Tag: Individual Tax


Taxes Due Today | Did you file ?

Sanjiv Gupta CPA - 8 years ago
Did you file your taxes?Tax returns are due today.  You must get your tax return and tax payment postmarked by today. Unlike previous years post offices are not open late today.  So, get to the post office on time.  Most post offices will close at standard 5:00 closing time.Need to file extension?If you are not ready to file then make sure to file an extension for your tax return.  Filing extension will buy you additional time to file the tax return but it won’t buy you time to pay your taxes.  It is a good idea to make an estimated tax payment if you feel you will end up owing taxing.   If you end up owing taxes when you file tax returns, you will have to pay penalty and interest.You can file for the extension by visiting the IRS site here.  You can file form 4868 to get an automated 6 months extension.Here is some important pointer you should consider if you are thinking about filing late:1. File on time even if you can’t pay:   Some customers don’t file tax returns because they don’t have enough money to pay for taxes. This is not good. You should go ahead and file the taxes. There is no reason to request an extension. Pay as much as you. IRS will send you the bill or notice of balance due. You can also apply for a payment agreement by calling the IRS at 1-800-829-1040. You can also apply for a payment agreement online from the IRS website.2. Extra time to file An extension will give you extra time to get your paperwork to the IRS, but it does not extend the time you have to pay any tax due. You will owe interest on any amount not paid by the April 18 deadline, plus you may owe penalties.3. Form to file   As stated earlier, if you do not an extension than make to file by submitting Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to the IRS by April 18, 2011. You can also make an extension-related electronic credit card payment.4. E-file extension  You can also get an e-file for an extension.  You can go to your CPA or using one of the tax software. Don’t worry IRS will acknowledge receipt of the extension request if you file by computer.5. Traditional Free File and Free File Fillable Forms   Filing for an extension is Free.6. Electronic funds withdrawal While you are filing for an extension, you can also request for electronic funds withdrawal. Have a question about filing your taxes ? Give us a call at 510-825-7563 or leave us a comment below.

How To Deduct Commuting Cost ?

Sanjiv Gupta CPA - 8 years ago
Have you thought about deducting your commuting expenses?  Most of us living in the Bay Area drive a long distance to get to work and would love to deduct our growing commuting expenses. So, here is what you need to know about deducting commuting expensesSelf-employed or contractors (aka 1099 employees) can take advantage of deducting commuting costs.  You can establish a home office and deduct the cost of traveling between your home office and any other location where you conduct the work-related activity.  Activates such as meeting with clients for interviews or business presentation can be considered as work-related.To take advantage of this kind of deduction, you must have a home office aka the principal place of your business.   You can only deduct the commuting cost from the “principal place of your business”.  The good news is that you get to decide where you want to set up the “principal place of your business”. Consultants and self-employed will find it very convenient to set up their residence as their principal place of business.  Please note that in order for your home to qualify as “principal place of your business” it must be used regularly and exclusively for management and administrative functions of your business.Now that you have your base office established, you can deduct your commuter cost between your home office and work locations by car.  You can write off the standard business mileage allowance or you can write off the actual expenses including depreciation of your vehicle.You take the deduction by filing Schedule C if you are a single-member LLC or sole proprietor or on Schedule E if you are a partner or member of multimember LLC.Still have a question about deducting your commuter deduction – simply leave us a comment here.

Red Flags | Invite For An Audit

Sanjiv Gupta CPA - 8 years ago
One of the common questions asked by Tax Payers is “Can I get audited?” or “What can flag my tax return for an audit?”. These questions bug so many taxpayers that we are often bombarded with the same question via email and phone calls.Good News | Less than two percent of taxpayers get audited a year. Your chances of getting audited increase with your income. How IRS selects tax returns for audit is “Top Secret” and I would assume that even the IRS employees don’t know the answer to that question. However, experts presume that it is a combination of multiple factors that may prompt your tax return for audit. You will need to have multiple flags in order to get audited – but you never know.1. Making Calculation/Math Error(s): “This is simplest but one of the common flags for an audit,” says Sanjiv Gupta, CPA. Most taxpayers use computers these days and this reduces the risk of a math error. However, the software depends upon the data you enter. So if a moved a couple of zero’s here and there – you may be called for an audit. Sanjiv pointed out that common math errors typically time pressure. Folks trying to do their tax return at the minute are more prone to making a mistake.2. Taking Abnormal deductions. How about $100,000 charitable donations from someone making $50,000 year – possible but outrageous. If something is out of ordinary, attach proof with your tax return.3. Submitting inconsistent information. What happens if you report income of $25K but your employers report $45K? Audit, of course. Make sure information going to IRS from all places matches with numbers you put on your tax return. This is especially true if you were paid in cash or have any kind of reported income.4. Making More Money. Yes – you have a better chance of getting audited if you make $200,000 or more. How much more you may ask? Recent IRS data shows that audit of taxpayers making $200,000 increased by 34& during 2010 tax year. Just imagine, how is it like if you are making over 1 Million dollars.5. Filing a business return. Most businesses run into losses every now and then. However, if you show loss three out of five years than you are at higher risk of getting audited.6. Taking home office deductions. This sounds like an easy deduction but big guys at IRS are looking out for home deductions.7. Handwriting your return. Still, filing paper tax return? It is a well-known fact that handwritten tax returns have more errors than the ones generated by the computer. Guess what, IRS knows this too.

Discounted Kaiser Insurance for Small Business Owners

Sanjiv Gupta CPA - 8 years ago
Our public accounting firm is focused on Small Business Owners and Individuals and many times new business owners ask us about health insurance.   Most of us live in the Bay Area and prefer  “Kaiser” as a  health care provider and therefore I gathered some basic information about Kaiser health care plans for small business owners.Kaiser offers many health care plans but one that suits the need of small business owners is called “GROUP POLICY”.  You can buy this group policy in two flavors.  One with the annual deductible and one with no annual deductible.Plan with annual deductibles cost about $250-$300 less than the non-deductible plans. Both policies cover doctor's visits and other services offered by Kaiser.  Both plans have minimum out of pocket doctor’s visit cost but the key difference is that with an annual deductible plan you have to pay the minimum deductible ($1500) before your major benefits kick in.   For example, a daily rate for the hospital room maybe $500/night and you will have to pay for 3 nights before your insurance pays.  However, with non-deductible plans you won’t be required to pay for these three days.So, if you and your employees are fairly healthy and won’t be needing any major services than you can opt for deductible plan and save a significant amount on a monthly basis.How about Spouse and kids?Yes, of course, your employees along with officers/owners of the company can also enroll their dependents including kids and spouses.  Most policies don’t allow you to include your parents.What are the requirements for this kind of policy?You must have a business in good standing.You must have two or more people enrolling in the policy.More than 50% of all eligible persons should have insurance.Can I get a tax deduction for the health policy?You can read my post about health care policy deduction for more details.How much does the policy cost?I found the group policy of very good value. Rate varies by age but here is a simple example. Females less than 30 years old can get this kind of policy for about $300.  Not Bad?How can I enroll in group policy?Simply call Kaiser and ask for enrolling in group policy.

How To You Choose Right CPA For Your Business ?

Sanjiv Gupta CPA - 8 years ago
Are you considering changing your CPA or Tax Accountant?  I am hoping this blog post can help you make the right choice this time.Let’s start with basic, your CPA or Tax Accountant should already have a client base similar to you.  He should be able to understand your business and advise you on the financial aspects and pitfalls of this kind of business.   If you are set up a corporation or LLC than also make sure your CPA has specialization in this field.   You may want to find out how many financial statements, audits and corporate tax return your CPA is currently making.  This will give you a good idea about his practice.Interview Potential Certified Public AccountantYou are about making an important hiring decision.  You should interview your CPA just like you interview a potential employee.  Great CPA can bring lots of value to your business.  He or She can save taxes and protect your bottom line.  Make sure to ask all of your questions along with a reference.  Also, make sure to see and verify their license.  You can also ask the CPA about their competitive advantage.  In other words, How do they differ from the rest of CPA’s in your area?Cheapest Is Not Your Best CPAThis may sound obvious but you do need to carefully analyze the cost of CPA services.   One CPA charging more may be providing extra services and therefore you need to ask your CPA to justify the cost.  Find out if they have a rate chart that contains the details of their service.   You may also want to ask them about the monthly fees instead of the yearly costs.Do They Do BookkeepingDon’t settle for a generic answer; Yes.  Ask more detailed questions like what program do they use and why they use that over the other.  Is that program compatible with the program you are currently using at your business?  Will you need to buy an additional program?  Are they going to do bookkeeping at your site or remotely? How will you get your paperwork to them?Can They Estimate Your Next Year TaxThis is a great way to see how qualified your CPA is.  Simply give them your last year's tax return and give them an estimate of your revenue increase or decrease this year and let your CPA give you a guesstimate for next year's taxes.    You will understand a whole lot of tax management with these simple questionsHow Do They File Your Tax ReturnFind out how your CPA wants you to do bookkeeping and accounting.   Their suggestion can save you lots of time during tax time.  Ask your CPA if they can file and what documents do you need?Your CPA is a Corporation or an IndividualWith so many CPA’s at your service, it can be hard to pick the right one.  But you can at least make an attempt to find a perfect match.  If you are looking for a big corporate office with lots of employees then you may want to find a large audit firm but if you want personalized service than look for an independently owned CPA firm.  In either case, find out who you will be working with and make sure to interview that person.Hours of OperationMake sure your CPA is available when you are ready to meet with them.  Find out if they are open on weekends? Do they respond via email?  How easy or hard it is to get an appointment.  Do they give special treatment to yearly clients vs walk-ins?Set ExpectationsOnce you have interviewed and pinned down the right CPA, make sure to set some expectations. For example, after the submission of paperwork when can you expect your work to be done.   This will come very handy during the next year's negotiations.

