099-C. If a Federal Government agency, financial institution, or credit union cancels or forgives a debt you owe of $600 or more, you will receive a Form 1099-C, Cancellation of Debt. The amount of the canceled debt is shown in box 2.

Interest included in canceled debt. If any interest is forgiven and included in the amount of canceled debt in box 2, the amount of interest also will be shown in box 3. Whether or not you must include the interest portion of the canceled debt in your income depends on whether the interest would be deductible if you paid it. later.

If the interest would not be deductible (such as interest on a personal loan), include in your income the amount from Form 1099-C, box 2. If the interest would be deductible (such as on a business loan), include in your income the net amount of the canceled debt (the amount shown in box 2 less the interest amount shown in box 3).

Discounted mortgage loan. If your financial institution offers a discount for the early payment of your mortgage loan, the amount of the discount is canceled debt. You must include the canceled amount in your income.

Mortgage relief upon sale or other disposition. If you are personally liable for a mortgage (recourse debt), and you are relieved of the mortgage when you dispose of the property, you may realize gain or loss up to the fair market value of the property. To the extent the mortgage discharge exceeds the fair market value of the property, it is income from discharge of indebtedness unless it qualifies for exclusion under Excluded debt, later. Report any income from discharge of indebtedness on nonbusiness debt that does not qualify for exclusion as other income on Form 1040, line 21.

If you are not personally liable for a mortgage (nonrecourse debt), and you are relieved of the mortgage when you dispose of the property (such as through foreclosure or repossession), that relief is included in the amount you realize. You may have a taxable gain if the amount you realize exceeds your adjusted basis in the property. Report any gain on nonbusiness property as a capital gain.

This information is courtesy of the IRS.gov

P. Harker, Tax Advisor 4/Tax Preparation
www.effectur.com

JUST THREE LITTLE LETTERS!

It's amazing that just three little letters can bring a grown man to his knees and a woman to tears. What are those three little letters you ask? IRS

Have you ever been the recipient of there confidential correspondence? I have, and it's not fun and games.

Almost eleven years ago, after a divorce I received one of those letters. That was a reality check, and what brought me to tax preparation. I've always loved accounting, and still can't believe to this day that back then I wasn't more involved in the tax preparation for my family. A long story short, my situation turned out just fine, only because I took action and didn't ignore the Internal Revenue Service.

I am amazed on a daily basis the number of individuals that do ignore the IRS, and then all of a sudden there is a lien or levy.

Recently I took a survey and was surprised by a response of a close friend he said "nothing" when I asked him what he knew about taxes. Further into the conversation he told me that he gathers all his paperwork and drops it off for preparation by a long time preparer who knows him well.

I was glad to hear that he had the good sense to use a professional, considering the number of mistakes made on self-prepared returns. But then that's a whole series in it self.

P. Harker, Tax Advisor4/Tax Prep
www.effectur.com

GAMBLING - WINNINGS & LOSSES

Did you know that gambling winnings are fully taxable and must be reported on your tax return each year?

Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse and dog races and casinos, as well as the fair market value of prizes such as cars, houses, trips or other noncash prizes.

Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G and may have withheld income federal taxes from the payment.

Here are some general guidelines on gambling income and losses:

Reporting winnings: The full amount of your gambling winnings for the year must be reported on line 21, Form 1040. You may not use Form 1040A or 1040EZ.

Deducting losses: If you itemize deductions, you can deduct your gambling losses for the year on line 27, Schedule A (Form 1040). You cannot deduct gambling losses that are more than your winnings.

It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.

This information was provided by the IRS


P. Harker, Tax Advisor4/Tax Prep
www.effectur.com

IRS ADVICE FOR CHOOSING A TAX PREPARER

Eva Rosenberg had this article on her blog site "Tax Mama" courtsey of the Internal Revenue Service. It is well worth repeating.


