Taxpayer Rights – Your Foundation When Dealing With The IRS

Taxpayer Rights – Your Foundation When Dealing With The IRS

by | Jun 21, 2018 | Business Tax, Expat Tax, Individual Tax

Much like the often-invoked “Bill of Rights” in the United States Constitution conveying the rights of its citizens, the IRS conveys to taxpayers a “Taxpayer Bill of Rights” that sets across the unalienable rights taxpayers have when dealing with the IRS.

“The Right to Be Informed”

The IRS makes available volumes of publications that are intended to inform taxpayers about tax rules and what they need to do to be in compliance with the law. Filing Instructions are attached to all IRS forms. However, sometimes a person’s particular tax situation may require more research.

“The Right to Quality Service”

The IRS serves taxpayers with the utmost in professional, prompt, and courteous service. Separate from any opinions and anecdotal experiences, this is something all government agencies strive for.

“The Right to Pay No More than the Correct Amount of Tax”

Taxpayers have a right to pay only the correct amount of tax that is legally due, once all factors surrounding a taxpayer’s situation has been properly assessed.

“The Right to Challenge the IRS’s position and Be Heard”

Taxpayers have a right to object to IRS rulings on their tax circumstances. For example, the IRS determining after an audit that an independent contractor working closely with a business is actually an employee and should be taxed as such. The business owner has the right to challenge such a determination.

“The Right to Appeal to an IRS Decision in an Independent Forum”

Related to the previously mentioned right, taxpayers have a right to appeal any determination made by the IRS in an independent forum. Basically, the taxpayer has the option to go as far as taking their cases to court.

“The Right to Finality”

Taxpayers are entitled a certain amount of time to challenge the IRS on its determinations of taxpayer situations. For example, going back to the previous example of an independent contractor/employee, the business has up to 90 days to file a petition for Tax court.

“The Right to Privacy”

Taxpayers have a right to privacy that basically means that the IRS cannot be more intrusive than necessary for their investigations within their jurisdiction.

“The Right to Confidentiality”

Taxpayers have a right to confidentiality with their information. The IRS is expected to not disclose information unless authorized by the taxpayer or by law. This right also extends to any third parties that may wrongfully disclose confidential information.

“The Right to Retain Representation”

Taxpayers have a right to designate an authorized representative of their choice when dealing with the IRS. Taxpayers who cannot afford representation have the right to seek assistance from the Low Income Taxpayer Clinic.

“The Right to a Fair and Just Tax System”

Taxpayers have a right to expect a tax system that considers all facts and circumstances that affect taxpayer’s ability to pay and provide information in a timely manner. For example, the IRS makes filing extensions available to taxpayers who may have trouble paying, however there is an expectation that the taxpayer files the proper paperwork.

 

While the IRS spells outs the rights of taxpayers, sometimes a particular business tax issue may not be immediately clear. Having a team, like us here at MiklosCPA, clarify such ambiguities in light of changing IRS tax rules can save a business owner from much headache and save some money from any penalties. Contact us if you would like to learn more of our services. Also, if you enjoyed this article, follow us on our social media pages for future updates.

5 Must Reads On Individual Tax Planning Strategies

5 Must Reads On Individual Tax Planning Strategies

by | Jun 6, 2018 | Individual Tax

Many of us don’t realize that managing taxes for the upcoming year actually begins the year before. If you are employed, that means making choices in your benefits enrollment that will help pay for certain things on pre-tax monies or helping you to save money for retirement faster.

If you didn’t take care of some of these issues during the end of last year, all is not lost for current year. There are still a few things you can do!

Maximize on your 401(k) or 403(b)

If you are employed by a company, you are probably familiar with the 401(k) term. If you work for a government or education entity, the 403(b) is the sister version in terms of tax planning. In both cases, it is money for your retirement, and the government gives you an incentive to save.

The IRS allows people under the age of 50 to contribute $18,500 tax exempt in 2018. If you are over 50, you can actually make an additional “catch up” contribution of $6,000. Now, if that sounds like it’s too much, that’s okay. Put what you can in – it’s for your future and every little bit helps!

