Changes to Innocent Spouse Relief

With today’s divorce rate of first marriages at 50%, the ‘happily ever after’ that most people seek can be elusive. If things go sour in a marriage then they could go sour in other areas also, including jointly filed tax returns. When a couple files jointly they can be many benefits, but they are also both fully responsible for any taxes owed, interest and penalties. This also applies to any couple that lives in a community property state even if they file separately. This can detrimental to anyone going through a divorce financially if the person filing the return underreports or over deducts.

There is relief for the innocent spouse. The IRS has three ways to help innocent spouses with joint return that have gone awry, and they include:

  • Innocent Spouse Relief: which provides you relief from additional taxes that you may owe that your spouse failed to report, improperly reported, or if they claimed credits or too many  deductions.
  • Separation of Liability Relief: allocates additional taxes owed between you and your former or current but separated spouse on items not reported correctly. It allows you to pay what you owe.
  • Equitable Relief: may be applied for when you do to qualify for either innocent spouse relief or separation of liability for something not reported properly on a joint return, or for the right amount, but the payment remains unpaid.

In the past, the IRS has allowed a two year window to file for relief, but this has recently changed. Now as long as the statute of limitations has not expired then you can still file for relief, the two year window no longer applies. With this change, if you have applied for relief and were denied solely on the two year window, then you may reapply using the Form 8857 as long as the statute of limitations has not expired.

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IRS Collections Due Process Program and Collections Appeal Procedures

With the economic downturn in recent years, many taxpayers have found it hard to keep up with their income tax obligations. It is hard to recover when people are getting notices everyday and are feeling hopeless.  The IRS has two programs to help in the appeal process when there is nothing left but to lien, levy, or seize a person’s property. The Collections Appeals Program (CAP) and the Collections Due Process (CDP) are two ways a taxpayer has a chance to stop collection and appeal the process.

According to the IRS, taxpayers can use the CDP process when they have received one of the following letters:

  • Notice of Federal Tax Lien Filing and Your Right to Hearing Under IRC 6320
  • Final Notice-Notice of Intent to Levy and Notice of Your Right to a Hearing
  • Notice of Jeopardy Levy and Right to Appeal
  • Notice of Levy on Your State Tax Refund-Notice of Your Right to a Hearing
  • Post Levy Collection Due Process (CDP) Notice.

Taxpayer, who experience one of the following problems, has the CAP available for them:

  1. Before or after the IRS files a Notice for Federal Tax Lien
  2. If property has received a lien or levy
  3. If the IRS has terminated, proposed to terminate, rejected, modified, or proposed to modify an installment agreement.

The first step is to take action. Contact your CPA immediately. They can help you figure out which appeal process will work best for you situation. With immediate action collective activities can be frozen long enough to collect your thoughts and information. Request an “account transcription” form the IRS to be able to review all the transactions and outstanding balances for the account.

If the taxpayer chooses to go through the CDP process then there is 30-days from the initial notice letter to request a hearing. If the 30-day window is missed there can be a request for an “equivalent hearing”, but this will not suspend collection procedures.

The CAP hearing can be requested at any time, but cannot go on to tax court if the taxpayer contests the decision. The taxpayer can go on to CDP hearings, but only if they have not already pursued this option. By picking the right appeals process, the taxpayer and IRS can both can be happy with the results.

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Things to Consider With a Tax Extension

When it comes to filing yearly income tax returns, you find all types. There are those who are itching to file right after the New Year’s champagne toast, and those who trudge toward April 15 as if it were Armegeddon. And of course there are plenty of people who fall somewhere in between.

Because income can come from many different sources, and at all sorts of different levels, filing taxes is much more of a strain for some than others. Some may wind up with a quick and easy return, while others struggle to find the time, and sometimes the money to meet the deadline.

For those who see April 15 approaching a little too quickly, there is the option of filing the IRS form 4868 to get an extension. By filing an extension, taxpayers have an additional six months to file their taxes. But although there may be extra time, there may also be an extra expense. An extension allows a tax payer extra time to file, but not extra time to pay. If you are one of those who has to pay into the IRS or your state’s revenue department, holding off could mean that you’ll have to pay more. With an extension there is more time to file, but not more time to pay.

