Top 10 most common reasons our clients get in trouble with the IRS

There are many reasons our clients get in trouble with the IRS and end up with back tax issues. If you sweated through tax season, afraid of getting “caught” for not paying the back taxes you owe, you are not alone. Here are the most common reasons our clients seek us out for help with their back tax issues.

1. Failure to make estimated tax payments – We have a lot of small business owners for clients and this is a common mistake we see many people make. Anyone who is self-employed (or who owns a small business) must make estimated tax payments at least four times per year. When these payments are missed, not only do you fall behind in paying the taxes owed on your earnings, you will also accrue additional penalties and interest.

2. Incorrect withholdings on wages earned – Many clients have their withholding set up wrong – and this sets them up for problems when tax season rolls around. It is essential to fill out your W-4 correctly since this determines how much your employer will withhold for state (if applicable) and federal taxes. If your withholding is incorrect, you could end up owing hundreds, even thousands in unpaid taxes at the end of the year. If you neglect to resolve the problem and you continue to accumulate tax debt, you may quickly accumulate a large tax liability when all the taxes, interest and penalties are added together.

3. Penalties for early withdrawal from a retirement account – Unfortunately, due the economic downturn, this is a common reason clients seek us out. Due to job loss, medical and/or health problems, or other economic factors, people are turning to their retirement accounts to access emergency money. If you withdraw from your retirement account, it must be included as part of your taxable income. Additionally, some withdrawals may be subject to a 10% penalty if you make a withdrawal prior to 59 ½ years of age.

4. Failure to file a return – You worked. You earned income. You didn’t file your tax return. If you fail to file a return and you owe taxes, you will accrue interest and penalties. Interest and penalties can rack up quickly. The best thing to do is to file your return as soon as possible and pay any taxes dues – the sooner, the better.

5. Filed a tax return, but didn’t pay the taxes due – You filed your tax return on time, but you didn’t have the money to pay your taxes. Once the IRS processes your return, the IRS will show you are indebted to them. While you may have avoided the penalty for failure to file, you will begin to rack up interest and penalties for failing to pay your taxes due.

6. Failure to pay payroll taxes – Many new small business owners get into IRS trouble for failure to pay their state or federal payroll taxes. Other taxpayers fail to pay payroll taxes for household employees, such as nannies or maids.

7. Failure to report gambling winnings as income – Any cash or prize worth $600 or more must be claimed as income. Most casinos and contest sponsors send information on winning players to the IRS. If you did not claim the information on your tax return, you will be assessed for the tax liability.

8. Taking too many exemptions, credits or deductions – Some taxpayers get away with taking too many exemptions, credits or deductions for awhile – in an effort to boost their tax refund. These can be red flags, which trigger an audit by the IRS.

9. Inadequate, incompetent or unqualified tax preparation – Be sure to hire a tax preparer you trust. Some taxpayers find themselves indebted to the IRS due to their preparer’s inaccurate preparation. Worse, some preparers are willing to file credits, deductions, or exemptions to pad your return. While getting you a larger (though undeserved) refund, they are padding their own wallet as well. Be sure to read over your return before signing it.

10. Tax liability due to deceitful spouse or former spouse – When you decide to file joint tax returns, you and your spouse become responsible for each other’s tax liabilities. Even if only one spouse is dishonest, the IRS will come after both taxpayers. Unless you can prove you were an innocent or injured spouse, the IRS will attempt to collect from both taxpayers, even if the marriage ends in divorce.

Posted by JK Harris & Company

Time running out on extended first time homebuyer credit

April 15th has already come and gone, but there is still another important IRS deadline to remember. You still have until April 30, 2010 to claim the First Time Homebuyer credit. The credit was extended late last year. As long as you buy or enter into a binding contract to purchase a home by April 30, you may still be eligible to claim this credit. You must close on the home on or before June 30, 2010.

For the purpose of the credit, a first time homebuyer is defined as a buyer who has not owned a home as their principal residence for at least three years before the home’s purchase. For married couples, both taxpayers must meet this criteria in order to qualify as first time-buyers.

The maximum tax credit is $8,000 and the maximum available to the long-term resident homebuyer is $6,500. Long-term resident homebuyers are those who have lived in the same principal residence for any consecutive five years during an eight year period that ending on the day the new home is purchased. The settlement date for the new purchase must be after November 6, 2009 to qualify.

The IRS recommends that all long-time residents claiming the credit attach documentation showing the five-consecutive year period (such as the Form 1098 Mortgage Interest Statement, property tax records or homeowner’s insurance records) in which they resided in the home.