If you employer matches your contribution to a certain percentage, you should be making a contribution for your company match. It’s free money! Why would you want to leave it on the table?

Example:  If your employer matches at 20% up to the first $1000 you put into your 401(k) or 403(b) account, you should be putting $1000 into that account! You would have automatically made $200 on that money without any investing, and chances are, you are not going to miss that $50 per month from your paycheck!

Keep Track of Medical Expenses

If you forgot to sign up for a Flexible Spending Account (FSA) or a Health Care Spending Account (HCSA), and you have a lot of medical expenses, then save those receipts. They will come in handy during tax time when your tax preparer asks for them and if these expenses exceed 7.5% of your adjusted gross income in 2018 (but the 10% threshold returns in 2019), they become deductible.

Speaking of Which, Plan Ahead for 2019

Keep an eye out for the benefit sign-up. Most companies start this around the October/November timeframe, but for tax planning purposes you should check with your human resources department to get more information about benefits enrollment. Once that occurs, remember to sign up for the FSA, HCSA, or HSA plans. These benefit plans can save you up to $2,650 on your reportable income, and allow you to sock away some hard earned cash for medical expenses. Do remember that each type of plan does have special advantages and disadvantages, so it’s best to weigh each option and figure out which is the right plan for you.

Need Some Education to Boost Your Skills?

Attending a professional training or taking a college course that is tied into your current job responsibilities can actually help lower your taxes by providing tax credits.

Decrease Your Withholding if You Owe a Lot of Taxes

If you owe a large tax bill every year, you can decrease your withholding amount so that you owe less taxes for the 2019 tax year. Of course, every situation is a bit unique and it is normally up to you how you want to allocate your taxes. If you need more help, please feel free to contact MiklosCPA and we’ll discuss a solution that works for you.

Want to find out how to save more money? Follow us on Twitter and Facebook to get notified when new tax tip articles are out!

Alimony and Child Support Payments – Divorce Fallout

Alimony and Child Support Payments – Divorce Fallout

by | May 25, 2018 | Individual Tax

Divorce is a life-changing event, but the further headaches and stress from tax complications is something that everyone wants to minimize.  At MiklosCPA, a California-based CPA firm, we understand that there are many important issues to consider which can come out of a decree or a settlement agreement.  Two costs that that may often get mistaken interchangeably are alimony and child support.

Alimony payments

First, it is important to know what is considered alimony.  Alimony is a court-ordered payment from one spouse to another for financial support. For example, a court orders a payment from one spouse to the other for $500 a month as a part of a divorce decree. If there is no court decree, and a spouse simply provides $500 a month to the other spouse during divorce, this is NOT alimony, but a voluntary payment.

Alimony can make a huge difference on your tax bill depending if you are the payer or the recipient. What’s the difference and what should you do?

Alimony payments are deductible to the payer and are included in the gross income for the former spouse. For example:

You pay $15,000 a year in alimony to your former spouse to support him/her living in Encino. You REDUCE your gross income by $15,000.  In effect, you don’t pay taxes on that money. Instead, your ex-spouse will pay that tax bill.

If you receive $15,000 in alimony for maintenance of a household in Encino, you ADD it to your gross income and pay that tax burden.

 

Child support payments

Child support, unlike alimony, is NOT deducted from your gross income and is not included in gross income of the ex-spouse. If you pay $15,000 in child support, you will pay taxes on that money before transferring it to your former spouse. Your former spouse will not pay taxes on the money received from you.

Any payment that is contingent upon a child’s event will be considered child support.  For example, a payment that continues until a child turns 18 will be considered child support, even if it is not explicitly defined as such.  It can be as simple as a wording of “$300 a month for clothing for John Jr living with mom in Arcadia”. As you complete your divorce settlement, it is important to make sure to pay special attention to the distinction between alimony and child support.

