A victory for all involved!

We all like hearing good news, don’t we? I know I do, particularly when it has to do with getting an offer in compromise accepted for one of our clients. Raymond Wagner was one of these clients. Mr. Wagner came to JK Harris when he found out he owed the IRS a lot of money… $15,487 to be exact. He didn’t realize until it was too late that he had not had enough taxes withdrawn from his paychecks and he did not know where to begin to resolve his tax issues. Luckily, he saw an ad for JK Harris in the newspaper and he called us to assist him.

Wagner contracted with JK Harris for an Offer in Compromise, which allows taxpayers who meet the criteria and who remain compliant with paying their taxes for five years following the accepted offer, to pay a portion of the amount they actually owed the IRS. The process is usually long and can be grueling, often taking six months to two years to complete.

Mr. Wagner’s battle was not an easy one, but his Case Specialist was determined. She worked closely with the IRS to get his offer approved and when word arrived that the IRS approved his offer of $700, the whole team working Mr. Wagner’s case was thrilled.

“I highly recommend the services of JK Harris and Company. The team that worked my case did an excellent job, especially my Case Specialist,” said Wagner. “Thank you, JK Harris!”

From all of us here at JK Harris, we are glad we could help!

The check’s in the mail, or it will be soon

Peter Hukki – Enrolled Agent

Are you wondering when you will be receiving your economic stimulus rebate from the IRS? Well, assuming you filed your 2007 tax return and it was processed by the April 15th deadline, the checks will begin being issued in just a couple of short weeks.

If you had your refund direct deposited or your payment direct debited from your bank account, your rebate will also be deposited directly into your account. When that deposit will happen depends on the last two digits of the primary taxpayer’s Social Security number. If your last two digits are 00 through 20, the rebate payment will be transmitted to your account on May 2. For the numbers 21 through 75, the rebate will be sent on May 9, and finally for the numbers 76 through 99, the rebate will be sent on May 16.

Paper checks will be mailed on a slightly different schedule, as follows: 00 through 09, mailed on May 16; 10 through 18, May 23; 19 through 25, May 30; 26 through 38, June 6; 39 through 51, June 13; 52 through 63, June 20; 64 through 75, June 27; 76 through 87, July 4; 88 through 99, July 11.

For those returns that were processed after April 15, you can expect your check approximately two weeks after receiving your tax refund. If you filed an extension, your return will need to be filed by October 15 in order to receive the stimulus payment.

The important thing to remember is that you must file a return to get the stimulus check. In other words, no ticket, no laundry.

Peter Hukki is an Enrolled Agent for JK Harris and Company, LLC. He has been an EA since 1974 and is also a practicing Tax Practitioner, completing tax returns for individuals, corporations, trusts, partnerships and estates.

Tax day… can you breathe a sigh of relief?

For most Americans, April 15th allows us to relax knowing our tax obligation is taken care of for yet another year. The deadline to file taxes is here and we can collectively breathe a sigh of relief and feel we are ‘done’ for another year, but is that really the case?

As you well know, taxpayers must file, pay their taxes (if you owe) and have the envelope postmarked by the April 15th deadline. You can file for an extension, as long as you do it by the April 15th deadline, but did you know that an extension to file does not mean an extension to pay your taxes? Many Americans are unaware of this fact and it could cost them in penalties and interest.

Other things you may not know… if you do not file your taxes this year, you will miss out on receiving your rebate stimulus check. Even if you do not owe taxes, you must file in order to receive your rebate check. There are special instructions for some filers, so it is best to visit the <a href=”“>IRS website and follow the link on the home page to the informational section on the stimulus rebate.

Also, did you know audits are on the increase? The number of individual returns audited in 2007 increased 7% over 2006, while audits of business returns increased 14%. The IRS is increasingly auditing returns, so be aware of this as you finalize your returns. Take extra care with itemized deductions and save all receipts, mileage logs or other documentation that will help you prove these deductions, should the need arise.

Lastly, if you are behind and owe back taxes, there is never a better time than the present to ‘get right’ with the IRS. If you owe more than you pay, the IRS has programs that may be able to help you. Whether you can afford to pay monthly payments or have suffered a loss of income and cannot currently pay, there are programs available that might help. Visit our website at www.jkharris.com for more information on some of the programs available to help you get rid of the burden to back tax debt.

Remember, you can breathe easy on April 15th, as long as you stay current with the IRS.

Gift giving guidelines

Bill Wandel – Enrolled Agent

Thinking about giving someone a substantial gift? Worried how or if it will affect your taxes?

Well, depending on what the gift is or how substantial the gift is, you may not have to pay any taxes. And, for those actually receiving the gift, you won’t have to pay any taxes on it at all.

Gifts that are not taxable include: tuition or medical expenses paid directly to an education or medical institution on behalf of someone; gifts to your spouse; gifts to a political organization for its use; and gifts to charities.

