Tips If You Owe Money to the IRS

Here are some tips if you owe money to the IRS: - If you receive a notice from the IRS, first check with a qualified tax preparer to make sure the tax assessment is correct before paying or making arrangements to pay. The IRS can make mistakes! - If you get a bill for late taxes, the IRS expects you to pay the amount owed right away. - Based on your circumstances, you may be granted a short additional time to pay. - With the combination of penalties and interest the IRS imposes for paying late, it might be cheaper to pay your tax bill with a credit card. For payments via credit card, the IRS uses processing companies, such as Link2Gov or RBS WorldPay, Inc. - You can pay your balance by electronic funds transfer by using the Electronic Federal Tax Payment System. To use this service, call 1-800-555-4477 or visit www.eftps.gov. - If you cannot pay your liability in full, you can request an installment agreement with the IRS. This is an agreement between you and the IRS in which you pay your balance in monthly installment payments for a set length of time. All required returns must be filed and you must be current with your estimated tax payments in order to set up an installment agreement. - If you owe less than $25,000 in tax, penalties, and interest, you can request an installment agreement online using the Online Payment Agreement application found at www.irs.gov. - To request an installment agreement by mail, complete and mail IRS Form 9465, Installment Agreement Request, with the tax bill you received from the IRS. The IRS will contact you and tell you if your request is approved, denied, or if they need additional information. - If you owe more than $25,000, along with completing form 9465, you must file Form 433F, Collection Information Statement. - A one-time user fee is charged if an installment agreement is approved. The user fee for a new agreement is $105, or $52 if the payment is deducted directly from your bank account. For certain lower income individuals, the fee can be reduced to $43. - If you pay your tax within six months, it is normally better not to set up an installment agreement. Penalties and interest will still accrue, but they will usually be less than the application fee. - If you have a balance due on your tax return, you may want to consider changing your withholding on your form W-4 with your employer. A withholding calculator can be found at www.irs.gov to help you determine how much should be withheld.

Moving

If you’re moving, and it’s related to starting a new job, you may be able to deduct the costs of moving on your tax return using Form 3903, Moving Expenses. There are three tests you must meet in order to be able to deduct moving expenses: • Move related to start of work: moving expenses must generally be incurred within one year from the date you moved. You do not have to have a job set up before you move. • Distance test: your new main job location must be at least 50 miles farther from your former home than your old main job location was from your former home. For example, if your old main job location was 15 miles from your former home, your new main job location must be at least 65 miles from that former home. • Time test: you must meet either the time test for employees or the time test for self-employed individuals. The test for employees is that you must work full time for at least 39 weeks during the first 12 months after you arrive in your new job location. Self-employed individuals must work full time for at least 39 weeks during the first 112 months and a total of at least 78 weeks during the first 24 months. If you meet the three tests mentioned above, you can deduct the following reasonable moving expenses: • Moving your household goods and personal effects. This includes the cost of packing and transporting your household goods and personal effects. You may also be able to deduct the costs of storing and insuring your items while in transit. • Traveling to your new home, including lodging but not meals. This includes airfare, vehicle mileage, parking fees and tolls, and transportation expenses. • You can deduct the costs associated with connecting or disconnecting utilities. • If your employer reimburses you for the cost of the move, you have to include the reimbursement on your income tax return. The following expenses cannot be deducted as moving expenses: • Any part of the purchase price of your new home, expenses of buying or selling a home, or mortgage penalties. • Car tags, driver’s license, or real estate taxes. • Home improvements to help you sell your home, refitting of carpet and draperies, and expenses of entering into or breaking a lease. • Pre-move house-hunting expenses, return trips to your former residence, and security deposits. If you have questions on this subject please contact Bell and Company for more information. 501.753.9700

