How to Increase Your Employees’ Take-Home Pay

Would you like to increase your employees’ take-home pay without actually increasing their salaries? One way to do that is to tell them about a valuable tax credit that could put up to $5,600 in their pockets.

Employees who earned less than $48,000 in 2010 may qualify for the Earned income Tax Credit, or EITC. The IRS estimates that up to one in four qualifying individuals will fail to claim and receive the credit. At JK Harris, we believe that no one should pay more in taxes than they are required to by law and that every taxpayer should take advantage of all the deductions and tax credits to which they are legally entitled.

The Earned Income Tax Credit or the EITC is a refundable federal income tax credit for low to moderate income working individuals and families. Congress originally approved the tax credit legislation in 1975 in part to offset the burden of social security taxes and to provide an incentive to work. When EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. In other words, some individuals can pay zero in taxes and still get a check from the government for the EITC. In addition, many states offer a similar credit; click here for a list of states with an EITC.

To qualify for the EITC, taxpayers must meet certain requirements and file a tax return, even if they would not otherwise be required to file.

Use your company communication channels to let your employees know they may be eligible for this tax credit. Include notices with their paychecks and W-2 forms; put posters up in employee break rooms; post information about the EITC on your company intranet site; write an article for your company newsletter; send an email blast to all employees; and include information about the EITC in your new employee orientations.

Don’t let your employees pay more in taxes than they should. Tell them about the EITC today.

CNN lists 6 new small business tax breaks

At JK Harris, we have a lot of small business clients who come to us for either back tax help through our tax resolution services or for bookkeeping services through JK Harris Small Business Services. And, since our company is technically considered a small business, we always keep an eye out for small business owners and their needs.

CNN Money ran an article a few weeks ago which talks about six new breaks for small business owners.

Own a business? 6 new tax breaks by Catherine Clifford

Doing your taxes stinks, right? No fun at all. But take note as you brace for your 2010 return: A handful of changes in the tax code could translate into a fatter refund check.

The Small Business Jobs Act, passed last September, and the historic health care reform law, passed in March, enacted hefty credits and deductions for capital investments and employee health insurance costs.

Here is a rundown of six new credits and deductions likely to affect the most small business owners. Read the rest of the article here.

Think you have back tax debt? Day trader nailed with $172 million bill for back taxes

From The New York Daily News

Marcos Esparza Bofill was shocked to find out he owed over $172 million in back tax debt. Esparza Bofill moved to New York i from Spain in 2006 when he decided he wanted to try his hand at day-trading. After one year – and barely surviving on a “beer budget” and no profit – he decided to go back home to Spain.

Esparza did not know he was required to file a tax return during the year he was swapping stocks. But, the IRS was tracking his every move – and they assumed that Esparza made pure profit on his day trading transactions. This would have given Esparza Bofill a whopping $500 million in income.

“Who is the IRS?” Esparza was said to have asked of his American friends. One friend commented that Esparza thought he was kidding when he told him the IRS had hit him with a $172 million dollar tax bill.

Marc Albaum, a Manhattan CPA points out that the tax lien will probably be completely resolved when Esparza Bofill files his tax return for the year in question.

“When you do not file a return, the IRS assumes you made pure profit,” said Albaum. “Now the remedy here is simply to file (a tax return). He could wipe out anything he owes.”

What should you do if you don’t get your W-2?

From IRS Tax Tip 2011-28

The IRS has reminded taxpayers about the steps they should take if they have not received their Form W-2, Wage and Tax Statement. Employers had until Jan. 31 to send employees a 2010 Form W-2 earnings statement.

The agency suggested four specific actions for taxpayers to take.

First, contact the employer to inquire if and when the W-2 was mailed. After making contact, allow a reasonable amount of time for the employer to resend or to issue the W-2.

Second, if the W-2 is not received by Feb. 14, contact IRS for assistance at (800) 829-1040.

Third, even if the taxpayer still has not received the Form W-2, a tax return or request for an extension to file must be filed by April 18. If the Form W-2 is not received by the due date, and the taxpayer has completed the previous steps, the taxpayer may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Form 4852 should be attached to the return, with an estimate of income and withholding taxes.

Finally, a taxpayer may have to file Form 1040X, Amended U.S. Individual Income Tax Return. If a missing W-2 is received after the return was filed using Form 4852 and the information is different from what was reported on the return, the return must be amended. Complete details can be found here.
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IRS Offers Five Tips if You Changed Your Name Due to Marriage or Divorce

From the IRS website

(The IRS recently published this tax tip to remind taxpayers it is important to let the IRS know you have changed your last name. It is also important – if you are a client of JK Harris & Company – to contact us to update any name or address changes so that we can stay in contact with you.)

If you changed your name as a result of a recent marriage or divorce you’ll want to take the necessary steps to ensure the name on your tax return matches the name registered with the Social Security Administration. A mismatch between the name shown on your tax return and the SSA records can cause problems in the processing of your return and may even delay your refund.

