Tag: Tax Rules


Who Can You Cliam On Your Tax Return ?

Sanjiv Gupta CPA - 8 years ago
How much taxes you pay largely depends upon how much you earn.  However, it is equally dependent upon how much you can deduct to lower your taxable income. Even though the deduction taken by each individual is different, some tax rules affect every person.  Rules including dependent deductions and exemptions apply to all of us.According to the Internal Revenue Services, there are six important facts about dependents and exemptions that will help you file your 2011 tax return.Exemptions:  There are two types of exemptions: personal exemptions and exemptions for dependents. For the year 2011, you can claim a $3,700 exemption for each dependent including yourself.Your spouse is not your dependent, At least not on your Tax Return.  If you are filing jointly, you can claim one exemption for yourself and one for your spouse. However, If you’re filing a separate return, you may only claim the exemption for your spouse if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.Dependent Exemptions. As stated earlier you can take a $3700 exemption for your dependents. However, you need to make sure dependent is qualified as per the IRS guidelines. IRS defines the dependent is your qualifying child or qualifying relative.  You can learn more about Dependent Qualification by visiting IRS Dependent Tax Tutorial.If someone else claims you as a dependent, you may still be required to file your own tax return.  Some taxpayers do not file the tax return just because they were claimed as dependent by their parents of someone else.   Filing a tax return is based upon many factors including the amount of your unearned, earned or gross income, your marital status and any special taxes you owe. If you are a dependent, you may not claim an exemption.  Exemption of each person can be only claimed once.  If someone else—such as your guardian or parent—claims you as a dependent, you may not claim your personal exemption on your own tax return.Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year.Exemptions are Deductions that can help you reduce your tax liability but you must do your homework.  Incorrectly claimed exemptions may result in higher taxes and huge penalties.  Fraudulently claimed exemptions and deductions can also result in criminal charges.

Free Resources For Tax Preparation

Sanjiv Gupta CPA - 8 years ago
With so many tax rules changes, you may find it very hard to do your taxes online or yourself.  I would like to point out some of the free resources available to help you with your taxes.Let’s start with California Tax Service Center, which has forms and information on important dates, credits & deductions, payment options and how to file your taxes online. The center is sponsored by the California Fed State Partnership, which includes the Board of Equalization, Employment Development Department, Franchise Tax Board, and Internal Revenue Service.You can also find similar information on our website by visiting sanjivcpa.com.I have also notice that many people are concerned about 1099 they are receiving for mortgage forgiveness.  Similarly, low-income folks are curious to know about the earned income tax credit.Here is an easy way for you to see if you qualify for these benefits.Mortgage Forgiveness Debt Relief. Under Senate Bill 401, a law authored by Senator Wolk in 2010, taxpayers can exclude up to $500,000 in income from mortgage debt forgiveness resulting from a short sale or loan modification on a recourse loan. SB 401 applies retroactively to the 2009 tax year and through 2012.The Earned Income Tax Credit (EITC) is a refundable federal income tax credit that helps low to moderate-income working individuals and families keep more of what they earn. Those earning under $49,078 should see if they qualify for an EITC refund by going online to http://www.irs.gov/eitc, or by contacting a local volunteer assistance site.The Office of Sanjiv Gupta can also answer your questions regarding your personal situation. Feel free to give us a call at 510-825-7563.   We are the only month and a half away from tax time and appointments are filling fast.   Get your appointment set up today.

900,000 Did Not file a 2010 State Income Tax Return

Sanjiv Gupta CPA - 8 years ago
The Franchise Tax Board (FTB) recently announced that it is contacting more than 900,000 people who did not file a 2010 state income tax return.  FTB collects information about taxpayers by using more than 400 million income records.  Tax Board gets information about non-filers from third parties such as banks, employers, IRS, state departments, and other sources.Moreover, FTB compiles information from occupational licenses and mortgage interest payments.  Using such information allows FTB to contact those who earned the income in the State of California but did not file the tax return.According to a recent post on the FTB website, last year, FTB collected more than $574 million through these efforts.Once FTB contacts a taxpayer, Individuals have 30 days to file their State Tax Return or show why they are not required to file.  If the required return is not filled, FTB makes a tax assessment based upon the information it has collected.  In addition to tax assessment, taxpayer is also billed an interest, fees, and penalties of up to 50% of the tax due. What to do if you receive such notice and/or have not filed the tax return?You can respond to the letter by visiting FTB Website here.  You simply enter the Notice Number and respond to the request.  You should be very careful in response as anything you write or tell to FTB becomes evidence and stays on their records. Therefore, It is highly recommended that you consult with your CPA or Tax Attorney to address the issue immediately.   Not responding to the letter will simply escalate the issue and increase the penalties.  Tax professionals experienced in dealing with IRS and FTB can quickly identify the problem and take corrective actions.Our office can also help you with all kinds of audits include filing previous year tax returns.   We can sit down with you to learn about the problem and come with a game plan to reduce the tax liability.

