The Differences Between Tax Havens and Tax Shelters

Many people think of the terms “tax havens” and “tax shelters” as interchangeable. However, while these two things are definitely similar, they re not one and the same.   

First of all, it’s important to understand what each of these things does. What they do is actually quite similar, hence the confusion. Both tax havens and tax shelters are used to legally decrease the amount of income tax people with high net worth have to pay.

How exactly they operate and what they do, however, is where they differ.

Tax Havens

Tax havens are places where the tax laws tend to be lenient. This could be a whole country, a state, or even just a little area. No matter where a tax haven is located, it typically has very low income tax or no income tax, which attracts many to open up offshore banking accounts and trusts in these areas or to form international business corporations linked to the tax haven f their choice.

As mentioned, tax havens are all over the place. However, some of the most popular and commonly used include the Cayman Islands, Switzerland, The British Virgin Islands, and Bermuda, all of which offer privacy and protection to taxpayers.

Tax Shelters

Tax shelters, unlike tax havens, aren’t really a “place.” They are more of a method, a way to legally reduce your income taxes. A good accountant can help you find various tax shelters that could work for you, like new investment strategies.

A lot of the tax shelters that people enjoy are simply about timing- filing taxes at the right time and taking advantage of windows of opportunity. Others are tried and true, like 401(k)s and IRAs or government mutual funds or municipal bonds.

The best way to learn about tax shelters that could work for you is to speak with your financial advisor. This is also a good way to learn about tax havens and other money saving options for the tax year!

All About Auditors

In many situations, independent tax auditors can be an indispensable asset to a small business. However, not all businesses need them, and, for these businesses, they can be an unnecessary expense. As such, it’s important to know how to tell whether or not you need an auditor, and, if so, how to hire the right one   

Assess Your Need

You may need an auditor to assist you if you are struggling with and/or don’t understand some or all of the following:

l  Your general business, financial, and operations structures

l  Accounts Receivable management and confirmation

l  Analysis of account balances variances

l  Tracking and managing physical inventory

An auditor can do all of these things for you, helping you to save time and money. You could even hire an auditor temporarily to teach you how to do these things yourself. The bottom line, though, is that if you can’t do these things yourself, you need to get some help quickly!

Selecting the Right Auditor

If you are in need of an auditor, it’s very important that you choose the right one to meet your needs. Try and only hire auditors who are listed on the International Register of Certified Auditors. These auditors are some of the most qualified in the business and definitely know their stuff.

It’s also wise to choose an auditor who has experience in your specific industry since not all businesses and business structures are the same. Friends who work within your industry can often serve as a wonderful resource for finding these types of auditors.

Working with Your Auditor

Once you’ve hired the right auditor, it’s time to get to work! There are some things you’ll need to prepare and have ready for your auditor so that he or she can do the most effective job possible. These include:

l  Fully correct financial statements as requested

l  Requested records and documentation

l  Contact information for any people the auditor wishes to contact

Providing the most correct and accurate information promptly will make your auditor’s work a lot more reliable and thus a lot more helpful to you, so be thorough.

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Even Small Business Owners Need a Corporate Tax Accountant

As a small business owner, you probably already know all too well that tax laws can be confusing and are ever-changing. To help make things easier on you, we’ve provided a comprehensive listing and explanation of some of the most important tax deduction changes affecting small business owners this year. However, do keep in mind that, as a business owner, you need to be working with a corporate accountant who understands your business, its needs, and its unique structure, and who can help you to make the most of your deductions.

 

Change #1: Section 179

Section 179 of the United States tax code is a wonderful thing for small business owners. For years, it has allowed them to deduct the complete and total price of certain equipment or software purchased or financed to assist in their business dealings.

However, the tax law is changing this year, and the new law states that busi

nesses can only deduct up to a certain amount of the cost of such equipment or software as a business expense. While the limit used to be a hefty $500,000, it is now only $25,000.

That’s quite a large drop, so be aware of this change and work with your accountant to make sure you’re within the limits on your equipment or software purchases. If you’re not, your accountant may know some legal workarounds that can still help you to deduct and save within the bounds of federal tax law.

Change #2: Research and Development Tax Credit

An important part of any business’s growth and success is its willingness and ability to conduct comprehensive research and apply that research to growing itself and potentially expanding. The government understands this and, because it wants small businesses to succeed and therefore benefit the economy as much as possible, it has henceforth offered a research and development credit that allows these businesses to deduct any relevant costs.

Unfortunately, though, the IRS has found that many people were misusing and abusing this credit and has thus discontinued it. This is very sad news for many small business owners, but with the right accountant and advisor, you can find other deduction and credit options to help cover part or even some of your research and development costs.

Change #3: S Corporation Provisions

They say bad things come in threes, and unfortunately, this third one on the list relates to companies that have been designated as “S Corporations.” If your business falls under this heading, you’ll find that, this year, you’re no longer allowed to deduct certain charitable contributions, including contributions of appreciated property, built-in gains, and food.

Again, though, there is a positive side. If you speak with your tax advisor soon, you can find “workarounds” so that you can still save. In fact, there are ways around just about all of these changes, providing that you have the right professional help and advice.

