Tag Archives: Essential Solutions

Last-Minute Savings for Tax Year 2016

Attention last minute savers! There’s still time to reduce your tax burden for 2016.

Have you funded a traditional IRA, Roth IRA, or SEP this year? The deadline for contributions to IRAs is April 18, 2017 — this year’s filing deadline. For self-employed taxpayers, contributions to a SEP may be postponed until October 16, 2017 if a tax return extension has been filed.

Increasing your 401(k) contribution so that you are putting in the maximum amount of money allowed is a smart way to lower taxes. If you can’t afford the maximum contribution, $18,000 for 2016, $24,000 if you are age 50 or over, you should still contribute the full amount that will be matched by employer contributions – no reason to leave money on the table!

If you are currently enrolled in an employer sponsored retirement plan, your contribution to a traditional IRA will not be tax deductible, but you will be able to take advantage of tax-deferred interest compounding. The cap for contributions to a traditional or Roth IRA in 2016 is $5,500 for taxpayers under 50 and $6,500 for those over 50.

If you have reason to believe you’ll be in the same or a lower tax bracket next year, it may make sense to defer income by taking capital gains in 2017 instead of in 2016. If you are self-employed or freelancing and can push revenue into a lower earning year, it may be wise to do so. Winding up in a higher tax bracket can result in a big surprise in your tax bill. Your forecast for personal income this year vs. next year is an important issue to discuss with your tax professional.

Charitable deductions are another great way to lower your taxes before year’s end. Just make sure that the charity to which you are donating is recognized by the IRS as being tax-exempt, and that you document and photograph all items donated.

“Loss harvesting” is the practice of selling stocks and mutual funds with the goal of realizing losses. Those losses can offset taxable gains you have realized during the year, dollar for dollar. This is another good conversation to have with your enrolled agent.

To make sure you’re taking advantage of all available tax savings, tax credits and deductions for 2016, be sure to bring the right documents to your tax professional. Along with any Forms W-2 from your employer, bring Forms 1099 declaring misc. income, mortgage interest information, and K-1 forms showing income from a partnership, small business or trust. Bring documentation of any student loans you may be paying off, and money spent on child care.

Some other things to consider: if you collected unemployment benefits at any time during the year, that money is generally taxable and you will need to bring a form 1099-G. For state filing, you’ll want to remember to include any personal property tax paid – for example, on your automobile. Did you collect Social Security, rent a property, receive self-employment income or pay alimony? Cancelled checks and receipts can help to document expenses you wish to claim, such as those related to a home office. Job search expenses, moving expenses and college expenses may all be deductible under certain circumstances. Medical expenses might be deductible, but the bar is high.

As with everywhere else in life, often what the large print giveth the small print taketh away. For instance, IRA contributions — both traditional and Roth — have some tricky limitations (and some workarounds, too). Enrolled agents (“EAs”), America’s tax experts, are well placed to help you navigate. Please feel free to call my office at xxx-xxx-xxxx to schedule an appointment.

 

About Enrolled Agents

To earn the EA license from the US Department of Treasury, candidates must pass a background check and a stringent three-part exam on tax administered by the IRS. To maintain the license, they must complete annual continuing education that is reported to the IRS. Members of the National Association of Enrolled Agents (NAEA) are obligated to complete additional continuing education and adhere to a code of ethics and rules of professional conduct.

Be Smart About Security at Tax Time

Although the IRS reports a 400 percent surge in phishing and malware incidents during the 2016 tax season, there are simple steps you can take to help protect yourself.

Here are nine hints that can help:

  1. Beware of IRS Impersonators. Some crooks call taxpayers to say they must settle their “tax bill.” These are fake calls and often demand payment on prepaid debit cards, gift cards or wire transfers. Also, students should know there’s no “Federal Student Tax.” If you get any unexpected calls, e-mails, letters or texts from someone claiming to be from the IRS, remember, the IRS never calls to demand immediate payment using a specific method nor will it threaten you with local law enforcement.
  2. Understand and Use Security Software. Security software helps protect computers against digital threats online. Generally, the operating system will include security software or you can access free security software from well-known companies or Internet providers. Essential tools include a firewall, virus and malware protection, and file encryption. Don’t buy security software offered as an unexpected pop-up ad on your computer or e-mail. It’s likely from a scammer.
  3. Let Security Software Update Automatically. Malware—malicious software—evolves constantly and your security software suite updates routinely to keep pace.
  4. Look for the “S.” When shopping or banking online, see that the site uses encryption to protect your information. Look for “https” at the beginning of the Web address. The “s” is for secure. Additionally, make sure the https carries through on all pages, not just the sign-on page.
  5. Use Strong Passwords. Use passwords of eight or more characters, mixing letters, numbers and special characters. Don’t use your name, birth date or common words. Don’t use the same password for several accounts. Keep your password list in a secure place or use a password manager. Don’t share passwords with anyone. Calls, texts or e-mails pretending to be from legitimate companies or the IRS asking to update accounts or seeking personal financial information are almost always scams.
  6. Secure Wireless Networks. A wireless network sends a signal through the air that lets it connect to the Internet. If your home or business Wi-Fi is unsecured, it also lets any computer within range access your wireless and potentially steal information from your computer. Criminals can also use your wireless to send spam or commit crimes that would be traced back to you. Always encrypt your wireless. Generally, you must turn on this feature and create a password.
  7. Be Cautious When Using Public Wireless Networks. Public Wi-Fi hot spots are convenient but often not secure. Tax or financial information you send though websites or mobile apps may be accessed by someone else. If a public Wi-Fi hot spot doesn’t require a password, it’s probably not secure.
  8. Avoid E-mail Phishing Attempts. Never reply to e-mails, texts or pop-up messages asking for personal, tax or financial information. One com-mon trick by criminals is to impersonate a business such as your financial institution, tax software provider or the IRS, asking you to update your account and providing a link. They ask for Social Security numbers and other personal information, which could be used to file false tax returns. The sites may also infect your computer. Never click on links even if they seem to be from organizations you trust. Go directly to the organization’s website. Legitimate businesses don’t ask you to send sensitive information through unsecured channels.
  9. Get Professional Advice. To make sure you can take advantage of all allowable tax-deferred savings, tax credits and deductions, consult with a licensed tax professional, your enrolled agent (EA). EAs are the only federally licensed tax professionals with unlimited rights of representation before the IRS. EAs abide by a code of ethics and must complete many hours of continuing education each year to ensure they are up-to-date on the constantly changing tax code.

