Archive for July 2015

IRS Tax Notices

Each year the IRS mails millions of notices and letters to taxpayers. If you receive a notice from the IRS this is what you should do.

  1. Don’t ignore it! You can respond to most IRS notices quickly and easily.  It is important that you reply right away! More often than not the IRS expects correspondence from you within thirty days!
  2. Focus on the Issue: IRS notices usually deal with a specific issue about your tax return or tax account.  If you look at the explanation on the notice it will explain in detail the differences on our tax return.
  3. Follow Instructions! Read the notice carefully. It will tell you if you need to take any action to resolve the matter.
  4. If it is a correction notice it will state that the IRS corrected your tax return. You should review the information provided and compare it to your tax return.
  5. If you agree with the proposed changes there is no need to reply unless a payment is due. Then remit payment as soon as possbile.
  6. If you don’t agree it’s very important that you respond to the IRS. Write a letter that explains why you don’t agree.  Make sure to inlcude information and any documents you want the IRS to consider. Allow at least 30 days for a reponse from the IRS.
  7. Keep in mind that once you receive a notice it is not necessary to visit your local branch. Most notices can be handled with written correspondence.

Reporting Gambling Income and Losses on your tax return

If you play the ponies, play cards or like to play the slots, your gambling winnings are taxable.  You must report them on your tax return.  Here are some tips that can help you at tax time next year.

  • Income from gambling includes winnings from the lottery, horse racing and casino’s. It also includes cash and non-cash prizes. You must report the fair market value of non-cash prizes like cars and trips.
  • If you win the payer may give you a form W-2G as well as send a copy to the IRS. The payer must issue the form based on the type of gambling, the amount that you won and other factors. In Missouri most establishments will withhold state withholding from your winnings.
  • You report your winnings for the tax year on your return as “other income”. You must report all gambling winnings as income even if you don’t receive a W-2G.
  • You can deduct your gambling losses on Schedule A. You can only deduct losses up to your winnings.

For more information please contact Wamhoff Accounting at 636-573-1212

It is never too early to begin preparing for the tax filing season. Individuals should be aware of any chances to their tax situation and make changes immediately. Otherwise it could cause major tax consequences.

  1. Have there been any major life events such as marriage, divorce, or the birth of a child? These are all changes that will affect your tax situation and should alert you to make changes to your Federal and State Form W-4s as soon as possible with your employer.
  2. Do you have a child starting college? Besides this being a major event in the family; the person who claims the student may be eligible to claim education credits. Adjusting the federal withholdings for the future tax years would increase the take home pay each pay period vs. a large refund at tax time. T His makes sense since you may be assisting with that education bill.
  3. Maybe you or your spouse is going back to college? Depending on the circumstances, there may be tax credits available as well for you.
  4. Consider preparing a tax projection if your income has substantially changed from the prior year. THis can avoid surprises during tax time and also provide you with opportunities to do some tax planning and decrease you income tax liability.
  5. If you are planning on increasing your charitable contribution or moving soon, plan for those itemized deductions. An increase in charitable contributions can decrease your tax liability. If your move involves a new home, the increase in the mortgage interest will also decrease your tax liability. Likewise if you plan on decreasing these items; your tax liability will increase.

For more information about these items or any questions about the next tax filing season, please contact our staff at Wamhoff Accounting Services. We are ready to assist you.

Small Business Health Care

Small businesses face challenges each day and more of the major challenges is employer provided health insurance.  Because of Obamacare employers with 50 or fewer employees are not required to provide employer provided health coverage.  In the past they were allowed to reimburse their employees for the cost of the health insurance they paid for an individual plan. Now that Obamacare has come into place, there are changes employers need to know.

First, the tax code itself did not change.  The current code and regulations allow employers to reimburse employees under a Section 105 medical reimbursement plan.  This tax-free reimbursement of the individual health insurance is allowed under Internal Revenue Code Section 105.  But with this in mind, the plan must be designed to comply with the Affordable Care Act (ACA) as well as other Federal Regulations under ERISA, HIPAA, COBRA, and the IRS.

The employers may set up a Section 105 plan to reimburse for:

  1. Health insurance premiums up to a specified amount and
  2. Basic preventive care as required by PHS Act Section 2713

Employers in the past were paying directly for an employee’s individual health insurance plan.  Doing so will put the business out of compliance with the ACA regulations and lead to costly fines.  The fines are $100 per day per employee!

There is transition relief for employer payment plans.  They realized that employers needed additional time to obtain group health coverage or another suitable alternative.  The transition relief applies to the small employers.  In addition the penalty relief expired June 30, 2015!

So what should the small employer do?

  1. Increase the employee compensation-the employer can increase the employee’s compensation and provide the employee with information about the marketplace.
  2. Find a business insurance policy through the marketplace that is cost effective for the company.

