Why Tax Professionals Exist

            There are many reasons why the common person may go to a tax professional to file their taxes. From being too busy to just not wanting to deal with it, the reasons are as numerous as the people themselves. One of the most common reasons, though, is simply because taxes can be difficult for a non-professional to understand.

            At face value, taxes are a scary thing. If you file too late, you get penalized. If you don’t give enough money, the same result occurs. Even if you do get those two factors right, there’s still the entire inner workings of the tax world to worry about. There are entire roadmaps, such as this one by the Taxpayer Advocate Service. https://taxpayeradvocate.irs.gov/Media/Default/Documents/2020-JRC/TAS_Roadmap_18x18.pdf

It depicts the intense journey it takes someone to file his or her taxes. Even though it may help some, it’s just a lot of information to take in.

            Due to this seemingly impossible information dump, tax experts exist. They make it their job to help you to in squaring away all your tax related needs. It becomes one more thing you don’t have to worry about, so you can focus on your daily lives. Professionals in this field are a necessary aspect of this society, and people continue to utilize them as the process grows


Taxes: A Family Matter?

All over, families are changing. Whether there is a child being born or a marriage going downhill, these matters can be very important for your taxes. Due to this, it is best to let a tax professional know if anything is happening to change your family situation. But you might wonder: Why are these things important?

First of all, if you are adding a child to the family, through either natural birth or adoption, there are certain impacts. It could affect your taxes or tax returns, for example. Also, if you are hiring a nanny for the kid, you’ll have to pay things such as Social Security and Medicare for them. If you are adopting, that is another deal on top of this. You could qualify for certain tax credits or exemptions. This is a possibility for both foreign and domestic adoptions. There are also assistance programs that an professional can help you learn about.

Similarly to children, marriage situations are also important to your taxes. If you are getting married, you could be put into a different tax bracket due to your partner’s income. You might want to adjust your withholding, and you need to know this information in order to take further steps. On the opposite side, if you are getting a divorce, there are different things to follow. For example, alimony no longer counts as income, and the ex-spouse who pays it cannot deduct that amount in taxes. There are multiple other factors that involve marriages and divorces, but it would be best to ask personally about them.

Family matters may seem personal at first, but they could adversely affect you if not factored into your taxes and such. It is wise to tell your tax expert anything new that happens with these things to prevent paying more than you have to and being proactive in your taxes.


Filing Taxes for a Rideshare Company

If you have recently started driving for a rideshare company, it is important to stay on top of your tax expenses and deductions.  Driving for companies like Uber and Lyft has become a very popular and lucrative way for people to make some extra money on their own time.  The IRS sees you as a small-business owner, therefore you will have to pay self-employment taxes on top of your income tax. 

Track Your Deductions

You are eligible for tax deductions for the business expenses that come with operating out of your own vehicle.  It is imperative to keep track of all your expenses as they occur and always save any receipts from driving.  The dashboard of your Uber or Lyft app will keep track of all your fees and commissions but everything else is left to the driver.  Some of the most common deductions for rideshare drivers are listed below. 

  • Mileage – 58 cents per mile is the standard rate for anything business related
  • Tolls and Parking
  • Uber and Lyft Fees and commissions
  • Cost of Phone – only the portion used for business is deductible
  • Accessories – chargers, mounts

Save Your Tax Money

Your taxes are not automatically taken out of your income with a rideshare company.  The amount of money you can withdraw from the app should not be total profit.  Based on the amount of self-employment income, you may be required to make estimated payments on a quarterly basis to the IRS.  If you expect to owe more than $1,000 in taxes after subtracting your withholdings, you will have to make estimated payments.  This is all left up to the driver, as a small business owner, and is necessary to avoid an audit or fees.

File Taxes

When you finally go to file your taxes, this is when you will need all the documents and information you have been accumulating through the year. 

