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Friday, May 31, 2013

Request An Installment Plan

Q: How to request for an Installment Plan to file tax returns.

A: The IRC states," you can make monthly payments through an installment agreement if you're not financially able to pay your tax debt immediately. However, you will reduce or eliminate the amount of penalties and interest you pay and avoid the fee associated with setting up an installment agreement if you pay your tax bill in full. Before you apply:File all required tax returns; Consider other sources (loan or credit card) to pay your tax debt in full to save money; Determine the largest monthly payment you can make ($25 minimum); and Know that your future refunds will be applied to your tax debt until it is paid in full.” You can request an installment agreement over the phone. Simply call the IRS at 1-800-829-1040. They will set up a payment plan over the phone and send you some paperwork to fill out. The IRS must agree to accept your installment agreement if you meet certain criteria: your total tax does not exceed $10K and the monthly payments will pay your tax debt in full within 3 years. The IRS will not approve your installment agreement if you have not yet filed all your tax returns. You will need to file all your back taxes before requesting a monthly payment plan.
You can apply online if you owe $50K or less in combined individual income tax, penalties and interest; you need to call the phone number on your bill or notice; 

For Further answer visit: http://www.asktaxguru.com/8034-request-an-installment-plan.html


Tuesday, May 28, 2013

Deadline for US citizens living abroad to file individual tax returns

Closing date for US citizens living overseas to file individual tax returns and to pay any tax due. One can request an additional 4-month extension (by filing Form 4868). (One can request an automatic extension by April 15th instead if you want to.) Useful information for claiming the Foreign Earned Income Exclusion and the Foreign Tax Credit; two tax breaks essential for Americans working abroad. Last date, for filing tax 17th June 2013.

Monday, May 27, 2013

Small IT Business & IRS Audit - Asktaxguru

Q: I run a small IT business & was informed about an IRS Audit. Are there any tips on how to prepare for this. I have never experienced this personally or professionally.


A: You need to talk to the auditor only enough to refer him/her to your tax professional, and get organized. Just because your income tax return has been selected for audit, doesn't mean "they are out to get you". It could mean that the computer has selected your number for audit. Perhaps, your biz is part of a program to "test" compliance in the industry. The IRS is supposed to tell you why your return was selected for audit. When income tax returns are filed in the IRS Service Center, the information on the return is put into the computer. Each return is assigned a numerical score that is arrived at by determining how far above or below the average each of your deductions are. Each deduction that you have taken that varies from the norm is added together and the total amount determines your numerical score. The scoring system is a secret but experience tells us what makes the score go up:

Low gross profit margin; High auto expenses; High business use of autos;Number of autos used in business; High travel and entertainment;Little or no profit from business operations. Recently, interest expense has become a high-risk audit item. The IRS is auditing interest on businesses to assure that it is business and not personal interests. Before long, they will be enforcing those complicated "interest tracing rules."The higher the number, or the more your deductions vary from the norm computed by the IRS, the greater the chance of error on the return. Therefore, returns with higher numerical scores are the ones more likely to be audited. It is also your prerogative to ask why your return was selected for audit. Even though the bulk of the returns audited are selected because of a high numerical score, other criteria for selection include informants, your relationship to another taxpayer who is being audited, being part of a special groups that has been singled out for auditing, or being part of an IRS project such as the auditing of all employers who use contract labor. Correspondence Audit is a letter from the IRS Service Center requesting that you send in copies of your canceled checks and/or receipts in order to verify certain deductions on the return. This type of audit is reserved for small, simple tax returns and most likely your business will not be audited in this manner.

For further answer visit: 
http://www.asktaxguru.com/8035-small-it-business-and-irs-audit.html

Saturday, May 25, 2013

What should I do if the IRS examined and changed my federal income tax return?

Q: What should I do if the IRS examined and changed my federal income tax return?