For those gifts that are taxable, the current threshold is any gift(s) to an individual that exceeds $12,000 in fair market value per year. Any taxpayer who gives gifts to one person that exceeds $12,000 per year must report the total gifts to the IRS. For married couples, you and your spouse can consent to gift splitting, thereby qualifying up to $24,000 per individual recipient.

Gifts that can qualify for the threshold include money, real estate, personal property, below market interest loans and future interests in property.

Now here’s the twist. Even though you may be required to file and report gifts to individuals in excess of the annual threshold amount, you can currently avoid a tax liability by using your unified lifetime credit against transfer tax. That unified lifetime credit amount is $345,800. What this means is any unified credit used against a gift tax in one year reduces the amount of credit that can be used against the gift tax in a later year.

Here’s an example, to clear up any confusion.

In the year 2007, you give a nephew a cash gift of $8,000, and then give your daughter and son $25,000 each. The first $12,000 given to one individual in 2007 is not a taxable gift, so the $8,000 you gave to your nephew and the first $12,000 given to both your daughter and son are not taxable gifts.

Now, the gift tax on $26,000, which is the $13,000 remaining from your gift to your daughter and the $13,000 remaining from your gift to your son, is $5,120, per the table for computing gift tax. You will then subtract the $5,120 from the unified credit of $345,800 for 2007, reducing the amount of the unified credit that can be used against the gift tax in a later year to $340,680. Thus, no gift tax needs to be paid for 2007. But Form 709 still has to be filed with your return.

For more information on gift taxes, you can refer to Publication 950, which can be found on the IRS website at www.irs.gov.

Bill Wandel has over 30 years of combined experience in private and public accounting. He has been associated with JK Harris since 2001, serving the company as a Licensed Taxpayer Representative. Bill has worked 17 years as a taxpayer advocate.

You Can’t Stiff Uncle Sam on Your Tax Bill, But You Do Have Options

That’s the headline of a news article found on Marketwatch.com and Foxbusiness.com last week, quoting two tax experts, including our own CPA and Enrolled Agent Bill Wandel. The article, written by Marketwatch’s Assistant Personal Finance Editor, Andrea Coombes, detailed the various IRS options for those taxpayers who are behind in paying their tax debt to the federal government.

Bill, who has been with our team since 2001, was quoted several times in the informative article Ms. Coombes wrote. The article ended with a story about one of our clients who qualified for an Offer in Compromise when his incentive stock options led to a tax bill he could not pay. The tax liability was more than $1 million! “He had to exercise the incentive stock options, was subjected to huge amounts of alternative minimum tax, and two years later, the stock went into the tank and he had nothing, literally did not have the assets to pay his liability,” Bill was quoted as saying. Fortunately, we were able to make a solid case to the IRS, with the help of our client, and his tax debt was significantly reduced.

Employee or independent contractor?

Ralph Havens – Director of Professional Services

Are you receiving a 1099-MISC when you should be getting a W-2?

Generally, employees receive Form W-2 from their employer. Independent contractors normally receive a Form 1099-MISC, and they must report the income on a Schedule C and pay Self-Employment Tax on the net profit using Schedule SE.

If you are being classified incorrectly, you may want to look into setting the record straight with the IRS by using its new Form 8919, Uncollected Social Security and Medicare Tax on Wages.

This form can be used if you are an employee, but are being classified as an independent contractor, and your employer did not withhold Social Security and Medicare taxes.

This is a good thing if you are the employee because you then get out of paying Self-Employment Taxes. And you can file Form 8919 with your tax return. You do need to send Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, to the IRS separately. You will then be subject to pay your share of the FICA and Social Security taxes.

If you are the employer, however, you are going to have to pay your share of FICA and Social Security taxes, and get fined for filing and paying late. You will also have to pay the Unemployment Tax and, again, get fined for filing and paying late.

Keep in mind, however, that even if you submit the forms to the IRS, it doesn’t mean the IRS is going to change your status. It also doesn’t mean your employer isn’t going to contest it. If that’s the case, you will have to file an amended return and pay the additional tax.

Ralph Havens was named the Director of Professional Services in June 2007 and has been with JK Harris since 2003. He heads up JK Harris’ Audit, Tax Preparation and E-File departments. Ralph has been an Enrolled Agent for 14 years and his special area of concentration is in audit representation.

Offer in Compromise ends tension & tax trouble for client

Many of our clients come to JK Harris after trying to resolve their tax problems on their own. Kenneth Roberts was one such client. The tension and stress over his tax problem was great, and mounting by the day after he found out exactly what he owed in state and federal taxes.

Facing health problems, Mr. Roberts could not take the frustration and stress any longer; he turned to JK Harris to seek help under the Offer in Compromise program.