New homebuyers are required to attach a copy of their executed settlement statement as proof of the home purchase. Buyers of newly constructed homes where no settlement statement is available are required to attach a copy of their certificate of occupancy showing the owner’s name, property address and date of the certificate. Mobile home buyers who cannot provide a copy of a settlement statement must attach a copy of the retail sales agreement showing all parties’ names and signatures.

The IRS maintains an informational page on the First Time Homebuyers credit. Click here for more information.

Posted by JK Harris & Company

IRS Discusses Benefits of New Health Care Tax Credit with Employers

If you receive a letter from the IRS in the next week or two, you may not have to worry about an IRS Audit. The IRS sent out a release this morning indicating they will be sending postcards to employers to go over the recently passed health care legislation and how it will impact their business. Below is the release.

WASHINGTON ― The Internal Revenue Service this week began mailing postcards to more than four million small businesses and tax-exempt organizations to make them aware of the benefits of the recently-enacted small business health care tax credit.

Included in the Patient Protection and Affordable Care Act approved by Congress last month and signed into law by President Obama, the credit is one of the first health care reform provisions to go into effect. The credit, which takes effect this year, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

“We want to make sure small employers across the nation realize that — effective this tax year — they may be eligible for a valuable new tax credit. Our postcard mailing — which is targeted at small employers — is intended to get the attention of small employers and encourage them to find out more,” IRS Commissioner Doug Shulman said. “We urge every small employer to take advantage of this credit if they qualify.”

In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low- and moderate-income workers.

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. The maximum credit goes to smaller employers — those with 10 or fewer full-time equivalent (FTE) employees — paying annual average wages of $25,000 or less. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals. The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt organizations, the IRS will provide further information on how to claim the credit.

Click here to see the full release.

Posted by JK Harris

Bing for Mobile seach is another way to find JK Harris when you need us

By Gina Anton, Director of Corporate Communications

The official tax season is over. With the end of the season come the results of a case study that was highly anticipated for JK Harris and our agency, Media Placement Group (MPG). MPG worked closely with Bing, starting in October 2009 and leading up to the 2010 tax season on a new tool to make finding JK Harris even easier than ever. The goal was to create a click to call mobile campaign where Smart-phone users could search for JK Harris and click on the search results to call us directly.

The results for Bing for Mobile have been unparalleled compared to both online and other mobile search providers. Compared to online search, the JK Harris mobile campaign accounted for 10% of all campaign clicks while only making up 1% of the total spend. That is a 10X-conversion lift compared to dollars spent. Bing for Mobile was as competitive in call volume traffic as all leading mobile search providers, but did so at a fraction of the cost.

We were thrilled to see the overall campaign Click-Through Rate (CTR) increase by 23% over the last six months. Thorough evaluation of the campaign performance showed that Bing for Mobile delivers a higher return on investment (ROI) than mobile competitors and is more cost effective than online search.

This was exciting news for JK Harris. We have worked to remain cutting edge in our marketing and in our accessibility to our clients (and prospective clients). This is just one other way to make it painless for our clients to reach us when they have the burden of back tax problems.

April 15th – It’s Tax Day!

In the spirit of Tax Day, here’s a look at some of the tax stories on the Internet:

While the IRS and news has been reporting good news in the form of refunds for most American taxpayers, the news may be more bleak for most of the fifty states, according to Yahoo News.

The Center on Budget and Policy Priorities is estimating a collective state budget shortfall of $140 billion in fiscal year 2011. California alone faces a $20 billion deficit – and has collected $979 million less in personal income taxes so far this fiscal year, as compared to last. Most state revenue departments won’t know exactly what tax revenue they will see until well after today’s April tax deadline has passed. This is due in large part to taxpayers sending in their tax payments late when they owe.

Meanwhile, Mashable discusses tax day and the procrastination that bonds taxpayers across the country. The article feature graphs of Google search data for the past few years. Interestingly – though not surprisingly enough, the search term “file taxes” starts an upward trend around April 8th and peaks on April 15th.

Then of course, there are those that think Tax Day is actually Tax Cheating Day. An article by Mary Flood of the Houston Chronicle discusses tax cheaters. From fraudulent tax preparers to the famous and infamous tax dodgers – Richard Hatch of Survivor fame, Pete Rose and Wesley Snipes (link back to blog on Snipes) – they all have one thing in common: the IRS caught up to them.

One interesting and little known fact listed in the article: listing a false profession on your tax return is a crime.

Hope you have filed your taxes already and are anticipating many happy returns. If you owe, please be sure to pay your tax liability today.

By JK Harris & Company

The countdown is on……have you filed yet?

