Harless Tax Blog

Harless Tax Blog

Expats Who Think Renouncing US Citizenship Means Tax Gains Might Need to Think Again

Wednesday, May 25, 2016

Although keeping up with US tax requirements while living and working abroad can provide annoyances and challenges, renouncing US citizenship to avoid IRS responsibilities could mean both penalties and a loss of tax credits. From losing the ability to shield much property from US estate tax (down to $60,000 for a non- citizen from the $5.45 million allowed for US citizens) to restrictive limits on giving gifts tax free to US citizens, expats cum non-US citizens lose these significant tax shelters.

What could be worse is the possibility of paying an exit tax, for high earners, or having the IRS comb carefully through your past five years of tax returns. Little things like not having filed a required form can lead to penalties in the thousands, and if you keep US property, but give up your US passport, you could be required to pay capital gains tax on unrealized gain on that property. Considering these factors, maybe meeting compliance on Foreign Earned Income and understanding the Foreign Account Tax Compliance Act sounds a little less painful. Whatever you choose, before you make the leap, review the financial pros and cons with your tax accountant to decide which option makes the most sense for your individual income and portfolio.

Tax Fraud Blotter: 'Disdain and Disrespect'

Tuesday, April 19, 2016

From Account Today Website. Read Original Article >

A roundup of our favorite recent tax fraud cases.

Birmingham, Ala.: Preparer Donald E. Steele, 41, has been indicted for preparing false income tax returns and for intimidating witnesses contacted by the IRS to question about returns he had prepared.

Birmingham, Ala.: Preparer Donald E. Steele, 41, has been indicted for preparing false income tax returns and for intimidating witnesses contacted by the IRS to question about returns he had prepared.

He is charged with seven counts of aiding in the preparation of a false federal return in 2010 or 2011 and with four counts of witness tampering in 2011. At the time, Steele operated Max Tax, a tax prep business owned by his wife.

Steele is charged with making false claims and fabricating deductions on federal returns for five taxpayers. Among the charges is that in 2011 Steele prepared a 2010 tax return for “H.N.D,” fraudulently claiming an exemption for her disabled dependent brother, identified as “K.L.,” when Steele knew that K.L. was H.N.D.’s boyfriend and not disabled. Steele also claimed a $1,000 American Opportunity Tax Credit based on a false claim that K.L. was a student and had incurred $4,000 in education expenses during the 2010 tax year.

Regarding the witness-tampering counts, Steele is charged with calling K.L. some seven or eight times after learning IRS agents were inquiring about the preparation of H.N.D.’s 2010 return and telling K.L. to lie to the agents and tell them that Steele’s wife had prepared H.N.D.’s return. Two other counts of the indictment charge Steele with preparing returns for “A.E.T.” for the calendar years 2009 and 2010, falsely claiming business losses for the taxpayer when she was not self-employed in either year and did not provide Steele any information pertaining to self-employment. Steele claimed a net business loss of $12,049 for A.E.T. in 2009 and a net loss of $11,938 in 2010, according to the indictment.

In another witness-tampering count, Steele is charged with contacting a former preparer at Max Tax and telling her that if IRS agents contacted her, she should withhold information and tell them that he did not prepare any returns and that his wife prepared and transmitted the returns.

The maximum for aiding in the preparation of a false federal income tax return is three years in prison and a $250,000 fine. The maximum for witness tampering is 20 years in prison and a $250,000 fine.

Los Angeles: Tax preparer Oscar G. Barabino, 56, has pleaded guilty to failing to report income totaling more than $421,000 on his 2008 and 2009 federal income tax returns, costing the government more than $140,000.

According to the plea agreement, for the 2008 tax year Barabino omitted some $296,987 from his total income, resulting in a tax loss to the government of approximately $102,932. For his 2009 return, Barabino omitted approximately $124,283 from his total income, resulting in a tax loss to the government of approximately $37,800.

As part of the plea agreement, Barabino has agreed to not prepare or assist anyone other than himself or his spouse in the preparation of any federal or California income tax returns during his period of supervised release. He further agreed to make full restitution to the U.S. for the tax losses.