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Facing an IRS Audit

Everyone dreads the thought of being audited - of having their taxes gone over with a fine-tooth comb by the IRS. Unfortunately, though, audits do happen, and they can happen to just about anyone. If you do get the dreaded news that you’ve been chosen for an audit (lucky you, right?), it’s important that you do the right things to avoid further trouble.   

Step #1: Check it Out

Before you panic or start trying to find all your tax information, take a deep breath and make sure the audit is for real. Sadly, a lot of fraudsters are adept at getting your personal information by claiming to be conducting an audit. An audit is only the real deal if the notice comes from the IRS in the form of a typed, official letter. Even then, it’s a good idea to contact the IRS or your tax advisor to make sure it’s legit- definitely check it out before handing over any tax or personal information!

Step #2: Gather Your Materials

If it does turn out that the audit is for real, your next step should be to carefully read the audit letter and then to gather all the forms it asks of you. Having these ready to go at the time of the audit will help things to go a lot more smoothly. More often than not, audits are being made as the result of a simple error, and providing the right information and getting the error sorted out may be all it takes to get life back to normal and the audit over with. Just do as the IRS asks to the best of your ability, and as long as you haven’t outright and obviously lied, you should be okay.

Step #3: Get Help!

Finally, don’t hesitate to ask for professional help if, at any point during the audit, you start to feel overwhelmed or confused. Professionals have dealt with the IRS before and can provide comfort, assurance, and advice during this troubling time. As long as you get the right help, if needed, and do what is asked of you, everything should be okay!

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Questionable Education Credits Issued

Most people are under the impression that fooling the IRS is a pretty difficult thing to do, but based on recent news that the IRS issued $5.6 billion in fraudulent educational tax credits in 2012, that’s looking easier and easier to do these days.

In 2012, 3.6 million taxpayers, most of them students, received funds for school in the form of credits. But for the vast majority of them, the IRS never received a tuition statement!   

And, believe it or not, the IRS, as of yet, does not know how to identify which claims were fulfilled in error and which ones weren’t.

The fact remains that money went to students who attended non-eligible schools and who didn’t take the required amount of classes to receive breaks or credits. Though it’s still working on fixing mistakes made in the past, the IRS is now trying to be more aware of its credits and sending them only to qualifying individuals, but that’s still a lot of money lost!

The IRS isn’t taking the blame in stride. Instead, it points the finger at Congress, saying that if it would just simplify education tax credits, restore budget cuts, and provide more tools for verifying student eligibility, these problems wouldn’t exist.

Regardless of who is to blame, the fact remains that the IRS needs to step up its game and only send out education credits to those students who rightfully deserve them and are working hard to secure them.

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Ignoring Obamacare

Barack Obama signing the Patient Protection and Affordable Care Act at the White House (Photo credit: Wikipedia)

Since it was first introduced, Obamacare, formally known as The Patient Protection and Affordable Care Act, has been quite controversial. While Americans who oppose the plan have found much to be mad at, the biggest bone of contention is the fact that all Americans are required to have qualifying health insurance coverage under threat of facing a hefty penalty

Some people have ignored this mandate, penalty and all, simply because they don’t agree with Obamacare. Others, however, have heard that there’s little enforcement for collecting the penalty, which is true in some cases, and have thus not bothered to get coverage.

However, nothing is ever foolproof, and, in certain circumstances, there could end up being a pretty big chance that you’ll have to pay the penalty if you don’t get approved coverage pronto!

The penalty can be applied to anyone who doesn’t have the required minimum essential coverage and who doesn’t file for an exemption. Exemptions are extended to those who would have to pay more than 8.05% of their household income to secure health insurance, who have recently filed for bankruptcy, who have a lot of unpaid medical bills, who are homeless, who have recently suffered the death of a love one, who are victims of domestic violence, who are caregivers to eligible family members, or who have been through a natural disaster.   

If you don’t fit into one of the exemption categories mentioned above, you could face a $325 penalty as well as a penalty of $162.50 per uninsured child. There are still some exceptions and loopholes however, and some exceptions, such as having a higher tax filing threshold, could end with you paying even more in penalties!

Actually collecting those penalties, however, is where things get tricky. See, the IRS doesn’t have much power when it comes to enforcing the penalties. It can’t file a notice of a tax lien or attach a lien to any accounts, nor can it impose other penalties or start criminal proceedings. What it can do, however, is take the money out of your tax refund or keep accruing fees until you qualify for a refund.

If you don’t want to risk losing your refund or losing it in the future, your best bet is to get coverage or file for an exemption. If none of the previously mentioned exemptions apply to you but you still can’t get coverage, then you can file for an open-ended hardship exemption to avoid the penalty. In short, you may not face penalties and fines now, but you might later, so it’s best to keep yourself out of trouble by following the law and getting coverage if possible. 

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What You Didn't Know About Life After Credit Card Debt

For many Americans, getting out from under credit card debt is something they can only dream about. Unfortunately, though, if and when they finally do pay off their credit card debt, they sometimes have an ugly little surprise waiting for them.   