In order to limit fees, penalties, and interest taxpayers are best off paying their taxes at the time that they file for the extension. This can be tricky for some who don’t necessarily know what they owe. In order to make the process a bit easier, your tax accountant can estimate what you might owe. While not guaranteed to be accurate, these estimates will give you a place to start when it comes to knowing your tax bill.

If paying the whole amount is not feasible, pay what you can. Any penalties and interest will be calculated based on what you owe after April 15. If you’re due a refund, you won’t be charged penalties or interest. The following situations can make your tax obligation creep upwards: failing to file on time (your 4868 should take care of this), failing to pay, and Interest.

Failing to file can bring you a penalty of as much as 25% of your tax bill. For each month your return is late, 5% is added to your tax bill. This maxes out at 25%. The failure to pay penalty is less per month — only .5%, however this does not max out so delaying that payment too long could really add up. Interest charges can vary somewhat, but is currently around 4% of the amount that was underpaid.

If you’re feeling rushed or overwhelmed, knowing that there is an option to file an extension can bring some peace of mind, but still even with that extension it is always in the taxpayers best interest to get their taxes in order as soon as they can.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal..

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Innocent Spouse Tax Filing

In the United States, married couples usually file a joint tax return. This means that both are responsible for payment of taxes to and the accuracy of the information filed on the tax return. While in most marriages this is a fair arrangement, there are times when the spouse keeps secret information that should have been filed with the tax return or lies to the spouse about payments.

Starting in 1971, the United States Internal Revenue Service began to realize that sometimes a spouse was kept in the dark for about taxable income and told by the spouse the taxes were paid when they weren’t. In 1971, the IRS wrote the first regulations for its “innocent spouse” program. Under certain limited conditions, a spouse was not held accountable for the other spouse’s actions.

In 1984, and again in 1998, the tax code was revised to give further protection to innocent spouses. This relief was badly needed, as spouses planning divorce would knowingly mislead their spouse so that both would share the tax liability when property was divided during property settlement. In 2013, the IRS announced that it was eliminating the two-year rule for request relief under innocent spouse. In fact, the rule can be applied retroactively and any taxpayer denied relief because of the two-year limitation may refile.

In addition, criminals often cheat on their taxes without their spouse’s knowledge. This is not only true of organized crime members but also people who engage in white-collar crime. The tax code provisions separate the liability so that the innocent spouse is not held responsible for the deceitful acts of their marriage partners.

In addition, a divorced spouse may elect to take an option known as the “separation of liability.” Once this option is taken, the spouse must prove that they had no knowledge of fraudulent activity. If successful, they are relieved of responsibility for falsified joint tax return.

To get relief you need to file IRS Form 8857. You only have to file a single copy of the form even if you are seeking relief for multiple years. If you want to give the IRS more information concerning your request just attach a letter with your name, address, social security number, and filing year. Send the form and any attachments to:

Internal Revenue Service
Innocent Spouse
Stop 840-F
P.O. Box 120053
Covington, KY 41012

The IRS makes it hard to get innocent-spouse relief. Over 50,000 innocent-spouse applications were filed in the past year with less than half of them getting approval. But, more than 1,500 denials were due to the two-year time limit that has been amended.

Your tax accountant is a good resource for help in filing for this relief.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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A Delay to Tax Season

Since Congress made changes to the tax laws under the American Taxpayer Relief Act (ATRA), the IRS has announced that there will be a delay in the start of tax season. The Internal Revenue Service plans to open the 2013 filing season on January 30. At that time, they will begin processing individual income tax returns.

With the new changes enacted on January 2, the IRS needs time to update forms and complete testing on the processing system. The forms will reflect many of the changes made to tax laws by Congress. This means that for the majority of taxpayers, more than 120 million households, will be able to start filing their taxes January 30, 2013.

The remaining households will be able to start filing in late February or March due to the extensive forms and processing changes that need to be made to the system. The groups that this late start will affect the most are households claiming residential energy credits, depreciation of property, or general business credits. This should not cause too many problems because this group of individuals tend to file closer to the April 15th deadline or even file for extensions.