Barabino faces a maximum of six years in federal prison and a fine of $500,000 when sentenced on July 25.

Providence, R.I.:
The fraudulent returns allegedly resulted in refunds totaling more than $685,000, which were deposited into a bank account controlled by Guzman.

The indictment charges Guzman with 33 counts of preparing false income tax returns, eight counts of wire fraud, four counts of aggravated ID theft, 23 counts of forgery and one count of theft of government funds.

In one alleged scheme, for tax years 2009, 2010, and 2011 Guzman, then employed at El Centro Multiservices in Providence, filed at least 33 fraudulent returns by creating, inflating or falsifying clients’ dependents, exemptions, credits, deductions and expenses, with and without her client’s knowledge.

The indictment alleges that Guzman also schemed to use others’ personal ID without their authorization to file fraudulent returns during tax years 2009, 2010 and 2011. It is alleged that refunds totaling $686,823.65 obtained through the filing of fraudulent returns were deposited into a personal checking account belonging to Guzman.

Birmingham, Ala.: Preparer Eunice F. Plummer, 36, of Demopolis, Ala., has been sentenced to 46 months in prison for filing more than $250,000 in false returns.

Plummer pleaded guilty in October to three counts of attempting to evade or defeat a large portion of the income tax she owed for 2011, 2012 and 2013. She also pleaded guilty to eight counts of filing false returns for others between 2011 and 2013.

According to the indictment and her plea agreement, Plummer operated Plummer Tax Services from 2010 to 2014, where she routinely inflated customers’ refunds by using such fraudulent information as wage amounts, child and dependent care expenses, education credits, and business losses.

Plummer also substantially underreported her income from operating Plummer Tax Services. Between the taxes she failed to pay on her own behalf and the boosted refund amounts from the fraudulent tax returns she filed for clients, Plummer cheated the IRS out of more than $250,000.

In January and February, while on bond awaiting sentencing following her guilty plea, Plummer re-activated her tax business under the new name Unique Tax Services, at the same location where she had operated Plummer Tax Services, and filed more returns that were fraudulent.

A judge told Plummer at sentencing that by continuing to file fraudulent returns after pleading guilty to that conduct, she showed “disdain and disrespect” to the court and acted like “a thief” and “a con artist.”

Tucson, Ariz.: Preparer Jose Jesus Gonzalez, 48, has received 21 months of imprisonment after pleading guilty to willfully filing a false individual income tax return. He was also ordered to pay more than $255,000 restitution and, separately, a $17,488 fine.

Gonzalez, doing business as Gonzalez Insurance and Tax Services, operated offices in Tucson from 2004 through 2009 and in Phoenix from 2009 through 2010. During the 2008 tax year, Gonzalez e-filed 90 income tax returns seeking a total of $651,500 in false claims for the First-Time Home Buyer Credit. The IRS disallowed a portion of the claims but paid $620,000 in false claims to taxpayers.

Little Rock, Ark.: A jury has convicted traveling minister Allen D. Miles, 58, on 14 counts for his role in a $4.8 million tax refund scam, specifically one count of conspiracy to commit wire fraud, 10 counts of wire fraud and three counts of aggravated ID theft.

Miles, acting with Zinara Highsmith, engaged in a false tax refund scheme in which approximately 2,750 false returns were filed, claiming refunds of approximately $4.8 million. Miles obtained personal ID information from congregants and others by telling them that he could help them obtain money from an alleged government stimulus fund program. Miles did not tell congregants that income tax returns were going to be filed on their behalf.

After he obtained the information, Miles forwarded it to Highsmith, who with others then created the false returns that generated refunds based on certain credits for which the taxpayers did not qualify, such as the American Opportunity Credit, Making Work Pay Credit and the EITC.

For each refund, Miles collected a $125 commission and Highsmith, $275; the taxpayers received the balance. Miles received approximately $300,000 for his efforts in the refund scam, which operated between March and July 2011.

Sentencing is June 13.