That ugly “surprise” often comes in the form of a...well...form, known as a 1099-C. See, whenever debt is forgiven or canceled, that is considered to be “income,” so if you end up settling your debt for less than you actually owed, the remainder would be considered income. You’ll know if this applies to you because you’ll receive that dreaded 1099-C in the mail.

If you do receive one of these forms, it’s time to grin and bear it and to handle it correctly to avoid further trouble. First things first, don’t toss that form out! A lot of people do, not realizing that it applies to them. If you know you’ve recently settled some debt, expect the form and be on the lookout for it.

When the form does come...and it definitely will...make sure you actually are responsible for including the money as income. There are some loopholes. If the amount is less than $600, for example, it doesn’t count, or if the debt was canceled as part of bankruptcy or insolvency, it doesn’t count. You can learn about other exceptions from the IRS, or, even better yet, by consulting a professional tax advisor.

If you’re not lucky enough to have one of these loopholes apply to you, remember the amount and record it as “other income” when you file your taxes or tell your tax advisor or preparer to do so. This form may not be welcome in your life, but if you take care of it appropriately, at least you’ll have one less thing to worry about come tax time!  #1099-c

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What to do About Dependents Income

When you have dependents, knowing how to handle them, in terms of taxes, can be a little tricky. Basically, you have two choices when it comes to dependents. You can either include them on your tax return or have them file their own returns.

 What you should do depends on a lot of different factors, but be aware that, in many cases, it’s easier and cheaper to simply include them on your return, which you are free to do providing that the dependent’s income doesn’t go above a certain amount.

Dependent Children                 

Children are the most commonly claimed dependents. They can typically be claimed as long as they are related to you in one of the following ways: child, step-child, brother, sister, brother or sister’s child, step-sibling, or foster child, or the descendant of one of these people.

In addition to falling into one of these categories, dependents must have lived in your residence for at least half a tax year, be under 19 or under 24 if enrolled in school full-time unless permanently disabled, and they must not have provided over half of their financial support in the year that they are claimed.

Dependent Relatives

Dependents are not always children. In fact, anyone whom you live with and support financially or who is related to you and whom you support qualifies as a dependent. The relative cannot be a qualifying child, as mentioned above, and must not receive more than $3,950 in yearly income and must receive over half of his or her financial support from you.

Claiming Rules

As you can see, there are some pretty strict but clear rules on dependents put in place by the IRS. Other rules that you must abide include the following:

l  You may not claim dependents who are not 65 or older or blind if their income is above $6,100

l  Do not file a dependent’s earned income on your taxes

l  Dependents who have unearned income typically have to file their own tax returns, although, in some cases, a parent may be able to claim a child’s unearned income.

As you can see, as you get deeper into tax code, the dependent rules start to get a little trickier. If you’ve got a complex situation or are afraid of making a mistake when it comes to claiming dependents, remember that it’s always smart to ask a tax professional for help. #Taxes #DependentsIncome #Naperville

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Self Filing Myths

A lot of the time, people are afraid of doing their own taxes. They’ve been warned that it’s “too hard” or even told that it’s pretty much impossible. And, while that may be true in certain complex tax situations, there are many people who file their taxes on their own and who can do just fine each year. You certainly don’t have to do your taxes on your own if the idea scares you, but do know that some of the things you’ve heard about self-filing are just exaggerated.   

Myth #1: It’s Too Tough

As mentioned above, one of the major reasons people shy away from doing their taxes themselves is because they’ve been told it’s just too darn tough. However, that’s not always the case. A lot of people, in fact, have relatively simple taxes that don’t require them to know or even understand a large chunk of the tax code.

In general, as long as you have a standard job with an employer and get your W-2 at the end of the year, filing your taxes should be relatively simple. If you are in one of these simple situations, filing your taxes yourself is probably going to be your fastest, cheapest, and easiest option.

Of course, that’s not to say that there aren’t situations where it’d be best to let a tax pro help you out. If, for example, you own your own business, have a lot of investment assets, or have recently been through some major tax-affecting changes, you should seek outside help to make certain you are receiving all the deductions and credits you deserve.

Myth #2: Audit Attraction

Another thing that people are often (wrongly) scared of is that, if they file their taxes themselves, they’re pretty much asking for an audit. That is a flat-out myth; nothing about doing your taxes on your own makes you more likely to be audited; we promise!

As long as you fill your taxes out correctly and fully, you probably won’t get audited, and, if you do, you’ll know that it was just random selection, not because you filed on your own.

One thing to consider however is that an audit is a scary process.  If you had used a professional, they will stand by you thru your audit. In this case, you need to weigh the pros and cons.

Myth #3: Low Earner

Finally, some people choose not to file their taxes themselves because they think they don’t have to file at all. That’s only true if your income was below a certain amount- it was $10,150 for single filers last year.