While the IRS has been working hard to open the tax season for individuals as soon as possible, they want to ensure that the forms and processes are updated. The IRS is required to update forms and instructions as well as making critical processing changes to the system adjustments before accepting tax returns.

The IRS believes that the vast majority of taxpayers will be able to start filing tax returns, regardless of whether they are paper or electronic, on January 30. Anyone affected by the Alternative Minimum Tax (AMT) along with anyone claiming state and local sales tax deduction, higher education tuition and fees deduction, and educator expenses deduction will be able to file on January 30.

The IRS will post more information on the other forms as they become available.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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It’s Tax Season: Here’s Some Write-Offs You Should Know About

Yes, it’s the New Year, which means it’s time to gather your W-2’s and start preparing your tax return. Yes, you’ve got until April to file, but why not start getting your information together now? And a big part of these documents you should be gathering are write-offs. You should already be well aware that you can write-off charitable contributions, money you gave to church and mortgage interest, but here’s a look at some other things that you can write-off to enhance your tax return or minimize what you owe to the IRS.

Student Loan Interest: If you’re still paying off student loans, you can claim the interest paid on them as a write-off.

Business Expenses: Have you purchased items for work that haven’t been covered by your company? Perhaps calendars, electronics, a cell phone, etc.? Write the expenses off on your taxes. As long as your company didn’t buy them for you, that’s an eligible write-off.

Home Business Grant: Do you work out of your home? Then you’re likely eligible for a home business grant, where you can write-off things like energy and utility bills, Internet costs, phone bills, ink cartridges and the costs of any new office equipment on your taxes.

Job Hunting Costs: As our country still lingers from its economic recession, the reality is that many Americans are still looking for work. And with job hunting comes travel expenses, mailing costs, food and room (in the case of overnight trips) and cab fares. Don’t let the opportunity to write these expenses off pass you by should you qualify.

Relocation Costs: Did you get a job within 50 miles of your original address that requires you to move? If you’re not given a relocation allowance by your new employer, these expenses can be written off on your tax return. This includes moving expenses, parking expenses, tolls, etc.

Child Care: You should already be aware of the fact that you can claim your children as a dependent for a tax credit, but did you know that you can also claim up to 35 percent of what you pay for child care services – that is, if you have your children in child care while you’re working? You can – and it’s an opportunity you shouldn’t be passing up. Child care is expensive – don’t be shy about recouping some of the costs.

While tax season for most is anything but fun, utilizing write-offs and deductions to the fullest extent can put money back into your pocket. Now we’re talking fun!

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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Steps to Prepare for the Tax Season

The start of a new year is a busy time for any individual. Although the year has just begun, it is time to start preparing for the tax season. By starting the preparations early, it is easier to avoid mistakes and ensure the paperwork is ready before deadlines start coming up.

Gather and Organize Paperwork

Although the W2 forms are not normally sent out or even prepared until the middle to the end of January, the forms are only part of the paperwork involved in taxes. Paperwork will also include the tax deductions, charity donation receipts and other receipts related to taxes.

Gathering as much paperwork and documentation as possible beforehand will make it easier to put the information into the tax documents after the W2 forms finally arrive. Early organization and preparation simplifies the amount of organization that is required later, which makes it easier to complete and submit the IRS forms before the due date.

Write Down Questions

Tax paperwork and preparation can lead to many complicated questions. Taking extra time to write down any questions that arise will prevent confusion when the paperwork is being prepared. The taxes that are related to new events, such as filing jointly after marriage when compared to filing separately, can lead to many questions.

When new situations arise or new tax laws are applied to the paperwork, it is important to write down the questions and find out the answers before working on the paperwork. The preparatory step makes it easier to avoid accidental mistakes.

Review Any Changes to Laws

Laws related to taxes are constantly changing as world events and the situation of the country takes different paths. Since the laws can change when new regulations are passed, every individual should learn about any changes to the filing system or any regulations that might apply to a personal situation.

After learning about any changes, determine if other questions arise. The legal aspects of taxes are often confusing and complicated, particularly when it differs from previous years. If any new questions arise related to legalities, then it is important to add the question to the list.

