Author Archives: c06675329

Tax Extensions Due: Tips for Procrastinators

Are you one of the many people that filed a tax extension way back in April? Well, that went fast, didn’t it? Yup, the time’s here. Following are some tips if you are one of these procrastinators.

  • Choose your tax preparer wisely. Read my blog from last week and be sure to safeguard your personal information.
  • Double check the spelling of your Name and Social Security Number are correct. IRS mismatch is a common reason for E-Filing rejection of tax returns. Your name should match the spelling of your first and last name that is on file with the Social Security Administration.
  • Review your tax return for all credits & deductions. Below are some commonly missed items that can increase your refund or decrease your tax amount due:
    • Earned Income Tax Credit, also known as EITC, can be available to families with earned income and primarily dependents. To see if you qualify, use the IRS EITC Assistant at this link – https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/use-the-eitc-assistant.
    • Savors Credit, can be available to income earners who have contributed to a retirement IRA or 401(k). This credit is not available once your income is over certain amounts.
    • American Opportunity Tax Credit, also known as AOTC, is an education tax benefit for parents and students.
  • Know your Adjusted Gross Income, also known as AGI, from your 2015 tax return. This is line 37 on the 2015 Form 1040. This may be required when E-Filing your 2016 tax return.
  • File by Oct. 16 even if you owe taxes and can’t pay them right away. This will reduce penalties and interest that will accumulate on the unpaid amount you owe.
  • Keep a copy of your tax return for at least 3 years. Also, most likely when E-Filing next year, you will need the AGI amount from this year’s tax return.
  • FREE E-Filing, We provide FREE E-Filing of your tax return. This allows for fast, accurate, and secure filing to ensure your tax return is received and accepted by the IRS and State on or before Oct. 16.
  • Set up an Installment Agreement if you are not able to pay the full balance of your amount due. We provide fast, easy, and secure assistance in completing the application for installment agreements.

As always, please do not hesitate to contact me for assistance in completing your tax return.

Thank you for reading my blog!

Tina

“Why should my tax preparer be an EA?”

In today’s ever-changing world of tax and identity fraud, it is more important than ever that you, the taxpayer, know who is handling your personal information.  Your tax preparer knows everything the identity thieves want to know about you – your Social Security Number, Date of Birth, Bank Account Number, and possibly more. So what should you know about your tax preparer? Following is a list of 5 questions that you should ask your tax preparer, feel comfortable with their answers, and most of all trust them like you are handing them your checkbook or debit card – because, after all, that may exactly be what you are doing.

 

Question 1: Do you have a PTIN (Preparer Tax Identification Number)?

Answer 1: Yes. Everyone who prepares taxes for compensation is required to have a PTIN through the IRS. This should be the first and possibly most important question you can ask. If your tax preparer does not have a PTIN, they are not authorized to prepare your tax return. If you haven’t already, definitely DO NOT give them any further personal information. Rather run for the hills!

 

Question 2: Who will sign my tax return?

Answer 2: You, the taxpayer, will sign your tax return which is generally done by signing Form 8879 which authorizes the tax preparer to E-File your tax return. Also, as required by law, the tax preparer must sign and include their PTIN on your tax return.

 

Question 3: Will you E-File my tax return?

Answer 3: Yes. A paid tax preparer is required to E-File if preparing 11 or more tax returns in a calendar year. You, as a taxpayer, can opt out of E-Filing by requesting your tax preparer to complete Form 8948, Preparer Explanation for Not Filing Electronically.

Red Flag: Your tax preparer tells you to manually sign your tax return, take it home, and mail it. If this should happen to you the first question you should ask is why they are not completing the Paid Preparer Use Only section which is at the very bottom of page 1 (see above picture in answer 2). This is required by law (as stated in answer 2) & more than likely your tax preparer files over 11 tax returns in a year which requires them to E-file (as stated in answer 3).

 

Question 4: Are you available after tax season?