Tax Deductions for Independent Contractor or 1099

Sanjiv Gupta CPA - 8 years ago
Starting out a consulting business can be very lucrative. However, it can also result in a heavy tax bill you do not organize your income and expense properly.   So, how do you organize your income and expenses?You can start by opening a different bank account.  Do not mix your business bank account with your personal bank account. All business-related income should come to this account and all expenses should be paid from this account.   Your client will send you to form 1099-misc at the end of the year.  IRS will also reactive a copy of this 1099.  That being said your total business income should be greater or equal to the amount listed in 1099.  You may get an automated customer-generated audit if you report a total income less than the amount listed on your 1099.  Keeping a separate bank account will help in calculating total business income and you act as proof in case of an audit.Now you need to deal with your business expenses.   The easiest way to do this is to categories your business expenses.   We recommend you use the same or similar categories listed on schedule C.  This will help during tax time.  Now, every time you pay a bill, you simply need to enter that transaction in the correct category.  You can use a simple spreadsheet, financial software or you can use a shoe-box.  Most CPA firms also provide bookkeeping services. For example, you can simply send us your bank statement at the end of the month and we can do the complete bookkeeping. We will assign each expense into appropriate categories based upon its tax implication.What are some of the most popular business expense categories?Advertising – All expenses paid for online marketing or print marketing including business cards or flyers.Consultation Fees – Fee paid to professionals like attorney, CPA, or marketing professionals.Insurance Cost –  Business Insurance Expenses including life, property & casualty, or business insuranceInterest Cost – Interest cost of your business loans. You can include fees and other related cost.Office expense – Any supply or equipment you purchase for your business operation.Rent or lease other business property – Cost of operating your business office.Repairs and maintenance – Include all cost related to your business only.Travel – the cost of traveling to a business-related event like convention, meeting, or business tripMeals and entertainment – You can include meals and entertainment expenses related to your business.Utilities –electricity, gas, telephone, internetOther expenses – such as Dues & Subscriptions, Web development, and Business telephone expenses. Health Insurance expenses:  Premiums paid for your health insurance are tax-deductible.   You can deduct the full cost of health insurance premiums on form 1040 but you must have an Income from your business.   You can deduct the health insurance cost event if you run into losses but it has to be reported differently.  Consult with your CPA to ensure you are reporting the deduction properly.Still have a question about your business expense?  Leave us a comment or call our office at 510-825-7563

Know How To Distinguish Independent Contractors

Sanjiv Gupta CPA - 8 years ago
Independent contractors are those people or businesses who provide freelance services to other companies. As they are not qualified as employees of a company, the independent contractors are not liable to enjoy any employment taxes or benefits. As employers can save a lot of employee’s taxes and other benefits with independent contractors, they classify many employees as independent contractors to save money on payroll taxes. To stop this practice there are certain factors that can distinguish an independent contractor from an employee.Understanding The Concept Of Independent Contractors Having a clear understanding of the concept of independent contractors is the first element to distinguish between them and an employee. An independent contractor can be a person or a company that offers its services to another company. What makes them different is that these contractors follow their own schedule and work as per their own free will. So the employer company has a limited hold on these independent contractors. The employer companies cannot regulate which jobs the contractors accept or how much pay they will demand and when they will work on a certain project. Another point of difference between independent contractors and employees is that the independent contractors will usually bring in their own supplies, or have some kind of investment in equipment. The employer company also is not liable to provide any insurance or any compensation to them. Determining Ways To Identify Independent ContractorAs hiring independent contractors relieve the employer of giving payroll taxes and other liabilities, many companies list a portion of their employees as independent contractors to save taxes. Some companies also outsource their work to independent contractors to achieve the same goal.  Therefore, the IRS has the knowledge of a few factors with which they can identify a contractor from an employee. The first thing that IRS notices is the way the employers exert their authority on the worker. If it is an independent contractor the employer will only give details about the work but if it is an employee, the employer can exercise more control over the way he works, how it is ultimately carried out and his performance. So if the employer is giving out a more defined and whole set of instructions the worker is considered as an employee. Whereas if the instructions are limited and the worker has the freedom to execute a project on his own terms then he is considered an independent contractor. IRS will consider any worker to be an employee if the employer can regulate the way the worker gets paid or if it is the employer who provides all the tools and supplies. Whereas if the worker is paid in accordance with the job done, can offer his services to other companies at the same time or has a considerable amount of investment in the supplies used for the job then the worker is considered as an independent contractor. In addition, if the worker faces profits or losses in a certain work then he is an independent contractor.If the worker and the employer have a written contract and if the employer is liable to pay insurance, casual leave and sick leave then the worker is considered to be an employee. Another way to identify an independent worker is to check if the worker expects to work for the employer only for a specific period of time then the worker can be classified as an independent contractor. These are the factors through which the IRS distinguishes an employee from an independent contractor. It is crucial for the employer to classify his workforce properly as a miscalculation can make one liable for penalty and payment of all possible dues. 

Obama's Health Care Plan and Tax Deductions

Sanjiv Gupta CPA - 8 years ago
As many of you may know that starting 2014 Obama’s healthcare plan will kick in that may allow low-income families to enroll in a qualified health care plan and claim the insurance premium as a tax credit.  However, some of us are still wondering what if a qualified health plan offered by Obama's health care plan is cheaper than the one offered by our employer.    Can we switch to a different plan?  If we make the switch, can we still deduct premium?Answers to these questions are equally important to the employers.   Employers would like to predict their exposure to the employer responsibility excise imposed should if they offer the healthcare that does not provide minimum value (What is the minimum value?), or is unaffordable.   After all, employers want to know if they should continue with their health plans or not?“Have IRS not finalized the rules?” you may ask.  You can read T.D. 9590 published by the IRS and Treasury Department.  You will find many rules to determine eligibility for and calculation of the tax Code section 36B refundable health insurance premium tax credit added by the Patient Protection and Affordable Care Act, as amended.   These rules address many matter e.g treatment of required waiting periods or relief from erroneous automatic enrollment in an employer-sponsored plan.  But at the same time, they leave many issues for future guidance and public interpretation.For example, Employers can find out when employer plan coverage is affordable for the employee by using a simple formula (i.e., the employee’s contribution is no more than 9.5% of household income) but do not address whether coverage is affordable for related individuals who can enroll in the employer plan.Many groups are working closely with IRS and Obama’s administration to finalize the rules and calculation methods to determine how much premium should be deductible.  Taxpayers are also being invited by the IRS to comment on these matters.Would you like to share your thoughts on this matter?

Turning Over Your Business? 5 Steps To Know

- 8 months ago
Whenever we start a business we hope to make it big, earn profits and expand a lot. But doing these is not easy. While we all expect the maximum return from our businesses turning over your business requires the implementation of some essential steps. So if you, like many are trying to know and understand the steps that will help you to turn over your business, this article will surely be of much help.Increasing your turn overIncreasing your turn over is what all businessmen try to do but to actually be successful in doing this requires some steps. Here are a few of them:Lowering costs: Lowering costs of the company will inevitably result in a higher turnover. You can lower the expenditure of the company by getting your products at a lower cost from the supplier and by evaluating the business processes and systems to reduce any wastage. Reducing these costs will ensure an increased turn over. You can also try to reduce overheads and introduce a functional method that will help your employees to properly utilize time. The less time they spend on unnecessary activities the more time they will spend on productive works thereby increasing your turnover. Asses your employees: Assessing your employees’ performance can also help you increase your turn over.  Motivate your employees to work better to increase profitability, appoint the seniors to hand over easy tasks to the juniors so that they can have more time to work on important projects and reward employees when they have done something good. Creating a proper work schedule and keeping yourself updated with how the work is being carried out, who is responsible for a certain project and the end result will bring out better quality work and increase your turn over.Plan well: Proper planning and execution help a lot with increasing your turn over. Having a proper plan will ensure that the work will get done quickly and you will also be able to adapt to changes. You should set a short time, well-thought plans and see if you can implement them properly. You can also modify your plans as they are implemented to suit your needs. Developing a customer base: Increased customer base will automatically mean an increased turn over. You can increase your customer base by developing your service and product quality. You should have a market survey to understand the recent trends and offer your products or services according to those trends. Pricing your commodities perfectly so they give good value for money is a great way to expand your client base. Providing after-sale services such as training and installations creates a good feeling about your company to the customer and this can help attract more customers. You should also develop your customer care services so that they can solve their problems quickly. The number of satisfied customers the more turnover you will have.Check your profit margins: Periodical checking of the profit margins of the company will help you identify the pattern of sales and profit from which you can take proper steps to either maintain or to bring the necessary changes to increase turnover. If you find high sales with high profits you should definitely continue implementing the action plan and reward those employees who have made your product successful. However, if you find that your profit margins are low but sales are high you can increase your pricing of the product. Many times there is a considerable profit but the sales are low. In such a scenario you can think of plans that will help you increase sales and bring more profit to the company. But if you are faced with low sales and low profits you then need to stop the present action plan and incorporate something new that will help you to hike up the sales and in turn more profits. Hopefully, these steps have helped you understand how you can increase your business turn over. It is very important that you remain updated about the strategies being used to generate more sales for a product or service. Since a large customer base can expedite your company turnover you must design your products and services to suit their demand. Since employees are also a big part of the company you should motivate them and have a reward program to encourage them to increases the profit margin of the company.

All You Wanted to Know About Medicare Tax

Sanjiv Gupta CPA - 8 years ago
Medicare tax is quite popular in theUS. Like land tax and service tax, Medicare tax is imposed on earning/wage/salary of an employee or a self-employed individual. As per the 2013 budget the US government has announced an increase in Medicare tax rate; from 2.9% to 3.8%.Medicare hospital insurance amount is divided amongst the employees and the employer; both are subjected to pay half the amount of the total taxable money. Those that are self-employed have to pay the total amount as they themselves are employee and employer, rolled into one. However such individuals can file for half the amount paid as Medicare tax when filing for tax return.Medicare tax rate will be increased to bring under its fold higher-income individuals and investment income. This as a part of health care reform laws is called ‘unearned income Medicare contribution tax and it is calculated as follows:Multiply 3.8% tax rate by the lower of either of net investment income or the gross income over a certain amountWhile the net investment amount covers interests, annuities, rents, dividends, capital gains, etc the gross adjusted income includes overseas income/ income from properties abroad, etc.Employers are required to deduct an additional 0.9% from their employee’s salary which is calculated on the threshold amount. This deductible amount is the difference between 3.8% unearned Medicare tax and the 2.9% Medicare contribution tax. Because employers may not have knowledge of whether an employee is subjected to additional Medicare tax or not the tax amount is decided upon the individual’s income tax return. All extra tax amounts are to be cleared by the individual who is filing for tax return. On the other hand, if employers do not calculate on this basis then they can be subjected to penalties and fines.If you fall within the higher income group then you might want to calculate the amount that you have to pay as additional Medicare tax at the rate of 3.8%.Tax-deferred plans such as IRAs and 401(k) accounts should be the place where you would need to shift income-producing investments.Avoid taxable bonds in favor of tax-exempt bonds.To ensure net capital gains to be as low as possible you need to pair capital gains with capital losses.When the additional Medicare tax would not apply you would need to postpone selling investments with a capital gain by about a year.Children or other family members who aren’t subject to the additional Medicare tax should be bestowed with income-producing investments.Increase payroll withholding or estimated taxes to cover the additional Medicare tax.By all these methods you would be able to ensure that you plan your medicare axes well and gain greater savings.

Scams in Property Taxes: Please Take a Note

Sanjiv Gupta CPA - 8 years ago
Everyone wants their property taxes reduced. In an attempt to reduce taxes many people fall prey to tax scammers. To be safe from these scammers the taxpayers need to be careful about the following things:Many times you may receive letters that look like they are from government offices but in reality, they are usually from the private companies trying to fool you into giving them money.Homeowners should also stay clear from any company that offers to file an assessment challenge in return for an upfront fee.Homeowners should also avoid any kind of services that requires a copy of the property deed or the social security number.Many of you must have received letters that claim to get your property assessment done for a fee that can be as nominal as a few dollars to a couple of hundred dollars. But in reality, these companies just take your money and fill out a property assessment form which you can do yourself without any charge. And in some cases, these companies just take the money and do nothing at all.While the government agencies send out their forms sometime in June these scammers send their form much early. In some of the states if the value of the house has gone down from the previously assessed value then the property taxes are automatically reduced. So the scammers usually target those homeowners who are hoping for a reduction in taxes. These companies send their forms or letters earlier than the government agencies and claim that they will reduce the taxes. Many homeowners pay a considerable amount to them and in June their taxes are reduced. What the homeowners fail to realize is that their taxes were naturally supposed to go down and the company has not actually done anything.But if you are actually looking for one such company to handle your property taxes then it is better that you avoid any company that proposes to do your work for an upfront fee or your property deed or social security number. It is also better to keep away from companies that claim that they are affiliated with government agencies.

Will Mitt Romney (Republican) File for OVDI 2012?