Five Tax Tips on Estimated Tax Payments

Friday, April 15, 2016

From the IRS.gov Website. Read Original Article >

You usually will have taxes withheld from your pay if you are an employee. However, if you don’t have taxes withheld, or you don’t have enough tax withheld, you may need to make estimated tax payments. If you are self-employed you normally have to pay your taxes this way. Here are five tips about making estimated tax payments:

  1. When the tax applies. You should pay estimated taxes if you expect to owe at least $1,000 in tax for 2016 after subtracting your withholding and refundable credits. Special rules apply to farmers and fishermen.
  2. How to figure the tax. Estimate the amount of income you expect to receive for the year. Also make sure that you take into account any tax deductions and credits that you will be eligible to claim. Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax.
  3. When to make payments. You normally make estimated tax payments four times a year. The dates that apply to most people for 2016 are April 18, June 15 and Sept. 15. There is one last payment on Jan. 17, 2017.
  4. When to change tax payments or withholding. Major life changes like the birth of a child can affect your taxes. When these changes happen, you may need to revise your estimated tax payments during the year. If you are an employee, you may need to change the amount of tax withheld from your pay. If this is the case, give your employer a new Form W–4, Employee's Withholding Allowance Certificate. You can use the IRS Withholding Calculator tool to help you fill out the form.
  5. How to pay estimated tax. You can pay online, by phone or from your mobile device. Direct Pay is a secure online service to pay your tax bill or your estimated tax directly from your checking or savings account at no cost to you. Visit IRS.gov/payments for easy and secure ways to pay your tax. Paying by mail is another option. If you pay by mail, use the payment vouchers that come with Form 1040-ES.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

Paying Your Taxes; Tips to Remember

Friday, April 15, 2016

From the IRS.gov Website. Read Original Article >

The IRS offers several payment options if you owe federal tax. Here are some key points to keep in mind when you pay your taxes this year.

  1. Never send cash. Electronic payment options are the quickest and easiest way to make a tax payment. You can pay online, by phone or with your mobile device.
  2. When paying with your mobile device use the IRS2Go app and make payments with Direct Pay, and by Debit or Credit Card. IRS2Go is the official smartphone app of the IRS.
  3. Check out IRS Direct Pay online at IRS.gov or with the IRS2Go app to pay directly from your bank account. It’s secure and free. You will get instant confirmation that you have submitted your payment.
  4. You can pay taxes electronically 24/7 on IRS.gov. Just click on the ‘Payments’ tab for access to IRS Direct Pay and other payment options. Pay in a single step by using your tax software when you e-file. If you use a tax preparer, ask the preparer to make your tax payment electronically.
  5. Whether you e-file your tax return or file on paper, you can choose to pay with a credit or debit card. The company that processes your payment will charge a processing fee. You may be able to deduct the credit or debit card processing fee on next year’s return. It’s claimed on Schedule A, Itemized Deductions.
  6. You may also enroll in the Electronic Federal Tax Payment System. You can use the EFTPS to pay your federal taxes electronically. You have a choice to pay using the Internet, or by phone using the EFTPS Voice Response System.
  7. If you can’t pay electronically, you can still pay by a personal or cashier’s check or money order. Do not send cash. Make your check or money order, payable to the “U.S. Treasury.” Be sure to write your name, address and daytime phone number on the front of your payment. Also, write the tax year, form number you are filing and your Social Security number. Use the SSN shown first if it's a joint return.
  8. If you pay by paper check, complete Form 1040-V, Payment Voucher. Mail it with your tax return and payment to the IRS. Make sure you send them to the address listed on the back of Form 1040-V. This will help the IRS process your payment and post it to your account. You can get the form on IRS.gov/formsat any time.
  9. Remember to include your payment with your tax return but do not staple or clip it to any tax form.
  10. Even if you can’t pay your tax in full, you should file your tax return on time. You should pay as much as you can with your tax return. That will help keep your penalty and interest costs down. You have options such as an installment agreement, which allow you to pay the balance over time. The Online Payment Agreement application is available on IRS.gov.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

Employers: Have fewer than 50 Employees? Here’s how ACA Affects You

Thursday, April 14, 2016

From the IRS.gov Website. Read Original Article >

Most employers have fewer than 50 full-time employees or full-time equivalent employees and are not subject to the Affordable Care Act’s employer shared responsibility provision. 