  • 1099-MISC and/or 1099K forms – you can access these in the dashboard of Uber and Lyft or they will be mailed to you
  • Printout of your Uber/Lyft dashboard
  • Mileage Report
  • Receipts/Invoices/Credit Statements
  • Expense report – a list of any other deductions

Home Improvement in the Tax World

Before the winter falls upon us, some people tend to make last minute home decisions for the fall. Some of these include new roofs, fixing a patio, or just outright remodeling your entire house. These remodeling tasks seem completely separated from taxes, but the opposite is true.

First of all, where the money for the improvements is coming from is important to figure out. Are you going to take out a loan, or are you going to sell stocks. No matter what, an accountant can be a great help in figuring out what capital gains you can make or the repercussions that rise from these situations.

When remodeling your home, you should also track each major improvement. It is recommended to use a spreadsheet to keep track of each paint receipt, the fixtures, and the molding. Otherwise, they could get lost in the clutter of planning and not be found later.

Why is keeping these receipts important? If you set these receipts aside, you could possibly save money for the coming year’s deductions. If the upgrades are energy efficient, you could write off up to 30% for those systems. In addition, if you run a business from your home, you can depreciate the cost over several years. Even if you aren’t part of those two cases, it is still wise to keep all receipts in case a situation that applies to you arises.

Home improvement is much more than hiring workers and buying supplies. It is embedded in the tax world, and it is important to remember that. Where the money comes from and where your receipts and records go are very important aspects to both you and your accountant during tax season.


Student Aid for the College Bound

Though the 2019-20 school year has just begun, it is never too early to start thinking about college plans. If you or someone you know is planning to start college for the year of 2020-21, preparations to get federal student aid through the FAFSA program can begin as soon as October 1st. The FAFSA program gives around $120 billion to incoming freshmen in student loans every year.

Through either paper copy, the Federal student aid website, or the new myStudentAid mobile app, you can apply and learn about federal student aid and its importance. On their Facebook page, information about scholarships and deadlines are available for further reference.

 No matter what the college is, they will use this FAFSA form in order to figure out how to give financial aid to their students. Even if you believe you won’t get any aid, chances are very likely that any student will qualify for some form of it. Even so, it is advised to apply as soon as possible to maximize the amount of student aid that you get. Don’t wait until the July 30th deadline to apply for this opportunity. Schooling doesn’t have to be that one expense you stress endlessly about, for options exist  to help assist in payment as long as you look for them.



Are Your Scholarships Taxable?

Going to college is a huge step in life to broaden your horizons. With this step, comes the hurdle of funding the education.  For many, scholarships and grants make attending college a reality and because of this, the IRS is lenient on what they enforce as taxable scholarship money.  It is important to differentiate ahead of time what part of the money is defined as income, and if it will add to your tax liability to avoid a surprise down the road. 

Tax Exempt Scholarships

Generally, at an accredited college or university, students will avoid paying taxes when using their funds for basic education driven expenses. The IRS has deemed the following “qualified education expenses” that will not add to the tax liability of a student.

  • Tuition
  • Student/university fees
  • Books or any required course supplies

Taxable Scholarships

When dealing with scholarship funds, it is important to note that any left over money after the qualified expenses must be included as part of your taxable income.  However, depending on what they are to be used for, certain scholarships are subject to taxation.  Usually, these are scholarships or funds to pay for the following:

  • Room and Board
  • Utilities
  • General living expenses (bills, food)

Taxable Stipend Scholarships

Finally, the other type of scholarship funds to be aware of are stipends.  Stipend Scholarships are viewed as compensation for services you will provide in the future.  For example, you can receive a $5,000 stipend with $2,000 designated to pay for your services.  The $2,000 will be viewed as part of your taxable income, and the other $3,000 is tax exempt scholarship money.  These types of scholarships are common for teaching and military services. 

If you received a scholarship towards your education, it is important to find out the tax stipulations immediately.  If part of your scholarship is subject to taxation you will usually receive a W-2 from the provider describing the taxable portion, and you can report this using Form 1040. 