Sanjiv Gupta CPA - 8 years ago
The easiest way to evade tax and pile personal savings is to tuck away money in offshore/overseas accounts. Mitt Romney, the Republican presidential candidate is currently enjoying attention for having put away his ‘vast wealth’ into overseas establishments. However it is not Romney alone, who stocks money in Swiss bank accounts, provides funds to third world countries (money laundering) and clever as he is he has allocated all asset listings to a certain omnipresent ‘Uncle Sam’.But can Romney rest in peace? Can the ‘Uncle Sam alibi’ silence his political foes and also the common mass?  This is, in fact, a warning for the others to take due notice of summons for the Tax Justice Network. TJN conceptualized by British Houses of Parliament is a research center that analyzes and reports on ‘how tax evasion on part of high net worth investors affects national economy’. In its latest report ‘The Price of Offshore revisited’ it presents a detailed study on financial assets invested in foreign fiscal centers and secrecy structures. It traced $21 trillion (a total of US and Japanese economy combined) as reserved with overseas banks.  This amount is exclusive of non-financial assets like real estate holdings, yachts & bonds, and equities, etc. if these non-cash assets are added to $21 trillion, the amount increases to $32 Trillion, TJN reports.The IRS is trying hard to convince high net worth investors to reveal detailed property holdings in order to clear tax with the US government. In fact, the IRS has designed two amnesties to encourage the investors to bring back national currency from their foreign bank accounts.  Offshore voluntary disclosure programs this year have brought in more than $5 million as taxes, interests, and penalties. Almost 33,000 taxpayers revealed their financial holdings in order to dodge criminal charges for evading taxes.The offshore voluntary disclosure endeavor is an ongoing process. Penalty charges for those that have avoided paying taxes for overseas assets have gone up by 27.5 % from 25% in last year’s program. However, the amnesty is far better for high net worth investors for it charges only a penalty fee. On the other hand, if the IRS discovers foreign assets after the amnesty period is over then they might as well confiscate all fiscal assets or might even send the investor to federal jail.

Understanding Self Employment Tax

Sanjiv Gupta CPA - 7 years ago
The word tax never fails not to scare us right? No matter however much money we are paying to the government as a tax it seems that whenever it’s time to pay back to the government there is some shiver that goes down the spine. But much of the fear is allayed when the necessary taxes are deducted from the salary itself and you don’t have to bother much about paying them yourself. But when the case is otherwise and you have to yourself tell the government about your earnings and then pay the relevant taxes, it becomes a bit scary then. So definitely it not only sounds scary but quite draining as well.How Does One Go About Paying Self Employment Taxes?If you are self-employed and you do not draw monthly cheques under a company then you have to individually make arrangements for getting your taxes paid. This may sound tough but as you systematize and organize the important documents, the task of you paying your taxes is not that difficult anymore.  What is important is knowing when to pay themIf you are self-employed then such taxes may be paid throughout the year. If you are making a good living out of your self-employed incomes or earnings, which is again registered as your primary income then probably you have to pay the scary taxes. Also, you can only skip the quarterly taxes at the risk of paying heavy fines during the tax-paying time.As a self-employed individual one has to also pay social security and medicare to the government out of their incomes. The best thing to allay your self-paying tax fears is to stash away those essential bucks to be used only during tax time.Not all is bad for self-employed persons!Yes in such cases you may have to pay only half of the entire tax burden. Also, you are liable to face deductions if you are using your home office, other business expenses or purchasing your own health insurance schemes. The only thing that ought to be kept in mind here is keeping all the papers ready for audit time.If all the above is a little complicated for you then you better consult an attorney to secure legal advice.

Surviving Small Business Ordeals With A Friend!

Sanjiv Gupta CPA - 7 years ago
Wow never had you imagined that there will come a time when surviving that business venture with your friend has become so difficult. It has strangely put your friendship in jeopardy too. This was indeed uncalled for.While starting that business together there were high hopes running on both ends but then tightening of funds, lack of trust and other minor quarrels started to get the better of the two of you ad finally the business. It may be vice versa also. But whatever the case outcome is for the detriment of both. So why not take care of it and nip it right at the bud?Don’t know how? Well here’s what you should do.Important Ways To Keep That Venture Rocking!Talking is rocking for all business – it is extremely important that both the friendly partners engage in honest conversations. It’s absolutely crucial that they talk out their differences and share the solutions to the problems bothering them.• Have written proof/ agreements – the agreement of your business should be in writing. These come in handy at times of disputes and can effectively put things in order. So this is another aspect to keep the business partnership going.•Separate attorneys must be made to review the documents separately – in order to gain full knowledge about how the agreement affects you, you must get a separate attorney for yourself ad so does your partner. Whatever may be the case, there should be an attorney’s involvement in the understanding of the signed document.•Draw the line between friendly and business communication-Be vocal about any important issues at the workplace. Any issue, major or minor must be approached immediately to stop them from going out of proportion. No matter what leaves the business in the office.•Bond outside the office – discuss issues other than business when not in the office – This goes a long way towards saving both the business and the friendship. Mutual respect is enhanced, and tensions avoided.Whatever may be the case it is important to note that the two important aspects of life, that is, work and friendship must not be let go of easily.

How Tax Shelters Help To Reduce Tax Burden?

Sanjiv Gupta CPA - 7 years ago
A tax shelter is a great way of reducing tax. It can effectively reduce your tax burden to the IRS (Internal Revenue Service). But tax shelters can turn to be a problematic issue if the law is violated. So make sure that the tax shelters are legitimate.A tax shelter is actually a financial arrangement that helps to reduce a taxpayer’s tax burden. Tax shelters accomplish such difficult jobs by decreasing and sometimes eliminating your taxable income. This is also a great tool to create tax-deferred or tax-exempt income.You have to be very cautious while setting up the tax shelter. It should be legitimate. If it’s proven abusive then it can create a big problem. When the purpose of a tax shelter is avoiding tax, then that is considered as an abusive tax shelter. There are many other purposes involved with legal tax shelters.A legal tax shelter can effectively reduce taxable income. The main purpose of setting up a legal tax shelter is to report the IRS very little of your income. Tax shelters are extremely beneficial for high-income professionals. Especially big companies are to take the help of tax shelters for avoiding tax payments.The most common examples of tax shelters are charitable donations, pension plans, retirement accounts, municipal bonds and so on. Investments like life insurance and health insurance plans can also be considered as tax shelters. Investing in real estate is also a perfect example of a legal tax shelter. So it can be said that tax shelters work great as an incentive for investment.A tax shelter is actually a great strategy. The more intelligent reason you can show to the IRS the easier will be to reduce the amount of payable tax. Larger firms have no way but to use this subtle way of cutting the taxable amount.Without much stretching the laws, you can really set up a beneficial tax shelter. A charitable donation is a legitimate way to avoid taxation. The authorities of the IRS monitor tax shelters efficiently. So going with laws is the best way to reduce your taxable amount. To know the laws better you must visit

IRS and YouTube Partnership To Educate You

Sanjiv Gupta CPA - 2 years ago
Internal Revenue Service has partnered up with an online video site, YouTube, to deliver its message to the general public.  You can find hundreds of useful tax-related videos on YouTube.   You can estimate the popularity of this combination by looking at the viewership of the IRS channel.  Over 1.7 million views make the IRS YouTube Channel the fifth most viewed online channel out of more than one hundred and twenty-five YouTube Channels.IRS conducts online webcasts on various topics and posts those webcasts as the video’s on YouTube.  You can participate in an online webcast to ask your questions live to an IRS agent or simply view the video’s to enhance your knowledge.  During tax time you find videos about last-minute tax tips or how to arrange a payment schedule with the IRS.   However, you will also find a wealth of knowledge even after tax time.Just last month, IRS conducted a webinar called “Small Business Advantage: Put our knowledge to work for you.”  The webinar was over one hour long and included multiple resources to help small businesses thrive.You can easily find the IRS YouTube channel by simply typing IRS in the search box on YouTube.Sanjiv Gupta CPA advises all his clients to learn from online videos but don’t depend upon that advice entirely.  Often time interpretation of online video can cause quite a bit of confusion and usually end up costing penalties and late payment charges to taxpayers.  ‘You should watch the video to understand the basic concept but always consult with tax professional to understand how you can apply the concept in your business” explains bay area’s popular certified public accountant Sanjiv Gupta.

Defending the “hobby loss” Rule with a Business Plan

Sanjiv Gupta CPA - 7 years ago
A business plan is very important where a business is concerned. As long as you have a business idea, you need to draft a business plan so that you can know how to set up the business. When a business is recurring losses, the IRS audits them. Also, the IRS reduces the inference or deductions claimed when a business is not set up to gain profit. The Internal Revenue Service has for many years defended ‘hobby loss” rule with a business plan. Listed below are some of the factors to consider like;Does the taxpayer rely on making an income from the current business?Has the taxpayer made some income from this business in previous years? If the answer is yes, how often has the business made this income and also how huge was the income?Has the taxpayer out aside reasonable time and also dedication to the business to show that he or she has plans of making some income from it?Has it been proven that the taxpayer has a tax plan of losing cash in the business to lessen its taxes from their main source of profit?Is this business used to employ family relations who are in lower tax groups?If the business in itself does not bring any income, does the taxpayer logically foresee generating income from the appreciation of equipment used in the business?Does the income reason for the business overshadow the fun parts of the business?If the business is generating losses, are these losses as a result of conditions out of the taxpayer’s power? Or, are those losses going at the start-up stage of the activity or business?Has the taxpayer made income from a comparable business in years gone?Does the taxpayer have the needed trade or activity understanding to go on with business success and also make the needed income? Or has the taxpayer seen or talked with other people who can provide the right routes and education to run the business very well?If the business is making any losses, has the taxpayer tried to modify its process to make better and enhance income?The secure harbor where the taxpayer is considered is if the business has generated some income in at least 3 years out of the last 5 years of its operation. When a business is not making profits like it should, there is a need for the IRS to come in and check if the reasons are beyond the control of the business. This helps to ensure that, the taxpayer is relieved of paying taxes.For every business, the survey will differ. This is because; every business will have a different issue from the other. So, not all the investigations come with the same results. Due to the fact that there are different companies and also businesses, there is a strategy for every trade or business type to get the best results. If you need a business plan, you may contact me at 510-709-4030.

IRS Wins Foreign Account Case Over Former Mobil Senior Executive

Sanjiv Gupta CPA - 7 years ago
IRS (Internal Revenue Service) has achieved a great victory over the former Mobil senior executive Bryan Williams. He was alleged in a case of offshore tax evasion. He concealed foreign bank accounts of him holding millions from IRS.Between 1993 and 2000 this former executive opened two Swiss offshore in order to hush up his financial activities. He was also accused of purposely failing to fill out documents like foreign bank and financial account forms aka FBAR.In recent years IRS has become more stringent about the regulations. Different cases like this have prompted them to take such an action.  The authority has been petitioning for the more financial resource so that they can expand the tax evasion programs effectively. Their focus is now to catch and prosecute lawbreakers.Initially, the judgment was in favor of Williams. But in the year of 2003, Williams was convicted in a separate case. His case involved fraud and conspiracy. He pleaded guilty for this case. This year finally the fourth circuit court of appeals in Richmond, Virginia ruled in favor of the IRS (Internal Revenue Service). According to the court documents, he has committed fraud.Now IRS will impose heavy penalties on Williams for committing such a crime. He will have to pay a huge amount for each year of evasion.This is a great lesson for taxpayers. This is the high time everyone should be concerned about the consequences of such fraud. So it’s better to avoid the ways to take the help of abusive tax shelter. Going with a legal tax shelter is a quite beneficial way to reduce the taxable amount. A charitable donation is a perfect way of legal tax shelter. Apart from this, you can go for investments. Investments in real estate or health insurance are also considered as a better way of tax shelter.If you are holding an illegal foreign account, then you should stop such financial activity. Any day and any time IRS authority can accuse of doing such frauds. And the rest you know.