An Offer in Compromise is an agreement between the taxpayer and the government that allows the taxpayer to settle their tax liability for less than what they originally owed. The government will generally accept an Offer in Compromise when they feel the taxpayer is not going to be able to pay the full amount and the taxpayer offers a reasonably collectible amount.

Initially, Mr. Roberts was denied on the federal offer he made to the IRS. We appealed the IRS’ decision on Mr. Roberts’ behalf, submitted another offer and I am happy to say it was approved, as was his offer on his state tax liability.

The Offer in Compromise is a long and hard-fought process. It often involves requesting detailed financial information from taxpayers several times due to the IRS’ requirement for the most up to date information. (After all, if the IRS is going to allow you to reduce what you are paying them, they want to make sure you truly qualify and cannot afford to pay!)

In the end, we are happy to say we helped save Mr. Roberts over $51,000 in state and federal taxes and he is now free of the tension that tax liability brings!

Claiming the child and dependent care credit

Mary Rivera – Enrolled Agent, JK Harris and Company, LLC

Spring is here and with spring comes, tax time!  As the deadline for filing federal income taxes quickly approaches, I would like to remind you about a credit you may not realize you qualify for – the Child and Dependent Care credit.

This credit is available to many taxpayers to help relieve the financial burden of dependent and child care.  If you qualify, the credit will reduce the amount of tax you owe when you file your federal return. Did you pay someone last year for the care of your child 13 years old or younger?  Or do you have to pay for care of a child older than 13 due to medical necessity?  Do you pay for care for a dependent or spouse?  You might qualify to claim this credit on your tax return. This credit may even apply if the care was given so that you could work or so that you could look for work.

The IRS allows you to use up to $3,000 of the expenses you paid in one year for one qualifying individual, or $6,000 for two or more qualifying individuals.  This dollar amount is reduced by the amount of dependent care benefits your employer provides (if any) and it is excluded from your income.

You must also meet the following conditions to qualify for the credit:

- Income – you must have earned income from wages, salaries, tips, other taxable employee compensation, or net earnings from self-employment

- Payee – the payments for care cannot be paid to someone claimed as your dependent on your tax return or to your child who is under 19, even if he or she is not your dependent

- Filing Status – your filing status must be single, married filing jointly, head of household or widow(er) with a dependent or dependent child

- Care – the care must have been provided for one or more persons

- Home – the qualifying person must have lived with you for more than half of 2007

Remember, there are limitations to the amount of credit you can claim on your tax return.  If you are claiming the credit, you must list the name and Social Security number or EIN of the care provider.  For more information on this credit, visit the IRS’ website at http://www.irs.gov/newsroom/article/0,,id=106189,00.html.

Mary Rivera has been an Enrolled Agent since 2004.  She has worked in the Tax Resolution field for 8 years.  She is a member of both the National Association of Enrolled Agents and the Charleston Chapter of the South Carolina Association of Enrolled Agents where she has held the office of Secretary since 2006.

Mortgage Forgiveness Debt Relief Act a lifesaver for some taxpayers

David Bauman, Enrolled Agent

We’ve all seen the bleak economic news headlines of late. The troubled mortgage and housing industry has been in the news on an almost daily basis for months. The number of homes foreclosed on in the last quarter was at an all time high. In an effort to provide homeowners some relief, Congress passed the Mortgage Forgiveness Debt Relief Act of 2007.

This is truly a lifesaver for taxpayers. Normally, forgiveness of debt results in taxable income. This act allows taxpayers to exclude qualified mortgage debt forgiven on their principal residence when it comes time to file their tax return.

Qualified debt includes debt reduced through mortgage restructuring as well as debt forgiven due to a foreclosure. According to the IRS, the debt could have been used to buy, build, or to substantially improve the taxpayer’s residence. In addition, debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before refinancing. This special relief is not available for credit cards, car loans, second homes, rental property or business property and applies to debt forgiven in 2007 and through 2009.

Homeowners whose debt has been reduced or eliminated will receive a Form 1099-C from their lender. The lender must show the amount of debt forgiven and the fair market value of any property given up through foreclosure. (Be aware! In addition to claiming the amount of relief and the amount of debt forgiven on Form 982, you must also move down to line 10b and show the amount of relief as a reduction to your cost basis of the asset affected.)

Taxpayers can claim this relief by filing the newly revised Form 982 and attaching it to their 2007 federal income tax return. You can find the details on how to claim this relief on Form 982 and the instructions are on the IRS website at http://www.irs.gov/pub/irs-pdf/f982.pdf.

David Bauman is an Enrolled Agent with more than 20 years of tax preparation experience, 15 years as a self-employed tax practitioner and five as a Tax Manager for 1st Nationwide Bank. He also has 10 years of tax representation under his belt. He has been with JK Harris since 2002.