A: IRS examination may or may not result in more tax. An examination may be closed without change or you may even receive a refund. If the IRS proposes to increase your tax, however, you have the right to appeal this decision both within the IRS and to the courts. The IRS examines tax returns to verify the correctness of income, exemptions, credits, or deductions reported on the returns. An IRS computer program selects most returns that are examined. If you agree with the results of the audit, you may sign the consent form provided by the IRS. You may pay the tax at this time, or wait until the IRS sends a bill. Interest is charged on the additional tax from the due date of the return. However, the IRS must send a bill within 30 days from the date the consent agreement is signed. If you do not agree with the examiner's report, your first option is to meet (personally or through your representative) with the examiner's supervisor to discuss the report further. If you reach an agreement with the supervisor, the case is closed. If no agreement is reached, the IRS issues a written preliminary notice of proposed adjustments 30-day letter. If you still do not agree with the 30-day letter, you have the right to appeal the findings within the IRS or to go to court. If you are eventually found to be liable for tax, you will be liable for interest on the tax deficiency and possibly penalties.

As long as your federal income tax return is examined and changed by the IRSand you owe additional tax, you must report these changes to the Dept of Rev of yur state, within 6 months of the final federal determination.

For further answer visit: 
http://www.asktaxguru.com/8029-what-should-i-do-if-irs-examined.html



Can I change my information once I submit my tax extension?

Q: Is it possible to change my information once I submit my tax extension?

A: One can always change your federal tax return, even after filing an extension of time to file. The IRS encourages taxpayers to file complete and correct tax returns. In the event you make a mistake or omission, however, you can always file an amended tax return. When you obtain an extension, it has no bearing on your ability to later amend that tax return. HOWEVER,you don't have an unlimited amount of time to correct your tax return and file an amendment on Form 1040X. Generally, the IRS limits the amount of time you have to file an amended return to the later of three years from the time you file your return or within two years of paying the tax for that year. Therefore, when you obtain a six-month extension to file the original return, you also receive an extra six months to amend it. For example, if you file your 2012 tax return on April 15, 2013, then you have until April 15, 2016, to file an amended return. But if after obtaining the extension you file the return on Oct 15, 2012, you can then file an amendment until Oct 15, 2016.

How many years should I keep my Ohio individual income tax records?

Q: How many years should I keep my Ohio individual income tax records?

A:
If you're paying state income taxes, the time you need to keep records will depend on state law.Some states can look back further than the IRS. California and Arizona, for example, have a four-year statute of limitations; Montana has a five-year statute. The period for investigating if the return under-reports income or falsifies data may also be longer.Best to check with your state tax authorities to get specifics.


Wednesday, May 22, 2013

Individual Tax Return

Q. One client received legal status in US last year (2012) in April. This will be the first tax return to file. He will be filing married filing jointly. The spouse does not have any income. He never received W2 or 1099. I assume, regardless of the fact that he has neither one of these forms, he will file and pay tax as freelancer even thou he absolutely falls under category of employee, correct? Since he received his legal status in April 2012, can he count his income as of April or it absolutely has to be January 2012?

A.

#1:is his legal status under the INS rule or IRS rule??

#2:Then he can file his US return as either MFJ or MFS(even if his spouse is a non resident alien) since her spouse has no taxable income that she earned in US whether or not his spouse is in US or in her native country. If he or his spouse is a resident for tax purposes at the end of the year of 2012, and the other spouse is a nonresident, he can elect to treat both he and his spouse as residents for the entire year. This rule applies even if the spouse who is a resident at the end of the year is a dual-status alien (a nonresident at the beginning of the year). However, if he and his spouse makes this election, they are both required to report their worldwide income for the entire year on their joint return, MFJ, NOT MFS.

#3:I do not think a freelancer falls under category of EE, I guess it depends on the situation; A freelancer is a person who is self employed; as an ER, trying to get a freelancer to handle a project within certain hours, say 9 to 5, or at a specific location, such as your office, can actually open you up to some trouble. If you’re based in the U.S, for instance, such requests can lead the IRS to consider the freelancer to be your EE, rather than an independent business. That can make you liable for payroll taxes and other expenses associated with hiring an EE. Luckily, for most projects, there’s no need to have a freelancer work any way other than the way he would typically handle a project. Freelancers operate their own businesses. That means working with a freelancer is more like working with a vendor than an EE. On the surface, freelancers don’t look so different from employees: you assign them projects and pay them for their work. But if you consider how freelancers will interact with you, how they complete projects and even how they are paid, freelancers are a lot different than EEs. It can require a shift to start working with freelancers, rather than trying to manage them like EEs.

