Now that many people have filed their tax returns they could be waiting for a refund.  It is not a secret that a phone call to the IRS frequently results in extremely long hold times and there is no guarantee of success once you finally speak with someone.  However, the IRS has now simplified the process by allowing taxpayers to electronically track their refund.  To check the status of your refund use the IRS resource “Where’s My Refund?” and follow the instructions.  For those who want to take it one step further you can also use the smartphone application “IRS2Go 4.0.”  If you are unable to get any information after using these resources, or if your refund is not being issued and you do not understand why, contact us at Hone Maxwell LLP today.  There are many variables that can affect your refund and we can help you figure out why it is not happening as you expected.  Also,  you can follow us on twitter @HMLLPTax or facebook at www.facebook.com/HoneMaxwellLLP for more tax tips and the latest updates on tax news.

 

Most people are breathing a sigh of relief to have 2013 taxes behind them.  However, in some ways, 2014 taxes literally start today.  First of all, the first quarter estimated tax payment for 2014 is due on 4/15.  This means people who have to pay taxes throughout the year, most notably independent contractors and sole proprietor business owners, have to make their first payment today.  Next, it is very hard to perform tax planning after the fact.  At this time, with the 2013 taxes fresh in mind, could be the best time to look at tax saving opportunities.  These strategies can then be implemented during the year.  Lastly, your CPA or tax preparer should have just completed asking you for all the information needed to prepare your return.  This is the time to make sure you take all the receipts and documentation you used to gather this information and store it in a safe and organized place in case there is ever an audit.  Furthermore, now that you know what was needed for 2013 you can continue to keep more diligent and complete records for 2013.

Filing a tax return and paying taxes can be intimidating and scary processes to some people.  Although the tendency may be to ignore taxes until next year, being proactive now can make 2014′s tax process easier and more manageable.  If you have questions about your tax situation, preparing for 2014 taxes, or how to organize in case you are ever audited, contact us at Hone Maxwell LLP.  Also,  you can follow us on twitter @HMLLPTax or facebook at www.facebook.com/HoneMaxwellLLP for more tax tips and the latest updates on tax news.

In a landmark decision, the Chicago district of the National Labor Relations Board has ruled that Northwestern football players are employees of the university and can unionize.  In the ruling the regional director stated that the players “fall squarely within the [National Labor Relations] Act’s broad definition of ‘employee’ when one considers the common law definition of ‘employee.”  For most fans of college football and college administration the obvious issue at hand is if this will lead to players being paid, creating their own schedules, or going on strike.  However, this is only the start of the questions that begin with this ruling.

Many students take jobs working for the college in order to earn extra money and these jobs can generate taxable income.  Generally, college scholarships and grants are not taxable.  Based on this new ruling it would seem clear that any straight pay these athletes get will be taxable, but does it also call into question the scholarship itself?  Is the scholarship a pay for performance on the field as opposed to a traditional scholarship to aid with the cost of school?  Furthermore, as employees it would create payroll tax responsibilities for the university.  Besides the typical water cooler talk about paying athletes and the problems that creates, universities are now also going to have to deal with the scrutiny of the taxing agencies as well.

Overall, employee classification is a major issue when it comes to payroll and income taxes.  In California, the EDD audits businesses to make sure they are properly classifying employees, and reporting and paying tax for these employees.  Employment status is not a black and white test, but rather a facts and circumstances analysis which leaves a lot of uncertainty.  It can be difficult for employers to navigate this world, and if done incorrectly can create problems including taxes and penalties if they are ever audited.  If you have questions about employee status or a payroll audit through the IRS or EDD, contact us at Hone Maxwell LLP today.  Also,  you can follow us on twitter @HMLLPTax or facebook at www.facebook.com/HoneMaxwellLLP for more tax tips and the latest updates on tax news.

The U.S. Supreme Court overruled a lower court decision and has decided in favor of the government on the issue of payroll taxes related to severance payments.  The Court ruled severance payments are subject to medicare and social security taxes under FICA.  In the case, Quality Stores Inc. was contending the payments were supplemental unemployment insurance and therefore should not be subject to FICA.  However, the court disagreed with this analysis and found the payments to be taxable wages as stated in the opinion – “Under FICA’s broad definition, these severance payments constitute taxable wages.”