Answer 4: Ideally, you want your tax preparer to be available year-round to answer any questions that come up during the year or if you should be one of the lucky taxpayers to receive a letter from the IRS, you want to know your tax preparer is just a phone call away.

 

Question 5: What is your tax experience/background?

Answer 5: Ideally, you want your tax preparer to be an expert in the world of tax. However, I see many clients that are price shoppers. Your tax return is one area you definitely should not be shopping around for price. Your tax preparer knows all your personal identification, so make sure your tax preparer is someone you can TRUST!  Of course, I recommend you choose an Enrolled Agent such as myself. However, whoever you choose, be sure you are comfortable not only with their level of tax knowledge & experience but also protecting your personal information. Remember identity thieves are out there, day & night, 24/7, just waiting for an opportunity to get enough information about you to use it for their benefit.

Following is a list of professions that are sometimes taken for granted their level of tax knowledge & experience.

  • An Enrolled Agent (EA) has earned the privilege of representing taxpayers before the Internal Revenue Service by either passing a three-part comprehensive IRS test or through experience as a former IRS employee. EA status is the highest credential the IRS awards. EAs must adhere to ethical standards and complete 72 hours of continuing education courses every three years.

 

  • A Certified Public Accountants (CPA) is certified by the state to act as a public accountant. A CPA is the only licensed qualification in accounting. To be certified, candidates are required to pass an exam. Most states also require an ethics exam or course as well as continuing education credits. A CPA may specialize in tax but not necessarily: there’s a wide range of CPA services including accounting, auditing, financial planning, technology consulting and business valuation.

 

  • A Certified Financial Planner (CFP®) is a designation for financial planners given by the Certified Financial Planner Board of Standards. A CFP must meet certain education requirements, pass an exam, have experience in the field, pass fitness standards and pay a certification fee: the coursework and exam do have tax and tax planning components as determined by the Board. A CFP may have tax experience but tax may not necessarily be the focus of their practice.

 

  • A JD is a law degree. An LLM is a Masters in Law – it could be in taxation but other areas of the law also offer an LLM. As with a CPA, candidates are required to pass an exam, an ethics exam or course and take continuing education credits. Having a law degree or two doesn’t necessarily mean that an attorney prepares returns. Some lawyers might have very little in the way of tax experience. Avoid a lawyer who promises to do your taxes, get you out of that DUI, and help you with your divorce: it’s all too much.

You can search the IRS website for a Directory of Federal Tax Return Preparers with Credentials and Qualifications at https://irs.treasury.gov/rpo/rpo.jsf.

 

Upcoming Blogs:

Friday, Oct. 6 – Reminders & tips if you have not yet filed your 2016 tax return. Tax extensions are due Monday, Oct. 16.  Check out our specials at Local Saver.

Monday, Oct. 9 – I will answer the question of what is a Certifying Acceptance Agent (CAA) and the benefits of using one. Note: This applies to foreign individuals and those who are not eligible for a SSN but must file a tax return.

Friday, Oct. 13 – I will have our second Q&A Segment focusing on tax reporting for a loved one after they pass away.

 

Community Reminder:

Celebrate the Underdogs is Thursday, Oct. 12 from 5:30pm-9:30pm at the Grand Meridian. This is a fundraiser for Unforgettable Underdogs animal rescue. Check out the event on Facebook at Facebook Event.

 

Q&A Segment for September 29

As promised, I am posting some questions that I have recently received from current clients and random phone calls/emails and my answer to them.

Gifts:

I’ve been getting quite a few questions from current clients and phone calls regarding gifts. I suppose we are coming to that time of year again. So here is what you need to know about gifts.

Any one person can gift up to $14,000 in 2017 to any one person without needing to file or pay tax on the gift, this is known as the annual gift exclusion. Gifts apply to all gifts, not only those of money.

Every one of us has a lifetime gift exemption (exclusion) of $5.49 million! That means we can each give away $5,490,000 before we have to pay taxes on the gifts we give!