Taxpayers who pay someone to do their taxes should choose a preparer wisely. If you choose to use a paid tax preparer, it is important that you find a qualified tax professional. Taxpayers are ultimately responsible for everything on their return even when it’s prepared by someone else
The most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions, and other items. By doing so, they have your best interest in mind and are trying to help you avoid penalties, interest, or additional taxes that could result from later IRS contacts.
While most tax return preparers are professional and honest, taxpayers can use the following tips to choose a preparer who will offer the best service for their tax preparation needs.
• Ask about service fees. Avoid preparers who claim they can obtain larger refunds than other preparers, or those who guarantee a refund or base fees on a percentage of the amount of the refund.
• Plan Ahead. Choose a preparer you will be able to contact after the return is filed and one who will be responsive to your needs.
• Get References. Ask questions and get references from clients who have used the tax professional before. Were they satisfied with the service received?
• Research. Check to see if the preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs or the state’s bar association for attorneys. Find out if the preparer belongs to a professional organization that requires its members to pursue continuing education and also holds them accountable to a code of ethics.
• Determine if the preparer’s credentials meet your needs. Does your state have licensing or registration requirements for paid preparers? Is he or she an Enrolled Agent, Certified Public Accountant, or Attorney? If so, the preparer can represent taxpayers before the IRS on all matters – including audits, collections, and appeals. Other return preparers can represent taxpayers only in audits regarding a return signed as a preparer.
You can report suspected tax fraud and abusive tax preparers to the IRS on Form 3949-A, Information Referral or by sending a letter to Internal Revenue Service, Fresno, CA 93888. Download Form 3949-A from IRS.gov or order by mail at 800-829-3676.



P. Harker, Tax Advisor4

http://www.effectur.com/

Self Employment 1099's

Going through old articles from the IRS, I ran across this information for self employment income. With tax season upon us this article may be helpful to those filing 1099’s

“What is Taxable?
Taxpayers must report all income from any source and any country unless it is explicitly exempt under the U.S. tax code. There may be taxable income from certain transactions even if no money changes hands.
Generally, the IRS considers all income received in the form of money, property or services to be taxable income unless the law specifically provides an exemption. This document discusses a few types of reportable income. Information on how to report other types of income can be found in Publication 525, Taxable and Nontaxable Income.
Self-Employment Income
It is a common misconception that if a taxpayer does not receive a Form 1099-MISC or if the income is under $600 per payer, the income is not taxable. There is no minimum amount that a taxpayer may exclude from gross income.
All income earned through the taxpayer’s business, as an independent contractor or from informal side jobs is self-employment income, which is fully taxable and must be reported on Form 1040.
Use Form 1040, Schedule C, Profit or Loss from Business, or Form 1040, Schedule C-EZ, Net Profit from Business (Sole Proprietorship) to report income and expenses. Taxpayers will also need to prepare Form 1040 Schedule SE for self-employment taxes if the net profit exceeds $400 for a year. Do not report this income on Form 1040 Line 21 as Other Income.
Independent contractors must report all income as taxable, even if it is less than $600. Even if the client does not issue a Form 1099-MISC, the income, whatever the amount, is still reportable by the taxpayer.
Fees received for babysitting, housecleaning and lawn cutting are all examples of taxable income, even if each client paid less than $600 for the year. Someone who repairs computers in his or her spare time needs to report all monies earned as self-employment income even if no one person paid more than $600 for repairs.”

P. Harker, Tax Advisor-4/Tax Preparation
http://www.effectur.com/

Reporting Capital Gains

With the 2007 Tax Season upon us, I've found some old articles in the IRS archive that never loose their value. My intent is to educate and also remind taxpayers of the basics.