Facts to Know About 2012 Tax Changes

Sanjiv Gupta CPA - 8 years ago
The wish of one and many is that this New Year will bring happiness and changes for a better future. Changes will definitely take place and these will set apart 2012 from the last year. Everyone wants to see substantial changes in their financial on-goings and hopes for a prosperous year. Talking in the context of financial origins, tax plays an important role. In one way it is the source of revenue for the government and in the other, it is a reason for panic and stress for taxpayers who have to let go of a substantial amount of their income when they submit their tax returns. One must take proper notice of the changes that the IRS has promised to bring into effect this year. Being aware of tax payment conditions will save you from paying penalty or a heavy fine and also you can avoid being audited. Know About the Changes:1. The first change that needs everybody’s attention is that the final date for tax submission has been postponed to April 17 rather than on the earlier date of April 16 due to the Emancipation Day holiday in DC. The deadline is applicable to all including tax submissions, tax payments, and IRA contributions.2. The second change is set to relieve tax-pressure on the “not-so affluent”; which in a way is good. From this year onwards the wealthy and affluent have to pay more taxes. For people who earn $200000 to I million dollars annually, the IRS has increased the audit rate. The limit for persons earning $200000 has been kept at 4% and for the 1 million dollar earners the limit has been fixed up to 12.5%. Considering the past records, this rise is tax-paying terms is a notable one.3. The biggest change that has been noted in areas of tax return is the power and jurisdiction of Schedule B, well from this year it has been expanded. Now, it can question about foreign investments. This has bestowed full power to the IRS to crosscheck taxpayers against FBAR filers. In case someone possesses foreign money something more than $10000 reserved in the form of bank accounts, brokerage, mutual funds, and trusts he must submit a form called TD F 90-22.1 Report of Foreign Bank and Financial Accounts or FBAR. This form should be properly submitted by June 30 failing which will attract a fine of $10000.4. Regarding those who have invested in stocks and shares need to be fully aware of the following notifications: the existing Schedule D is no longer in use as it has been replaced with Form 8949. The new system requires detailed information on capital gains and losses to be produced by the tax filer. For the detail information, Schedule D can be consulted.5. The last vital change is the mileage rate for 2012, which will fall into place from Ist July and the task of detailed checking, verification, and scrutiny will be undertaken by IRS personnel. Their scrutiny will take into consideration returns that claimed half of their mileage pre-July and half part post-July.