However, we still may be required to file a gift tax return, Form 709. This is required when any one gift to the same person is greater than $14,000 in 2017. The reason for reporting the gift amount is so the IRS can track our lifetime exemption and know when we have gifted over $5.49 million – and thus starting taxing us!

Since most of us will never exceed our lifetime gift exemption, we most likely will not pay tax on any gifts we give.

So why do people think they pay taxes on gifts? From my experience, as soon as a client hears they are required to file a gift tax return, Form 709, when the gift is over $14,000 to the same person, they equate this with paying tax. This is not the case. We are simply reporting any gifts we make to that one person over $14,000 in 2017 to track our lifetime gift exemption.

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Question: How much can I contribute to my HSA (Health Savings Account)?

Answer: The annual contribution if you are in a High Deductible Health Insurance Plan is $3,350 if you are single, and $6,750 for families. If you are age 55 or over, the amount is increased by $1,000.

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Question: I am self-employed working out of my home. Can I deduct any of my home expenses on my tax return?

Answer: Yes, however, the area of the home must be used exclusively and regularly for business purposes. The IRS now has a simplified method in which if you use less than 300 square feet of the home for business, you can multiply the square footage used by $5 for a maximum of $1,500 tax deduction.

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Question: I am selling my house in November. Do I have a tax filing requirement?

Answer: Depends. If you sold the house for less than $250,000 if you are single or $500,000 if you are married (filing joint), you do not have a tax reporting requirement per Internal Revenue Code Section 121 and you meet the ownership, use, and one sale in two years requirement. If you do not meet this criteria, you may have to pay capital gains on the sale of your personal residence.

Next Q&A blog will be Friday, October 6. Questions can be submitted via our website at www.integrityintaxllc.om on the Contacts page or by emailing research@integrityintaxllc.com.

 

As always, Thank-You for taking the time to read my blog!

Tina M. Kleckner EA, CAA

 

What is an Enrolled Agent Anyway?

Enrolled Agents, abbreviated as EA, also known as America’s Tax Experts ®, specialize in U.S. tax law and the tax code.  The most common services provided by EA’s are preparing tax returns for individuals and businesses, advising clients of tax consequences to specific life events and/or situations, and representing clients before all administrative levels of the IRS and state taxing authority.  EA’s are equipped with the education, knowledge, and experience of all levels of taxation from the very basic scenarios to the most complex issues.

The first step in becoming an EA is to take a 3-part exam administered by the IRS called the Special Enrollment Examination (SEE).  Once the exam is successfully completed, an Application for Enrollment to Practice Before the Internal Revenue Service (Form 23) is submitted to the IRS.  At this time, the IRS performs background checks, may request fingerprints if not already obtained (usually by this stage, the IRS already has our fingerprints in their database), and determines suitability of the individual to Practice Before the IRS.  Once an individual is accepted and awarded the EA designation by the IRS, the individual must consent and adhere to U.S. Treasury Department Circular No. 230 Title 31 Code of Federal Regulations which is a set of regulations governing Practice Before the IRS. Circular 230 states duties and restrictions, as well as violations to the regulations and disciplinary proceedings.  EA’s are also held to a higher standard of ethics which is also detailed in Circular 230.  In addition, EA’s must take continuing education that is approved by the IRS.  Therefore, all continuing education of an EA is related to tax matters.  Following are frequently asked Q&A about EA’s.

Q: What does the term Enrolled Agent (EA) mean?

A: Enrolled” means to be licensed to practice by the federal government. “Agent” means authorized to appear in place of the taxpayer before the IRS. Only Enrolled Agents, attorneys, and CPA’s have unlimited rights to represent taxpayers before the IRS.

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Q: What is an Enrolled Agent (EA)?

A: EA’s are America’s Tax Experts ® that have earned the privilege of representing taxpayers before the IRS. Enrolled Agent status is the highest credential the IRS awards. There are currently less than 50,000 EA’s practicing in the US.

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Q:  What is the history of Enrolled Agents?

