Tax Accounting Blog
News and Views in the Tax Preparation, Accounting, and Financial Investment World
Earned Income Credit is a Victim of Tax Fraud
The Earned Income Credit was designed to aid needy families but unfortunately is being used by those who are using it fraudulently. Last year, the IRS paid more than $13 billion in tax credits to people who may not be eligible. This abuse of this program is hurting anti-poverty programs and those who truly need its benefits. J. Russell George, the Treasury Inspector General remarked, “The IRS can and must do more to protect taxpayers from waste, fraud and abuse.” The IRS has begun fighting this abuse and is improving its efforts to oversee EITC payments. It has expressed concern and is preparing a major review to find better ways to discern valid claims from excessive ones. The Earned Income Tax Credit is one of the country’s most extensive anti-poverty programs. More than 27 million families received almost $62 billion in credits in 2011. The reason use of this credit has seen abuse is because the IRS will pay the difference, and issue a refund if a taxpayer’s credit is larger than their total income tax bill. Families must work to earn the credits but there are limits on income. The amount of the credit depends on the amount of income and number of children in the household....
Making Arrangements to Pay Debts with the IRS
If you find that you’re unable to pay back debt owed to the IRS, you can arrange to make payments through an installment plan. If you pay in full, you are able to avoid paying penalties and interest. Before applying to pay via installment plan, make sure all required tax returns have been filed. Here are the requirements for the online payment agreement: You must owe $50,000 or less in combined individual income tax, penalties and interest with all tax returns filed. If you are a business, you must owe less than $25,000 in payroll taxes with all returns filed. If you meet the requirements above you are eligible to apply to pay by the installment plan. If you are not eligible to pay online via the agreement, you can still pay in installments. In order to do this, you must fill out Form 9466, Installment agreement request and Form 433-F Collection Information Statement. If you are a small business, you can apply for an in-Business Trust Fund Express installment agreement. Before you apply to pay via the installment agreement, be aware of what is required to avoid default. Below is a list of what you need to know: Future refunds will be applied to your tax debt until it is paid in...
Federal Tax Liens – What They Are and How They Work
The definition of a Federal tax lien is when the government has a legal claim against your property because you either neglected or failed to pay your tax debt. The government does this to protect its interests in your real estate, personal property or financial assets. A lien will be imposed if the IRS has assessed that you have a balance due and has sent you a Notice and Demand for Payment. If you do not pay what you owe, the IRS files a Notice of Federal Tax Lien lets your creditors know that the government has legal rights to your assets. There are several ways you can rid yourself of a lien Pay your debt. After you have paid your debt in full, the IRS will release you from the lien within 30 days. Discharge the property. You can find out if you are eligible to discharge a specific property. For instructions, please click here. Or, watch this video. Receive a certificate of subordination. Subordination will not remove the lien but it will make it easier for you to obtain a loan or mortgage because it allows your creditors to move ahead of the IRS. For more information about how to apply, click here. Or, watch this video. Take a withdrawal. This will remove the public...
Don’t Risk a Costly Penalty – File Your Required Tax Returns
Franchise Tax Board Contacting Business Tax Nonfilers Sacramento –The Franchise Tax Board (FTB) is sending letters to more than 45,000 California businesses that have not filed their 2012 state income tax returns. Each year FTB reviews more than 5 million income records received from the IRS, the State Employment Development Department, the State Board of Equalization, financial institutions, and other businesses. FTB matches this information against its tax records to identify nonfilers. Last fiscal year, FTB collected approximately $32 million from businesses that failed to file tax returns. FTB gives business non-filers 30 days to file a tax return or show why one is not required. Businesses that disregard the letter will get a tax assessment based on income and other information reported to FTB. The tax assessment includes interest, fees, and penalties. FTB has more information for those receiving letters at ftb.ca.gov. Click on the Businesses tab and select Notices/Collections from the left side menu. Click on Notices and then select more on bills and notices tab. Select: Respond to request or demand for tax return. Businesses can request more time to respond, retrieve...