Understanding Notices From IRS

Sanjiv Gupta CPA - 8 years ago
Here you can learn more about the tax notices from Internal Revenue Services (IRS).  On the left side, you can see the notice number and you can find the description of the notice on right.   You can also contact our office to learn more about the notice you may receive.  We recommend you make an appointment and bring your notice along with any other records that you may have. Notice NumberDescriptionTopicCP02HYou owe a balance due as a result of amending your tax return to show receipt of a grant received as a result of Hurricane Katrina, Rita or Wilma.Balance DueCP03AYou received a tax credit (called the First-Time Homebuyer Credit) for a home you purchased. This notice informs you of how to repay it.CP03BYou received a tax credit (called the First-Time Homebuyer Credit) for a home you purchased. This notice informs you that you don’t have to repay the credit as long as the home remains your main home for at least three years after you purchase it. It also explains situations where a home stops being the main home.CP08You may qualify for the Additional Child Tax Credit and be entitled to some additional money.Additional Child Tax CreditCP10We made a change(s) to your return because we believe there’s a miscalculation. This change(s) affected the estimated tax payment you wanted to be applied to your taxes for next year.Change To Your Estimated Tax Credit AmountCP10AWe made a change(s) to your return because we believe there’s a miscalculation involving your Earned Income Credit. This change(s) affected the estimated tax payment you wanted to be applied to your taxes for next year.Change To Your Estimated Tax Credit AmountCP11We made changes to your return because we believe there’s a miscalculation. You owe money on your taxes as a result of these changes.Balance DueCP11AWe made changes to your return because we believe there’s a miscalculation involving your Earned Income Credit. You owe money on your taxes as a result of these changes.Balance DueCP11MWe made changes to your return involving the Making Work Pay and Government Retiree Credit. You owe money on your taxes as a result of these changes.Balance DueCP21AWe made the change(s) you requested for your tax return for the tax year specified on the notice. You owe money on your taxes as a result of the change(s).Balance DueCP21BWe made the change(s) you requested for your tax return for the tax year specified on the notice. You should receive your refund within 2-3 weeks of your notice.RefundCP21CWe made the change(s) you requested for your tax return for the tax year specified on the notice. You’re not due a refund nor do you owe any additional amount. Your account balance for this tax form and tax year is zero.Even BalanceCP21EAs a result of your recent audit, we made changes to your tax return for the tax year specified on the notice. You owe money on your taxes as a result of these changes.Balance DueCP21IWe made changes to your tax return for the tax year specified on the notice for Individual Retirement Arrangement (IRA) taxes. You owe money on your taxes as a result of these changes.Balance DueCP22AWe made the change(s) you requested for your tax return for the tax year specified on the notice. You owe money on your taxes as a result of the change(s).Balance DueCP22EAs a result of your recent audit, we made changes to your tax return for the tax year specified on the notice. You owe money on your taxes as a result of these changes.Balance DueCP22IWe made changes to your tax return for the tax year specified on the notice for Individual Retirement Arrangement (IRA) taxes. You owe money on your taxes as a result of these changes.Balance DueCP31Your refund check was returned to us, so you need to update your address.RefundCP45We were unable to apply your overpayment to your estimated tax as you