A: The Enrolled Agent status was created as a reaction to fraudulent war loss claims in the wake of the American Civil War with roots tracing back to the Enabling Act of 1884, or General Deficiency Appropriation Bill (H.R. 2735), also known as the “Horse Act of 1884,” which was signed into law by President Chester A. Arthur on July 7, 1884. After the Civil War, many citizens faced difficulties in settling claims with the government for property confiscated for use in the war effort. As a result, Congress endowed enrolled agents with the power of advocacy to prepare claims against the government. From 1884 through the early 20th century, this statute remained largely unchanged.

When the Revenue Act of 1913 was passed, signed into law by President Woodrow Wilson on October 3, 1913, the scope of the enrolled agent was expanded to include claims for monetary relief for citizens whose taxes had become inequitable. As income, estate, gift and other sources of tax collections became more complex, the role of the enrolled agent increased to include the preparation of the many tax forms that were required. As a result of this complexity, audits became more prevalent and the enrolled agent role evolved into taxpayer representation, promulgating a series of statutes which were combined into a single Treasury Department Circular in February 19, 1921, known as Circular 230, to address “the laws and regulations governing the recognition of agents, attorneys, and other persons representing claimants before the Treasury Department and offices thereof.”

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Q: How can an Enrolled Agent help me?

A: Enrolled Agents specialize in taxation unlike attorneys and CPA;s. Throughout the year, EA’s advise, represent, and prepare tax returns for individuals, partnerships, corporations, estates, trusts and any entities with tax reporting requirements. The EA’s expertise in the field of taxation enables them to represent taxpayer’s at all administrative levels within the IRS.

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Q:  How do Enrolled Agents differ from other tax experts?

A: EA’s are the only practitioners who have demonstrated technical competence to the IRS specifically in matters of taxation. Also, they are the only representatives for taxpayers who receive that credential directly from the U.S. government (CPA’s and attorneys are licensed by the states).

An individual may become an Enrolled Agent in one of two ways: The primary way is to pass a difficult three-part Exam known as the Special Enrollment Exam administered by the IRS. The test covers taxation of individuals, corporations, partnerships, estates and trusts, as well as procedure and ethics.

Less than one-third of individuals taking the examination have passed, allowing them to apply for enrollment and subject themselves to a background investigation by the FBI.

The other way is to have been an employee of the Internal Revenue Service for five years, regularly applying and interpreting the provisions of the Internal Revenue Code and regulations.

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Q: Are there any other requirements?

A: In addition to the stringent testing and application process, Enrolled Agents are required to earn 72 hours of continuing professional education, reported every three years, to maintain their status.

Because of the difficulty in becoming enrolled and maintaining that enrollment, there are fewer than 50,000 Enrolled Agents in the United States.

Enrolled Agents are the only professional tax practitioners who specialize in tax.

An applicant must pass a three-part IRS Special Enrollment Exam which covers many aspects of the Internal Revenue Code.

An applicant must pass a criminal and civil background check including a review of the applicants personal and business tax compliance.

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Q: How can I find an Enrolled Agent?

A: Contact Tina by phone 920-277-2991 or email tinak@integrityintaxllc.com. We are available on Facebook at https://www.facebook.com/Integrityintax/. Our website is www.integrityintaxllc.com.

Specific questions can be emailed to research@integrityintaxllc.com.

Upcoming Blogs:

Friday, Sept. 29 ~ I will post some commonly asked Q&A from clients or emails I have received.

Monday, Oct. 2 ~ I will answer the question “Why should my tax preparer be an EA?”  In today’s ever-changing world of tax and identity fraud, it is more important than ever that you, the taxpayer, know who is handling your personal information.  Your tax preparer knows everything the identity thieves want to know about you – your Social Security Number, Date of Birth, Bank Account Number, and much, much more.

Equifax Data Breach

As a result of the Equifax data breach that occurred on September 7, 2017, if you suspect tax-related identity theft has occurred with your personal information, it is imperative to complete and file Form 14039 with the IRS.

Tax-related identity theft occurs when someone files a false tax return using your SSN to obtain a tax refund. Equifax says a breach exposed social security numbers and other data from about 143 million Americans (Mike Stewart-AP).