Legal Tricks to Maximize your Business Tax Opportunities
Business tax preparation can be just as daunting for a business owner as it is for an individual taxpayer. Business tax laws are complex, and it's often wise to consult with a tax attorney or tax accountant. With several taxes to take into consideration, a business can easily find itself in a financial bind if not properly prepared. Luckily, there are ways to lower business tax and ensure that your business is pulling all the possible (and, most importantly, legal) stops to enter tax season with a clear mind. Here are 3 tricks to securing the money your business deserves 1. Retirement/Health Account Contributions Maximizing your use of 401k/IRA's will allow you to deduct from your taxable income the amount paid into the account, thus reducing your total taxable income (for more information on your retirement plan options, please review IRS Publication 560, Retirement Plans for Small Business www.irs.gov/pub/irs-pdf/p560.pdf. "These retirement contributions can be done often times with and without employees" says Kevin E. Thompson, CPA, Santa Monica, CA. Increasing contribution to your employees' health insurance costs can also help lower your business tax, as well as provide...
Reporting Alimony and Avoiding a Mismatch
If you are divorced and either receiving or paying alimony the IRS may start looking at how each of you reports on your tax return. When one of you takes a deduction for alimony, the other should be reporting it as income. This gets tricky, if for example, a payment is made late and isn’t received until early January and there is overlap in reporting. According to the TIGTA report, the IRS tracks this transaction because there is a line next to the alimony deduction on the tax return that requires the ex-spouse’s Social Security number. The IRS is then able to match up each tax return and often will investigate if numbers look suspicious. Many times adjustments need to be made. On a percentage basis, however, very few discrepancies are investigated. For example, in 2010, there were 567,887 returns deducting approx. $10 Billion in alimony. Almost half ex-spouse returns didn’t match. The net difference came to $2.3 Billion. Out of 266,190 unmatched returns, the IRS only audited 10,870. Only 2,000 further examinations were held after that. Only 4% of tax returns in which one of the pair was dead wrong were acted upon by the IRS. “This difference is significant” says Kevin...
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Zero Coupon Bond A bond that makes no periodic interest payments, but sells at a deep discount from its face value. At the maturity date, the investor receives the face value of the bond plus the interest that has accrued.
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Yield An investment's annual gain or loss. Yield is generally expressed as a percentage. Yield to Maturity (YTM) The total return on a long-term interest-bearing investment, such as a bond, that is held until its maturity date.
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Waiver of Premium An insurance policy rider that waives premium payments if the insured becomes permanently disabled. Walk-In Electronic Filing If you need help preparing your taxes visit the Volunteer Income Tax Assistance (VITA) office nearest you. Many VITA offices have IRS representatives who can help you fill out your forms and then transmit the information on your forms electronically. Whole Life Insurance A type of life insurance that provides coverage for the insured's entire life as long as the policyholder pays the premiums. Whole life insurance also has a cash value component that can be drawn upon to meet financial needs. Withholding ('Pay-as-you-earn' taxation) A system that takes a certain amount from an employee's paycheck to pay for, completely or partially, that employee's income tax for the year. This money is used to pay for federal income taxes, state and local income taxes, federal social security and Medicare taxes. Withholding Allowance An allowance an individual claims on a W-4 Form. It is mainly used to assist an employer in calculating the amount of income tax to withhold from an employee's paycheck. The more allowances you wish to claim, the less income...
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Valuation Day A date established by law as the basis of one method of valuation for the calculation of capital gains or losses for income tax purposes. Variable Interest Rate An interest rate that fluctuates according to a measure or an index. Variable rates on loans are usually capped to protect borrowers from dramatic increases in the interest rate. Variance Difference between standard cost and actual cost. Also, the difference between an actual revenue or expense item and the budget for that item, or budget variance. Vertical Equity Vertical equity states that people in different income groups pay different rates of taxes. Our current tax system is one of vertical equity. Vesting The process leading to a future time when money or property held in trust will belong to a person. This usually refers to the scheduled confirmation of ownership rights in qualified employee benefit plans. Volatility The relative rate at which the price of a security moves up and down, derived by calculating the annualized standard deviation of daily changes in price. Voluntary Compliance Your mom might order you to clean up your room but the IRS doesn't have time to tell every single taxpayer to file...