requested.OverpaymentCP53We can’t provide your refund through direct deposit, so we’re sending you a refund check by mail.Direct DepositsCP120You need to send us documentation of your tax-exempt status.Tax ExemptionsCP130Your tax return filing requirements may have changed: You may no longer need to pay the Alternative Minimum Tax.Filing RequirementsCP139Your tax return filing requirements may have changed: You may no longer need to file Form 941 and Form 940.Filing RequirementsCP152We have received your return.Confirmation of Return ReceiptCP153We can’t provide you with your refund through a direct deposit, so we’re sending you a refund check/credit payment by mail.RefundCP166We were unable to process your monthly payment because there were insufficient funds in your bank account.Payment ProcessCP178Your tax return filing requirements may have changed: You may no longer owe excise tax.Filing RequirementsCP231Your refund or credit payment was returned to us and we need you to update your current address.Address Update NeededCP276AWe didn’t receive a correctly completed tax liability schedule. We normally charge a Federal Tax Deposit (FTD) penalty when this happens. We decided not to do so this time.FTD PenaltyCP276BWe didn’t receive the correct amount of tax deposits. We normally charge a Federal Tax Deposit penalty when this happens. We decided not to do so this time.FTD PenaltyOther Notices and LettersNotice or Letter NumberTitleCP 12Changes to Tax Return, OverpaymentCP 14Balance DueCP 23Estimated Tax Discrepancy, Balance DueCP 49Overpaid Tax Applied to Other Taxes You OweCP 57Notice of Insufficient FundsCP 88Delinquent Return Refund HoldCP 90/CP 297Final Notice – Notice of Intent to Levy and Notice of Your Right to a HearingCP 297ANotice of Levy and Notice of Your Right to a HearingCP 91/CP 298Final Notice Before Levy on Social Security BenefitsCP 161Request for Payment or Notice of Unpaid Balance, Balance DueCP 501Reminder Notice – Balance DueCP 503Second Request Notice – Balance DueCP 504Final Notice – Balance DueCP 521Installment Agreement Reminder NoticeCP 523Notice of Default on Installment AgreementCP 2000Notice of Proposed Adjustment for Underpayment/OverpaymentLetter 0484CCollection Information Statement Requested (Form 433F/433D); Inability to Pay/TransferLetter 0549CBalance Due on Account is PaidLetter 668D(LP 68)We released the taxpayer’s levy.Letter 0681CProposal to Pay AcceptedLetter 0757CInstallment Privilege TerminatedLetter 1058 (LT 11)Final Notice prior to levy; your right to a hearingLetter 1615 (LT 18)Mail us your overdue tax returns.Letter 1731 (LP 64)Please help us locate a taxpayer.Letter 1737 (LT 27)Please complete and site Form 433F, Collection Information Statement.Letter 1961CInstallment Agreement for Direct Debit 433-GLetter 1962CInstallment Agreement Reply to TaxpayerLetter 2050 (LT 16)Please call us about your overdue taxes or tax return.Letter 2257CBalance Due Total to TaxpayerLetter 2271CInstallment Agreement for Direct Debit RevisionsLetter 2272CInstallment Agreement Cannot Be ConsideredLetter 2273CInstallment Agreement Accepted: Terms ExplainedLetter 2318CInstallment Agreement: Payroll Deduction (F2159) IncompleteLetter 2357CAbatement of Penalties and InterestLetter 2603CInstallment Agreement Accepted – Notice of Federal Tax Lien Will be FiledLetter 2604CPre-assessed Installment AgreementLetter 2761CRequest for Combat Zone Service DatesLetter 2789CTaxpayer Response to Reminder of Balance DueLetter 2840CCC IAPND Installment Agreement ConfirmationLetter 3030CBalance Due Explained: Tax/Interest Not PaidLetter 3127CRevision to Installment AgreementLetter 3217CInstallment Agreement Accepted: Terms ExplainedLetter 3228 (LT 39)Reminder notice.Letter 4903 (LT 26)We have no record of receiving your tax returns.Letter LP 47Address Information RequestLetter LP 59Please contact us about the taxpayer levy.