There are other exceptions too. The self-employed have to file if they earn $400 or more in a given tax year, and besides, it’s always good to file, even if you don’t have to by law. Filing is good proof of your income or lack thereof for verification purposes, you never know when this information will be needed!  #FileYourTaxes

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AGI v.MAGI

When it comes to filling out your taxes, there’s probably a lot of requested information on those forms that you don’t know the first thing about. That’s normal; after all, taxes can be confusing. While you’re not really expected to know EVERY single term on your list, you should at least know some of the most important, including and especially the “AGI” and “MAGI” terms, both of which can determine whether or not you’re eligible for certain tax credits and exemptions.

All About AGI     

AGI simply stands for adjusted gross income. In short, it’s just a measure of the income (or money) you bring in in a given year. Form 1040 will fill you in on all the allowed adjustments to go along with your AGI, such as IRA or other retirement plan contributions, half of self-employment taxes you’ve paid, alimony payments, self-employed health insurance fees, and the like. You can find a complete listing of all AGI allowed adjustments on the 1040 form.

After adjustments, the total amount of your AGI will play a role in determining your eligibility for certain credits and exemptions. This figure will affect, for example, how much you can claim on the dependent care credit, the adoption credit, the Hope and Lifetime Learning credit, and more. Do be aware that if your AGI is very high, you may end up not being eligible for certain deductions, such as total itemized deductions, mortgage insurance premiums, qualified motor vehicle taxes, and medical deduction allowances.

Moving On to MAGI

Your MAGI, which will often be close to your AGI, or, in some cases, even the same is your modified adjusted gross income. To arrive at this figure, you just add certain deductions, if any, back into your AGI. These deductions include student loan interest, qualified tuition expenses, passive losses, rental losses, and more. Check with your financial advisor or on your tax forms for a complete list!

The figure you come up with will play a role in determining if you are eligible for specific tax deductions, including whether or not your retirement plan contributions are deductible.

As you can see, the MAGI and AGI are very important and can really affect your taxes. To make sure you calculate your MAGI and AGI correctly and that you don’t miss out on allowed deductions and exemptions, contact your tax professional.  #Taxes  #NapervilleAccountant

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Where to Stash Your Retirement Cash

Most people realize that they need to save money for retirement. Unfortunately, though, a lot of people are unsure of where they should be saving that money. There are actually quite a few different options to choose from, such as money market accounts and standard savings accounts, but most financial experts agree that the two best options are 401(k)s and IRAs. These savings options can cut taxes and increase the amount of money that actually makes it to savings.  

As mentioned, both options are beneficial. Thus, which one you should choose really depends on your personal needs and savings goals. While you’d likely fare just fine with either choice, it’s always smart to talk to a financial advisor to determine the best savings option for you specifically.

401(k)s

A 401(k) plan is the way to go if you don’t mind a limit on how much you can deposit or if the limits are within your planned deposits. As of this year, you can put up to $18,000 in your 401(k) without paying a cent in taxes, and if you’re 50 or older, you can even add on an extra $6000 without getting taxed! Plus, in most cases, your employer will be willing to match  your donation amount, which can really get the money flowing!

Another great benefit of a 401(k) is that you’ll likely be provided with professional advice and management of your account. That’s because employers are required by law to be honest and open about fees and investment choices, and most don’t want to take any chances of getting in trouble by mismanaging or otherwise being misleading about your 401(k).

401(k) funds are also protected in the event of litigation or bankruptcy , which offers an extra layer of protection to your retirement fund.

So, if you want these benefits, a 401(k) may be for you! However, if you don’t like lots of limits and want more investment and growth options, you may do better to choose an IRA.

IRAs

Like 401(k)s, IRAs give you an opportunity to stash away money for retirement without paying taxes on it. However, there are some restrictions in place, including income limits. Single adults who make above $61,000 each year, for example, cannot deduct contributions to their IRAs tax free. However, with some types of IRAs, such as Roth IRAs, you do have the option of withdrawing money tax-free, so it’s kind of a give and take.

Even with this restriction, many people still find IRAs to feel less restrictive than 401(k) plans. However, with an IRA, you won’t enjoy the same kind of protection you would with a 401(k) and you’ll be the one responsible for figuring out the best way to invest with your IRA or hiring and paying a professional to do it for you since workplaces typically don’t offer help with IRA management.

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Is the IRS Using Outdated Software?

If you pay attention to financial news, then you may have heard the rumors that Microsoft is running outdated Windows XP operating software, and unfortunately, that is true. The “big deal” about this discovery is that the software has year-old security updates, which is scary since you and others trust the IRS with your most personal and sensitive information. Even more scary is the fact that the current software the IRS uses to catch fraudsters in the act is twenty years old! 

A lot of people believe that the IRS’ continued use of outdated software is to blame for the recent hack of over 100,000 taxpayer accounts, in which hackers used personal information they’d previously obtained to get personal data about people, such as tax returns.

Though that scare has been taken care of, it and other security concerns were still brought up to the House Financial Services and General Government Committee. There, congressman Ander Crenshaw expressed grave concern that the IRS had not updated its software in such a long time.

The IRS’ commissioner, John Koskinen blamed budget cuts for the lack of updates, though many people lack sympathy, due to the fact that the Government Accountability Office (GAO) found almost 70 problems on its last assessment of IRS security controls.