If an employer has fewer than 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is not an ALE for the current calendar year. Therefore, the employer is not subject to the employer shared responsibility provisions or the employer information reporting provisions for the current year. 

Calculating the number of employees is especially important for employers that have close to 50 employees or whose workforce fluctuates throughout the year. To determine its workforce size for a year an employer adds its total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year, and divides that total number by 12. 

Employers with 50 or fewer employees can purchase health insurance coverage for its employees hrough the Small Business Health Options Program – better known as the SHOP Marketplace. 

Employers that have fewer than 25 full-time equivalent employees with average annual wages of less than $50,000 may be eligible for the small business health care tax credit if they cover at least 50 percent of their full-time employees’ premium costs and generally if they purchase coverage through the SHOP.

Employers that provide self-insured health coverage must file an annual information return reporting certain information for individuals they cover. This requirement applies regardless of the size of the employer’s workforce. Self-insured employers with fewer than 50 full-time employees should have provided the 2015 information returns, Forms 1095-B, to their employees by March 31. The deadline for sending information Forms 1094-B and 1095-B to the IRS is May 31, or June 30 if filing electronically. 

For more information, visit our Determining if an Employer is an Applicable Large Employer page on IRS.gov/aca. The Small Business Health Care Tax Credit Estimator can help you determine if you might be eligible for the Small Business Health Care Tax Credit and how much credit you might receive.

IRS Offers New Cash Payment Option

Friday, April 08, 2016

From the IRS.gov Website. Read Original Article >

WASHINGTON — The Internal Revenue Service announced today a new payment option for individual taxpayers who need to pay their taxes with cash. In partnership with ACI Worldwide’s OfficialPayments.com and the PayNearMe Company, individuals can now make a payment without the need of a bank account or credit card at over 7,000 7-Eleven stores nationwide.

“We continue to look for new ways to provide services for our taxpayers. Taxpayers have many options to pay their tax bills by direct debit, a check or a credit card, but this provides a new way for people who can only pay their taxes in cash without having to travel to an IRS Taxpayer Assistance Center," said IRS Commissioner John Koskinen.

Individuals wishing to take advantage of this payment option should visit the IRS.gov payments page, select the cash option in the other ways you can pay section and follow the instructions:

  • Taxpayers will receive an email from OfficialPayments.com confirming their information.
  • Once the IRS has verified the information, PayNearMe sends the taxpayer an email with a link to the payment code and instructions.
  • Individuals may print the payment code provided or send it to their smart phone, along with a list of the closest 7-Eleven stores.
  • The retail store provides a receipt after accepting the cash and the payment usually posts to the taxpayer’s account within two business days.
  • There is a $1,000 payment limit per day and a $3.99 fee per payment.

Because PayNearMe involves a three-step process, the IRS urges taxpayers choosing this option to start the process well ahead of the tax deadline to avoid interest and penalty charges.

The IRS has been partnering with Official Payments since 1999 for taxpayers wanting to use a credit card to pay taxes.

In this new option, PayNearMe is currently available at participating 7-Eleven stores in 34 states. Most stores are open 24 hours a day, seven days a week,. For details about PayNearMe, the IRS offers a list of frequently asked questions on IRS.gov.

The IRS reminds individuals without the need to pay in cash that IRS Direct Pay offers the fastest and easiest way to pay the taxes they owe. Available at IRS.gov/Payments/Direct-Pay, this free, secure online tool allows taxpayers to pay their income tax directly from a checking or savings account without any fees or pre-registration.

“Taxpayers should look into the payment option that works best for them,” Koskinen said. 

Check IRS.gov/payments for the most current information about making a tax payment.