The decision was very crucial for the government.  If the lower court decision was not overturned the IRS may have been forced to give more than $1 billion in refunds.  What does this mean to the average taxpayer getting laid off, a situation not uncommon in today’s market?  Overall, taxpayers are not going to see a new tax or new cost.  FICA taxes are taken out of every paycheck you receive from your employer.  On your W-2 you can see these amounts in boxes 4 and 6.  Therefore, severance payments will be very similar to receiving an additional paycheck from your employer when it comes to these taxes.

The issue of payroll taxes continues to be a major point of emphasis for the IRS.  The penalties for neglecting payroll taxes are very severe and can sometimes lead to criminal prosecution or assessment against unsuspecting members of the business.  If you have questions about your payroll tax obligations or issues, contact us at Hone Maxwell LLP today for a complete analysis of your case.  Also,  you can follow us on twitter @HMLLPTax or facebook at www.facebook.com/HoneMaxwellLLP for more tax tips and the latest updates on tax news.

 

Similar to the settlement with  JP Morgan over the Madoff ponzi scheme, once again the Department of Justice has announced a settlement under a deferred prosecution agreement will not be tax deductible.  This time it is Toyota that will not be able to have the taxpayers help fund its problems.  Toyota was under investigation for misleading acts related to the accidental acceleration problems.  The settlement with the Department of Justice contained a provision that made Toyota specifically state they would not try to receive any tax benefit or deduction from the imposed settlement payment.   With a settlement payment of $1.2B and a tax rate of 35%, absent this agreement Toyota may have been able to push over $400M of the payment back on the government.  Many taxpayers are happy with these recent events as it seems the government is taking an approach that it is not going to subsidize bad acts and illegal behavior.

Venezuela is in the midst of a very turbulent time.  There have been deadly protests, and many people feel the government may be in jeopardy.  The unrest has further complicated an already complex economic situation.  According to Oanda.com and the IRS reference table the current exchange rate is roughly 6.3 Venezuelan Bolivars to 1 U.S. Dollar.  However, ask any Venezuelan or recent traveler to Venezuela on Tripadvisor and they will tell you that you cannot walk into the bank in Caracas and exchange Bolivars for Dollars, let alone at a rate of 6.3:1.  As such, Venezuelans have taken to the black market in order to exchange Bolivars for Dollars.  This is not your average black market.  It is very established and because of the bank situation it may be more appropriate to label it the de facto market instead of black market – because black market seems to hint that there is a different legitimate option, which there is not in this case.  The black market even has an unofficial website (dolartoday.com), which tracks the rate people are exchanging Bolivars for other currencies.  Per this website, and numerous other reports, the actual exchange rate for Bolivars to Dollars is actually roughly 80:1.

How does this affect Americans?  U.S. citizens and residents have to pay taxes on worldwide income.  Therefore, any earnings from Venezuela would have to be reported on a U.S. tax return.  But at what rate?  Generally, the rate of translation is taken from Oanda, the IRS website, or another reputable source.  Since there is generally little variation it often isn’t an issue exactly what source is used.  In the case of Venezuela it can have disastrous consequences.  For example, if a taxpayer earning 500,000 Bolivars were to use the Oanda or IRS rate they would have to report earnings of roughly $79,000.  Nevertheless, because of the current situation they could not actually exchange this 500,000 Bolivars for $79,000.  Instead, they would be forced into the black market where the 500,000 Bolivars would gain them roughly $6,000.  Therefore, the U.S. taxpayer would have only $6,000 in their pocket but would have to pay tax on $79,000 of earnings.  This means a U.S. taxpayer with Venezuelan income likely would not even have enough earnings to pay the tax that he owed on those earnings.

This situation is leaving U.S. taxpayers to ask what is the correct rate to use on a tax return?  According to IRS.gov,

“The Internal Revenue Service has no official exchange rate. Generally, it accepts any posted exchange rate that is used consistently.  If you have a single transaction, such as the sale of a business that occurred on a single day, use the exchange rate for that day. However, if you receive income evenly throughout the tax year, you may translate the foreign currency to U.S. dollars using the yearly average currency exchange rate for the tax year.  If there is more than one exchange rate, use the one that applies to the facts and circumstances on a consistent basis.”

Applying this to the facts at hand, it would appear the IRS would accept the unofficial rate if it is the actual rate people are exchanging money.  However, as you can imagine, using a rate other than what is posted on the IRS website makes many taxpayers uncomfortable.  Rightfully so, because in the event of an audit it would be the taxpayer’s responsibility to show the IRS the rate they used is more accurate than the IRS rate, which is not a challenge that should be taken lightly.