"In order to educate taxpayers about their filing obligations, this fact sheet, the twelfth in a series, provides information with regard to capital gains reporting. Incorrect reporting of capital gains accounts for part of an estimated $345 billion per year in unpaid taxes, according to Internal Revenue Service estimates.
Almost everything you own and use for personal purposes, pleasure, business or investment is a capital asset, including:
Your home
Household furnishings
Stocks or bonds
Coin or stamp collections
Gems and jewelry
Gold, silver or any other metal, and
Business property
Understanding Basis
The difference between the amount for which you sell the capital asset and your basis, which is usually what you paid for it, is a capital gain or a capital loss. You have a capital gain if you sell the asset for more than your basis. You have a capital loss if you sell the asset for less than your basis.
Your basis is generally your cost plus improvements. You must keep accurate records that show your basis. Your records should show the purchase price, including commissions; increases to basis, such as the cost of improvements; and decreases to basis, such as depreciation, non-dividend distributions on stock, and stock splits.
While all capital gains are taxable and must be reported on your tax return, only capital losses on investment or business property are deductible. Losses on sales of personal property are not deductible. More information about increases and decreases to basis can be found in Publication 551, Basis of Assets.
Schedule D
Capital gains and deductible capital losses are reported on Form 1040, Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040, U.S. Individual Income Tax Return. Capital gains and losses are classified as long-term or short term. If you hold the asset for more than one year, your capital gain or loss is long-term. If you hold the asset one year or less, your capital gain or loss is short-term. To figure the holding period, begin counting on the day after you received the property and include the day you disposed of the property.
You may have to make estimated tax payments if you have a taxable capital gain. Refer to Publication 505, Tax Withholding and Estimated Tax, for additional information.
Other Rules
Home –– If you sell your residence, you may be able to exclude from income any gain up to a limit of $250,000 ($500,000 on a joint return in most cases). To exclude the gain, you must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. Generally, you cannot exclude gain on the sale of your home if, during the 2-year period ending on the date of the sale, you sold another home at a gain and excluded all or part of that gain. If you cannot exclude gain, you must include it in income. To determine the maximum dollar limit you can exclude and for additional information, refer to Publication 523, Selling Your Home. You cannot deduct a loss on the sale of your home.
Property outside U.S. –– U.S. citizens who sell property located outside the United States must also report gains from these sales, unless the property is exempt by U.S. law. Reporting is required whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the payer.
Installment sales –– If you sold property (other than publicly traded stocks or securities) at a gain and will receive any payments in a year after the year of sale, you generally must report the sale on the installment method using Form 6252, Installment Sale Income. You can elect out of the installment method by reporting the entire gain in the year of sale.
Investment Transactions –– Gains from sales and trades of stocks, bonds, or certain commodities are usually reported to you on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or an equivalent statement. Your basis, the sales price, and the resulting capital gain or loss is entered on Form 1040, Schedule D, Capital Gains and Losses.
Gains from the sale of business property are reported on Form 4797, Sales of Business Property and flow to Form 1040, Schedule D. See Publication 544, Sales and Other Dispositions of Assets for additional information on the sale of business property.
Capital gain distributions from mutual funds are reported to you on Form 1099-DIV, Dividends and Distributions. Capital gain distributions are taxed as long-term capital gains regardless of how long you have owned the shares in the mutual funds. If capital gain distributions are automatically reinvested, the reinvested amount is the basis of the additional shares purchased.
For additional information about reporting gains from investments see Publication 17, Your Federal Income Tax; Publication 550, Investment Income and Expenses; and Publication 564, Mutual Fund Distributions. Answers to Frequently Asked Questions about capital gains may also be helpful."



P. Harker, Tax Advisor 4/Tax Preparation

http://www.effectur.com/

IT'S ALL ABOUT CHOICE

A recent IRS article talked of restricting tax preparers such as H&R Block Inc and Jackson Hewitt Tax Service Inc from offering refund loans to customers because doing so could encourage fraud.
If adopted, the IRS proposal would limit tax preparers’ ability to provide customers’ tax return information to lenders that provide the tax refund loan.
The article goes on to say, “that because the loans are often limited to the size of refunds, unscrupulous tax preparers might be tempted to inflate refunds to collect higher fees.” “Loan fees might create an incentive for preparers not to comply with due diligence requirements to ensure that claims for earned income tax credits are accurate.”
It’s all about choice. Taxpayers come into our office with thoughts of getting refund money as quickly as they can without regard to what it’s going to cost them.
I talk to my clients, try to get as much information out of them as possible to help lower their tax liability under the guidelines of due diligence. When it comes time to go over the refund options, I make an effort to encourage them to wait two weeks for their refunds. I explain all of the options, but in the end the taxpayer has the final decision on how they will receive their refund.
I find it very disheartening that in the article tax preparers are portrayed as the ones that would inflate refund claims to collect higher fees .
You must know:
1. That the banks offer the loans
2. The tax services provides the product
3. The tax preparers explain the refund options to the taxpayers
4. Taxpayers make the final decision whether to accept or not.

Am I the only one that is upset by this article?
P. Harker, Tax Advisor 4/Tax Preparation

http://www.effectur.com/

The Forgotten Medical Deduction

Medical expenses are probably the most forgotten or over looked deduction on a tax return. Taxpayer's just don't think they have enough expense to surpass the 7.5% of the adjusted gross income. But, if you were to take a few minutes and jot down the number of trips you've made with Johnnie & Sally in tow to the:
1. Doctor's Office, Dentist Office
2. Hospital and clinics
3. To the Lab for Xrays
4. To pick up medical aids such as eyeglasses, contact lenses, hearing aids, braces, crutches, wheelchair,etc.
5. Possible Medical Equipment and Supplies.
There's a deduction for medical miles driven. Parking fees, tolls and local transportation for medical activity. Lodging for medical purposes (up to $50.00 per night per person). Health insurance premiums are deductible, even Stop Smoking expenses are allowed. And of course the most common expense, Prescription Medication. And if you use the same pharmacy all year, most will provide a print out at the end of the year for all your medication purchased.