 

 

Know the warning signs:

Be alert to possible tax-related identity theft if you are contacted by the IRS or your tax professional/provider about:

  • More than one tax return was filed using your SSN.
  • You owe additional tax, refund offset or have had collection actions taken against you for a year you did not file a tax return.
  • IRS records indicate you received wages or other income from an employer for whom you did not work.

For additional information, see https://www.irs.gov/pub/irs-pdf/p5027.pdf

If you suspect you are a victim of identity theft, continue to pay your taxes and file your tax return, even if you must do so by paper.

Identity Theft Update

Most recent statistics indicate the IRS has seen a drop of identity theft cases reported in 2017 by individual taxpayers. While these latest statistics are encouraging, it is still important to be diligent with your personal information, especially while online. Identity theft remains on the top of the IRS list of the dirty dozen tax scams.

Reported Identity Theft Cases to the IRS*:
Jan – May 2017 107,000
Jan – May 2016 204,000
Jan – May 2015 297,000

Be familiar with red flags the IRS watches for to alert of potential identity theft such as:

  1. Tax returns without a PTIN (this is a paid preparer number issued by the IRS). All paid tax-preparers are required to have a PTIN. If your tax-preparer does not have a PTIN, you should not have them prepare your tax return and most importantly, do not give them your personal information!
  2. Tax returns prepared outside of a professional tax office. All tax offices that are registered with the IRS have an EFIN number which allows the tax office to electronically submit your tax return (E-File).

Do not respond to emails requesting personal information. The IRS and any legitimate business is not going to ask for personal information online or by email.

If you receive an email that appears to be from your tax-preparer, do not respond by email with personal information. Pick up the phone, call your tax professional, and ask questions about the information they are requesting. Don’t automatically assume the email is from your tax-preparer. It could have been sent to you by an identity-thief seeking to file a tax return using your information.

As always, if you suspect identity theft of your personal information, file Form 14039 with the IRS, notify your bank and the major credit bureaus. For more information, see https://www.irs.gov/uac/taxpayer-guide-to-identity-theft.

*Statistics provided through our partnership with Federal Direct Tax Services, Indianapolis IN.

Why Now is a Good Time for Tax Planning

As the dog days of summer are here, please take a moment to cool off, relax, & enjoy our attached brochure of 2017 Tax Changes. Click here – 2017 Tax Changes

As 2017 begins to wrap up, now is a good time to review your tax situation. Tax planning before year-end is important because you still have time to adjust strategies that will make a difference when preparing your 2017 tax return. Our Tax Planning Roadmap tool will identify opportunities to increase your tax refund, decrease your tax liability, and help you save for retirement! Each Roadmap is personalized to your situation based on last year’s tax return and any new information provided to us.

Our Tax Planning Roadmap is provided to us through our membership with Thomson Reuters – a leading provider of tax research, step-by-step guidance, and quality control relied upon by thousands of firms as the industry standard!

Did you know…

– Contributions to a Traditional IRA may be deductible on your Tax Return

– You have until April 15, 2018 to Contribute to your Traditional IRA

– If you turned 70 1/2 during 2017, you may need to take RMD’s by April 1, 2018

– Failure to take your RMD’s can result in 50% penalty

 

_____ Yes! Please schedule my FREE Tax Planning Consult for (circle day & time):

Monday    Wednesday    Thursday    Saturday

at   3pm    4pm     5pm     6pm     7pm    or      Saturday between 11am – 4pm

Note: Appointments will be scheduled on first response basis between 3pm-7pm. Tax planning is recommended between Aug – Oct. 15 to be most effective.

I value each and every client providing outstanding, customized service and support. If you have experienced my services to be useful & helpful, please refer your family, friends, and contacts. The greatest compliment you can give me is a referral! Thank–You!

How was your Visit? I’d love to hear about your experience on Facebook, Google, or website – Click to Review – Facebook    Google   Website

Please return the above to tinak@integrityintaxllc.com or call 920-277-2991 to schedule your Tax Planning Consult!