Overall, there is no easy answer.  Even though the IRS does not say you have to use its rate, it does not mean taxpayers can pick any unofficial rate.  Likewise, using the IRS rate could cause problems itself.  There are many factors that can go into how to handle a decision such as this.  It is key to have extensive, proper documentation and also to make sure the actual finances of the situation match what is reported on the tax return.  If you have questions regarding exchange rates or foreign income, contact us at Hone Maxwell LLP today for a complete analysis of your situation.  Also,  you can follow us on twitter @HMLLPTax or facebook at www.facebook.com/HoneMaxwellLLP for more tax tips and the latest updates on tax news.

Most tax preparers are ethical and honest professionals who properly service and represent their clients.  However, every year many people fall victim to scams perpetrated by their tax preparer.  In one common scam the tax preparer will offer the taxpayer their refund immediately in return for signing over the refund on the tax return to them, but then a different return is filed showing a different amount.  For example, the tax return shows a refund of $1,000.  The tax preparer offers the taxpayer $990 right now to sign over their refund on the return.  This seems like a great scenario because the taxpayer gets the refund immediately.  The tax preparer then files an alternate return which shows a refund of $10,000.  All of this takes place without the taxpayer ever knowing because the return is deposited directly to the tax preparer.  Years later, the taxpayer gets a letter from the IRS that their refund was overstated, tells them the proper amount, and asks for payment of the overstated refund.  At this point, the taxpayer does have the ability to file the proper fraud claims against the tax preparer but it is not an easy or quick process.  Other common scams involve variations of identity theft, false items on the tax return, and improper reporting of tax credits.  All of these situations can create a financial and personal nightmare for the taxpayer.

Taxpayers can take precautions to avoid these problems.  First, make sure your tax preparer is a reputable, trusted member of the professional community.  Try to use tax preparers recommended by friends, coworkers or colleagues.  Avoid tax preparers offering too good to be true results or with other questionable advertising methods.  Only sign over a refund if you can completely trust the preparer and have an established relationship, even then, it may be advised to simply wait the conventional way for your refund.  Also, you have to take responsibility for every item on your tax return.  Even if you do not understand the technical aspects, review the return and make sure the numbers are familiar or make sense.  Ask questions if there is anything that looks out of place or you do not remember.  Lastly, NEVER ignore letters from the IRS.  The IRS has become very good at detecting fraud and correcting mistakes.  The sooner you reply the easier it may be to reach resolution.  The longer you wait the more difficult the process can be, and, most of all, it is not going to go away so waiting solves nothing.  (Click here for more)

If you think you have been victim of a tax scam or need a recommendation for a tax preparer contact us at Hone Maxwell LLP today.  As mentioned above, ignoring the problem is never the answer and the longer you wait the worse it can get.  Also,  you can follow us on twitter @HMLLPTax or facebook at www.facebook.com/HoneMaxwellLLP for more tax tips and the latest updates on tax news.

 

 

This week the IRS has ask taxpayers to try to refrain from calling for assistance because of the expected high level of calls this week.  You are still welcome to call the IRS, but you can expect to be on hold for a long time, considering that even during non peak times it can take hours to speak with someone.

In general, this points out a situation many taxpayers face.  Should they hire a tax attorney or try to resolve the issue on their own?  Some cases may be simply a straightforward misunderstanding, which if so, it is possible the taxpayer could fix themselves if they are willing to wait on hold for an extended period and potentially have to talk with several people.  However, there are several benefits to hiring an attorney to resolve the issue.  First and foremost, tax attorneys are more qualified to discuss not only tax issues but are much more familiar with the administrative process and know the best ways to resolve problems.  Tax professionals even have dedicated phone lines they can call to speak with the IRS, which can sometimes be much quicker and effective.  Next, the IRS is not under any obligation to tell you the best option for your situation.  The IRS merely has to give you the facts and tell you the option that they prefer for you to settle.  If you ask about other possibilities they will tell you the truth, but they likely will not make these suggestions and if you are not a tax professional you may not know to even ask.  Lastly, you have to decide what your time is worth to you.  When considering the costs of hiring an attorney you have to consider the time needed away from your work to potentially be on hold for more than a few hours and not even be guaranteed a resolution at the end of that time.  As mentioned, this doesn’t mean that you will be paying an attorney to be on hold with the IRS for an entire day because in general the tax professional phone lines have much shorter hold times.