What You Must Know About 2012 Tax Challenges

Sanjiv Gupta CPA - 8 years ago
What You Must Know About 2012 Tax Challenges2012 presidential election summons the close of all tax benefits introduced by George Bush. This would usher in an unavoidable clash because of the new tax rules, many deductions, and unchanged tax rates.It is indeed tough to prepare a perfect tax return sheet amidst changing rules and implementation of stringent penalties. Therefore in this article, we are to take a look at how to tackle the most common filing challengesNewly implemented Capital profit rulesWorried about how to calculate taxes on your invested income this year? Heres the key rule: bought stocks after Jan 1, 2011, then you are not eligible to count your cost basis or the tax-exempt investment amount. Your broker will help you calculate the amount as per your preferred method. Most brokers send notice of FIFO; First-in and First-out which reports your selling off older shares. Before filing or tax return analyze 1099 and ask your broker to mend all errors. Talking about 1099, Roman Ciosek, a wealth management assistant at HighTower’s Strata is advising customers to slow down in their tax filing process. According to Ciosek, there will be a number of amendments on the 1099s. However, if you have sold your earlier shares whether willingly or because your broker advised you then you cannot alter your cost-basis.$1billion in unclaimed tax refundsApart from what is discussed above, everything more or less remains in place. You can jolly well counterbalance your gains with losses. While doing so first take into account the long term (considered over a year) profits on assets that incurred tax at or over 15% and balance them with your long term losses; then balance short term gains taxed as minimum income with short term losses. Having calculated the long term accounts and the short term income separately, now you are required to match your long term records to the short term report.  If your loss margin is high considering deducting a little near to $3000 from your income. This way you will be able to manage all taxable amount the next year as well.How to plan: when you proceed with tax filing you can choose to toggle between accounting ways. Your common options are “last-in”, “first-out” & “Specific share identification”.Before using FIFO it is a better idea to select particular stocks/shares that you want to sell. This is more appropriate when you have pitched in at over-time stock selling program and have derived your biggest profit out of the initial batch. On the other hand, if you have a great many capital losses with which you can counterbalance your capital profits then 2012 is a good year to enjoy a good number of tax benefits.This calculation will be the same when accounting for mutual funds, dividend reinvestment plans, exchange-traded funds, and 2013 bonds. If you haven’t received any mails yet from your broker’s company, then wait till you get your options to choose a particular method of calculating your tax amount. Don’t treat the paperwork casually.Retirement plansFiling challenge: If you have plans to finance Roth IRA for 2011, then better have it done before April 17, 2012. IRA is a tax-deductible scheme that will provide you a tax concession on your investment but will calculate taxes on withdrawal of money from this traditional plan. Roth requires you/other liable people to pay upfront taxes. This is one reason why Roth is considered a good investment idea for the long-term by most tax-payers.The changes were introduced in 2010 that everyone could convert their IRA to Roth irrespective of income group. This is indeed facilitating unless you have an exorbitant tax bill. However to calculate tax-return for 2012 you have to abide by the conversions introduced in 2011.IRS warns of ‘dirty dozen’ tax scamsTo tide over your 2010 tax payments if it took you two years then you are required to clear all due amounts this filing season 2012. The time is ticking already and you have only until the filing day to undo 2011 alterations.How to plan: open or reinvest in IRA for 2012 and also transfer an existing IRA into Roth. Such conversion will help you trim down a higher tax rate during your retirement days (than what you have to pay now). For those that were planning to go ahead with conversion plans, this is the right time to take the call. If the conversion is done before the Bush tax laws expire then you won’t be required to pay more than 35% on the upturn, which by the year-end can go up much higher than what is anticipated.Home selling: Not a very good ideaFiling challenge: If you are happy to have earned much after selling off your house then wait, your profit might as well come under taxable charges. For single home sellers, anything above $250,000 will be taxable. For married couples, the same rule applies to a marginal amount of $500,000.Wondering what happens if you sell your house at an under-rated price? You will be considered unlucky, simply because you can’t file for tax-return on the initial amount/cost of your residence. However, if you lent your house out on a mortgage and the contract period was cut short by reconstruction/ restoration purpose then you might as well get a tax break. Such deals are also applicable to conditions such as a short-notice sale or when losing your home to foreclosure. This type of tax-breaks means liberation from paying due debts.Should you buy a home in 2012?How to plan: This tax-break plan closes this year 2012. So in case you want a tax break, then better not waste time.Education tax cutsFiling challenge: the American government though has been lenient with educational grants; however some important scholarships scheme as tax-cut loans. Sorting these educational tax cuts is difficult. Some of the variety of schemes is the lifetime learning credit taxable over $2,000 per return, the American opportunity credit tax-free till $2,500 per undergraduate student, the tuition and fees deduction $4,000 max for a single student per family. However, you can only file one application for the education tax cut per year.Get help to solve your tax doubtsAccording to Justine Ransome, a national tax officer at Grant Thornton the American opportunity credit is the biggest money saver scheme. Taxes are sorted as per income brackets/slabs; but American Opportunity Credit provides the highest tax-cut, $180,000 for married couples and half the amount for singles.How to plan: Bad luck the American opportunity credit expires this year but well you will have various simpler choices the following year.Health care write-offsFiling challenge: health care costs will be deductible at higher rates. This means that you can file for only those that surpass 7.5% of your Adjusted Gross Income. But it seems likely that increasing medical costs can wrap the matter neat and tidy. Allison Shipley, PricewaterhouseCoopers’ principal of personal financial services opines that if a person’s income is drastically reduced and the medical expenses increase on the other hand, then the individual can produce all medical expense bills and enjoy tax-cuts.It’s saving time:Heres what the tax-cut expenses include: general physician and dentist’s bills, doctor's prescription, medications, specs, hearing kits, wheel-chairs, patient’s transportation, consultation fees, caregiver charges, and a few insurance costs.