With just over 24 hours left until the tax deadline, I see the IRS has posted its cumulative filing statistics comparing the week ending April 3, 2009 to this year ending April 2, 2010. This table compares number of returns received and processed, use of e-filing and the IRS website, as well as refunds and direct deposit.

The results show, as the IRS has been touting, that refunds are up – as of the time of these statistics, they were up by 4.3% or just over $9 billion dollars more in refunds issued this year as compared to this time last year. The average refund issued went up from $2,975 to $3,186 or a whopping 7.1%. This is great news for the average taxpayer!

Have you filed your tax return yet? You still have until tomorrow night at 11:59 p.m. to get your return postmarked and mailed to meet the deadline. If you cannot meet the filing deadline, you can electronically file an extension, which will give you until October 15th to file your tax return. If you file an extension, you must still pay your taxes on time, as an extension to file is not an extension to pay. Paying your taxes on time will prevent you from being charged interest and penalties.

Have tax questions? Ask them here – I would be happy to help!

JK Harris

Obama discusses tax breaks ahead of Tax Day

With April 15th days away, the President reminded tax payers not to miss the opportunity to use tax credits from the recent Stimulus legislation. Some of the tax credits include an expanded child tax credit, energy savings initiatives and incentives for first-time home buyers. Below is the release from Yahoo News.

WASHINGTON – Just ahead of Tax Day, President Barack Obama is urging Americans to take advantage of tax credits for first-time homebuyers, college students and others.

Obama used his weekly radio and Internet address Saturday to promote some of the tax benefits in last year’s stimulus bill, saying they could save people hundreds or even thousands of dollars and were available to more than 100 million Americans. Even those who file before the April 15 deadline can amend their returns if there are savings they missed, Obama noted.

“No one I’ve met is looking for a handout. And that’s not what these tax cuts are,” Obama said. “Instead, they’re targeted relief to help middle-class families weather the storm, to jump-start our economy and to bring the fundamentals of the American dream — making an honest living, earning an education, owning a home and raising a family — back within reach for millions of Americans.”

Credits taxpayers may be eligible for include:

_Up to $8,000 for first-time homebuyers. The credit will be available through the end of April.

_Up to $2,500 for college expenses.

_Up to $1,500 for making energy-efficiency improvements to homes.

_For new vehicles purchased between Feb. 17-Dec. 31, 2009, the state and local taxes can be deducted.

_An expanded child tax credit providing $1,000 for each child under 17.

_The earned income tax credit now provides up to $5,657 to low-income families with at least three children.

Many workers have already received, through adjusted withholding in their paychecks, the “Making Work Pay” credit of as much as $800 for couples and $400 for individuals. For those who haven’t yet received the full amount due, they will get the additional money when they file.

Those who already have the full amount must claim the credit on their return. Due to an IRS glitch, however, some workers will owe money; in some cases, withholding tables gave people more than they should have received.

In their weekly address, Republicans accused Obama of raising taxes and expanding government too much with the health care bill and other initiatives.

Sen. Jon Kyl, R-Ariz., noted that taxes would rise Jan. 1, when President George W. Bush’s tax cuts expire.

“So, these are two Republican ideas: first, reining in Washington spending; second, keeping taxes at a manageable level. If we do these two things, private businesses and American families will be able to save, invest and plan for the future,” Kyl said.

Obama wants to extend Bush’s tax cuts, except for individuals making more than $200,000 a year and couples making $250,000.

Posted by JK Harris

Less than one week until the tax-filing deadline – have you filed yet?

With the April 15th tax filing deadline creeping ever closer, taxpayers around the country fall into two categories: the haves and the have nots. This means they either have or have not filed their returns yet. Which category do you fall into? Have you filed your tax return yet?

At JK Harris, we assist our clients with back tax issues all year long. But, did you know we also have a tax preparation department? Although we continue to assist a steady stream of tax resolution, small business, and audit clients around the year, we still go through a ‘rush season’ every year at tax time. We usually get a flurry of last minute filers working to get their taxes finished in time for the tax-filing deadline, as many of the franchise tax preparation operations do. You can benefit from our tax preparers’ combined knowledge with this list of ten tax tips to get you through the last minute madness.

1. Relax. Don’t allow the thoughts of preparing your taxes to stress you out. If you feel you are unable to prepare them by yourself, take them to a professional for assistance.

2. Running short on time? You can always file an extension, Form 4868, as long as you file it by April 15th. It is very important to remember – an extension to file is not an extension to pay. You must still pay your taxes by the April 15th deadline.

3. E-file and/or Free File. Filing your taxes electronically is simple and if you choose to get your refund electronically deposited, you will have your money in as few as ten days. Free file allows you to electronically file if you meet the income recommendations. Check the IRS website.