Tax Benefits for Parents

People with children know those little ones can be pretty expensive. But there are some tax breaks available for parents. 1. Dependency deduction – most of the time a child can be claimed as a dependent in the year they were born. For 2010 the deduction is $3,650 from your income, or the amount your tax is figured on. 2. Child tax credit – this is a credit for taxpayers who have one or more children under age 17 who are dependents. The credit is $1,000 per child for taxpayers with income below $110,000 for joint filers, $55,000 for married filing separately taxpayers, and $75,000 for single taxpayers. 3. Child and dependent care credit – if you pay someone to take care of your child under age 13 so you can work or look for work, you may be able to claim a credit on 20 to 35% of the expenses. The maximum amount of credit is $3,000 for one child or $6,000 for two or more. 4. Earned income tax credit – this is available to certain low-income individuals. The amount of the credit varies with the number of qualifying children the taxpayer has and their adjusted gross income. The taxpayer must have earned income from wages, self-employment, or farming. 5. Adoption credit – taxpayers may be able to claim a credit on their tax return for qualified adoption expenses. Qualified adoption expenses include reasonable and necessary adoption fees, court costs, attorney fees, and other expenses directly related to the adoption of an eligible child. Costs for a surrogate-parenting arrangement are not eligible for the credit. 6. Children with earned income – if your child has income earned from working, they may have to file a tax return. Whether or not they have to file depends on their amount of earned income, unearned income, and gross income. See IRS Publication 501 for more information. 7. Children with investment income – if your child has investment income, it may be taxed at the parent’s tax rate if certain conditions are met. For more information, see IRS Publication 929. 8. Higher education credits – the American Opportunity, Hope, and Lifetime Learning Credits are education credits to help offset the costs of education. For more information see IRS Publication 970 or visit Bell & Company’s August 17, 2011 blog post. 9. Student loan interest – you may be able to deduct the interest you pay on qualified student loans. The deduction is an adjustment to income. For more information see IRS Publication 970 or visit Bell & Company’s August 17, 2011 blog post. 10. Self-employed health insurance deduction – if you are self-employed and pay for your own health insurance, you may be able to deduct the premiums you pay for yourself, your spouse, and any child under age 27, even if the child was not your dependent.

Earned Income Tax Credit - Do You Qualify?

By George Wong, CPA Have you heard about the Earned Income Tax Credit (EITC)? If not, you might possibly be missing out on free money from the Internal Revenue Service (IRS). According to the IRS, eligibility for the Earned Income Tax Credit (EITC) depends on the earned income, such as wages, salaries, tips, and net earnings from self-employment earnings, you have. Also, the following rules must be met: 1) Have a valid Social Security Number 2) Have earned income from employment and/or self-employment 3) Cannot use the married filing separate filing status 4) Must be a U.S. citizen or resident alien all calendar year 5) Cannot be a qualifying child of another taxpayer 6) Cannot have foreign earned income 7) For 2011 year, must have earned income and adjusted gross income each of less than: a) $43,998 ($49,078 married filing jointly) with three or more qualifying children b) $40,964 ($46,044 married filing jointly) with two qualifying children c) $36,052 ($41,132 married filing jointly) with one qualifying child d) $13,660 ($18,740 married filing jointly) with no qualifying children 8) Must have investment income (i.e. interest, dividends, net capital gains) of $3,150 or less for the year If you have a dependent, the dependent must also meet the following tests to be a qualifying child for EITC: 1) Relationship test: dependent must be related to you by lineal descent 2) Age test: dependent at the end of the year was: a) Younger than age 19 or younger than age 24 and a full-time student b) Any age if permanently and totally disabled 3) Residency test: dependent must live with you in the U.S for more than half of the year 4) Joint Return test: dependent must not have filed a joint return for the year, unless the dependent and the dependent’s spouse did not have a filing requirement and filed only to claim a refund 5) In addition, the qualifying child cannot be used by more than one taxpayer Please contact George Wong at Bell & Company, PA if you have any questions regarding the EITC. george.wong@bellandcompany.net or call 501.753.9700

ASCPA 2011 Public Service Award

We recently traveled to Arlington Texas to attend the Arkansas Society of CPA's Annual Banquet and received the 2011 Firm Public Service Award. It was an honor to be selected by the Arkanasas State Society as the State's Winner.

When is it Safe to Shred Tax Records?

By George Wong, CPA

Have you ever asked yourself: “When can I delete old bookkeeping files and tax files on my computer?” or “Why can’t I get rid of these old tax records that are cluttering up my house?” These are good questions! In this article, I will discuss when it is and when it is not appropriate to shred or erase (if kept on your computer) your tax records and files according to the Internal Revenue Service (IRS) guidelines.

As you may already know, the main purpose of keeping your prior year tax records is to have documentation if the IRS audits your tax return. Having tax receipts is your main defense in proving your deductions during audit.

Generally, a three year statute of limitations exists after the original date the return is filed or due, whichever is later, for all returns. Basically, the IRS can audit your tax returns filed three years ago. Therefore, you should generally keep your tax records for at least three years.

In special circumstances, the IRS may go back 6 years if the taxpayer omits from gross income an amount in excess of 25% of the amount of gross income reported on the originally filed tax return. This statute of limitations begins from the date the original tax return was filed. In an extreme case where either the taxpayer filed a false or fraudulent tax return, the taxpayer is willfully attempting to evade taxes, or the taxpayer does not file a tax return, the IRS may assess taxes. In addition, if a fraudulent tax return was filed, the IRS can impose additional taxes at any time, without regard to statutes of limitations, although the burden of proof falls on the government to prove fraud by the taxpayer. Hopefully in this case, you kept all of your tax records from the beginning of time.

When in doubt, keep all your tax receipts, records, and tax returns. It is also a good idea to hire a Certified Public Accountant or tax advisor to represent you in an audit by the IRS or state taxing authority. If you have any questions please contact by email george.wong@bellandcompany.net