2012 and 2013 Tax Tips

Sanjiv Gupta CPA - 9 years ago
Considering the uncertain global conditions and economic downturn, federal tax rules in the US have not been formulated beyond the year 2012. In this context, it has become very difficult to prepare a final layout for estate and gift tax. In the face of such a situation, some important tax tips have been discussed below, which can efficiently help plan income tax propositions.In the first case, it is suggested that income should be deferred to the subsequent year, secondly, tax deductions should be enjoyed and last of all if there is any such tax provision that has expired, it must be taken into account. In the following passage, we have discussed the federal tax rules, which have been implemented by the U.S. government in the year 2012 and the proposals, which have found a place in the 2013 US budget.Transfer tax rules in effect for the year 2012The transfer tax rules, which have been put into effect for the year 2012, are as follows:1. In the event of a person’s death in 2012, an exemption limit of $5,120,000 has been set which is a revised and adjusted figure compared to the one that had been fixed in 2011. Other than the exemption limit, the landed properties will be taxed at a 35% rate.2. A tax enactment plan for married couples implies that if in the event of the death of one spouse the other person can utilize the unused portion of the dead partner’s deduced amount. Such a provision is called portability and this will remain in operation only for the year 2012. To get the fullest advantage of portability or deceased spousal unused exclusion amount, as it is technically known as there is the need to produce federal estate tax return of the dead partner’s estate. It does not matter even if the gross value of the estate is marked below $5,120,000 because whatever the case may be the estate tax return of the deceased person’s estate has to be filed.3. There are other spheres, which are subjected to the same amount of exemption limit and are known as lifetime gift tax and generation-skipping transfer tax. The exemption amount stands at $5,120,000 and like in the first two cases and the taxable amount for the lifetime and generation-skipping transfers remains the same at a flat 35% tax rate.4. The deductible amount remains the same at $5,120,000, which is applicable for lifetime gift tax. Like in the earlier cases, a 35% tax rate has been decided for all taxable gifts over the exemption amount. On a whole, the gift tax and the estate tax have been brought under a single section.New tax proposals indicated by President Obama in the 2013 budget If the tax proposals, planned for the 2013 US budget are finally implemented and brought into effect then there will be notable changes in estate tax payments, generation-skipping transfer, and gift taxes.1. Talking about exemption limit the new exemption amounts that have been fixed for estate and generation-skipping transfer tax are kept at $3.5 million and $1 million respectively.2. The new taxable amount has been increased from the earlier 35% to a new flat 45% tax rate.3. Coming to the section, which talks about the provision of portability where the earlier facility that allowed a surviving spouse to utilize a deceased partner’s unused exempted amount, has been made permanent.4. Valuation discounts have also been talked about in the 2013 budget plan. In the present scenario due to the absence of good control and proper marketing techniques, the interests of business organizations suffer heavily. However, according to the 2013 plan module, the value of interests will only be discounted in the case of family businesses.5. Grantor retained annuity trusts will face several changes as per 2013 tax rules. Going by the present condition laid down in the rule book, a person can save that extra money which he has to shell out for paying transfer tax costs by using grantor retained annuity trust. Two different conditions have been mentioned in the 2013 budget plan, which will bring the earlier provision of zeroing out the gift in the trusts to a permanent stop.Some other significant changes that have been noted in the tax evaluation rules applicable for grantor trust are that unlike before landed property owned by the grantor trusts will be included at the time of evaluating the grantor’s total estate under his possession. In addition, all kinds of distributions that will be made in the lifetime of the grantor will be indicated as gift tax.

President Obama and Taxes Next Year

Sanjiv Gupta CPA - 8 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.

2012 Year End Tax Implications

Sanjiv Gupta CPA - 8 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 - 8 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.

IRS Response to Identity Theft Lawsuits

Sanjiv Gupta CPA - 8 years ago
Like any government office that deals with refunds, the norm has been that those seeking refunds are given the run around until such a moment that they give up. In fact, for years those seeking refunds especially after suffering from identity theft normally end spending more on the follow-up process than the amount that they actually stand to gain from the refund. That has been the IRS and its way of dealing with the identity theft tax refunds that they are required to give. Until the other day when they were sued for the costs of the refund, little had changed at the IRS. However, right now the tide seems to be turning in favor of those looking for their refunds after suffering from identity theft. The IRS seems to have adopted a new policy in which these cases are expedited and solved within a reasonable time. A few of the people we contacted have pointed out the fact that the IRS seems to be more willing to settle the tax issues that they have been facing for a while now. Some people in this category have tax refunds that go as far back as the year 2007.The main question that seems to bug pundits and observers in tax issues is what exactly has changed the tide of things at the IRS? Well, a look at the bulk of the cases now being expedited seems to show a trend in which the IRS is responding to suits from the courts of law. A large number of the people being assisted by the IRS to get their refunds to seem to have at one point sued the IRS for these amounts. As such, it can easily be pointed out that this appears to be the jolting card that changed the tide at the IRS.Do you have to sue them to get your to refund? Bluntly speaking NO; you are not required to sue the IRS before you can be assisted to get your tax refund after a period of identity theft. At least, in theory, this is the law of the land. Those seeking refunds only have to provide the proper documentation and the refunds would be submitted to their accounts of choice within the scheduled time. However, the reality on the ground is a whole different matter. Most of the people who simply fill in the requisite forms and submit them often have to wait for long before such applications are taken care of. Some of them have to make a number of follow-ups before they can be attended to. In some cases, the applicants have resorted to using the court system in order to assure themselves of quick response and in essence, justice for themselves. This option, those in most cases spared for extreme cases, was taken by 16 plaintiffs recently ad of the 16, at least 3 have already received their refunds. A few other refunds were still being processes to be delivered before mid-December.

Taxation In Greece | What We Need To Know.

