Tax Accounting Blog
News and Views in the Tax Preparation, Accounting, and Financial Investment World
It’s Never Too Early to Make Your Tax Investing Plans?
It’s not important how much you make but how much you keep. That’s why you need to take advantage of every legal and practical opportunity to reduce your tax bill and put your investible dollars into tax-free or tax-deferred products. Our U.S. tax code allows you to save and invest to fund your retirement in accounts that are tax-advantaged. Anyone who is legally employed and earning an income can contribute to their employer-sponsored 401K (up to $18,000 for 2015) and also independent Retirement Accounts – IRA’s (up to $5,500). There are special catch-up provisions if you are over 50 (An additional $6,000 for 401(k) and an additional $1,500 for IRA). You have a choice of 2 types of IRAs, a Traditional IRA or a Roth IRA. The Traditional IRA is tax deductible, while the Roth is not. The amount you contribute is deducted from your gross income and will reduce your tax bill. It will also increase the cash you have on hand. Both of these accounts will grow on a tax-deferred basis. Your capital gains on assets held in 401K or Traditional IRA accounts are not taxed year to year. It makes sense not to give your yearly capital gains to the government. Instead, you can keep it in your...
The Entrepreneurial Spirit from Beyonce to Bill Gates
It’s not easy being an entrepreneur. It takes a ton of hard work and a bucket full of tears if you want to be successful. Kevin Thompson, CPA says “being an entrepreneur is about the hardest thing I have ever done. As the entrepreneur, I am responsible for customers, vendors and, most importantly, employees.” Below are observations from 23 well known personalities about the entrepreneurial spirit. Beyonce Beyonce finds that the pressure to keep up a hectic schedule and to stay on top is unbearable at times but she loves what she does. She doesn’t think about it and, instead, stays happy by doing her own thing. Thompson says “how many readers see her as an entrepreneur?” Responsibilities for her brand and the various outlets including fashion, cosmetics and, of course, entertainment, keep her very busy. Mark Zuckerberg When he first started building Facebook he wasn’t thinking so much about building a company because he didn’t know how to go about it. What he believes made him successful is enlisting the help of other people who knew how to get it done. Larry Page Larry, who is a co-founder at Google realizes that everyone has strengths and weaknesses and that you acquire...
Is the Big Bang Coming?
Big Bang or Colossal Crash? It may be happening sooner than we think. The Physical Review letters published a paper in which a group of physicists developed a mechanism for “cosmological collapse.” They are saying the universe will stop expanding and collapse back into itself. Needless to say, we would all be annihilated. We’ve heard people spouting “last days” forever but the numbers and models in the paper are suggesting that a collapse will happen sooner than later. Antonio Padilla, from the University of Nottingham, one of the authors of the paper, says,“The fact that we are seeing dark energy now could be taken as an indication of impending doom, and we are trying to look at the data to put some figures on the end date. Early indications suggest the collapse will kick in in a few tens of billions of years but we have yet to properly verify this.” “Personally, this puts tax season in perspective for me” says Kevin Thompson, CPA. “I won’t really kill myself to get all of this stuff done now since I know the end is near. I mean it can wait, right?” A Few tens of billions of years is not a cause for immediate alarm but the team of scientists feel they have found the cause of...
8 Reasons You May Get Audited by the IRS
Because of the mix up with tax return related health care issues, you may not be audited by the IRS if you filed an inaccurate return. But beware, the IRS is still looking for other mistakes you may have made and request an audit. Below are 8 reasons you may get audited by the IRS: Your income is incorrect Make sure the income you report from your 1099 and W-2 match up. Kevin Thompson, CPA says “this is by far the easiest to prevent and the most oft overlooked. When I review returns, one of the first things I do is add up the 1099’s and W-2’s and ensure we have accounted for all the income.” Charitable deductions are too high If your donations are not on par with your income level you are raising a red flag. Thompson says “American’s are very giving with their treasures to charity. Sometimes, in the process of looking to lessen our tax burden, we look to our charitable giving as one possible solution. Most of our clients maintain great records with their charitable giving. All should be careful when venturing down the path of charitable deductions.” Your salary is low If you have an S corporation, and your salary is low for a principal owner, the IRS will become suspicious. “The...
Obama Wants Mandatory Voting – Really?
President Obama tested the waters while speaking to a civic group in Cleveland. When he was asked about the corrosive influence of money in U.S. elections, Obama sidestepped to talk about voting rights and said the U.S should make voting easier than it is now. He said that in Australia, people don’t have a choice. They have to vote. “If everybody voted, then it would completely change the political map in this country. Not only that, but universal voting would counteract money more than anything.” Kevin Thompson, CPA says “there aren’t many things that the sitting President and I agree upon with any kind of regularity. This is one area where we do see eye to eye.” Younger, lower-income Americans who are minorities or immigrants tend to skip voting. Obama commented, “There’s a reason why some folks try to keep them away from the polls.” This was a thinly veiled reference to the fact that a number of Republican-led states make it hard for them to vote. “Although a veiled attempt to blame the other party” says Thompson, “the reality is they cannot vote because it is just too damned difficult. We need online voting and we can’t get it soon enough.” Less than 37% of eligible voters...