Here are five tips from the IRS for recently married or divorced taxpayers who have a name change.

1. If you took your spouse’s last name or if both spouses hyphenate their last names, you may run into complications if you don’t notify the SSA. When newlyweds file a tax return using their new last names, IRS computers can’t match the new name with their Social Security Number.

2. If you were recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.

3. Informing the SSA of a name change is easy; you’ll just need to file a Form SS-5, Application for a Social Security Card at your local SSA office and provide a recently issued document as proof of your legal name change.

4. Form SS-5 is available on SSA’s website at http://www.socialsecurity.gov, by calling 800-772-1213 or at local offices. Your new card will have the same number as your previous card, but will show your new name.

5. If you adopted your spouse’s children after getting married, you’ll want to make sure the children have an SSN. Taxpayers must provide an SSN for each dependent claimed on a tax return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return. Form W-7A is available on the IRS website at http://www.irs.gov, or by calling 800-TAX-FORM (800-829-3676).

JK Harris presents… News from the Net

There is a lot going on with tax news and financial information right now, so I decided to do a news round up – something I have not done on the Tax Resolution blog before. There were several informative links I found and wanted to share with our readers this morning. The first link was provided by one of our blog readers, Ann.

Ann covered the topic of “5 Tips for determining the amount a bank will lend you to buy a home.” Her article is an informative one that may help many of our clients who are getting out of tax debt so they can buy a home of their own. Thank you to Ann for providing this link.

MarketWatch covered some of the best tax tips in their Tax Guide 2011. This web guide offers advice on everything taxes. While it may be too late for your 2010 tax return, this helpful article can give you ideas on tax planning for 2011.

And, according to CNNMoney.com, it looks like Congress will be getting right to work on repealing the much hated IRS ruling with regard to 1099s. The rule, as it currently stands would have required small businesses to issue a 1099 IRS form not only to contracted workers, but also to any individuals or corporations from which they buy more than $600 in goods or services in a year. This rule was slated to take effect in 2012 and was much maligned by small business due to the amount of additional work it would cause. (Many small businesses would have had to hire additional staff to keep up with the paperwork alone.)

And last, but not least – the IRS’ tax tip of the day recommends taxpayers choose direct deposit to receive your tax refund faster. Visit the IRS website to read the full article.

Ten Tax Benefits for Parents

From the IRS Newsroom

Did you know that your children may help you qualify for some tax benefits? Here are 10 tax benefits the IRS wants parents to consider when filing their tax returns this year.

1. Dependents In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

2. Child Tax Credit You may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. For more information see IRS Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit You may be able to claim the credit if you pay someone to care for your child under age 13 so that you can work or look for work. For more information see IRS Publication 503, Child and Dependent Care Expenses.

4. Earned Income Tax Credit The EITC is a benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.

5. Adoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. Taxpayers claiming the adoption credit must file a paper tax return because adoption-related documentation must be included. For more information see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6. Children with Earned Income If your child has income earned from working they may be required to file a tax return. For more information see IRS Publication 501.

7. Children with Investment Income Under certain circumstances a child’s investment income may be taxed at the parent’s tax rate. For more information see IRS Publication 929, Tax Rules for Children and Dependents.

8. Higher Education Credits Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar-for-dollar, unlike a deduction, which reduces your taxable income. For more information see IRS Publication 970, Tax Benefits for Education.

9. Student loan Interest You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions. For more information see IRS Publication 970.

10. Self-employed health insurance deduction If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage after March 29, 2010, for any child of yours who was under age 27 at the end of 2010, even if the child was not your dependent. For more information see the IRS website.

The forms and publications on these topics can be found at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Honest Dialogue

by Ike Nobel, JK Harris Tax Consultant

I had a gentleman visit my office few weeks ago who had returned to JK Harris to contract for our tax resolution services. He met with me about a year ago, but at that time, had opted to try to handle his tax problem on his own. Time passed…fast forward to our meeting a few weeks ago. The gentleman returned to my office after having spent much time trying to handle his tax issue with the IRS on his own – until finally , he reached frustrated, he reached his boiling point and realized it was time to revisit with me to get help through JK Harris.

During the appointment, the client presented me 42 letters he recently received from an IRS office in Oklahoma. He also expressed that his recent contact from the IRS included a visit from an IRS agent to his home in New Jersey, letters from an IRS office in Kansas City regarding a defaulted arrangement, phone calls from an IRS office in Seattle, requests to send documents to the IRS in Fresno, California, and additional requests to forward payments to Andover, MA. He felt completely overwhelmed, until he contracted with JK Harris to help him.

Note: Since this client has just recently contracted with JK Harris, we will post the outcome of his case when his case comes to a close.

I have received a collection notice from the IRS: Is it a federal tax lien or tax levy? What is the difference?