Overall, make sure you consider all the pros and cons when deciding if you need to, or want to, hire a tax attorney to call the IRS on your behalf.  If you have questions about your tax situation call us at Hone Maxwell LLP today for an assessment of your situation.  We strive to do what is best for the taxpayer and if your issue can be resolved without our assistance, we will be happy to tell you the steps to take, and we will still be here if you reach a dead end or want assistance.  Also,  you can follow us on twitter @HMLLPTax or facebook at www.facebook.com/HoneMaxwellLLP for more tax tips and the latest updates on tax news.

 

 

As we enter into tax season, and as our firm continues to see people encounter problems due to misconceptions regarding tax filing, we have decided to recirculate this information from a post last year.  Being informed on these issues may help you from creating additional, unnecessary problems.

Although, the proper method of filing your return is to pay your tax at the same time, it does not mean that both have to be done at the same time.  Even if you owe money on your return and cannot afford to pay it, you should still file the tax return on time for several reasons.  First, you can avoid failure to file penalties that can be imposed on a late tax return.  Also, if you need to setup an installment agreement to pay the debt the IRS will not work with you until your return is filed.  By filing the return you are being compliant and also the amount due is determined.  If your return is not filed, you cannot setup any arrangement to pay your tax.  Lastly, if you fail to file your tax return the IRS may file a return for you using a “substitute for return.”  This is a process where the IRS will take all information reported to them, mainly income items only, and prepare a return for you.  Since the IRS does not have deduction information or other details, these returns are usually very unfavorable to the taxpayer.  The substitute for return can be updated with an actual return but it is a longer process than simply filing the return on time.

On the other side, another common misconception is that if the tax return shows a refund or no tax due the filing date is not important.  For the same reasons as above this is not true.  Even if you file a return showing a refund, if it is after the due date you can still be assessed failure to file penalties.  Also, due to the process discussed for a substitute for a return, just because you show a refund on your tax return does not mean the IRS will also show a refund if they prepare a substitute for return.

Overall, filing tax returns and paying tax is a process that can quickly get out of hand if you fall behind, causing you stress, penalties, and unnecessary headaches.  When dealing with the IRS it is almost always better to do as much as you can even if it is not everything.  You need a starting point for resolving a tax issue.  The longer you avoid the entire situation the fewer options you have, the more exposure to penalties you have and the situation could get out of control before you know it.  If you have questions about late filing, penalties or other tax issues contact us at Hone Maxwell LLP today.  Also,  you can follow us on twitter @HMLLPTax or facebook at www.facebook.com/HoneMaxwellLLP for more tax tips and the latest updates on tax news.

The levels of information needed are much different for preparing a tax return v. going through an audit.  Your tax preparer is only required to ask for verification on certain items, generally, when something doesn’t look right.  Beyond this low level of  required diligence, tax preparers can take your word for it on most of your information without looking at receipts, bank statements or other documentation.  This doesn’t mean these records aren’t necessary to have and keep.

If you ever are unfortunate enough to be audited you will need this documentation.  Often taxpayers incorrectly assume the information provided to their tax preparer is sufficient to defend their tax return in an audit.  However, the auditor will need to see all the receipts, statements, invoices, and other items of documentation and cannot take your word for it the same as your tax preparer.  Therefore, it is extremely important to retain all this information.  Retaining the information from the start is the easiest method.  After giving the tax preparer all the information to prepare the return you should then organize and save all your documentation so you are prepared if you are ever audited.  This will be much easier than a few years from now trying to find everything you had at that moment of the tax return.

As a general rule you should always retain all tax records for at least 4 years, and longer if possible.  If the IRS or CA allege fraud they could go back further than the standard audit period (3yrs IRS / 4yrs CA).  Also, some items might be relevant even after the original year of the tax return cannot be audited.  For instance, if you have an asset you are depreciating over 7 years, if the 7th year gets audited you might have to show how much you bought it for 7 years ago to justify the expense, even though that tax return from 7 years ago cannot be audited.

Overall, taxpayers need to be aware that they are responsible for the proper documentation of items on their tax return.  Your tax preparer should be able to tell you exactly what is needed for your records in case of an audit, even if they do not need to review it to prepare your tax return.  If you have questions about proper documentation or need assistance with an audit contact us at Hone Maxwell LLP today.  For more tax updates and the latest news you can follow us on twitter @HMLLPTax or facebook at www.facebook.com/HoneMaxwellLLP.