 

Determining Alimony Payments 

Understanding what counts as alimony can be a complicated process. California is a community property state, which means, some things are considered alimony, others are not, depending on the final division of assets and property at the time of the divorce.  Cash payments going to a third party and not your former spouse can even be considered alimony, even though your spouse did not receive it. For example:

You have a court-ordered mortgage payments for a house in San Marino owned by the ex-spouse, these are considered alimony payments. If the house is jointly owned and used by the ex-spouse and you, half of your mortgage payments may be considered alimony payments. If you own the house, then none of the payment will be considered alimony.

Keeping these tips in mind for alimony and child support payments and how they are classified can help you manage your annual tax filings and ultimately get a better tax return.

Beginning in 2019, alimony payments will no longer be deductible by the payer on their federal tax return, and the person receiving the payments will not pay taxes on the money received. The new rules will only apply to divorce settlements taking place after 2018, and the current rules will remain for settlements taking place prior January 1, 2019.

Individual tax tips are knowledge we enjoying sharing with the community. Follow MiklosCPA on our social media pages for future posts and check our blog for previous articles! MiklosCPA is a CPA firm focused on helping business clients with their accounting and taxation needs. We utilize contemporary “virtual office” services with the personal touch of regular, periodic communication. If you want to learn more of our services, feel free to reach out.

 

 

Earned Income Tax Credit (EITC)

Earned Income Tax Credit (EITC)

by | May 14, 2018 | Individual Tax

The Earned Income Tax Credit is a refundable tax credit that essentially puts more money back into the pockets of working taxpayers. However, there are several requirements for taxpayers to meet in order to qualify for EITC. Your income levels, if you can properly claim dependents, and how many dependents will determine how much of the EITC you can get.

Put simply, the most important things to determine if you qualify:

  • Your income should be “earned.” This means most of your money came from doing work and getting paid for it, be it for a job or contractor work.
  • Adjusted Gross income (AGI) limit – AGI is your income after certain deductions like payments to retirement plans. For people without dependents, your AGI must be less than $15,270 in a year. The limit increases depending on your marital status and how many dependents you claim for up to a maximum AGI limit of $54,844 for married people with 3 or more dependents.
  • You must have a valid social security number.
  • Filing status cannot be married, filing separately (MFS).
  • You (or your spouse) must be a US citizen or resident alien (has his or her green card).
  • Dependents must meet the qualifying child or qualifying dependent status.
  • If you do not have any dependents, you must be between the ages of 25 and 65, cannot be claimed as a dependent on another person’s tax filing, and be in the United States for at least half of the year.
  • Cannot file Form 2555, which reports any foreign earned income.
  • Your investment income must be less than $3,500 for the year.

Each person filing has a different situation, so bear in mind your own when claiming EITC. For example, a student living at home who is claimed as a dependent for their parent’s tax return cannot claim EITC. However, a single working parent with a young child can most likely claim EITC, granted they meet the other requirements. Assistance to properly calculate and claim EITC is usually available through the many tax preparing firms and even nonprofits offer tax filing and EITC help for qualified individuals and families.

While our firm, MiklosCPA, is focused on providing small to mid-sized business clients with the best in accounting and tax services using the latest in “virtual office” services, we believe that knowledge can help others. Sharing knowledge with others who would benefit, such as this article for EITC, can  greatly help people who may qualify but are unaware of such benefits in the tax code. Share this article with any friends or family that may be interested and check our social media for future articles! If you are interested in learning more about our services for your business taxation needs, reach out to us for a preliminary discussion!

 

Claiming Qualified Dependents on Your Individual Taxes – Children and Extended Families

Claiming Qualified Dependents on Your Individual Taxes – Children and Extended Families

by | Apr 3, 2018 | Individual Tax

Claiming dependent exceptions on your individual tax return can help with what you will ultimately have to pay in taxes. It can potentially lower your taxes due or even possibly lead to a larger tax return. However, in order to properly claim dependents, the IRS has laid out very specific tests that the dependent must meet. For starters, pets cannot qualify no matter how you may feel about your “fur baby.” Sorry to burst any bubbles.

 

Qualified Children

Generally, a taxpayer can claim a qualified child if:

  • The child is the son, daughter, stepchild, or legally adopted child of the taxpayer. Younger siblings may also qualify, given that:
  • The age of the child is less than 19 years old, OR if a full-time student, less than 24 years old.
  • The child must have the same principal place of residence as the taxpayer, for at least more than half of the year.
  • The child does not contribute to more than half of his or her own support.