Sanjiv Gupta CPA - 8 years ago
Greece is the home of civilization as we know it; at least it is among the few countries in the world that were civilized way earlier than the rest. For a long time, Greece was the poster child for European success, a country that had been able to maintain its impact around the world for quite a long time. However, the recession hit Greece the hardest and it is one of the countries that have been unable to recover fully from the effects of the recession. In fact, the countries within the eurozone have been running all over themselves trying to save the Greek economy from falling into ruins. There have been a number of bailout options that have been put on the table as well as a variety of austerity measures that have been instituted to keep the country in the Eurozone. However, not everyone in the region is happy about the measures that have been taken. With the country witnessing at times violent protests, it is easy to conclude that the government in Greece is under extreme pressure to deliver changes that would not only resonate with locals of the country but also the countries that are actively involved in bailing the country out.Among these measures that have been put in place include the use of taxation as an austerity measure. It is under this option that new taxation measures have been tabled in the Greek parliament of late. The taxation measures are expected to affect corporate citizens, those that have been employed by the different institutions as well as those who have employed themselves. To start with, this bill raises corporation tax from the normal 6% to a massive 26%. On the other hand, the tax that these companies pay on the distributed dividends has been reduced by 15% from 25% to 10%. The bill also proposes that capital gains received from transactions in the stock exchange be taxed at the rate of 20%. In addition, rental income has been placed under the taxation base at 10% for income below 12,000 Euros and 33% for income above this amount. Farmers can also expect that the tax breaks that they have been receiving will be stopped.From the outlook of this bill, you can tell that it is expected the financial impact it will have on the local citizen will not be positive. However, the result that is expected from here to the government is positive. Providing the government with the ability to finance some of its expenses and projects, thereby slowly get out of the ditch that it has fallen into. The negative reception that the austerity measures have received over the last year can only show you how much is expected of the Greeks. In November this year, Greek passed its 2013 budget as part of the EUR13.5 billion two-year austerity and the reform package seeks to reduce its deficit from a massive 6.6% of the GDP to 4.2%. The achievement of this target will affect public sector wages, pensions and welfare benefits as well as spending on defense, the health sector, and education.

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.

Tax Rules for Hobbies and Businesses

Sanjiv Gupta CPA - 7 years ago
If you are a regular taxpayer probably you would beware of the fact that taxpayers treat hobbies and businesses in a different way. For starters, this article tries to explain how both of them are different from the perspective of tax payments.Let us consider two examples to understand this case better.Example 1: Assume that a particular individual is an Assistant track coach at a University, athletic coach for Nike and is associated with a lot of other coaching events related to tracking and field events. The individual is also into private coaching activities that help the individual earn money. Over the past decade, the individual has incurred huge losses. So according to Section 183 of the IRC, if the individual’s income is more than the deductibles, then it is taxable. Else the activity is considered a hobby and is exempt from tax though it is considered a ‘for profit’ activity. Some of the factors that weighed in favor of the individual were that his income was less than the deductibles and also the individual had devoted a large portion of his personal time to the activity which affected the individual’s marriage and life.Example 2: In this case, let us assume that the individual has been a very successful salesperson professionally and operated a sprint car racing activity as a hobby. The individual had a passion for racing activities and was actively involved in racing for various groups in the early days of his career. Finally, after racing for a few years, the individual purchased his own racing equipment which included a fleet of cars, a full-sized semi-trailer and a shop that was taken on lease. Recently when an audit was conducted, the individual claimed that he had incurred continuous losses for over a decade and hence could not pay taxes. The tax court, taking into account the maturity level of the activity and the sustained losses incurred by the individual ruled in favor of the individual. The court placed particular emphasis on the fact that that taxpayer indulged in the racing as a hobby and did not have an honest objective or goal to make profits through the activity. This is a classic ruling wherein the tax court clearly differentiated between a business and a hobby based on the intent and the profit motive of the individual.For taxpayers, it is essential to know the difference between a business and a hobby as the tax implications may vary depending on the context. Anything to do with a profit motive and where the income is more than the deductibles, the case gets slotted under a business rather than a hobby because there is money incurred as profit by the individual. A hobby is something that is purely pursued out of passion with no regard to profit and loss.If you are still confused, you could take the help of qualified CPAs to understand the context and the tax liability owed to IRS. It is always better to get things sorted out earlier than to struggle through after an audit by the IRS.