President Obama and Taxes Next Year

Sanjiv Gupta CPA - 7 years ago
The re-election of President Obama to the white house may have come as a relief for him; however, it just is that part of the deal. He comes back to deal with the headache of an economy that is just coming out of the ditch. He has to handle the expiry of the tax breaks that have for a long time now buffered the American population. In fact, the imminent increase in the capital-gains tax rate in this coming year is fueling an increase in the sales of some privately-held businesses in America.The fact of the matter is that most of the business owners in America have lots to gain from making a sale on their assets as they seek to dispose of off the underperforming assets, especially those deals that can be closed before the start of the next year. At the turn of the year, it is expected that the maximum tax on investment income will rise from its current threshold of 15% to a minimum of 23.8% on most of the capital gains. This situation is especially true for higher-income earning homes. In the same vein, it is expected that many sellers will convert their equity in homes into retirement funds.While some people took advantage of the increase in taxes to make smart sales, there are other people who have chosen to wait until the last minute to see if there are chances of a better deal. However, the legislatures have to first come to a decision with regard to the direction the tax increases and spending cuts will take. While a number of austerity measures are being put in place, individuals and companies alike are being asked to take some austerity measures of their own.As it stands, the top tax rate is set to go up at the end of the year by a minimum of 3.8 percentage points due to a provision introduced by President Barack Obama through the overhaul of the health care system. Even then, now that the election is a done deal, the negotiations that will take place are expected to bring the numerous tax and spending measures to the economy.Sometime in the year 2012, the president and Congress had come into an agreement to extend the current 15% capital-gains tax rate all the way to this election year. However, that deal is on its death bed, and another deal must be hammered out. The absence of such a deal by the close of business this year could only mean one thing; that the rates revert to the higher ones that stood at almost 25%. Add this to the extra charge from the health-care law, which is to be charged for higher-income households as well as the maximum tax on investment income, and then you have a rate of up to 28.8% or even more. In essence, for the high earners who do not handle their estates in time, the next year is going to be a tough one.The re-election of President Obama to the white house may have come as a relief for him; however, it just is that part of the deal. He comes back to deal with the headache of an economy that is just coming out of the ditch. He has to handle the expiry of the tax breaks that have for a long time now buffered the American population. In fact, the imminent increase in the capital-gains tax rate in this coming year is fueling an increase in the sales of some privately-held businesses in America.The fact of the matter is that most of the business owners in America have lots to gain from making a sale on their assets as they seek to dispose of off the underperforming assets, especially those deals that can be closed before the start of the next year. At the turn of the year, it is expected that the maximum tax on investment income will rise from its current threshold of 15% to a minimum of 23.8% on most of the capital gains. This situation is especially true for higher-income earning homes. In the same vein, it is expected that many sellers will convert their equity in homes into retirement funds.While some people took advantage of the increase in taxes to make smart sales, there are other people who have chosen to wait until the last minute to see if there are chances of a better deal. However, the legislatures have to first come to a decision with regard to the direction the tax increases and spending cuts will take. While a number of austerity measures are being put in place, individuals and companies alike are being asked to take some austerity measures of their own.As it stands, the top tax rate is set to go up at the end of the year by a minimum of 3.8 percentage points due to a provision introduced by President Barack Obama through the overhaul of the health care system. Even then, now that the election is a done deal, the negotiations that will take place are expected to bring the numerous tax and spending measures to the economy.Sometime in the year 2012, the president and Congress had come into an agreement to extend the current 15% capital-gains tax rate all the way to this election year. However, that deal is on its death bed, and another deal must be hammered out. The absence of such a deal by the close of business this year could only mean one thing; that the rates revert to the higher ones that stood at almost 25%. Add this to the extra charge from the health-care law, which is to be charged for higher-income households as well as the maximum tax on investment income, and then you have a rate of up to 28.8% or even more. In essence, for the high earners who do not handle their estates in time, the next year is going to be a tough one.

Important Year-End Tax Implications For Ranchers

Sanjiv Gupta CPA - 7 years ago
The thing about taxes is that you always have to pay them at one point in your life. In fact, at some point, it is said that the only thing human beings are sure about is death and taxes. Ranchers make up a fairly large percentage of the human population in the USA. So what are the implications of end of year tax implications to the ranchers in the USA?The answer to this particular question is somewhat complicated in itself owing to the multifaceted way in which it can be tackled. This is because the implications can be economical, social and fiscal in nature. The magnitude of these implications is also something that needs to be looked at, especially considering that a larger part of the population is just picking itself up from the throes of financial recession. However, in this article, we are going to look at the major financial implications of the end of year tax changes to the average rancher.The baseline of this article is simple; if congress does not act this year to shield the local folk by enacting safety nets with regard to ranching, then the result is that the New Year will not be too good to the ranchers. This is because such a move will have the net effect of raising the rates on virtually all the taxes that taxpayers pay, and in this case, ranchers. Such taxes include, but are not limited to income taxes, capital gains, dividends, wages, gifts, and estates. Looking at the wholesome situation, most of the tax provisions that expire at the end of the year actually have a direct bearing on the tax amount that is paid by the ranchers and farmers in much of the USA. Most of the farmers and ranchers in the USA are owners of a large estate through which they carry out their businesses. Estate taxes are some of those taxes that are bound to increase if changes are not made. As such, a person paying a 35% tax on his estate may be slapped with a top rate tax of up to 55%. Such increases are bound to increase the cost of business and of the products sourced from these ranches. This is one of the reasons that experts advise businessmen to take care of their estates before the year-end. If not, then the net result may be something that is not entirely good.It is for this particular reason that the end of year tax implications should be put into account not only by the accountants as they crunch the numbers but also by the government and the legislators as they continue to debate the taxation issue. Initially, there were exemptions to the extent of 10 million dollars; however, with the expiry of the tax breaks, the situation is bound to get a little tighter. This is because only exemptions of up to 1 million will be entertained by the taxman. 

2012 Year End Tax Implications

Sanjiv Gupta CPA - 7 years ago
The fat lady is almost singing to signal the end of the current gift and estate tax exemptions and rates. To start with, the so-called “fiscal cliff”, which is the estate tax exemption, is on course to fall precipitously in 2013 while at the same time the maximum estate tax rate is expected to rise. The net result of all these changes in tax thresholds is that many high net worth clients are being requested to consider giving away part of their wealth in order to take advantage of the current exemption just before this period lapses. The thing is with most of the exemption strategies in gift-giving often the least effective means is to give the gifts as cash. On the other hand, one can also use some of the other strategies such as the use of Family Limited Partnership (FLP) to acquire a valuation discount for the assets being gifted may be used. Some of the other ways to give away gifts include using the Intentionally Defective Grantor Trust (IDGT) and then use the trust as seed money to purchase different assets from the estate.However, this is not usually the situation in most cases as there are different things that come into play when gifting away part of your estate. For instance, there are many important caveats that include the risk of an estate tax clawback as well as the affordability of the gift itself. You must also take care of the state estate tax laws that may be due on the estate. As such, it is very important for the high-end members of the population to determine whether they would rather give away part of their wealth or simply sit back and endure the tax burden that will be coming at the turn of the year.Taking Advantage of the Current Gift Exemption: To start with, for a person to take advantage of the gifting it is important to know a few things. In essence, the basic principle that is behind gifting is to start by making a gift while the exemption is currently at $5.12 million. At the end of the year, the exemption will drop from $5.12 million to only $1 million. While, the exemptions that are set to expire at the end of the year, it is quite possible that the tax burden that an individual will have at the start of the next year will be very huge. Gifting is a way through which individual spread their wealth, not only to the people around them but also help themselves take care of the financial aspect of their estates. Gifting can also be done to a member of the family as well as to charities and other less fortunate members of the community.While on the case of gifting away wealth, it is usually advisable to gift away pieces of property instead of cash. This is because it is a better way of spreading the wealth to future generations who may not be old enough to handle huge sums of money.

Dealing With Tax Liens

Sanjiv Gupta CPA - 7 years ago
Federal tax liens are documents that are filed in the county in which a business or a person is conducting his or her activities informing the public that the person or business n question has outstanding tax bills. This lien attaches to the property of the said individual or business allowing the IRS to recover the full value of the tax bill through the sale of the personal and business property of a person or business. In essence, it is a warrant that the IRS places on your pieces of the property allowing them to dispose of them off in the pursuit of tax arrears. Once a lien is filed, then during the period that the lien is effective the IRS can sell off any property and recover the amounts owed in tax before the balance of such a transaction is given to the individual. So what happens when you pay off your tax debt?Well, the major thing is that the lien is lifted. The statute requires that the lien is lifted within 30 days of the settlement of the bill that was due. That is the law that comes into operation once the balance is cleared. However, in reality, this does not always take place. In most cases, the IRS is normally reluctant to release the lien that it has placed on a piece of property. To make up for this oversight, the lien is often issued with the writing that if it is not refilled on the date of the expiry, then the owner of the piece of property should consider the lien released. This option means that at the end of the liens period, the ownership of the pieces of property that had been attached reverts back to the owner.Does the IRS inform your credit agencies of the release of any lien once it expires? The law requires that a Certificate of Release is filed at the courthouse where the original lien had been filed. Once it is filed, the owner of the piece of property can then use it. However, most people have made the proposal for the creation of at least three copies of the release certificate. These copies would then be sent to the credit bureau once they are filed therefore releasing the individual from doing the job himself or herself.Is it possible to have a tax lien on your credit file without your knowledge? The simple answer is yes. In this day and age when identity theft is at an all-time high, the probability of finding a lien in your credit reports when you have no idea of it is very likely. The next step that you should take is to notify the IRS and the court in which such a lien was filed to seek clarification. Often, the services of a lawyer will be required to make the follow up as the process may be tedious and time-consuming. In addition, it is important to keep legal counsel by your side during this process to mitigate the legal impact such a discovery may have on your affairs.

Charitable Contribution and Tax Deduction

Sanjiv Gupta CPA - 7 years ago
Giving is part of Christmas and most holidays for that matter. It is a tradition across the world for people to exchange gifts during holidays and other important days of the year. Corporate giving is one of the ways in which the companies give back to the communities in which they operate. It is a way in which the locals are allowed to share in the fortunes of the company that is in their environment. That is just one part of it; the gifts that are given away have tax implications to the company or the person who is giving them away. To start with, the company that is giving away the gift may be required to pay taxes due on that gift if it goes beyond certain thresholds. This is why it is important for the gift-giving season to be handled with caution.First, companies should confirm whether the firms to which they are bestowing the gifts are authorized. Checking whether a company is authorized can be done on the IRS website through a quick search. Those organizations that are not listed should be further scrutinized to determine if they are working under a tax-deductible scheme. In general, it is much better to deal with firms that are listed since you can deduct your contributions to them for tax purposes. It is also important to note that the small gifts are not usually deductible unless a check is written or a receipt is received for such a gift. In the same vein, any donations that are in excess of $250 have to come with a contemporary receipt. This receipt acts as proof of the donation since the cheque only is not considered to be full-proof. In general, you are allowed to deduct the value of the goods that you receive from the total of the receipt. In cases where you do not receive a gift in return, then you are supposed to indicate the same on the receipt for the IRS to consider it a valid proof of transaction. This receipt is required to be given at the time when you make the contribution as the IRS usually does not accept any receipts that are made out later. In essence, for every contribution you make that you intend to deduct from your taxable amount, it is important to get a receipt for the same immediately after making the contribution so as to be on the safe side with the taxman.The rules for making contributions are generally simple. You are required to make a list of all the goods that you are contributing to and to who you are contributing them. Afterward, calculate the value of these goods and get a receipt for them once you drop them off at their intended destination. Some of the goods such as art or cars may have special rules applying to them. For the larger donations, it is important to have an independent valuer make a valuation on your behalf for taxation purposes.