As long as he is an indepednenst contractor, UNLESS he is an EE, he needs to file return as long as the amount on Sch C on line 29/ 31 is $400 or exceeds $400 during the year of 2012 and also as long as the amount on Sch SE line 2/ 3 is also $400 or exceeds $400, he needs to pay self employment tax.If he is are filing as a sole proprietor and/or a self-employed individual,he generally has to make estimated tax payments if he expects to owe tax of $1,000 or more when he files his 2012 return;however, he does not have to pay estimated tax for the current year if he had no tax liability for the prior year of 2011;he was a U.S. citizen or resident for the whole year 2012; his prior tax year of 2011 covered a 12 month period………………………

#4:Is he a US resident under the US INS rule( I mean is he a US permanent resident, i.e., a green card holder)??? OR Is he a US resident for tax purposes ?? OR in general, You are a dual status alien when you have been both a resident alien and a nonresident alien in the same tax year; so is he a dual status alien becoming a resident alien at end of year of 2012??? As long as he became a US resident alien, a green card holder, (or a US resident for tax purposes UNDER the IRS rule) under the INS rule, then, he is generally taxed in the same way as U.S. citizens. This means that his worldwide income and US source income that he earned before Apr 2012 is subject to U.S. tax and must be reported on his U.S. tax return. Income of resident aliens is subject to the graduated tax rates that apply to U.S. citizens. 

Friday, May 03, 2013

Some Tips for Taxpayers Who Missed the Tax Deadline!

The IRS has offered some advice for taxpayers who missed the tax filing deadline. The following represents some of these tips:

1) File as soon as possible.
If you owe federal income tax, then the IRS suggests that you should file and pay as soon as you can to minimize any penalty and interest charges. It is worth noting that there is no penalty for filing a late return if you are due a refund.

2) Penalties and interest may be due.
If you missed the April 15 deadline, you may have to pay penalties and interest. The IRS may charge penalties for late filing and for late payment. The law generally does not allow a waiver of interest charges. However, the IRS will consider a reduction of these penalties if you can show a reasonable cause for being late.

3) Pay as much as you can.
If you owe tax but can’t pay it all at once, you should pay as much as you can when you file your tax return. Pay the remaining balance due as soon as possible to minimize penalties and interest charges.

4) Installment Agreements are available.
If you need more time to pay your federal income taxes, you can request a payment agreement with the IRS. Apply online using the IRS Online Payment Agreement Application tool or file Form 9465, Installment Agreement Request.

5)Refunds may be waiting.
If you’re due a refund, you should file as soon as possible to get it. Even if you are not required to file, you may be entitled to a refund. This could apply if you had taxes withheld from your wages, or you qualify for certain tax credits. If you don’t file your return within three years, you could forfeit your right to the refund.

IRS Announces Three-Month Filing, Payment Extension Following Boston Marathon Explosions

The Internal Revenue Service today announced a three-month tax filing and payment extension to Boston area taxpayers and others affected by Monday’s explosions.

Per the IRS, this relief applies to all individual taxpayers who live in Suffolk County, Mass., including the city of Boston. It also includes victims, their families, first responders, others impacted by this tragedy who live outside Suffolk County and taxpayers whose tax preparers were adversely affected.

Our hearts go out to the people affected by this tragic event," said IRS Acting Commissioner Steven T. Miller. "We want victims and others affected by this terrible tragedy to have the time they need to finish their individual tax returns."

Under the relief announced today, "the IRS will issue a notice giving eligible taxpayers until July 15, 2013, to file their 2012 returns and pay any taxes normally due April 15. No filing and payment penalties will be due as long as returns are filed and payments are made by July 15, 2013. By law, interest, currently at the annual rate of 3 percent compounded daily, will still apply to any payments made after the April deadline."

Furthermore, "the IRS will automatically provide this extension to anyone living in Suffolk County. If you live in Suffolk County, no further action is necessary by taxpayers to obtain this relief. However, eligible taxpayers living outside Suffolk County can claim this relief by calling 1-866-562-5227 starting Tuesday, April 23, and identifying themselves to the IRS before filing a return or making a payment. Eligible taxpayers who receive penalty notices from the IRS can also call this number to have these penalties abated."

Eligible taxpayers who need more time to file their returns may receive an additional extension to Oct. 15, 2013, by filing Form 4868 by July 15, 2013.

Source:
http://www.asktaxguru.com/7993-irs-announces-three-month-filing-payment-extension.html




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