A Good Reminder of Business vs. Hobby Activities

The following court case is a reminder for us all to look at the activities of our business and ask ourselves – is it really business or could it be considered a hobby?

Film Festival Activity Was a Hobby: The taxpayer was the sole member of an LLC that organized film festivals at colleges and universities. He didn’t create a formal business plan, prepare profit projections, or undertake a market analysis for the business. On Schedule C of his income tax return, the taxpayer reported a net loss of over $32,000 attributable to the film festivals. The IRS disallowed the loss, arguing that the activity lacked a profit motive and was therefore a hobby. The Tax Court agreed, holding that the taxpayer didn’t conduct the film festival activity in a businesslike manner and lacked the requisite profit objective. Eric Zudak, TC Summ. Op. 2017-41 (Tax Ct.).

Generally, all activities engaged in that earn income must be reported on your tax return per IRS Code Sec. 61(a) that states “gross income means income from whatever source derived…unless there is a specific exclusion” (IRC Sec. 61(a) Gross Income Defined).

Hobby Activity:  Hobby income is not an exclusion of income.  Thus, hobby income is reported on Line 21 Other Income on page 1 of your 1040 tax return. Hobby expenses are allowable deductions on Schedule A (subject to 2% AGI limitation) not to exceed the hobby income reported on Line 21. Therefore, you cannot have a net loss from a hobby activity.  Hobby income is not subject to self-employment tax.

Business Activity:  Generally, when there is an intent to earn a profit, the activity is considered business in which all ordinary and necessary expenses can be used to offset income.  Sole Proprietors are deemed to be a disregarded entity, therefore income and expenses are reported on Schedule C of your tax return. Business income is subject to self-employment tax.

When determining hobby vs. business activity, the IRS looks at each case separately.  To help, the IRS has nine factors you can use to determine whether you have a hobby or business activity.  While these nine factors should be considered, other factors may also need to be considered. No single factor is determinative, and the final decision does not depend on the number of factors indicating a “for profit” activity versus the number indicating a “not for profit activity.”   For a checklist of the nine factors to consider and additional information, email us at research@integrityintaxllc.com.

 

I have a Blog!

Thank you for coming to my blog!  Remember to check back each week for new posts and updates.  The primary focus of my blog will be to provide tax and accounting updates, information, and answer questions, as well as provide education on what exactly an IRS Enrolled Agent is and why it is so important that your tax preparer be an Enrolled Agent.  Also, I will discuss the enormous responsibility of being an Enrolled Agent.  As most of you reading already know, I have earned the privilege of being an IRS Enrolled Agent.  In addition, I am a Certifying Acceptance Agent which means I have an agreement with the IRS to assist those who are not eligible to receive a social security number, apply for what is known as an individual taxpayer identification number (ITIN), by verifying and confirming their Identity and Foreign Status.  I am by no means employed or an employee of the IRS.  Rather I help individuals and small businesses to be compliant and up to date with their tax responsibilities and obligations.  I can represent you before the IRS to resolve & settle tax liabilities and disputes.  I have helped numerous clients get IRS penalties waived and apply for Offer in Compromise (OIC). In addition, I can assist you in the Appeals process which saves you, the taxpayer, time and money spent on litigation involving attorney fees.

I also will post about many other topics such as, yes, you guessed it dogs.  I love the many personalities of dogs and how they seem to say so many words by just expressions on their face. As my commitment to the community, I donate a portion of my business income to local animal rescues and shelters.  This year after tax season, we made a donation to Saving Paws to help raise funds for a new transport van.

For those in Northeast Wisconsin, I will also post updates on local community events.

If you have a tax question – feel free to send an email to research@integrityintaxllc.com and it may appear in a future blog!

If you are a tax professional – feel free to submit articles or writings to research@integrityintaxllc.com and I may post in a featured blog!

Thank you for reading my blog.  I hope you find it informational and useful.

Tina M. Kleckner EA, CAA