Solo 401k Plan Explained for Self Employed

Sanjiv Gupta CPA - 7 years ago
Last week I talked about the 401K plan and how shared an example explaining how your 401k plan contribution can earn you a 25% return on investment.Today, I want to continue with that conversation and how to explain how an independent contractor or self-employed person can save even more taxes by investing in their solo 401k plan.In today’s video, I am going to explain the following.A.) How much money can you contribute to your solo 401k plan?B.) What are some of the limitations with a solo 401k plan?C.) Where to open a solo 401k plan?D.) How much does it cost to open a 401k plan?E.) What kind of tax benefit you can get by investing in your 401k plan?We have about 2 months before the end of this tax year.  Self-employed personals can contribute up to $50,000 to their solo 401k plan and reduce their tax liability accordingly.There are fees associated with the solo 401k plan, but you can borrow funds from your 401k to help you with cash flow and you can pay the money back within 5 years.  You can also move the 401k plan to another company in the future.  In the video, I will tell you how you can open a solo 401k plan for free.A self-employed person with income of $75,000 will have to pay about $7500 in federal income tax.  However, this person can contribute up to  $30,941 to the solo 401k plan and reduce the federal income tax to only $2,304. Savings of over $5000.Moreover, a contribution to a 401k plan can be made as profit sharing.  In this case,  Up to $13,941 can be contributed as profit share further reducing the tax to about $600.In other words, you can earn up to $75,000 and pay almost no federal income tax if you contribute fully to your 401k plan and take advantage of a few other deductions. Have you checked your retirement plan this year?This is a good time to review your retirement account for the year 2012.  Single tax filers can contribute up to $17,000  to their 401k retirement plan.  Contributing to your 401k can significantly reduce your tax liability for the year 2012.1099 Contractors and Small Business Owners can also reduce their tax liability by taking advantage of various retirement plans.  You still have time to set up a proper retirement plan for this year and save thousands of dollars in taxes.Want to come in for a consultation to discuss your retirement plan?  Please make sure to bring your retirement statement and current year income statement.Free Solo 401k plan for self-employedWatch this video to learn how you can deduct up to $50,000 this year.

Things to Know Before Hiring an Independent Contractor

Sanjiv Gupta CPA - 7 years ago
Hiring an independent contractor for jobs around the home or the office is the easiest thing to do when trying to complete non-essential business jobs such as remodeling. Depending on the type of contractor that you seek out and hire, you may get either good quality work or poor quality work. So what are some of the things that you need to put in mind before deciding on which contractor to hire? These things to look out for usually go a long way in helping you determine the suitability of a particular contractor and assure you of quality work once the job is done.First of all, you should consider the work that is required and whether the contractor has the capacity to complete it. Most contractors will overstate their capability to handle a particular job. As such, it is up to you to perform a due diligence analysis and set a threshold that will assure you of the capacity of the contractor. Ni addition, some contractors may be blacklisted by professional associations due to poor business practices. It is therefore important to ask for references before a contractor can begin handling a particular task.The amount of money that you are willing to pay should also be taken into account. All things constant, money is the bottom line of all the transactions that take place between contractors and yourself. Depending on the amount of money that you are willing to spend, you should find a contractor who is willing to do the kind of job that you want at the price that you are willing to pay. You should also come up with a way to determine the quality of the job and the payment model, especially for the jobs that take a long time.Copyrights are the ownership rights that an individual takes upon completion of a job. It is important that you and the contractor discuss the copyrights and the extent to which either of you is going own that piece of work. In most cases, the contractor owns the resultant piece of work until such a time that the final payment is made. This should be taken into the same consideration as the implication with regard to taxes that are likely to come from having such a transaction. Taxation issues account for a very large portion of the business costs that different businesses meet over time.You should account for the fact that contractors can quit at any time they wish to. This means that there is a very high likelihood that the job will not be completed on time. Most of the time, if you are paying the contractor per day, then it is most likely that they will extend the duration during which the work is to be done in order to earn a few more dollars. Such issues with contractors should be taken into account before the contract has been signed, and execution has begun.

Understanding Statute of Limitations on IRS Debt

Sanjiv Gupta CPA - 1 year ago
As a rule, anyone who owes back taxes stands the risk of falling into heavy debt as the taxes accrue both interest and penalties for the duration that they remain unpaid. This, in essence, means that the longer you keep skipping payment of the taxes due, the more you are likely to pay when the IRS eventually catches up with you. That is the general length and breadth of the situation. However, the IRS only has 10 years within which it is required to collect the taxes due to it. The counting of these 10 years is supposed to start from the date that your tax bill is finalized until the end of the tenth year. As such, beginning the date upon which your tax bill is finalized and it is agreed that you have tax arrears, then the 10-year window is opened and the countdown begins. It is also important to note that in cases where you did not file a proper tax return, then the IRS will go ahead and make a tax return of their own based on their assessment. The result is that the statute of limitations will be set by them depending on when they would prefer it to. As such, for all intents and purposes, it serves you best to file a tax return on your own, if not to avoid the penalties and interests, then to avoid being slapped with a huge tax bill that has been set by the taxman.The date upon which the statute of limitations expires is very important especially to those persons who are in the process of sorting out their tax mess. To start with, if the Collection Statute Expiration Date, which is an acronym as CSED, is near, then you are normally advised not to do anything that would lead to the extension of such a deadline. This will only work against you as the IRS may opt to start off aggressive actions that are aimed towards the collection of the whole tax debt in full. If for instance, you sign a waiver of the expiry, then you are by all means allowing the IRS more time to come after you for the remainder of the tax debt. However, if the Collection Statute Expiration Date expires and you have not completed the payments, then it is not required of you by law to complete such payments to the IRS.Extensions to the Collection Statute Expiration Date may be given in special circumstances that include: if you chose to solve your tax debt by filing for bankruptcy, if you left the country for an extended period of time or if your tax assessment was completed after you have been convicted of a tax fraud case. In fact, in these situations, your tax debt never expires until such a moment that you actually complete the balance in full. Taxation issues affect virtually everyone at one point in their lives, it is therefore important that you know how the law operates and how you can find some wiggle room.

Watch Out For Ghost Tax Preparers

Sanjiv Gupta CPA - 7 years ago
The Director of Internal Revenue Service Return Preparer Office – David Williams, presented the meeting at the Dallas IRS Tax Debate this summer subtitled “Rumor Control” due to the propaganda neighboring Registered Tax Return Preparers (RTRPs). Given the antagonism and obvious fret, a lot of tax experts were feeling concerning the listing procedure, David Williams began the meeting by explaining that it is an entry-level test.“(It is) not a test to put people out of the business of preparing tax returns,” David Williams said. “We think there are a lot of people still not registered or have or even know what a PTIN (Preparer Tax Identification Number) is.”David Williams also spoke about the fact that a lot of groups are giving out practice tests allegedly based on the authorized test. David Williams exposed that the aptitude test is still being drafted, and a transitory threshold has not up till now been elected but documented vendor’s hard work to rise above the blockade of time.“Most people have anxiety about testing. The tests available today are from vendors that are clairvoyant,” Williams joked.The minimum aptitude is based on the Internal Revenue Service’s publication 17. Continuing education (CE) is intended for 2012 subsequent to finding out how to record the sellers’ contribution to the CE. Necessary, will be yearly 10 hours of tax law, three hours of updates and two hours of ethics.Current figures make the public that present is in excess of 720,000 registered preparers. Of these preparers, 62% are not attorneys, CPAs or EAs. There possibly will be as many as 900,000 RTRPs as soon as authorized listing has started.  Of preparers, as countless as 100,000 have had fulfillment troubles and 50,000 may have been criminals in the previous 10 years, which might leave them out from the program.Not capable to be counted, phantom preparers are tax preparers that are not operational for CPAs or have any type of qualifications, listing or most prominently a PTIN. According to David Williams, PTINs was tenable in 15 minutes online.The inquiry of why to pay a cost of $64.25 while I before now had a PTIN is frequently asked.“For the reason that the course is financed totally by these bills, which comprises community consciousness,” David Williams said. “You have rights as a circular 230 responsible practitioner. The fee could come down in subsequent years. Due process rights are now available, so if your rights [to practice] are removed, you can appeal and eventually take the case to court. You have the right to be heard, to tell the rest of the story; this is also part of the fee.” All labors to revitalize the Central Estate Tax for the year of 2010 just did not get completed to the surprise of many. A good number of witnesses anticipated Congress to do something in some way to stop the jam-packed revoke of the Federal Estate Tax for the year of 2010 only to allow it to return on January 1, 2011, with revenge.

Tax Implications On Trade

Sanjiv Gupta CPA - 7 years ago
The general feeling around the USA and Europe for that matter are that the year 2013 is going to be a tough one, at least economically. Already countries like Spain have changed their tax policies and the effects of these changes have started showing various contract negotiations being halted. In Spain for instance, football players like Ronaldo are in contract negotiations with their clubs. In a bid to keep the player, clubs such as Real Madrid are forced to offer to pay the taxes on behalf of the player if only to retain his services. Such options are normally available to the rich clubs such as Real Madrid; however, much poorer clubs may not be able to follow the same pattern, in essence losing some of their best players or assets. In the USA, the trade of R.A. Dickey the N.L. Cy Young winner is being held up by the tax implications of his move to the Blue Jays. We can see the trend spreading across Europe and North America affecting various organizations and individuals. The changes in the tax policies of the different countries seem to be having a biting impact on the way in which business is being conducted. Various governments have resorted to increasing their tax bases as they try to make ends meet in the face of a harsh economic period. The effects of the recession may have passed, but the impact that the recession had cannot be ignored whatsoever. As such, in a bid to do away with the budget deficits that they acquired during that period, different governments have resorted to various ingenious ways of cutting off their bills. Considering that the government is a representation of the people, then the people can be expected to bear the brunt.The tax implications of the different tax changes have gone as far as the capital gains and the dividend taxes. In most countries like Greece, the tax on capital gains has been increased by almost 200% with the tax on distributed dividends being reduced by a smaller margin. The result is that it gets more expensive to make money on the stock market, with the margin of profits reduced considerably. However, some people hold the opinion that this increase in taxes may in effect actually increase the amounts of money that investors get from the stock market. This thinking seems to rely on the psyche of the stock market investor. In most cases, the stock investor is a long term investor who waits for real money. As such, this investor looks at the long term trend instead of the short term implications of laws. The historic relationship between the taxes shows that an increase in taxes often has the net impact of an immediate decrease in the earnings of individuals coupled with a resurgence of the prices and an eventual increase in returns. It is this line of thought that seems to have some people very optimistic. The long term seems to be the solution for the current mess.

State Budgets and Taxes: What Will Happen in 2013?