What happens if your dependent, for example a younger cousin who is couch surfing in between jobs, doesn’t meet these requirements? They may qualify as a “Qualified Relative.”

 

Qualified Relative

In some ways, the requirements may sound similar to “Qualified Children”, but there are differences. Assuming they didn’t meet the qualified child rule, in order for dependents to qualify as a Qualified Relative:

  • The dependent does not contribute to more than half of his or her own support.
  • They cannot be claimed as a dependent filing a joint return.
  • Must be a citizen of the USA, or resident (green card holder) of USA, Mexico or Canada.
  • Must be a relative, this includes parents, grandparents, siblings, aunts, uncles, nieces and nephews.
  • If not a relative, then the dependent must live with the taxpayer for the whole year and doesn’t violate local laws. Cousins and live-in non-relatives MAY be claimed as qualified dependents in this case.

 

Other Considerations
  • Divorced parents can claim a qualifying child. However only one of them can claim the dependent child. This often leads to legal drama.

 

Properly determining qualified dependents can be a time-consuming task for individuals, especially if one may be involved in running a small business. Count on us at MiklosCPA, a California-based CPA firm that has helped businesses and individuals with their tax-related questions and concerns. We utilize the latest in cloud-based accounting services with the personal touch of regular communications to keep you up to speed on the accounting of your business.  If you want to learn more about our services, contact us!  Also, for future updates and blog entries, follow us on our social media pages.

Tax Free Work Benefits – Leaving Money On The Table at Work?

Tax Free Work Benefits – Leaving Money On The Table at Work?

by | Dec 29, 2017 | Business Tax, Individual Tax

You work hard for your paycheck, but are you taking advantage of all you can from your job? There are often employer benefits that employees may overlook in utilizing. Did you know that many employers offer non-taxable benefits that can increase your quality of life without increasing your tax bill? Here are a few tax-savings examples from our CPA firm which can help you and your family to reduce your tax burden.

Are you a working parent?

Dependent care assistance is a special benefit to help a working parent pay for the cost of daycare. You, as an employee under this plan can elect to have up to $5,000 of your pre-tax salary placed into a Dependent Care Reimbursement Spending Account to pay for your child’s costs.

Example: Living in the city of South Pasadena, and having a taking your child to a reputable daycare provider is expensive. Your $5,000 of salary after taxes (taxed at 25%) would provide $3,750 to pay for daycare.  However, your Altadena employer offers dependent care assistance program, therefore the entire $5,000 can be excluded from your gross income is available to pay for child care. You just saved $1,250!

A few rules apply but it is worthwhile to check with your employer’s benefits coordinator to see if this benefit is available.

Are you going to night school?

Education is a great way to enhance your career and increase your earning potential. Many employers provide Educational Assistance Program, a type of tax free fringe benefit for their employees. Your employer can make a direct payment to your school or reimburse you of up to $5,250 for tuition, books, and fees you have incurred for taking classes towards your degree or a certification program. Some good news! The payment is excluded from your taxable income and is available every year for you to take advantage of this employer provided benefit.

Example: You are studying towards your MBA at University of Southern California (USC). You are attending the PM program which will take three years to complete from start to finish. During this time, you are also employed at a tech firm in Santa Monica which offers the Educational Assistance Program.

Since you took advantage of this benefit, you just saved $15,750 from your hefty tuition bills. Isn’t this great? Less to worry about, not to mention the thousands saved from student loan payments!

Employee benefits offer a great way to increase your quality of life without increasing your tax bill. In fact, some of these benefits will reduce your taxes! All of these benefits are governed by complex rules and regulations which can change from year over year. At MiklosCPA, we have helped businesses with their tax and accounting questions using our “virtual office” services. If you want to learn more about us, give us a call!

If you found this this tax tip useful, share it with your family and coworkers! All of us can benefit from some tax planning and exploring available benefits. Also check our site and social media pages for future articles. We post new articles periodically.

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