Part one of a two part series

by Bryan Miller, Tax Analyst, JK Harris and Company

Enforced Collections

If you have received notices from the IRS regarding a federal tax lien or notice of intent to levy, you may be familiar with the feelings of panic and frustration that follow. Many taxpayers may be aware that they have a tax problem, but it is usually at this point that JK Harris attains many of our clients.

Most taxpayers perceive any correspondence from the IRS as negative and of equal merit. Not all correspondence from the IRS is negative. These notices happen to be quite negative correspondence in the form of a collection activity effort, however, they are certainly not of equal merit. Some taxpayers may confuse these notices, or may be somewhat familiar with one and not the other. However, most taxpayers are completely unfamiliar with IRS enforced collection activity and therefore do not know what to do or how to handle the situation.

Sound familiar? Understanding what a tax lien and a tax levy is, what it means to you as a taxpayer, and what these two notices affect in real day-to-day practice is essential to understanding one of the most feared collection tactics of the IRS.

To begin in short order, a levy is much more severe than a lien. For a definition from the IRS web site:

A levy is a legal seizure of your property to satisfy a tax debt…A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt.

Levy

A levy may take two forms, but the result is the same: 1) a levy may forfeit property in your possession, or 2) forfeit your rights to certain property that is held by others. This forfeited property will be used to pay down or pay off your back tax debt. Property in your possession may include a home, vehicle, boat, or business assets. Property that is rightfully owned by you but held by others includes: wages (often referred to as a wage garnishment), retirement account, certificate of deposit, money market account, bank account, professional licenses rental income, accounts receivables, 1099 income, commissions, and any cash value instruments such as loan value on life insurance.

Scary stuff, no doubt. But from all of the above, the IRS regularly uses some tactics more than others in everyday practice. Unfortunately, businesses are more susceptible to damage than an individual taxpayer. For example, individual taxpayers are much less likely to have a home or vehicle seized than a business owner to have assets seized.

Liquidating certain business assets is not the same as depriving someone of their primary residence. Even so for the business owner in most cases, the IRS would only look to liquidate excess, or non-essential assets that should not impede business operations. Taxpayers’ homes are usually only seized in cases of fraud or criminal activity. In either case, the IRS sees this as a last resort effort for such extreme measures to be taken.

Seizure of rights to property is much more common, the top two being wage garnishments and bank levies. These are not as damaging overall, yet very effective and attention grabbing, which is the point. Important to note here: the IRS notification process, for any reason, is via mail to the last known address; it is deemed a taxpayer’s responsibility to update the IRS with current information. So even if you do not receive the IRS notice by either mishap or misinformation through the mail, you will certainly take notice when money is frozen in your bank account, or your employer advises that the IRS has attached your wages. This can not only be embarrassing, but cause many residual issues on top of the IRS problems as well.

A real problem may arise here again for the business owner. If the IRS attaches account receivables (those who owe you money needed to run your operations), the account will have to pay the IRS in lieu of paying the business. This can particularly be a problem if the IRS attaches a major account of a business with only a few accounts, or a single account. Subcontractors or 1099 employees with a single employer fall into this category. Also, freezing a business bank account is no different to the IRS than a personal bank account until it is proven that the account is needed to run business operations. Even then, the IRS may only issue a partial levy release to pay necessary expenses while they keep the rest.

Tomorrow, part two of Bryan’s blog will discuss what a tax lien is, how to tell it apart from a tax levy and what the remedy for each situation is.

Things to keep in mind when choosing a tax preparer

The IRS sent out its list today of what to look for when choosing a tax preparer. Remember, it is important to choose carefully when you decide to have your returns prepared by a professional. JK Harris offers tax preparation in conjunction with our tax representation services, small business services or as a stand alone service.

If you pay someone to prepare your tax return, the IRS urges you to choose that preparer wisely. Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. So, it is important to choose carefully when hiring an individual or firm to prepare your return. Most return preparers are professional, honest and provide excellent service to their clients.

Here are a few points to keep in mind when choosing someone else to prepare your return:

1. Ask if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.New regulations require all paid tax return preparers including attorneys, CPAs and enrolled agents to apply for a Preparer Tax Identification Number — even if they already have one — before preparing any federal tax returns in 2011.

2. Check on the preparer’s history. Check to see if the preparer has a questionable history with the Better Business Bureau and check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Professional Responsibility for enrolled agents.

3. Find out about their service fees. Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers.

4. Make sure the tax preparer is accessible. Make sure you will be able to contact the tax preparer after the return has been filed, even after the April due date, in case questions arise.

5. Provide all records and receipts needed to prepare your return. Most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items.

6. Never sign a blank return. Avoid tax preparers that ask you to sign a blank tax form.

7. Review the entire return before signing it. Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.

8. Make sure the preparer signs the form and includes their PTIN. A paid preparer must sign the return and include their PTIN as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return.The preparer must also give you a copy of the return.