Sanjiv Gupta CPA - 7 years ago
2013 is a year of many expectations. In the USA, the new government (the Obama government) has been given another lease of life to implement its policies and affect the lives of the common Americans for the next 4 years.There is a school of thinking that the federal fiscal cliff has the potential on unloading a massive state tax fiscal cliff or disaster if left unchecked. The main reason for this expected increase in the tax bill arises from the fact that some of the states, and in essence most of the states, rely on the federal government to sort their programs. If this trend spills over to the next year, then the federal government will have to find new ways of sustaining the state's programs. The most common way that governments use to raise money for their needs is through taxation. An increased program bill can only result in an increased tax bill. According to various sources, the federal government provides support of up to 20% to the different states. In addition to this problem, the states will have to balance their budgets in a way that they can cut spending and increase the revenue that they receive. The result of these actions may include spending cuts and an increase in the tax bill to the ordinary citizens.Putting this in perspective, at least>48 states in the USA have budget deficits accumulating a total of $581 billionin the last four years only. How will different states seek to cover their deficits? Well, the rumor around town and in government is that there are going to be quite a number of changes that will tax place especially in relation to the taxation threshold. There have been suggestions to increase the number of taxes such as sales tax. However, not all states will follow the same path when trying to cut their deficits. In fact, it is expected that the most successful states are those that will come up with innovative ways of ensuring that the deficits are dealt with without increasing the taxes. Already, there is much public outcry about the increase in the federal debt, an issue that caused a lot of problems for the Obama administration during the campaign.2013 is a year that promises to be one with many solutions. However, it is also a year in which individuals will have to undergo some “baptism of fire” so to speak if the states in the USA are to achieve their long term goals.

Hiring a Tax Expert to Face an IRS Audit

Sanjiv Gupta CPA - 7 years ago
“I am nervous and unsure about the impending audit from the IRS for my 2010, tax returns. I believe that they are pointing towards the irregularities in my deductions and income. I need to know whether I would be required to represent myself to them or can it be taken care of in case I pay the arrears involved?” asked Mr. Ravi. SIn this scenario, we strongly recommend him on hiring an expert who can represent him on this tax audit. This is crucial to him as the IRS can refer his case to criminal investigation for prosecution. He not hiring a representation would tantamount to approaching the court with no lawyer.Below are mentioned some facts about IRS audits in order to help you understand the gravity of the situation being discussed.The IRS has the option of auditing you by mail, face to face in there or in your office. Amongst all the three, the face to face audits is more serious as the examiner would closely scrutinize the documents related to your income & deductions.Initially, you are interrogated on some 54 seemingly innocuous questions. What will come next would depend on the way you had handled these questions initially. Talking more than required and speaking the truth is recommended here; facing this unprepared, can fail you on both these crucial aspects.Hire a professional tax expert in order to avoid this sticky situation. The below-mentioned points are advisable to be kept in mind while hiring a professional tax expert.Choose an experienced hand over a greenhorn in this field. Hiring someone aptly qualified with hands-on experience in handling IRS audits would save you unnecessary costs over time. An experienced professional would productively channelize your fundamental rights – fairness, due process & representation – as a taxpayer, keeping your best interests in mind.Following are some of the strategies we have used at our firm ( Tax Resolution Services) for handling IRS audits earlier: If possible, obtain a “ no change” letter; making sure that any additional taxes assessed remained lowest as per the law; helping clients in reducing any accruing interest, penalties or back taxes, along with pushing away the possibility of a criminal prosecution by the IRS; Systematic steering of the client through the entire process.Other than checking the credentials at a meet-up, the candidates, as well as the company’s credentials, can additionally be verified through Google and by fishing out the ratings of the Better Business Bureau of the same. Seminar on Audit By Sanjiv Gupta CPABoE, IRS and FTB Tax Audit On The Rise | Protect YourselfWe have seen an increase in the Franchise Tax Board, Board of Equalization (Sales Tax) and IRS Tax Audits in recent months.  In the last few months, California Sales Tax Officers have also visited the businesses in various counties including Alameda, Contra Costa, Santa Clara and requested to see their sales receipts and record of their sales transactions.  In many cases, BOE has asked these businesses to bring their detailed sales record to the BoE office in Oakland CA.  Certain types of businesses like Gas Stations, Grocery Stores, Retail Stores and businesses with the majority of cash transactions are of particular interest to FTB and IRS.We feel it is important for our fellow business owners to prepare for such a visit or an audit by IRS, BoE, EDD or FTB.We will be holding a free conference call in February to discuss important steps you can take to prepare yourself for such a visit.  We will discuss many scenarios that may catch you off guard.For example:What kind of documents IRS, FTB, BoE or EDD may ask to see?How to prepare your employees for BoE, EDD< IRS and FTB visits?What should your employees know about BoE, EDD, IRS and FTB Audits?How to deal with customers when BoE,  IRS or FTB agents are at your site?What should you tell or not tell to Tax Auditors?When to get professional help with your Audit?When can you join the conference?Feb 16th, 2013 From 10:00 AM to 12:00 PMRegister and Join the Conference Call | Learn and earn a chance to win iPad Mini.

Planning To Pay Tax Bill With Credit Card ?

Sanjiv Gupta CPA - 7 years ago
It is the time of the year to pay taxes, again. Have you planned for your tax payment? If you are thinking about the various options available to pay your taxes, you should certainly consider paying taxes using your credit card.Don’t panic!! After all, paying your tax using your credit card is not a bad idea at all.Let me explain how you can benefit by paying tax using your credit card.Credit cards are extremely dangerous if they are not used with due care. Caution should be exercised about the payment date and the amount. Nevertheless, if they are used wisely there is no better option than a credit card to manage your payments. By paying your tax through a credit card, you can buy time to repay the money. Though making payments through a credit card will lead to paying interest, the rate of interest charged by the credit card company is way lower than what the IRS would charge for defaulting on tax payment.Let us consider this classic example. Assuming that the last date for payment of tax is April 20th, IRS would start charging interest on any outstanding tax from the due date to the date the tax is paid in full. The current rate of interest is 3%, which is revised quarterly, and the additional interest rate for late payments is another 0.5% a month. If a taxpayer is late by one year, the total interest rate would work out to approximately 9%. On the other hand, for a credit card with an interest rate of 4% annually and another 2.4% interest rates as a one-time convenience fee, that a third-party service provider charges for using a credit card, the total interest rate still works out to around 6.5%. So, on a $20,000 bill, the savings would be approximately $500. For someone using a 0% credit card, the savings could still increase. But the point of concern here is the due date for the credit card bill payment. If the credit card dues are not cleared in time, all the savings accumulated here will go down the drain.For people, who are unable to avail of a credit line, this option may make no sense. Such people may approach the IRS and set up payment options with the department. Of late, IRS has unveiled schemes for taxpayers who need less than 4months to settle their tax amounts. Under this arrangement, tax filers can avail of a certain grace period where they can still pay their taxes, penalty-free. But the details of this arrangement need to be checked with the department as these rules and programs are not fixed and may vary from each tax year to the next.All said and done, it is very important to pay taxes on time. Considering that the penalty rate may go up to as high as 9%, it is very important for tax filers to figure out ways and means that are cheaper and affordable to them. For all those who hold a credit card, the above-mentioned option could prove beneficial and worthwhile to give it a try and pay taxes on time.

Common Last Moment Errors While Filing Taxes

Sanjiv Gupta CPA - 7 years ago
It is not uncommon for people to delay filing up their W2 forms for the tax return, till the eleventh hour and thus, end up making last moment errors. Even though this makes the entire process a lot more inconvenient and unpleasant, it is a fact that several residents do this every time. Thus, thanks to the last-minute rushing, there are often a number of small errors that if made, can potentially delay a person’s tax returns. Some, of these common and usual last moment errors, are listed here so as to remind people that they need to avoid making these, in order to assure that their return is deposited on time.Common Last Moment Errors While Filing Taxes:The most common of all the mistakes is perhaps the most obvious one. People, in their hurry to finish filing their taxes and tax returns, often end up writing an incorrect spelling of their name. It should be remembered that the spelling written on the form should match the one that is provided on the ‘Social Security Card’. Also, another point to be kept in mind is that the ‘Social Security number’ must be correctly written.The next problem that many encounters are a mistake in writing the filing status. Now, as it often happens, people who are married file their taxes together or jointly. However, people may file the same separately, in spite of their married status. This is more logical or better option in several cases. The only thing that must be kept in mind is that care should be taken while putting the status down on the form.The next common last moment mistake on the list is perhaps the hardest one to avoid. This is, the mistakes made during calculating the returns. If a person is trying to file the taxes at the eleventh hour, it is quite sure that he or she will not be able to devote too much time to check if the calculation and mathematics are correct. However, these mistakes can sometimes be avoided by using special software hat is designed to calculate taxes.Signing the returns is very important. Many couples who decide to file their taxes together (jointly) often forget that both of their signatures are required on the form. People who are filing online can ask for a unique identification number from the site (irs.gov).Another very common but absolutely terrible mistake is writing the wrong address for the place were the tax form has to be sent! Now, needless to say, unless the address is written correctly, the form won’t reach on time. So, people should check the list that the IRS decides to help people understand which address they must send their returns to.People should also remember to include all the forms that need to send. It is a very common last moment mistake to just send in the w2 or 1040 form and nothing else. But people often require another form too, e.g., the people who have requested a ‘payment agreement’, need to make sure that they also attach a 9645 along with the standard W2.If a person feels that he or she requires some amount of extra time then that has to be separately requested for using the 4868 form.So, these are the most common problems or last moment mistakes that people make while they are trying to file their taxes in a hurry.

Million Dollar Homes and Tax Audits

Sanjiv Gupta CPA - 7 years ago
Do you own a home for which the mortgage is more than $ 1 Million?If yes then it is a wise idea to check how much mortgage interest you have been deducting from your tax returns over the past few years. All homeowners who owe more than a million dollars on their home loans have come under the scanner of the IRS. The scrutiny has been taken up over confusion on the mortgage interest that customers are eligible to deduct from their tax liability. Taxpayers who owe more than $ 1 million on their homes could range from tens to thousands. For a mortgage of $ 1 Million, the interest could add up to about $50,00o. This amount being substantial has been of great interest and a matter of concern to the IRS department.Tax rules vary for home acquisition debts and home equity debts. Let me describe each of these in detail. Home acquisition loans are availed to acquire, construct or renovate a qualified property. This kind of loan is secured by the home. In the case of Home Equity Debt, it is like any other loan and even here it is secured by the home.Now here comes the catch. While a section of taxpayers argues that it was legal to deduct all interest on a single mortgage of up to $1.1 million, others opposed the claim stating that the limit for mortgages was $1 million, but interest could also be deducted on an additional $100,000 in a home equity loan. In order to end this confusion IRS had set the record straight by stating that loans over and above $1 million could also qualify as home equity obligations.While the confusion over the interest deductible has been solved for the time being these rules could be very confusing to the common man who cannot afford to seek the opinion of a tax advisor. When customers avail of a home loan, it is not the loan alone but there are other surrounding components that get added to the loan. One of the important aspects of a home loan is the refinancing option. While IRS has not specified how such complex cases need to be dealt with, there have been a lot of homeowners who have been pulled up during mini-audits conducted by the IRS. In the past six months alone, IRS has notified a number of people that their mortgage interest write-offs are being scrutinized.As per the existing tax rules, tax deduction on mortgage interest is allowed on the first and second home but not on homes exceeding two in number. While the rules are clear cut and comprehensive in a lot of situations there are certain circumstances where the rules are not clear and exhaustive.Are you still confused about your tax liability even after reading this article? If yes, then it is advisable to get help from a qualified CPA in order to avoid complications at a later date during an IRS audit.