Information such as this often comes as a cold shock to well-meaning taxpayers. After all, the last thing you think when you send your information off to the IRS is that it will be unprotected. While the IRS is supposedly taking measures to increase security, this news really drives home the fact that you can never be too careful when it comes to protecting your financial information and alerting your financial advisor at the first sign or even hint of fraudulent or suspicious activity.  #ProtectingFinancialInformation

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How to Save Big with Tax Credits

No one likes paying income taxes. In fact, pretty much everyone who is able to will hire someone to help them sort out these taxes and, in the end, pay the lowest amount possible. With or without a professional, however, you can minimize the amount of taxes you pay by taking advantage of all possible tax credits available. However, you can’t do that if you don’t know about the various credits and how they work, so we’ve provided a rundown of some of the most money-saving tax credits and if and/or how you can take advantage of them.

Credit #1: The Earned Income Tax Credit                     

The Earned Income Tax Credit, which was established in 1975, is a wonderful way to save money and make those  tough working days (which pay off, in the end) a lot easier to get through. You may qualify for this credit if your income falls within a certain pre-determined limit and other factors, such as marital status and number of dependents, also fall in line. The credit is available to eligible persons between 25 and 65, and you can find out if you qualify by checking out the IRS’ website or talking to your financial advisor.

Credit #2: The Energy Credit

If you are a “green” type of person who cares about Mother Nature and taking care of the planet, you can be rewarded for your conservation efforts through various tax credits. There are credits available for making certain approved energy efficiency changes to your home, such as installing solar panels. Before you do anything or file for a credit, speak to a financial advisor to make sure your changes are reward-worthy in the eyes of the IRS.

Credit #3: The College Tuition Credit

If you’re footing the bill for one or more students to attend college, you may be eligible for the College Tuition Credit, also known as the American Opportunity Tax Credit. Even if you have been denied for other tuition-related credits, check this one out since its income limits tend to be higher than other, similar credits. The only drawback is that if you do qualify for and take advantage of this credit, you won’t be able to include tuition and other school-related fees as a deduction, so, for best results, check out each method, and see which one works the best for you.

Credit #4: The Retirement Savings Credit

Finally, if you’re making the effort to save for retirement, no matter what your age, you may qualify for the Retirement Savings Credit, also sometimes known as simply the Saver’s Credit. With this credit, you can deduct contributions to retirement plans, leading to a lower tax bill. As is the case with all of these credits, however, and with any others you may discover, not everyone qualifies, so working closely with your tax advisor is always your best bet for getting all of the savings to which you are entitled and discovering new ones as well.  #TaxCredits

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How to Get a Bigger Paycheck

Everyone likes the idea of getting a large tax refund, especially if their income throughout the year is lower than they might like it to be. However, a big tax refund isn’t always a good thing in the long-run and could indicate that you need to be taking more W-4 tax exemptions.  

When you file for more exemptions- which you can do when you first start a new job or later by contacting someone in Human Resources (HR)- you’ll have fewer tax dollars withheld. Filing for more exemptions will inevitably to a reduced tax refund, but, on the upside, it will also lead to larger paychecks throughout the year.

Do be careful, however, to withhold at least the required amount (check your state and personalized guidelines with the IRS and/or your financial advisor, or, if you’re a do-it-yourself type person, use the IRS’ withholdings calculator), or you could face penalties, which would defeat the whole purpose of changing things up.

While it’s nice to get a huge payoff come tax time, most people would prefer to simply have more money on a regular basis and in their day-to-day lives. If that’s you, then follow these “big paycheck tips,” and you should get your desired results.  #BigTaxRefund

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What to do if Identity Theft Happens to You

We all know that identity theft happens, but, if we’re being honest, most of us don’t think it will ever actually happen to us. In truth, though, absolutely anyone, no matter how careful they are, can be a victim of identity theft.

If this unfortunate crime does happen to you, you’ll probably be notified via a letter from the Internal Revenue Service (IRS). The letter will tell you if a false income tax return was filed in your name and/or with your social security number. If that does happen to you, you might feel shocked and

upset, but it’s important to move past your emotions and act quickly, especially since there are a lot of things you can do to make things right once again, and the sooner you do those things, the less hassle and trouble involved.

Step #1: Tell Everyone What’s Happened

First things first, if you find out (or even suspect) that you have been the victim of identity theft, you need to let absolutely everyone related to your finances know. To start with, notify your accountant, financial advisor, or any other professional financial services you utilize. For best results, send over a copy of the IRS letter or suspicious communication you received. Actually mail this information in too just in case your email or other online communications have been hacked.

You’ll also want to send some kind of response to the IRS. Pay attention to the directions you receive on your notification letter, and follow them exactly. The IRS is a very busy agency, so they don’t have a lot of time for people who can’t follow basic directions. In most cases, you’ll need to complete and send in the IRS’ Identity Theft Affidavit (Form 14039).