4. Double-check everything, from the tax table to all of your figures. If you are e-filing, the program will take care of mathematical computations, saving you from any errors. If you file a paper return, you will need to check all of your computations carefully. Also, be sure to check all Social Security numbers for accuracy.

5. All tax forms and instructions are available on the IRS website, www.irs.gov. Whether the dog ate your forms, or you never got a tax book in the mail, everything you may need can be found on the IRS website.

6. Sign your tax form. This is one simple mistake that will delay the processing of your tax return. If you filed jointly, you and your spouse must both sign. If you paid someone to prepare your return, they also must sign the form.

7. How do you pay the IRS? The IRS offers options for making federal tax payments. The most important thing to know is to never send cash. You can file electronically and pay in a single step by authorizing a withdrawal from your checking account. You can also pay by phone or online with a credit or debit card. If you are filing a paper return, enclose a check, but do not staple it to the tax form.

8. Don’t forget your Schedules! Depending on the way you file and what credits, deductions, losses/gains, etc. you may be claiming – you need to fill out and attach the appropriate Schedule to your return.

9. Move since your last tax filing? Make sure you update your address with the IRS. Provide your correct address on your tax form or file Form 8822.

10. Looking to make a last minute IRA contribution? For 2009, the most that can be contributed to your traditional IRA is generally the smaller of the following amounts: $5,000 or $6,000 for taxpayers who are 50 or older or the amount of your taxable compensation for the year.

What happens if you don’t file your taxes?

This is a question I have heard many times throughout the years. It is why JK Harris – and companies like ours – are in business. For a variety of reasons, taxpayers who cannot or do not file their income taxes and end up coming to us for help, once the IRS catches up with them.

With the current economy and the high unemployment rate, many taxpayers may be very tempted not to file their tax returns this year. It may seem like a money saver in the short term, but the money you save from not filing on time is only a temporary thing. Over time, it may end up costing you a lot more money.

You may argue that there are people who get away with not filing their returns. The fact is, the IRS catches up to these people, sooner or later. When they do, it is usually very expensive and very stressful. Penalties and interest on an IRS debt accumulate quickly and sometimes, for those who let a balance go unpaid for years, can become greater than the original amount of tax owed.

What are the penalties? If you owe, the penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.

You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.

If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

Another problem with not filing is the IRS may file a substitute return for you. Typically, these returns do not count any deductions and allow for only one exemption. This will raise your tax liability, which will in turn raise the penalties and interest on your account. (This can be corrected by filing the late returns, however you will still owe penalties and interest.)

So, what do you do if you know you owe and you cannot pay your taxes? Go ahead and file your tax return anyway. This prevents you from being fined for failure to file. Call the IRS or go to their website and download the form for an installment agreement. Filing for an installment agreement will allow you extra time to satisfy your tax debt and will keep you out of trouble with the IRS.

Tax Credit Helps Small Employers Provide Health Insurance Coverage

The IRS sent the following release discussing health care reform legislation and its impact to small businesses. Tax credits are now available to small businesses that offer health care to employees, and the IRS urges employers to be aware of the such changes.

WASHINGTON ― Many small businesses and tax-exempt organizations that provide health insurance coverage to their employees now qualify for a special tax credit, according to the Internal Revenue Service.

Included in the health care reform legislation, the Patient Protection and Affordable Care Act, approved by Congress and signed by President Obama on March 23, the credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

“This credit provides a real boost to eligible small businesses by helping them afford health coverage for their employees,” said IRS Commissioner Doug Shulman. “We urge small businesses and tax-exempt employers to look closely at this important tax break — which is already effective — to see if they qualify.”

The maximum credit is 35 percent of premiums paid in 2010 by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. In 2014, this maximum credit increases to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible employers that are tax-exempt organizations.

The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low and moderate income workers. It is generally available to employers that have fewer than 25 full-time equivalent (FTE) employees paying wages averaging less than $50,000 per employee per year. Because the eligibility formula is based in part on the number of FTEs, not the number of employees, many businesses will qualify even if they employ more than 25 individual workers.

The maximum credit goes to smaller employers — those with 10 or fewer FTEs — paying annual average wages of $25,000 or less.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt employers, the IRS will provide further information on how to claim the credit.

The IRS will use postcards to reach out to millions of small businesses that may qualify for the credit. The postcards will encourage small business owners to take advantage of the credit if they qualify.

More information about the credit, including tax tips, guides and answers to frequently asked questions, is now available on the IRS Web site, www.IRS.gov.

Posted By JK Harris