The numbers may surprise you, so start today, make a list, contact the doctors and dentists and pharmacies you've worked with this past year. Be prepared to try and take this deduction for 2007.



P. Harker, TaxAdvisor 4/Tax Preparation

http://www.effectur.com/

Voluntary Firefighters Tax Deduction

Voluntary Firefighters and Rescue Squad Workers Deduction for 2007

North Carolina has announced a $250.00 deduction for Voluntary Firefighters and Rescue Squad Workers on their 2007 State Tax Return.
You may deduct the $250.00 from the federal taxable income if you were an unpaid volunteer firefighter or an unpaid volunteer rescue worker who attended at least 36 hours of fire department drills and meetings or 36 hours of rescue squad training and meetings during the taxable year. An individual may not claim a deduction as both a volunteer firefighter and a volunteer rescue squad worker. In the case of a married couple filing a joint return, each spouse may qualify separately for the deduction.
This deduction is correctly a step n the right direction for the individuals that put their lives on the line on a daily basis to protect our families, homes and businesses. The second step would be to make this a federal deduction. If it was only that easy!

P. Harker Tax Advisor/Tax Preparation

http://www.effectur.com/

All Tax Preparers' should read this article

This article was forwarded to me by a co-worker:

NEW YORK - The U.S. Internal Revenue Service said on Thursday it may restrict tax preparers such as H&R Block Inc and Jackson Hewitt Tax Service Inc from offering refund loans to customers because doing so could encourage fraud.
The agency's proposal sent shares of both companies lower. H&R Block closed down 86 cents, or 4.6 percent, at $17.75, and matched a five-year low during the trading session. Jackson Hewitt slid $7.25, or 23.1 percent, to $24.13, the lowest level in more than two years.
If adopted, the IRS proposal would limit tax preparers' ability to provide customers' tax return information to lenders that provide the tax refund loans.
Also known as refund anticipation loans, they tide over customers who expect to receive refunds but want their money immediately.
Many consumer groups complain about the loans' fees, which often equate to annualized interest rates of 40 percent to 60 percent. They also say the loans burden lower-income people, who often use them but can least afford them.
Acting IRS Commissioner Linda Stiff wrote that because the loans are often limited to the size of refunds, unscrupulous tax preparers might be tempted to inflate refunds to collect higher fees. She also said loan fees might create an incentive for preparers not to comply with due diligence requirements to ensure that claims for earned income tax credits are accurate.
"The Treasury Department and the IRS are concerned that RALs and certain other products may provide tax preparers with a financial incentive to take improper tax return positions in order to inappropriately inflate refund claims," wrote Stiff. She is also the IRS deputy commissioner for services and enforcement.
Schumer calls loans "usurious"Sen. Charles Schumer, a New York Democrat and member of the Senate Banking Committee, said in a statement "people all over the country are getting ripped off by these so-called refund loans, and it's time to stop them dead in their tracks." He called the loans "usurious."
H&R Block, based in Kansas City, Mo., said its tax preparers are not compensated for selling "ancillary" products, "so there is no incentive for them other than serving taxpayers' best interests." It said it would work with the IRS to develop best practices for refund loans.
Jackson Hewitt, based in Parsippany, N.J., said it believed adoption of the IRS proposal would not end tax refund loans. Chief Executive Michael Yerington said the company "firmly believes in the taxpayer's right to control their tax return information through a written consent process."
H&R Block offers a refund loan known as Instant Money, while Jackson Hewitt has a similar product called Money Now. Both stopped offering some refund loans in the last year.
Banks that make the loans include HSBC Holdings Plc, Santa Barbara, Calif.-based Pacific Capital Bancorp's Santa Barbara Bank & Trust unit, and Louisville, Ky.-based Republic Bancorp Inc., according to the companies' and tax preparers' Web sites.



P. Harker Tax Adivsor 4/Tax Preparation

http://www.effectur.com/