Step #2: Contact the Credit Bureaus

In the United States, there are three major credit bureaus, and they are all connected. So, fortunately, if you contact just one of these bureaus and set up a fraud alert, all of the others will be informed as well. However, if you want to be extra cautious, there is no harm in contacting all of three bureaus, whose contact information you can find below.

l  Equifax: (866) 349-5191

l  TransUnion: (800) 680-7289

l  Experian: (888) 397-3742

Step #3: Get in Touch with the Federal Trade Commission

The IRS isn’t the only organization that cares about your experience with identity theft or that needs to know about it. You will also need to fill out the appropriate forms with the Federal Trade Commission (FTC). Just like the IRS, this organization has its own identity theft complaint/affidavit form that you will need to fill out.   #IdentityTheft

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How to Reduce Taxes for the Coming Year

It might seem a little premature to be worrying about next year’s taxes now- several months before filing time- but honestly, there are a lot of incentives for planning ahead, such as avoiding stress, late filing fees, and the like. Plus, you can get a jumpstart on some tried and true money-saving strategies, which we’ll outline here, that can help you to greatly reduce your taxes.

Savings Strategy #1: Maximize 401(k) Contributions

If you want to reduce your taxes, then starting early in the year is a must. Throughout the year, you can make efforts to reduce your taxable income, which you can do super simply just by maximizing your 401(k) contributions. You have until December 31^st to rack up the tax deductions, so it’s still not too late to start!

Even if you don’t have a 401(k), amping up the contributions to just about any retirement savings plan will do the trick of lowering your taxes. Any money you do contribute won’t be considered taxable, leading to a lowered tax bill.

Just be aware of the current contribution limits ($18,000 for those under 50 and $24,000 for those 50 and up) so that you don’t go over and defeat the purpose.

Savings Strategy #2: Sock Away Money in a 529 Plan

Another thing that can really help you is contributing to a 529 plan. Not only will this enable you to cut away at your tax bill, but it will also give you money toward your child’s college education.

Your investments will grow without incurring any taxes, and in some states, contributions may even make you eligible for certain credits and deductions. Check with your financial advisor to see which options are available to you.

Savings Strategy #3: Be Charitable

Having a giving spirit can lead to a lowered tax bill. Whether you donate money, goods, or both to tax-deductible organizations, you qualify for tax credits. Just make sure that the organization you are donating to counts as a verified charitable organization- the IRS maintains a list of such organizations so that you don’t end up giving and getting nothing in return.

Savings Strategy #4: Open a Health Savings Account

Finally, you may want to consider opening a health savings account (HSA). These accounts can be used to stash away money, and you can even deduct that money tax-free- as long as it’s for healthcare costs.

There are limits to how much can be put into these accounts ($3,350 for most individuals and $6,650 for families). As long as you follow the rules, your contributions will not be taxed, and if you don’t use the funds in a given year, they’ll simply roll over to the next one.

As you can see, there are lots of ways to pay less in taxes in the coming year, but you’re best off getting a head start now!

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New IRS Tactics to Help Prevent Tax Fraud

Tax fraud, identity theft, and the like have become such big problems in recent years that state tax administrators, tax companies, and the IRS have all collaborated to come up with what they hope will be a strategy to prevent or at least reduce tax fraud. These three bodies have agreed to share information with one another whenever suspicious returns are noticed and to use stronger authentication methods when it comes to verifying taxpayers’ identities.

These changes are expected to take place in time for next year’s filing season, but don’t expect to notice them. Many of the changes, such as the new authentication processes, will take place in a way that isn’t easily observable to taxpayers. In fact, most taxpayers are unlikely to notice any differences when they file.

So, what exactly will be different? Well, to begin with, the makers of the tax filing software are going to be sharing information with the IRS and the state revenue department that will allow these organizations to determine if the return was filed from a “safe” computer, how long it took for the return to be completed, and other information that could indicate fraud.

Many people are incredibly happy about these new changes and think they really will be the first step in ending fraud. The CEO of H&R Block has praised the IRS for its new plans and has agreed to undertake stronger authentication methods for his own company’s dealings.

Many other companies are falling in line. Tax preparers and software makers have readily agreed to share data with the IRS and to alert the organization to any computer system attacks or attempted attacks, as well as to suspicious filing patterns, returns, or behaviors.

These measures couldn’t have come at a better time. Identity theft and tax refund fraud have risen steadily over the last few years. Even better , the IRS has reported that they are working on more, similar measures to roll out in the near future. These latest developments are the results of only three months of work by the combined organizations after they noticed an increase in over-the-phone tax scams and fraudulent returns.

The future, in other words, is looking safer for taxpayers, and that’s a wonderful thing! #UseTaxpreparers #PreventTaxFraud

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New Regulations from the IRS

The Internal Revenue Service (IRS) recently released new final regulations related to filing claims for credits or refunds. These new regulations set in place where taxpayer scan and should file credit or refund claims.

The new regulations indicate that, unless special instructions have been given, taxpayers should file credit or refund claims at the service center where they are currently required to file tax returns. It doesn’t matter where the tax was originally paid or where it must be paid; the applicable service center is still where taxpayers should go to file credit and refund claims.

These changes were updated from Section 1210 of the Tax Reform Act of 1976, the Community Renewal Tax Relief Act of 2000, and the Internal Revenue Service Restructuring and Reform Act of 1998.