Do it Yourself Tax Returns Trend Continues
More and more taxpayers are opting to file their returns themselves according to the IRS. This has been confirmed by H & R Block and Liberty Tax Services as well. Turbo Tax filings, on the other hand, were up for the most recent periods its consumers have reported return volume. “The risk in Turbo Tax is you really have to know and understand tax matters to understand if your return is right” says Kevin Thompson, CEO of Action Tax. “I can watch a video and build a house but I really don’t know enough about building to do that” said Thompson. “And I am not sure I want to live in that house either.” Taxpayers do not understand that just because the return was accepted does not mean it is correct. “It’s not until they start to receive the CP2000 compliance correspondence that they realize that maybe Turbo Tax was wrong. And then it becomes expensive to unravel the mess they have created. And I suspect that house I’d build might stand but probably not pass inspection.” The IRS also reported that the total number of returns received by the agency has dropped by 6/10ths of a percent to only 58.5 million, while the number processed, 56.9 million was down by 1% over last year. Tax...
Individual Audit Rate is Lower
There’s less chance the IRS will audit you. The 2014 IRS audit rate was at the lowest level in at least 10 years and may drop even further according to the agency. The percentage that an individual’s tax return was examined in person or through the mail fell to 0.86% last year. It’s the lowest percentage since 2005. The audit rate rose between 2005-2010 and then dropped steadily by more than 20% during the next 5 years. Approximately 1.2 million taxpayers were audited in 2014 down 162,000 from 2013. 1.2 million Taxpayers with an income of $200,000 and 34,000 Taxpayers with annual incomes of $1 million or more were audited in 2014. Kevin Thompson, CPA says “as a 40 year veteran of this business, I say this is great news for American taxpayers. The vast majority of examinations in which I have participated have been unnecessary.” The reason that there are less audits is because of drops in IRS funding and less revenue agents. The IRS is also seeking Congressional approval for a 2016 fiscal budget hike after being lambasted for less taxpayer services and allegations it was targeting conservative tax-exempt organizations. IRS Commissioner John Koskinen warned that the rate in audits...
Did You Receive the Wrong Tax Info From the Health Insurance Marketplace?
The federal insurance marketplace healthcare.gov recently announced that approximately 800,000 taxpayers were sent incorrect information on their form 1095-A and they are urged to wait to file their taxes until the first week of March. The 800,000 people who used the tax credit to lower their premium cost will be receiving an updated 1095-A shortly. Based on estimates, approximately 90-95 % have not yet filed their taxes. For those who have already filed their taxes, the Treasury Department will be providing additional information soon. Form 1095-A contains important information that taxpayers need to complete their returns. This includes the premium amount for the “second lowest cost Silver plan” in the taxpayer’s area. This particular premium is said to be a benchmark used to determine the amount of premium tax credit taxpayers are eligible to receive. That information was incorrectly calculated. This issue only affects 20% of taxpayers who signed up in the Marketplace and only those who signed up through Healthcare.gov. Most taxpayers will be able to check a box on their tax return to indicate they had health coverage in 2014 either through their employer, Medicare, Medicaid,...
Turbo Tax Filings Stopped in Minnesota
Due to potentially fraudulent activity that was found on tax returns filed with Turbo Tax in Minnesota, the Minnesota Department of Revenue has stopped accepting tax returns submitted using Turbo Tax software. Intuit, the company that produces Turbo Tax, had temporarily suspended transmission of taxes in all states but has recently resumed doing so, except in Minnesota. Kevin Thompson, CPA says “in the current environment, anything that looks like fraud will be treated like fraud. In this case, it appears that there is some software glitch that Intuit will need to fix.” The Department of Revenue says there is not a security breach and that taxpayer data is safe. There is technology in place to safeguard private info submitted by taxpayers. The issue lies with the Turbo Tax software itself. When a user logs into the software it appears as if their tax return has already been filed. Thompson says “one of the greatest breaches of identity theft with the IRS is people filing tax returns early using information (usually fraudulent) for taxpayers other than themselves. These returns always result in refunds and the filer takes the money and runs. Since that practice is so prevalent,...
Errors at the IRS are Staggering Says TIGTA
According to the Treasury Inspector General for Tax Administration (TIGTA), the IRS is working to comply with an executive order for reporting requirements. Even though there has been a decline of improper payment for Earned Income Tax Credit (EITC) since the 2003 fiscal year, the amount of incorrect payments has increased from $10.5 billion in 2003 to $14.5 billion in 2013. In a report to TIGTA, the IRS reported improper payment in 2013 of EITC totaling approx. $60 billion and that 24 % were paid in error. This prompted an audit because Executive Order 13520 (Reducing Improper Payments and Eliminating Waste in Federal Programs) requires that TIGTA assess IRS compliance with the order annually. This is so the TIGTA could determine if the IRS has complied with the Executive Order. They found that the IRS was not in compliance for 2013 because it has not established annual payments in error reduction target as required. The IRS is currently working to find a solution for this problem. The agency has obtained approval from the Office of Management and Budget to create and release additional measures instead of annual reduction targets. Original Article