Tax Rules for Independent Contractors

Sanjiv Gupta CPA - 7 years ago
Are you clear about your employment status – whether you are an employee or an Independent Contractor (IC)? If you are not sure, then it is good that you check the IRS website to understand tax implications on these employment categories.It is the duty of every citizen to pay taxes regularly no matter what the tax liability amount is. Of late, the IRS has been conducting a lot of scrutiny on Independent Contractors because it has been noted that in certain circumstances, employers are evading employment tax by classifying their employees as Independent Contractors.Let us discuss more Independent Contractors, in the context of dental practices, to gain a better understanding of the employment classification mechanism. Independent Contractors are people who are self-employed. They are specialists in their area, own their own dental practice, perform their work duties from their premises, bring and purchase their work materials and supplies, work at their will, pay for their own staff, in case they employ people to work for them, and ultimately control the quality of their work or output that is to be delivered. Broadly speaking the ICs maintain a contract with the entity and not with the person providing the service. Hence, it is a contract between two entities. There is strictly no employer-employee relationship in this context.An employee is one work for an owner, perform services as mandated by the owner, work during the hours fixed by the owner, adhere to output quality set by the owner, use the equipment and supplies of the owner to provide the designated service and ultimately is supervised by the owner throughout the job duration. A dental associate is a classic example of this category. An associate works for a specialist or an independent contractor and draws a monthly salary for offering services. There is a clear employer-employee relationship in this context.Misrepresenting or misclassifying employees as ICs either intentionally or by ignorance is a serious offense and is punishable by law. IRS heavily penalizes owners who adopt such practices to evade taxes. Consequences for an owner who misclassifies employees are:Scrutiny of the employer’s social security and Medicare tax liabilityScrutiny of Federal unemployment tax paidPenalties an interest in general and specifically on any employee benefit plansThere are a number of cases that fall under this category of misrepresentation. If the IRS detects the case to be an abuse of classification the owner could face grave consequences. On such example is the case of a stockbroker. All the stockbrokers of this small firm were where treated as independent contractors by the owner of the firm. When the IRS audited this brokerage firm, all the brokers had to prove that they were paying self-employment taxes and also had to provide a copy of their returns to ascertain that they were reporting their income accurately. Ultimately the brokerage firm was penalized hundreds of thousands of dollars on back payroll taxes and interest.Since the results of an IRS audit could be grave, in case of malpractice or abuse of employee classification, it is best for businesses in their own interest to be transparent and straight forward in cases related to employee classification.

Apple Tax Conspiracy Explained

Sanjiv Gupta CPA - 7 years ago
There was a huge uproar among the US Senators that the IT major Apple has been evading billions of tax payment by using loopholes and gimmicks to escape from the tax rules. Apple was accused of cheating the US taxpayers of huge amounts of revenue.Apple was said to have smartly used the rules correctly and escaped from trillions of tax payment. Tim Cook, the CEO of Apple as questioned for hours together and the media saw a top story in this. Cook was in the limelight for all the wrong reasons. The US senators conveniently forgot the efficient way in which Cook took over from the great Steve Jobs when the latter died suddenly of pancreatic cancer. All that was spoken about Cook was that he scandalized the tax system by escaping from the rules.However, every coin has two sides. The same applies to the tax scenario at Apple too. It is always good to have a neutral side and view things and take the decision, then viewing things judgmentally. The US Senator, Rand Paul had the court at a loss of words, when he argued that the senators who argued against Apple also took efforts to minimize their own taxes.Paul, in fact, insisted that anybody would try whatever it takes, to ensure that only minimum taxes are paid and that Apple was no exception to the rule. Another factor that went in favor of Apple was the huge contribution it made to the Internal Revenue System in terms of corporate income tax, payroll taxes and the taxable income paid to its employees.However, the real cheat is not Apple, but the whole concept of corporate income tax itself. This is one of the worst types of taxes in the US and allows many loopholes for any company to manipulate and get out of the tax burden easily. There is no scientific design employed in the structure of the corporate tax.For example, a company has a corporate income tax rate of 35%. Assuming its pretax profits are $100 billion and the per-share price is $100, and then the tax that the company needs to pay is $35 per share. Now there are two kinds of people who own stock in this company. One is the aged woman whose economical levels are middle class and has limited stock holding. The rate applicable to her is 35%. The other type of shareholder is the multi-millionaire who lives life king size and owns the majority of the stock. The same 35% applies to him.This is where the corporate income tax is regressive in nature. Corporations are only legal entities and do not have a real identity. So a sensible way to apply this tax would be differential rates for stockholders depending on the quantity of stock they hold. Out of pretax profits of $56 billion last year, considering the tax provision, Apple’s tax per share came to around $15 and this does not qualify for cheating in any way.
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