Finally, one add-on to the new regulations is that the IRS is now able to require additional claim forms as it deems necessary.

Taxpayers who are concerned about these new regulations, who need to know where their service center is, or who have questions about how the new regulations affect them should contact their accountants or financial advisors.

In fact, even without the new regulations, this is always a smart step to take when filing credit or refund claims. Professionals in the field can help you to ensure that all forms are filled out properly and correctly, reducing the chances of an audit or a delay or denial in receiving the credit.

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Will Tax Debt Collection be Outsourced?

If you’ve been paying attention to financial news lately, you’ve probably heard that the Senate Republications have proposed a controversial new legislation. Frustrated with the IRS and with the fact that reducing its funding doesn’t seem to be getting the desired results, these people are asking to outsource its tax debt collections, one of the IRS’ main sources of survival and primary functions.

The legislation request is included as part of a law to help extend the Highway Trust Fund, and the GOP is requesting that Senate leaders foot the bill for the extension by outsourcing some of the IRS’ collection duties to private collection agencies. The Senate Republicans believe that outsourcing can lead to over $2 billion in savings in a decade.

As is to be expected, not everyone is on board with this idea. The National Treasury Employees Union, for example, believes that outsourcing to private collection agencies would waste taxpayer’s money.  Likewise, the Center for Effective Government has been adamant about its belief that it is the government’s job, and the government’s job alone, to collect taxes.   

Those who do argue in favor of the new legislation are quick to point out that the IRS has not been very effective at collections. Others are looking for specific people or offices on which to cast blame, with many pointing to IRS managers and Congress itself. Many Democrats believe that the only problem the IRS has is poor funding, and that it needs more funding in order to better pursue collections.

Even those who are not politically affiliated tend to agree with the Democrats, saying that the IRS would do just fine at collections if it had more money and that outsourcing is not necessary. Because the vast majority of people see the potential flaws and threats of outsourcing IRS tax collection efforts, it’s not looking very likely that this will happen…but only time will tell.

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Tax Myths You Should Stop Believing

When it comes to federal tax law, there are a lot of misconceptions and just plain lies floating around out there. Sometimes, well-meaning family members or friends can confuse you with these “un-truths,” and, if you listen to them, you could even find yourself making some serious tax mistakes.

Below, we’ll share some of the most common tax myths that you definitely shouldn’t believe. And, if somebody tells one of them to you, you should probably set that person straight!

However, these are just a few of many myths, so before you file your taxes, it’s always best to research EVERYTHING or take the easy route and ask a tax consultant for advice.

Myth #1: An Extension to File = More Time to Pay

Sometimes, for a wide variety of reasons, people are unable to file their taxes on time.

Luckily, if that ever happens to you, it is true that you can get an extension, under certain circumstances, and avoid the penalty for not filing by the tax deadline.

However, it’s imperative to understand that, if you are granted the extension, you’re still required to pay your taxes by the deadline!

If you don’t, you’ll be smacked with a “failure to pay” penalty that will grow each month, so make sure you get that money in!

Myth #2: Students are Automatically Exempt from Filing Taxes

It would certainly be nice if all college students were completely exempt from filing taxes, but unfortunately, that’s not how it works

Even if you’re a student, if you work, there’s a good chance you’re going to have to file taxes (sorry!). If you earned at least $10,150 in 2014, for example, then you were required to file taxes this year, student or not.

That number changes a little bit each year, but the basic rule is always the same: no matter who you are, if you make above a certain amount, you’re required to file taxes.

Myth #3: Married Couples Have to File Jointly

Just because you’ve tied the knot, that doesn’t mean you’re also required to “tie” your taxes together. Filing jointly can be smart because it often minimizes the amount of taxes you have to pay thanks to benefits and credits, but that’s not always true.

Sometimes, it’s in your best interest to file separately. A tax advisor can really help you and your spouse to determine the best possible way for the two of you to file.

As you can see, there’s a lot of misinformation surrounding tax law. That’s why it’s so important never to make a filing decision based on hearsay and why it’s always in your best interest to have a professional helping you come tax time.

Increased Taxes on Alcohol?

Usually, raising taxes...on anything...isn’t something that most people are too fond of. However, there’s been a lot of support recently for raising taxes on alcohol, and that’s because a study conducted by the University of Florida in Gainesville has posted that higher alcohol taxes might just equal a lower number of drunk driving related accidents.

The study looked at the state of Illinois, which raised its alcohol taxes back in 2009. The tax increase applied to beer, wine, and distilled spirits. Following the tax increase, deaths related to drunk driving dropped by more than a quarter.

The thought now is that if increased taxes were applied to alcohol in other states, more drunk driving and alcohol related deaths could be prevented. Others, however, think the decrease in drunk driving related incidents was just a coincidence and point out that such incidents were already steadily going down before the new taxes were implemented.

Many people also argue that those with alcohol dependency are still going to buy alcohol, regardless of the increased tax, and that it’s responsible consumers who will suffer. While there is a lot of debate surrounding the study and support on both sides of the study, it will likely be quite some time before we see a nationwide increase on alcohol taxes, if we ever do.