You can save money and trouble if you follow professional advice and your own good sense when taking care of taxes.

IRS Urges Taxpayers to Choose a Tax Preparer Wisely

More than half of taxpayers hire a professional when it’s time to file a tax return. Even if you don’t prepare your own Form 1040, you’re still legally responsible for what is on it.

A tax return preparer is trusted with your most personal information. They know about your marriage, your income, your children and your Social Security numbers – all of the sensitive details of your financial life. If you pay someone to prepare your federal income tax return, the IRS urges you to choose that person wisely. To do that, take some time to understand a few essentials.

Most tax return preparers provide outstanding service. However, each year, some taxpayers are hurt financially because they choose the wrong tax return preparer. Well-intentioned taxpayers can be misled by preparers who don’t understand taxes or who mislead people into taking credits or deductions they aren’t entitled to in order to increase their fee. Every year, these types of tax preparers face everything from penalties to even jail time for defrauding their clients.

Here are a few tips to keep in mind when choosing a tax preparer:

  • Check to be sure the preparer has an IRS Preparer Tax Identification Number (PTIN). Anyone with a valid 2015 PTIN is authorized to prepare federal tax returns. Tax return preparers, however, have differing levels of skills, education and expertise. An important difference in the types of practitioners is “representation rights”. You can learn more about the several different types of return preparers on IRS.gov/chooseataxpro.
  • Ask the tax preparer if they have a professional credential (enrolled agent, certified public accountant, or attorney), belong to a professional organization or attend continuing education classes. A number of tax law changes, including the Affordable Care Act provisions, can be complex. A competent tax professional needs to be up-to-date in these matters. Tax return preparers aren’t required to have a professional credential, but make sure you understand the qualifications of the preparer you select.
  • Check on the service fees upfront. Avoid preparers who base their fee on a percentage of your refund or those who say they can get larger refunds than others can.
  • Always make sure any refund due is sent to you or deposited into your bank account. Taxpayers should not deposit their refund into a preparer’s bank account.
  • Make sure your preparer offers IRS e-file and ask that your return be submitted to the IRS electronically. Any tax professional who gets paid to prepare and file more than 10 returns generally must file the returns electronically. It’s the safest and most accurate way to file a return, whether you do it alone or pay someone to prepare and file for you.
  • Make sure the preparer will be available. Make sure you’ll be able to contact the tax preparer after you file your return – even after the April 15 due date. This may be helpful in the event questions come up about your tax return.
  • Provide records and receipts. Good preparers will ask to see your records and receipts. They’ll ask you questions to determine your total income, deductions, tax credits and other items. Do not rely on a preparer who is willing to e-file your return using your last pay stub instead of your Form W-2. This is against IRS e-file rules.
  • Never sign a blank return. Don’t use a tax preparer that asks you to sign an incomplete or blank tax form.
  • Review your return before signing. Before you sign your tax return, review it and ask questions if something is not clear. Make sure you’re comfortable with the accuracy of the return before you sign it.
  • Ensure the preparer signs and includes their PTIN. Paid preparers must sign returns and include their PTIN as required by law. The preparer must also give you a copy of the return.
  • Report abusive tax preparers to the IRS. You can report abusive tax return preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or changed the return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. You can get these forms on IRS.gov.

IRS FS-2014-11, December 2014

With the complications associated with the Affordable Care Act (Obamacare) it is very important for you to get assistance with filing your tax return this season.  Please give us a call with any questions concerning your return preparation.  We have PROFESSIONALS on staff that know the answers!

What is the difference between an EA and a CPA. See the IRS chart below

Overview of Tax Return Preparer Requirements

The chart below provides an overview of the various categories of individuals who may prepare federal tax returns for compensation.

 

Category

PTIN

Tax Compliance Check

 Background Check

IRS Test

Continuing Education

Practice Rights

Enrolled Agents*

 Yes

 Yes

Proposals Pending

Yes (Special Enrollment Exam)

72 hours every 3 years

Unlimited

CPAs**

 Yes

 Yes

Proposals Pending

No

Varies

Unlimited

Attorneys**

 Yes

 Yes

Proposals Pending

No

Varies

Unlimited

Supervised Preparers

 Yes

 Yes

Proposals Pending

No

No

Limited

Non-1040 Preparers

 Yes

 Yes

Proposals Pending

No

No

Limited

 

*Enrolled Agents have passed a three-part, comprehensive IRS exam covering individual and business returns. They must adhere to ethical standards and complete 72 hours of continuing education courses every three years. EAs have unlimited practice rights before the IRS, which means they can represent clients for any tax matter.

**CPAs and Attorneys have unlimited practice rights before the IRS.

†To determine if you are a supervised preparer, view the fact sheet

‡ If you only prepare Forms 1040-PR and 1040-SS, you are considered a non-1040 preparer