Look for Mistakes

Financial statements are not always accurate. Before using any financial statements on tax paperwork, it is important to look for and correct any mistakes. Although mistakes are uncommon, catching problems and changing the data to accurate figures will reduce the risk of accidentally filing the wrong information.

With the tax season around the corner, it is important to start taking steps to prepare the paperwork and documentation. Early organization is a key part of simplifying the process and avoiding complications when the tax paperwork is filed.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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Tax Advantages of Working from Home

When you are self-employed and working from home, it provides you with the freedom to accept the type of clients you want and work when and where you want. However, with owning your own home business, you will need to take control of any tax situations that would otherwise be taken care of by an employer. The following are some of the tax advantages you can utilize with a home business. Keep in mind some of these advantages do not apply to everyone and it is always recommended that you meet with a professional tax consultant to help you with choosing the best tax advantages for you and your business.

Business start-up costs: when you start a business, the amount of money you spend on business items such as membership kits, merchandizing and advertisements to promote your new business can often be used as a tax deduction.

  • Services used for the business: working from home means you will need a telephone, fax and internet services to conduct business. Many, if not all of these expenses can be used as a tax deduction.
  • Office supplies: all of the supplies such as paper, computers, pencils, desks, printers and fax machines are items that will be necessary for an efficient office and they can be used as tax deductions.
  • Advertising: this is often one of the most expensive costs for a business, but it is a necessary cost. Any advertisements you use including websites, advertisements, business cards and etc. can typically be used as a tax deduction.
  • Gas and automobile maintenance: if you use your vehicle to conduct business such as going to business appointments, luncheons or seminars your gas and maintenance bills can be used as a tax deduction.
  • Mortgage or rent: working from home means you will not be paying a separate rent fee for an office, however, you can deduct a percentage of your homes rent or the mortgage as a business expense for tax deductions.

There are several rules that apply to using items as tax deductions that are typically used for the household. For example, when using a percentage of the rent or mortgage as a tax deduction, you must use one designated part of the home on a regular basis and only for business purposes. The area that you claim for business purposes must be the place where you meet with customers and conduct daily business. Examples include a garage or spare bedroom that has been converted into a home office and the area should have a separate entrance.

These are only a few of the deductions that a home business owner can take advantage of, there are several more deductions that you can utilize during tax time. Keep in mind that a professional tax advisor will be able to guide you through what you will need to get through tax time.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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Global Opportunities: Small Businesses Make the Leap

Crowley Halloran Conference RoomIn today’s business environment, the more ways a company can share their product, the better for the company. Markets all over the world hold potential for small business, but what does it take to get into the foreign markets? Can small business take advantage of the global opportunities? The answer is yes. The global economy has never had more opportunities for small business, and with a strong global financial strategy, small businesses are competing in foreign markets.

To succeed globally, small businesses need to create a global financial strategy. Small businesses will face common issues and a few roadblocks in the global market, but having a well-defined plan can make the difference between being successful and failing in the new market

Some questions to consider when creating your plan are:

  • What performance indicators need measured for both financial and operation purposes?
  • How will accounts receivable and payable be set up and managed?
  • Is there enough support for multiple locations and countries?
  • How will the company keep control over the global financial process?
  • How are local tax regulations and requirements managed for each foreign location?
  • How are different currencies handled in foreign locations?

Being able to answer these questions and any other unique question regarding your company is the best way to start.

Some strategies that help in making a successful transition are setting up multi-entity accounting, understanding foreign tax laws and codes, managing multiple foreign currencies, and having local human resources. Businesses with multi-entity accounting have consolidated their business processes. By consolidating business processes, the company will eliminate duplicate work, create a standard workflow, and be able to support the demands of a more complex business model. Hiring a local accounting firm to help with all the local tax codes and regulations would be extremely useful when breaking into the global market. They will be able to navigate your business through the different regulations, and be able to keep up with the different currency fluctuations. They can also be part of your management team that will take care of the day-to-day running of the business.

Ventures into a new market are exciting new opportunities for small businesses. With a proper plan and a good management team, anyone, even a small business, can take advantage of the global business opportunities.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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