Tips to Maximize Tax Savings

Sanjiv Gupta CPA - 7 years ago
You may be working hard and earning big money but what is the use when you have not planned your taxes properly? Not planning for tax payments is as good as being unemployed because a lot of hard-earned dollars are wasted in paying taxes due to the lack of planning. So it is imperative to plan for tax payments, well in advance.Here are a few tips, from well-accomplished financial consultants, that may help you to maximize your tax savings and have more money in hand to spend for yourself.Working for a companySometimes it is good to work for someone than have your own business. Wondering why? Let me explain. By working for a company or by being on someone else’s payrolls, you may have to take a cut in your pay package. Nevertheless, you may still be left with more take-home money than what you had when you owned a business because you end up paying less in tax. For example, if you were working for a University as a professor, fringe benefits such as health insurance and worker’s compensation would take a big chunk of your salary thereby leading to lower tax payments.Combining vacations with Business TripsGoing on expensive vacations may burn a big hole in your pocket in terms of tax payments. But if these vacations are combined with business, there could be a lot of savings in terms of tax payments because hotel bills, meals, and car rentals are partly deductible from tax payments. But this is not a good practice to follow always as there could be a lot of questions from the IRS when this becomes a regular pattern. So, sometimes it is better to pay taxes fully for expensive vacations than claiming for deductions.Keeping a tab on Business related expensesNormally when on business trips we are lax and do not keep a tab on the expenses incurred during the trip. It is critical to keep track of all these expenses because, in the case of an IRS audit, it is this information that will come in handy to substantiate expenses incurred during a business trip. Also, it is a good practice to tag all business transactions to a single credit card. By using the same credit card for all business-related expenses, the expense statement from the credit card company can be used to back up claims made towards expenses incurred during a business trip.Employing your SpouseThough a little tricky, this option provides a lot of tax savings. Being your spouse’s employer you can claim for health reimbursements that cover out-of-pocket medical expenses such as spectacles, co-payments and dental costs with pretax dollars. But under these circumstances payroll tax payments are unavoidable. In order to claim for tax payments under this option, it is imperative to have an employment contract, signed by your wife and a perfect timesheet recording your wife’s working hours. It is very important to keep track of payroll tax payments because payroll mistakes can completely wipe away the tax savings.While these are just some of the many tax saving options available, it is always advisable to seek the guidance of a qualified CPA in order to maximize tax savings.

Your Marriage And The IRS

Sanjiv Gupta CPA - 7 years ago
Whoever said that the marital status does not impact tax rates needs to do a rethinking. Here are the details of how staying married effects the tax process in a big way. It is the duty of the taxpayer to know the rules fully and pay tax the smart way.Filing tax jointly or separatelyThis is an area that needs some analysis by both partners. Filing tax either jointly or separately has its own advantages and disadvantages. It is prudent to weigh both the options and choose the one that is most suitable for the partners. Most of the couples choose the option of filing tax jointly as it saves them lots of hassles. It requires filling up of one single form, and the problem of attaching every deduction, income, tax benefits to each of the partners individually, can be eliminated completely.Filing two separate returns might result in a higher tax payment sometimes and the government benefits for child care, higher education concessions, etc cannot be availed if the bills are separate. It is a lot cheaper to file one single return for both the partners as it makes them eligible for all the potential benefits that they might be entitled to.The major disadvantage of filing a joint tax return is that one partner is liable for any wrongdoing of the other partner. If one of the partners makes an underpayment or is levied any penalty for any wrongdoing either deliberately or negligently than other partner is equally liable for the crime. If the wrongdoing partner escapes or avoids investigation, the other partner has a high chance of being harassed by the judicial authorities and can be made to cough up a high fine at times.In some worse cases, the innocent partner is harassed even after a legal divorce. Hence, a couple should opt for joint filing only if they are mutually confident about one another’s integrity. Separate tax filing, if done, may result in a slightly higher bill; however, it is worth to choose this option than to experience harassment for the wrongdoings of the other partner.Marriage bonus or marriage penalty?In cases of couples who earn fairly equal and handsome incomes, their combined incomes might fall at a higher tax bracket, and the couple may have to pay a slightly higher tax rate than they would have paid individually. However, couples who have a huge difference in incomes can get the marriage bonus due to reduced tax rates on the lower income.Selling an appreciated home after getting marriedOne need not pay any tax up to $250,000 that is gained from selling a property for profit. If both the partners own homes and both sell at a profit, $500,000 can be the limit of tax-free income. However, after marriage or after moving into the same house, if the couples sell their old home, they not only get the $250,000 gain but after some time, also get $500,000 gain as part of the sale of the spouse’s house.

Summertime Child Care Expenses Might Result in Tax Savings

Sanjiv Gupta CPA - 7 years ago
Children lesser than 13 years of age require adult support and care, during their summer vacations. Parents who are working or looking for employment opportunities must enroll their kids at child care centers. These expenses qualify for a tax credit. These tax credits help to minimize the impact created by paying income taxes.Either of the parents must be fully aware of these child care center rules to avail of these tax credits provided by the IRS. The first and foremost condition that needs to be satisfied is that the parent must declare that the child for whom the expenses are incurred in his/ her dependant. The only case where this rule gets an exception is where the parents are divorced or living separately.The child care expenses incurred during the summer vacations and the entire year can be claimed for deductions and qualified for tax credits. However there are certain rules to get this tax credit, and these are explained below:Daycare facility – These are centers where parents pay a certain amount and leave the kids to be cared for until the time they return from work. Parents who are interested to get the tax credit should choose daycare facilities that care for a minimum of 6 kids and those that follow all the regulations of that respective state. Expenses paid to such facilities will qualify for the tax credit.Day camps – A day camp is where the kids are encouraged to engage in diverse fields for an entire day for a fee. The fee paid to the day camps is considered to be child care costs for the dependent child. Hence they qualify for tax credits. However, for the day camp to be recognized as an eligible institution, it should provide camps at least for 6 kids and should follow all the state government norms.Overnight camp or tutoring – Expenses paid for overnight camps or tutoring expenses will not qualify for any tax credit.School expenses – Education expenses will get a tax credit provided it is paid for children below the kindergarten levels. Expenses over and above the kindergarten levels will not qualify under the IRS rules. The child care expenses would still continue to qualify whether it is after the school hours or before the school hours.In-Home care – If the kid’s caretaker is employed at the parent’s home, then the parent should file payroll taxes as the care-taker is considered to be the employee of the parent.Minimum Qualifying expenses – To get the tax credit, the parent can use up to $3000 of the unreimbursed amount of 2012 for one individual or $6000 for two or more qualifying kids.Records required – The parent must furnish complete details of the kid’s social security number, the care provider’s name, address, and the tax identification number. The tax credit will not be allowed for parents who furnish incomplete information as it is very difficult to credit savings without correct information.

IRS Using Tracking To Understand More About The Tax Payers Than Just Their Tax Returns

Sanjiv Gupta CPA - 7 years ago
The Internal Revenue System (IRS) is an organization that is responsible for collecting the taxes of the general public. It holds a highly reputed position and is constantly improving on its techniques to ensure that the taxpayers are loyally paying their taxes every year. However, even if they take immense precautions, cases of tax fraud cannot be avoided. Every year, there always remains a section of people who evade tax and cheat the government in millions.Hence the IRS has come up with the technologically sophisticated tracking tools that help them understand more about the taxpayers than just their tax returns. These tracking tools, keep a check on the digital transactions of the defaulting taxpayer like his eBay transactions, Facebook settings and one of the most recently developed techniques to track the tax payer’s online payment details, his credit card number, and other personal data. This data is essential for the IRS personnel to track down the defaulting customer and make him pay the dues that he is rightfully liable to pay.Big cities like Washington are reeling under losses to the extent of $300 billion dollars caused to the state’s exchequer because of fraudulent people. Hence the IRS has brought in new models like the robot audit and third-party audit to bring these faulty people to justice and make them cough up their shares.  There has been a little apprehension among the people, for these techniques, because the personal details like the bank, card details, etc of the loyal taxpayers are also scrutinized while analyzing the details of the tax evaders. This has not gone down well with the general public, however other than implementing this method; tax evasion cannot be controlled properly.The IRS big data tracking system is an efficient tool for tracking the digital background of the tax evaders. Here the social networking transactions are tracked, electronic payments are monitored and auditing is conducted for those individuals who are regular defaulters. The internet browsing pattern is also tracked here. This tool is used to study the digital and the economic behavior of the individual and around 1 million unique attributes are attached to these individuals. Relationship analysis, statistical and agent-based modeling are employed in this method to know about the defaulter better.The computing power of the IRS is increased in huge proportions. Of the entire storage capacity of the IRS, only 1.5% is used to store tax returns of an entire year. This gives huge amounts of empty storage space which can be used for more productive purposes like tracking the individual and forming a pattern around his transactions.During last year, the behavior and the profiling test study conducted by the tracking mechanism of the IRS helped to identify around 1500 people with past records of tax evasion. These people were tracked down to where they live, were constantly chased upon and around $200 million was recovered from them. This is enough proof to explain the efficiency of the auditing and tracking tools of the IRS.

More States Charging Taxes For iTunes and eBooks

Sanjiv Gupta CPA - 7 years ago
The highly popular category of iTunes and eBooks has just got more expensive. Millions of people use these applications to download music and books of their choices and the decision of nearly 25 states to levy a sales tax on these downloads, has not gone down well with the phenomenal number of loyal end users of these applications. A recent announcement informed that these states were going to charge sales tax for any kind of digital service like downloading music, ebook, selecting ring tone, streaming television shows online, etc.As the digital industry is booming, millions of people have been hooked to the internet for buying their daily needs, books, movies, music, television shows, etc. Some state governments felt that the digital industry was eating up a lot of their state revenue that they would have earned otherwise. This thought led to the idea of levying sales tax for the digital market as well so that the governments would not face any loss in revenue. Minnesota is the latest state to come under the radar for these revised sales tax rules.Sales through eBooks rose to around 41% as compared to last year, digital music increased to around 9% from last year and the total transactions made online rose to a whopping 37% as compared to last year. Hence some states have introduced sales tax on digital products with immediate effect. The nature of transactions that are taxed differs from state to state. For example, some states tax anything that is bought digitally irrespective of the mode of delivery. However, some states levy tax on music that is downloaded, but not on music that is brought from serviced websites like Netflix or Spotify.The tax rates differ according to the states. For example, a $12.99 purchase made from the iTunes website, carries a tax of 4% in Wyoming, 6% in Vermont and 7% in Mississippi. EBooks is another major application that took the digital world by storm by attracting a huge number of visitors every day. On a $9.99 purchase on eBooks store, the tax levied is 7% in New Jersey and 4.7% in Utah.There are certain big cities like New York, which levy sales tax on a download of mobile applications but do not levy any tax on the digital purchases from iTunes. New York levies a tax of 12 cents on a @2.99 purchase of Angry Birds application, however, music download and purchase from the iTunes is free of tax here. Streaming websites like Netflix are also used widely for downloading music. In most of the cities, these do not carry any tax. However, Washington levies a 6.5% tax for a $7.99 monthly subscription of Netflix streaming, while Florida imposes a slightly higher 6.75% tax for the same amount of subscription. A digital seller can impose sales tax only in those states, where the seller owns a store or a warehouse. A recent change in law, the seller can also impose taxes on those states, where he has a minimum of $1m sales a year