For further information please contact our staff here at Wamhoff Financial Planning and Accounting Services.

Resources:

www.irs.gov/Affordable-Care-Act

www.zanebenefitsfits.com

https://news.leavitt.com/health-care-reform

In June, the Internal Revenue Service joined with representatives of tax preparation and software firms, tax financial product processors, and state tax administrators to announce a new collaborative effort to combat identity theft refund fraud and protect the taxpayers.

This will include validating taxpayer and tax return information at the time of filing.  This effort will increase information being shared between industry and governments.  There will be standardized sharing of suspected identity fraud information and analytics from the tax industry to ID fraud schemes and locate patterns according to the IRS.

According to the IRS Commissioner John Koskinen “We’ve made tremendous progress, and we will continue these efforts.  Taxpayers filing their tax returns next filing season should have a safer and more secure experience.”

The IRS Commissioner convened a Security Summit on March 19th with CEOs and leaders of private sector firms, and Federal and State tax administrators to discuss ID theft and efforts to stop the fraud.

Three specialized groups were established and during these past months the teams have been working on the following initiatives:

Taxpayer authentication. The industry and government groups identified numerous new data elements that can be shared at the time of filing to help authenticate a taxpayer and detect identity theft refund fraud. The data will be submitted to the IRS and states with the tax return transmission for the 2016 filing season. Some of these issues include, but are not limited to:

  • Reviewing the transmission of the tax return, including the improper and or repetitive use of Internet Protocol numbers, the Internet ‘address’ from which the return is originating.
  • Reviewing computer device identification data tied to the return’s origin.
  • Reviewing the time it takes to complete a tax return, so computer mechanized fraud can be detected.
  • Capturing metadata in the computer transaction that will allow review for identity theft related fraud.

  Fraud identification. The groups agreed to expand sharing of fraud leads. For the first time, the entire tax industry and other parts of the tax industry will share aggregated analytical information about their filings with the IRS to help identify fraud. This post-return filing process has produced valuable fraud information because trends are easier to identify with aggregated data. Currently, the IRS obtains this analytical information from some groups. The expanded effort will ensure a level playing field so everyone approaches fraud from the same perspective, making it more difficult for the perpetration of fraud schemes.

Information assessment. In addition to continuing cooperative efforts, the groups will look at establishing a formalized Refund Fraud Information Sharing and Assessment Center (ISAC) to more aggressively and efficiently share information between the public and private sector to help stop the proliferation of fraud schemes and reduce the risk to taxpayers. This would help in many ways, including providing better data to law enforcement to improve the investigations and prosecution of identity thieves.

Cybersecurity framework. Participants with the tax industry agreed to align with the IRS and states under the National Institute of Standards and Technology (NIST) cybersecurity framework to promote the protection of information technology (IT) infrastructure. The IRS and states currently operate under this standard, as do many in the tax industry.

Taxpayer awareness and communication. The IRS, industry and states agreed that more can be done to inform taxpayers and raise awareness about the protection of sensitive personal, tax and financial data to help prevent refund fraud and identity theft. These efforts have already started, and will increase through the year and expand in conjunction with the 2016 filing season.

Many system and process changes will take effect this summer and fall to be ready for 2016 filing season.  This partnership will also continue as these issues are long-term.

 

Information gathered from IR-2015-87 June 11, 2015

Business Vs. Hobby

Taxpayers frequently state my business is “just a hobby”. Well the IRS wants to remind you that you need to follow certain guidelines and truly determine whether your activity is a business or a hobby. This will determine where you will report the income and expenses on your tax return!

The best way to approach this is to determine if the activity qualifies as a business, and what the limitations apply if the activity is truly not a business. According to IRS estimates, incorrect deduction of hobby expenses account for a portion of overstated adjustments, deductions exemptions, and credits that add up to $30 BILLION per year in unpaid taxes!

Generally, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. Ordinary = common and accepted in that trade or expense. Necessary = appropriate for that business. An activity qualifies for a business if it is carried on with a reasonable expectation to earning money.

Some determining factors:

  • Time and effort put into activity
  • Does taxpayer depend on the income
  • If there are losses, are they due to circumstances beyond their control or was it from the start up
  • Change of accounting methods to improve money
  • Taxpayer have the knowledge to carry on this type of business
  • Has the activity made money in the past
  • Can the taxpayer expect to make a profit in the future?

The IRS expects profit 3 of last 5 years; 2 out of 7 years for breeding, showing, training or racing horses.

So if the activity is NOT for profit, losses cannot be taken to offset the income. Deductions for the hobby will be reported on Schedule A.

TIP: Your part time Mary Kay, Avon, Pampered Chef Income could be subject to the hobby loss rules

Always discuss with your tax professional before starting any type of business.