The IRS continues to remind taxpayers to watch out for email schemes. Taxpayers will only receive an email from OfficialPayments.com or PayNearMe if they have initiated the payment process. The IRS reminds taxpayers who haven’t taken this step to be watchful of any emails they receive saying there are tax issues involving the IRS or from others in the tax industry.

Don’t be Fooled; IRS Scams Continue to Pose Serious Threat

Tuesday, April 05, 2016

From the IRS.gov Website. Read Original Article >

The Internal Revenue Service has some advice for taxpayers this April Fool’s Day that may prevent them from being the victim of a tax scam: Don’t be fooled by scammers. Stay safe and be informed. Here are some of the most recent IRS-related scams to be on the lookout for:

Telephone Scams. Aggressive and threatening phone calls by criminals impersonating IRS agents remain an ongoing threat. The IRS has seen a surge of these phone scams in recent years as scam artists threaten taxpayers with police arrest, deportation, license revocation and more. These con artists often demand payment of back taxes on a prepaid debit card or by immediate wire transfer. Be alert to con artists impersonating IRS agents and demanding payment.

Note that the IRS will never:

  • Call to demand immediate payment over the phone or call about taxes owed without first having mailed you a bill.
  • Threaten to immediately bring in local police or other law enforcement groups to have you arrested for not paying.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Require you to use a specific payment method for your taxes, such as a prepaid debit card.
  • Ask for credit or debit card numbers over the phone or threaten to bring in local police or other law enforcement groups to have you arrested for not paying.

Scammers Change Tactics. The IRS is receiving new reports of scammers calling under the guise of verifying tax return information over the phone. The latest variation on this scam uses the current tax filing season as a hook. Scam artists call saying they are from the IRS and have received your tax return, and they just need to verify a few details to process it. The scam tries to get you to give up personal information such as a Social Security number or personal financial information, such as bank numbers or credit cards.

Tax Refund Scam Artists Posing as TAP.In this new email scam targeting taxpayers, people are receiving emails that appear to come from the Taxpayer Advocacy Panel, a volunteer board that advises the IRS on issues affecting taxpayers. They try to trick you into providing personal and financial information. Do not respond or click the links in these emails. If you receive an email that appears to be from TAP regarding your personal tax information, forward it to phishing@irs.gov.

Email, Phishing and Malware Schemes. The IRS has seen an approximate 400 percent surge in phishing and malware incidents so far in the 2016 tax season.

The emails are designed to trick taxpayers into thinking these are official communications from the IRS or others in the tax industry, including tax software companies. The phishing schemes can ask taxpayers about a wide range of topics. Emails can seek information related to refunds, filing status, confirming personal information, ordering transcripts and verifying PIN information.

Variations of these scams can be seen via text messages, and the communications are being reported in every section of the country.

When people click on these email links, they are taken to sites designed to imitate an official-looking website, such as IRS.gov. The sites ask for Social Security numbers and other personal information, which could be used to help file false tax returns. The sites also may carry malware, which can infect your computer and allow criminals to access your files or track your keystrokes to gain information.

If you get a ‘phishing’ email, the IRS offers this advice:

  • Don’t reply to the message.
  • Don’t give out your personal or financial information.
  • Forward the email to phishing@irs.gov. Then delete it.
  • Don’t open any attachments or click on any links. They may have malicious code that will infect your computer.

More information on how to report phishing or phone scams is available on IRS.gov.

Who is likely to face a tax audit and who isn't?

Friday, April 01, 2016

From the Clark Howard website. Read the whole article here >

The IRS audit: Everyone dreads it and so few know how to handle it! Fortunately, the good news is that audits are less common in general because of a severe budget crunch at the IRS.

Bull's-eye target on the rich, the self-employed

With 25% fewer people on staff to do audits, the organization has really had to pick its battles. So the organization has modified who they go after. They used to beat up on taxpayers who didn't make much money in the past. But now they have to go where the money is.

In 2015, the IRS audited about one out of every 10 returns by people who made north of $1 million. That's up 2.5% year over year for the fiscal year ended Sept. 30, the agency said Monday.