The Super Rich’s Offshore Tax Avoidance Strategies

Sanjiv Gupta CPA - 7 years ago
Most of the business tycoons use the trusts or holding companies in a different country to represent a majority of their income, thereby showing very low taxable income in their native countries. This is a strategy that is being employed by quite a few very rich people and the governments of the native and the offshore countries are devising measures to stop this practice completely.Most of the billionaires are using these offshore holding companies and trusts to manage their assets which are worth hundreds of thousands of dollars, hold these assets till any further notice and obscure them if needed. A survey was conducted in 2011 by Tax Justice Network, a UK based organization that fights for transparency in the tax rules and payments. The results of this survey were quite alarming. It was found out that the amount which all the rich people had stacked in their offshore companies were running into $32 trillions.The purpose of these offshore trusts or holding companies is to protect the incomes from the higher tax brackets of the native governments and also to keep a check on the government’s seizure policies.  Bloomberg had analyzed and proved that around 30% of the world’s richest 200 people had assets outside their native countries and these were managed and controlled by the holding companies abroad in an indirect way.The world saw one of the worst financial crises in the year 2008 and that changed the way the tax system in the US operated. Most of the countries re-visited their tax laws and imposed quick and reasonable changes in them so that the taxpayer could not easily manipulate the loopholes of the rule and evade payment of tax.  In the year 2009, Liechtenstein brought out a law that instructed all the financial institutions to release all the details of their accounts across countries, whenever requested.Andorra and Switzerland also got influenced by Liechtenstein and hence they also offered concessions to institutions who give a detailed report of all their customer’s accounts held worldwide in all the branches.  With effect from July 1st, Singapore would also join the race to discourage money hoarding in other countries, by making it a criminal offense. Luxembourg is aiming to gradually bring down these kinds of accounts by the year 2015.Cyprus was the most preferred by most of the Russians to set up offshore holding companies and stack cash in. However, when Cyprus was bogged down in a serious financial crisis in March, the European Union bailed them out upon a condition. The condition was that Cyprus had to introduce a tax on all deposits into its bank that crosses more than 100,000 pounds. This tax component discouraged many wealthy individuals and hence Cyprus saw a huge reduction of deposits to the tune of $2.4 billion in that particular month.These kinds of changes succeed in reducing offshore money hoarding activities to a small extent, however as more and more countries participate in this drive; this tax evasion process can be completely abolished.

Why You Won’t Be Audited?

Sanjiv Gupta CPA - 7 years ago
Last year, the US saw a huge fall in the tax audit rates by 5.3%. This reduces the probability of individuals being audited.  This research was conducted by the Transactional Records Access Clearing system.  This trend is due to the cuts in federal spending.  This process is called sequestration and this is a process that cuts down the employees who are eligible for tax audits so that the fraudulent individuals can be tracked down easily. Kevin Brown, leader of Pricewaterhouse Coopers ‘tax controversy and dispute resolution practice, rightly said that if the number of individuals decreases then it correspondingly decreases the number of audits.The National Treasury Employees Union conducted a survey and it was found out that these cutbacks could impact enforcement actions. The audits usually conduct its audits on days when the works have five to seven unpaid furlough days in the summer. The cuts are also timed in that part of the season, where there is a recruitment freeze which prevents the agency to fill up jobs.  In 2011, the IRS had 7000 full-time employees lesser than what it had during the year 2010. The staffing and other enforcement actions were lesser by 6% last year.The lesser number of individuals to be covered for auditing does not mean that the defaulters can make merry. On the contrary, it is tougher to escape this way because being one among 10,000 people definitely has more visibility than being one among 100,000 people.  The way the audits are being conducted has also changed. Earlier, face to face audits was the fashion. However, this has now been reduced and audits through email correspondence are the order of the day recently.  Audits through emails have increased to almost triple the amount of quantity around 20 years ago.The IRS has effective software systems to track if the income is not reported rightly. Most of the cases of under-reporting of income are tracked through this software by matching the income filed in the form 1099 and other related paperwork, while tax filing. Fewer audits are not necessarily a reason for the defaulters to enjoy. The fewer audits take a longer time to get completed than the frequent speedier audits that were the process some time back.If a defaulter is found to have misreported income or done fraudulent tax filing in the new long audit process, then the interest and the penalty charges that he needs to pay is exorbitant than what the frequent audits charged. This puts the cheaters in a great fix, as in the current scenario, they not only have to pay taxes due for years together but also have pay very high penalty charges of each year’s missed payments.Though the audits on individuals have been reduced drastically in the year 2012, the frequency of the audits on the corporate organizations has not changed according to the recent IRS survey. More than 17% of the organizations were qualified for audit in 2012.

President Obama's Tax Return Shows Lower Earnings

Sanjiv Gupta CPA - 7 years ago
When the tax filing of the First Family of the US was made public it showed that the President, Barack Obama and his wife, Michelle Obama had paid $112,2114 as federal taxes and had an adjusted gross income of $608,611. The taxes paid this year by the First Family were around $42K lesser than what they paid last year and their adjusted gross income last year was $789,674.The main reason for the reduced income in 2012 was attributed to the fact that royalties from the books that the President had written have started falling over the years. “The Audacity of Hope” and “Dreams from my Father” were the two books that sold like hot cakes in the year 2009 and this was the year that Obama earned an all-time high royalty of $5.6 million from two publications. These royalties slowly started coming down the years and it has resulted in lesser earnings and thereby lesser taxes in the year 2012. The royalties were worth only $274,000 in the year 2012.The First Family’s state income tax contribution to the Illinois state during 2012 was around $29,000 and their contribution to charities and other non-profit institutions was 24.6% of their adjusted gross income. The President and his wife contributed to at least 33 different charitable organizations during 2012. Their most recent contribution was worth around $103,000 to the Fisher House Foundation which helps in setting up free residential areas for the families of injured war veterans.Their yearly contributions to charitable organizations like the American Cancer Society, Habitat for Humanity and the National Congress for Black Women continued in 2012 as well.  A $5,000 donation was made to Bruce Laurent’s family. Bruce was killed while serving in the motorcade department for the President during September 2012.  During the time of Bruce’s death, the President was attending a campaign on the Palm West Beach. The years 2011 and 2012 saw a $5,000 donation each to Sidwell Friends School, the elite private school where the President’s daughters Malia and Sasha study.These tax returns of the White House authorities have re-kindled the debate on the amount of taxes that the highly rich people must pay.  The budget that was recently released from Mr. Obama’s office announced high-income tax rates as the only solution to restart the deficit-reduction talks with the Republicans.  The Budget released from the White House also introduces the Buffet rule, which is nothing but a minimum of 30% of federal income tax to be imposed on individuals earning $1 million or more in a year.Mr. Obama has personally endorsed this idea to the US citizens emphasizing the simple concept that higher-income citizens must pay higher income taxes than the middle-class citizens.  This tax rule is named after the capital market baron, Warren Buffet, who was the richest person in the world till some years ago and still continues to figure in the top 10 richest people in the world. He famously said that his tax rates were much lower than his secretary.

New York Times gets so - called “Cadillac Tax” wrong

Sanjiv Gupta CPA - 7 years ago
Healthcare-Now! is an online portal that specializes in the health schemes of the US and helps the people to understand the schemes better and ways to access the same. Recently it clarified a mistake that was done by the New York Times about the coverage and purpose of the Cadillac Tax. Healthcare-Now! explained the right concepts and insisted that the article by the New York Times was clearly misleading to the general public.They insisted that thought the publication was right about the perils of this tax, it had gone wrong about who can use this tax and how the employers are looking out for ways to evade the same.  The tax was incorrectly said to punish the employers who provided high-end health welfare plans to their workers. However, in reality, the tax actually punishes plans that have huge premium charges. ($10,200 for individuals and $27,500 for families).It was also found out that the coverage of the insurance plans had no relation to their premium amounts, which means that plans with high premiums do not necessarily offer wide coverage and plans with low premium do not necessarily offer a small coverage. Recent studies reveal that only 3.7% of the entire premium differences could be related to the difference in coverage. This tax would not give any impact for people, who already have a good coverage, but this could affect older patients who might be required to pay up to three times the premium amounts of what the younger patients pay and it could also mean more premiums to pay for people who live in states that have expensive health care.The Times had explained that this tax would encourage employers to lower their employees’ premium costs through various health and wellness centers to monitor the employees’ health. However, lots of research was done on this subject lately and it was found out these health centers only act as a tool through which the employers transfer costs onto workers with lifelong illnesses. These employees are either exorbitant rates of premium or their benefits are withheld.Healthcare-Now insists that a single-payer tax system is a better way to reduce healthcare costs as it would take off the burden of huge costs from the employer’s shoulders and ensures that all employees get reasonable coverage for their premiums. A publication as reputed as the New York Times should act more socially responsible and stop publishing wrong information about the Cadillac Tax as millions of people get misled due to this.Hence, this portal requests and encourages the readers to submit a short 150-page letter to the editor of the New York Times explaining about any recent article and requesting them to change their stand on the Cadillac Tax. People who are interested and write to the editor must mention their names, addresses and phone numbers so that it is easy for tracing. A huge collective effort like this would surely stop people from misinterpreting the properties of the Cadillac tax.

Interest Is Taxable But Often Overlooked

Sanjiv Gupta CPA - 6 years ago
Any interest that the taxpayer receives directly, or through credit in his account and is of the nature that it can be withdrawn at a future date without attracting any penalty or interest, is termed as taxable income. Bank interest rates, money market accounts, certificates of deposit, deposited insurance dividends, etc, are few examples of taxable interest income.The interest on Series EEE and the series IUS bonds saving bonds are usually classified as tax-deferred bonds as tax need not be paid on these unless it matures and starts generating income. Interest from such bonds, which have been issued after the year 1989, is not taxable if it is generated to fund higher education expenses for that particular year. Form 815 explains the interest that needs to be excluded from redeemed US Savings bond whereas form 1040A, 1040 or Schedule B talks about excludable interest from the Series EEE bonds issued after 1989.Dividends are actually interests on deposits or accounts with banks, credit unions, stocks held in the capital market, domestic building and loan associations, mutual savings banks, etc. The interest payer sends the Copy B of Form 1099- NT to the receiver, who in turn all the necessary paperwork to claim deductions for interest received. The Publication 550 or Publication 1212 gives more details about bonds or debt instruments that were originally offered at a discount. This explains that a part of the original discount must be included every year as interest charges.Some interest incomes qualify for the federal income tax but are exempted from the state and local income taxes. These incomes include interest from Treasury Bills, notes and bonds. Interest income on some bonds that are used for financing government operations, or that are issued by the state government or by the District of Columbia or a US possession does not qualify even for the federal income tax. It is the duty of the taxpayer to duly submit all the interest details that are exempted from tax while filing tax returns. This is because the details submitted to the IRS should be complete and accurate. This is only for the records of the IRS and they would not charge any tax on this amount.A nominee who receives the interest on behalf of the actual recipient should inform the IRS of the same and also furnish all these details to the actual recipient or recipients. The interest amount received by the nominee should be shown as a subtotal of all interest revenues listed under Schedule B of Form 1040 or Form 1040A. The nominee must fill-up the Form 1099-INT for the interest portion and hand over the copy B to the actual recipient.If one receives interest income that qualifies for tax payment, then the same should be done by the receiver on time so that no interest charges or penalties are charged on them. The receiver of the interest should furnish accurate details about his social security number to the interest payer.
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