Employees can get a tax deduction for unreimbursed expenses

Bill Lawitzke, Vice President, JK Harris Small Business Services, LLC

I know there are some employees out there who spend their own money for business expenses and do not get reimbursed by their employer. You will see this a lot in a field such as real estate when an agent actually pays a third party to do paperwork for them so they can, in turn, meet with more clients and show and possibly sell more real estate.

So, this creates the question of whether or not the employee can deduct those expenses to the third party on their tax return. Well, it can get a little tricky, so the answer is yes and no.

First, the employee will need to issue a 1099-MISC to the third party doing his paperwork. If that is not done, the employee cannot deduct anything paid to the third party.

If a 1099-MISC was issued, the employee may be able to use the expense as an itemized deduction. Thus, the employee will not be able to use the standard deduction. All of allowable itemized deductions must exceed the standard deduction before it becomes a tax benefit. And, this is where the tricky part comes into play. The first two percent of the employee’s Adjusted Gross Income (AGI) for miscellaneous itemized deductions are not deductible.

In other words, if the employee’s AGI is $75,000, the first $1,500 paid to the third party would not be deductible.

If you would like more detailed information about miscellaneous deductions and unreimbursed employee expenses, you can check out IRS Publication 529 at http://www.irs.gov/pub/irs-pdf/p529.pdf.

About Bill Lawitzke:
Bill began his stint with JK Harris in 2003 when he came to work with Small Business Services, LLC, where he is currently Vice President. He became an Enrolled Agent in 2007.

Trucker is back on debt-free highway with the IRS

I know it can be an eerie kind of feeling when you find yourself at a dead end with the IRS. That’s exactly how Stephen Temple, a truck driver from Haysville, KS, felt when he was being threatened with wage garnishments because he owed the IRS.

Stephen’s tax troubles began because he was not having enough taxes withheld from his income. And after four years, those taxes, along with penalties and interest, totaled $6,500.

That’s when he came to us with the hopes JK Harris could help him settle his debt and get his life back on track. And I’m proud to say that in just nine months, we were able to prove to the IRS that Stephen could not afford to pay the full $6,500 he owed.

We showed the IRS he had no money left over after paying his bills each month. He had a few dollars in his pocket and some equity in his vehicle, and that was it. Thankfully, the IRS accepted a $363 Offer in Compromise, which also stopped the garnishment threats.

Now, Stephen says he is on his way to home ownership again.

Congratulations, Stephen. I am so glad we could help.

Don’t panic if you receive a notice from the IRS

Many of you may have experienced the anxious feeling that comes when you open the mailbox and find a letter bearing the IRS’ return address in the upper left hand corner.  Don’t panic! There are many different types of correspondence that the IRS sends out, so a letter from the IRS doesn’t always mean bad news.

According to the IRS, every year millions of letters and notices are sent out to taxpayers to request payment of taxes, notify them of a change to their account or request additional information.  These notices are usually very specific in nature regarding your account or tax return.  Normally, these letters carry very definitive instructions on what you need to do to satisfy the IRS’ request for information or payment.

If you agree with the correspondence, you do not need to reply to the letter unless a payment is due.

Disagree with the letter?  If your records show that the IRS has incorrect information, respond as directed in the letter as soon as possible.  Write an explanation on why you disagree with the IRS notice and include any documents you have that may back up your letter.  Be sure to include the tear off portion of the IRS notice.  Mail your letter to the IRS address in the upper left-hand corner of the notice.  The IRS requests that you give them at least 30 days to respond to your letter.

Usually, these requests can be handled by correspondence.  If you do need to call the IRS for more information or to have your questions answered, make sure you have your tax return in front of you and call the number listed in the upper right hand corner of the IRS notice.  Keep all copies of correspondence between you and the IRS for future reference.

For more information on IRS notices and bills, see Publication 954, What You Should Know about the IRS Collection Process.  More information about penalties and interest charges is available in Publication 17, Your Federal Income Tax. You can order these publications by calling 800-TAX-FORM (800-829-3676) or online at www.irs.gov.

Emergency Management Team to the rescue for Maryland man

I received some nice words from a client who had a direct dealing with our Emergency Management Team, and it just made my day because often times, this department doesn’t get nearly the credit it deserves.

The main task of EMT is what we call the Emergency Levy Release. Our EMT Case Specialists work quickly to stop the IRS’ enforcement action, mainly levies that are already in place on bank accounts, wages, etc. Although the work they do is very important, more often than not, EMT is in the background working behind the scenes to get levies released while other Case Specialists work on the client’s Offer in Compromise.

Sean Stewart, of Bowie, MD, came to us because he owed the IRS approximately $43,000 in back taxes. And the IRS, in turn, slapped a levy on his wages. His file was expedited to EMT and the folks there got right to work. One phone call to the IRS told us that Mr. Stewart hadn’t filed all of his tax returns. He was immediately made aware of that fact and contracted us to prepare those returns for him.

“JK Harris really worked quickly and efficiently, keeping me abreast of what was going on with my case and kept me with updated correspondence relentlessly,” Mr. Stewart wrote.

Once his file was back with EMT, his Case Specialist went to work negotiating his Installment Agreement, which would enable him to pay his debt in monthly payments. Once that IA was in place, the IRS agreed to release Mr. Stewart’s wage levy.

“Some people say ‘you could’ve done it yourself,’ but I say, it’s the peace of mind knowing that someone that has experience is doing it…Thank you JK Harris,” Mr. Stewart said.

You are welcome, Mr. Stewart. Thank you for taking the time to send us such kind words.

Just in time for the 4th of July

Since it is almost the Fourth of July, I thought this would be the perfect time to congratulate one of our JK Harris Supervisors, Kaydian Morgan, who took her oath and became a United States citizen on June 12th.

Kaydian was born in Jamaica and moved to the U.S. in 1989. You see, her brother was in the U.S. Navy and was stationed in South Carolina when he urged their father to relocate. She joined our JK Harris family in 1999 and was promoted to Supervisor in 2003.

“I’ve always been civic-minded and wanted to be part of the process instead of being just a very opinionated observer,” Kaydian said. “I will be voting for the first time in a general election in November.”

I personally give Kaydian all the credit in the world for a number of reasons: First, for moving to a country she is not native of; second, for learning the history and government of the U.S. and actually wanting to become a legal citizen; third, for wanting to actively take part in the voting process, which is every U.S. citizen’s right but not a right every U.S. citizen exercises; and fourth, for actually completing the very time-consuming process of becoming a citizen.

Kaydian herself admitted it wasn’t an easy process. She even said she began the process a few different times, but did not complete it due to the paperwork. “You have to complete a nine-page questionnaire, obtain passport pictures, and get fingerprinted,” she said.

But when asked what the most challenging part was, her reply was, “Actually sitting in the waiting room before my interview and the Oath Ceremony. You’re not allowed to have your cell phone or any communication device with you in the waiting room. Being the person who always has to have my cell phone/PDA with me so I can communicate with my friends and family, I was climbing the walls.”

Thank you, Kaydian for being a true Patriot. And, congratulations!