Reporting Foreign Income: Eight Tax Tips From the IRS

Thursday, March 31, 2016

From the IRS.gov Website. Read Original Article >

Did you receive income from a foreign source in 2015? Are you a U.S. citizen or resident who worked abroad last year? If you answered 'yes' to either of those questions, here are eight tips to keep in mind about foreign income:

  1. Report Worldwide Income. R By law, U.S. citizens and residents must report their worldwide income. This includes income from foreign trusts and foreign bank and securities accounts.
  2. File Required Tax Forms. You may need to file Schedule B, Interest and Ordinary Dividends, with your U.S. tax return. You may also need to file Form 8938, Statement of Specified Foreign Financial Assets. In some cases, you may need to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts. Visit IRS.gov for more information.
  3. Review the Foreign Earned Income Exclusion. If you live and work abroad, you may be able to claim the foreign earned income exclusion. If you qualify, you won’t pay tax on up to $100,800 of your wages and other foreign earned income in 2015. See Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, for more details.
  4. Don’t Overlook Credits and Deductions. You may be able to take a tax credit or a deduction for income taxes paid to a foreign country. These benefits can reduce your taxes if both countries tax the same income.
  5. Additional Child Tax Credit. You cannot claim the additional child tax credit if you file Form 2555, Foreign Earned Income, or 2555-EZ, Foreign Earned Income Exclusion.
  6. Use IRS Free File. Almost everyone can prepare and e-file their federal tax returns for free, using IRS Free File. If you make $62,000 or less, you can use brand-name tax software. If you earn more, you can use Free File Fillable Forms, an electronic version of IRS paper forms. Some Free File software products and fillable forms also support foreign addresses. Free File is available only through IRS.gov.
  7. Tax Filing Extension is Available. If you live outside the U.S. and can’t file your tax return by the April 18 due date, you may qualify for an automatic two-month extension until June 15. This extension also applies to those serving in the U.S. military abroad. You will need to attach a statement to your tax return explaining why you qualify for the extension.
  8. Get IRS Tax Help. Check the international services site for the types of help the IRS provides, including how to contact your local office internationally. All IRS tax tools and products are available at IRS.gov.

Six Tips You Should Know about Employee Business Expenses

Tuesday, March 29, 2016

From the IRS.gov Website. Read Original Article >

If you paid for work-related expenses out of your own pocket, you may be able to deduct those costs. In most cases, you can claim allowable expenses if you itemize on IRS Schedule A, Itemized Deductions. You can deduct the amount that is more than two percent of your adjusted gross income. Here are six other facts you should know:

  1. Ordinary and Necessary. You can only deduct unreimbursed expenses that are ordinary and necessary to your work as an employee. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is appropriate and helpful to your business.
  2. Expense Examples. Some costs that you may be able to deduct include:
    • Required work clothes or uniforms not appropriate for everyday use.
    • Supplies and tools you use on the job.
    • Business use of your car.
    • Business meals and entertainment.
    • Business travel away from home.
    • Business use of your home.
    • Work-related education.

    This list is not all-inclusive. Special rules apply if your employer reimbursed you for your expenses. To learn more, check out Publication 529, Miscellaneous Deductions. You should also refer to Publication 463, Travel, Entertainment, Gift and Car Expenses.
  3. Forms to Use. In most cases, you report your expenses on Form 2106 or Form 2106-EZ. After you figure your allowable expenses, you then list the total on Schedule A as a miscellaneous deduction.
  4. Educator Expenses. If you are a K-12 teacher, you may be able to deduct up to $250 of certain expenses you paid in 2015. These may include books, supplies, equipment and other materials used in the classroom. You claim this deduction as an adjustment on your return, rather than an itemized deduction. For more on this topic see Publication 529.
  5. Keep Records. You must keep records to prove the expenses you deduct. For what records to keep, see Publication 17, Your Federal Income Tax.
  6. IRS Free File. Most people qualify to use free, brand-name software to prepare and e-file their federal tax returns with IRS Free File. Free File software will help you determine if you can deduct your expenses. It will do the math, fill out the forms and e-file your return – all for free. Check your other e-file options if you can’t use Free File.

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