Understanding and Navigating the FAFSA

If you have a child in college or about to enter it, then you probably know all about the Free Application for Federal Student Aid, otherwise known as the FAFSA.

However, you might not know quite as much as you think. The FAFSA can be confusing and frustrating, but if you bear with us and understand a few simple things, you’ll find the whole process of filling it out and getting it sent in a whole lot easier. 

  

First things first, the FAFSA and your tax returns are due around the same time. However, you are not required to file taxes before filling out the FAFSA, so don’t let that misconception keep you from getting the aid to which you and/or your children are entitled.

Also, bear in mind that FAFSA deadlines are of the utmost importance! If you miss the deadline, then there’s a good chance you’re not going to get all of the award money which you were quoted. Though the government may be willing to give you a certain amount of money, you won’t see it if your school runs out before you file!

Since it’s more important to meet the school’s FASFA deadline than it is to file your taxes first, you may have to estimate your income. Unless you’ve been through some major financial changes, you’ll probably be just fine entering your income amount from the previous year.

However, if you have experienced big financial changes, the FASFA website offers an “income estimator” that can help you to hazard a decent guess.

The good news is that, if you overestimate or underestimate, you can always change things once you have filed your tax returns. You can use the IRS Data Retrieval Tool to take the new and correct information and transfer it over to your FASFA as a correction. Your other option is to have your IRS tax return transcript sent to your child’s school.

If all of this sounds confusing, don’t worry! As you fill out the FAFSA online, links and instructions will appear to make filling out everything easier. Plus, you can always ask the financial aid office at your child’s school for assistance. Most people, though, find the process fairly simple, and these tips should help to make it even simpler!

Tips for Tax Time Savings

Tax-time is a stressful time, especially if you haven’t prepared for it properly!   

The best way to reduce the stress is to have a plan in place! Each year, after you file your taxes, take a look at what you were pleased with and what you wish was different. Then, you can come up with a plan to help improve the following years’s tax returns.

Below, we’ve offered up some simple strategies that can help you to have a better time on your taxes next year, but if you need more specific advice, a qualified CPA is always the best person to turn to.

Tip #1: Think Long-Term

When you file taxes, it’s tempting to just go with whatever is going to get you the most money the soonest. However, you really need to consider how your tax decisions today are going to affect you in the future; in other words, think long-term!

For example, when it comes to passive index investing, people often put off selling their best portfolio pieces because they don’t want to pay the capital gains. More often than not, though, capital gains aside, selling would still be the wisest and most profitable decision over time. And that phrase- “over time”- is key; no matter what kind of decision you’re trying to make, choose the option that is going to pay off for the longest amount of time, even if it costs you money upfront or gives you a smaller-than-you’d-like amount upfront.

Tip #2: Change Custodians (if necessary)

If your current custodian isn’t working for you, or, if another custodian is offering you better service and a nice bonus to change custodians, then by all means, do it! These days, you can typically switch everything over online, meaning no hurt feelings. Plus, no capital gains taxes are involved, so it’s really a win-win, providing you research your new custodian carefully and make sure it’s a good, long-term choice.

Tip #3: Get Help from a Pro

Finally, recognize that no matter how much you know about taxes and tax law, a professional is going to know more.

As mentioned, a financial advisor can be a wonderful asset to you. Even if you don’t want to work with an advisor on a regular basis, it’s still a good idea to have one go over last year’s tax returns and point out areas in which you can do better. It can make a world of difference!

Cutting the IRS Budget, Its More Dangerous Than You Think

No one likes paying taxes, even if the money does go to (some) good use. That, in turn, means that nobody likes the IRS, the agency that enforces those taxes. Hating the IRS, though, and lobbying to have its funding decreased isn’t targeting the right agency. The IRS isn’t really as responsible for those awful taxes you have to pay and those archaic tax laws you have to follow as Congress is.

See, Congress is responsible for creating and changing the tax codes, laws, and amounts. Its aim is to promote positive things, such as marriage and home ownership, by giving tax breaks to people who do them and to make things more difficult for people who don’t do the things they should, like saving up for retirement.

So, if you really want to blame an agency for the tax laws you don’t like, blame Congress...except

that doesn’t really work because Congress, in a twisted sort of way, would just blame it on the IRS. Yes, that’s right. Congress, which is responsible for most tax laws, often blames the IRS for things it doesn’t like and then cuts its budget as “punishment.” Does that sound fair or sensical to you?

Despite the fact that it’s not really right or fair for Congress to blame the IRS for its own shortcomings, its budget cuts hurt everyone. For starters, they reduce revenue for the Federal government by cutting the very funds the IRS uses to go after people who skip out on their taxes or commit tax fraud.

And the worst thing of all is that all of this pressure and loss of funding is only going to make the IRS more aggressive and more annoying. Since it won’t be able to go after as many fraudsters, it will have to come down super hard on those it does catch. This is all a big mess with the IRS getting the short end of the stick. Hopefully, before too much damage is done, Congress will realize that cutting IRS funding was a very, very bad idea.

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