Beware of Popular Tax Scams

While tax season may only be three and a half months long, scammers are working constantly all throughout the year, to take advantage of honest taxpayers.  It is important for anyone filing taxes to know the signs of suspicious activity, as these scams can evolve every year.  If you feel like you were targeted by potential criminal activity it is important to contact the IRS immediately and report it. 

Phishing

A phishing scam is an extremely popular attempt to fraudulently gain access to a taxpayers’ personal information.  Phishing is generally done through email, and can be rather tricky for one to identify as the email will appear to come from a well-known source.  The IRS will never initiate contact with requests for personal information through email or text message.  If you feel you have received a suspicious email regarding tax information, follow these guidelines.

  • Never reply to any suspicious emails requesting personal information
  • Do not open any attachments or follow any links within the email
  • Forward the email as is, including all headers to phishing@irs.gov and the FTC at spam@uce.gov
  • Phishing text messages can be reported to “SPAM” (7726)
  • Delete the email/text message off of your computer and mobile device

Phone Scams

Another frequent scam attempted is over the phone.  Most popularly a caller will pose as an IRS or treasury worker, and try to solicit money out of unsuspecting tax payers. The caller will generally inform the victim of a debt that they owe and request a payment over the phone.  It is important to remember the IRS will always initially contact you through a mailing.  If you think you are being targeted through a scam over the phone, reference the list below to protect yourself and your finances. 

  • Ask the caller for their name, employee badge number, and make note of any other specific information regarding the call (time, date, phone number)
  • Review your account information online and reference with the information provided for you over the phone
  • If you suspect the communication to be fraudulent, report it by email to phishing@irs.gov and also file a complaint with the Federal Trade Commission

Natural Disasters

Taxpayers should also beware of scams that occur around areas affected by severe weather.  For example, after Hurricane Florence and Harvey, 2018 saw a rise in these crimes across America.  Scammers tried to pose as legitimate charitable organizations, over the phone and online to beseech funds from people trying to help those in need.  On the other hand, scammers will pose as an IRS worker and reach out to victims to file fraudulent loss claims.

  • Contribute to charity through check or credit card – avoid using cash
  • Be cautious of organizations soliciting donations and asking for personal finance information
  • Reach out and identify the organization on your own through the IRS websites Tax Exempt Organization Search (link)

The TCJA and You

With less than a month to go in the tax filing season, many Americans have already seen the effect that the Tax Cuts and Jobs Act (TCJA) is having on their bottom line.  In practice for the first time since being approved in December 2017, this new tax act is impacting everyone. Many people are finding minor decreases in their refunds or increases in their payment due.  Tax preparers are spending a little more time working through questions and concerns with clients. So who is being impacted and what, if anything, can you do to improve your situation for next year?

TCJA and you Photo by Sharon McCutcheon on Unsplash

The biggest impacts are to those with children and those who typically itemize deductions.  Homeowners are seeing a definite change in tax refunds as well. The variation to your tax return depends upon so many different details it is almost impossible to give examples of every one.  Filing status, income level, number of dependents, and whether or not you own a home all come into play in a variety of ways. Here are some common areas that are impacting most people.

The elimination of the personal exemption touches everyone but hits families the most.  At $4,050 per person, for a single taxpayer, this might not be a big deal. But for a family of 4 – this means $16,200 MORE of your income is taxable since the personal exemption is gone.

However, the increase in the standard deduction does a good job making up for the personal exemption loss.  At $24,000 for couples filing married and $12,000 if you are a single filer, this increase is all but equaling out the personal exemption for many.  The child tax credit has increased, further helping families. An additional equalizer in many cases is the lowered income tax rates across tax brackets.  

The net result of these changes is bringing many taxpayers within  close range of how their 2017 tax refunds looked. However, the end of itemized deductions is an area that is also having an impact.  Homeowners are especially noticing a change in their bottom line. How much you can deduct for home mortgage interest and home equity loan interest has been limited. Under the new tax laws, the amount you can deduct for state and local tax deductions is $10,000. This hurts taxpayers who would itemize their state and local income, property, and general sales tax payments on their federal tax returns. The TCJA eliminates the deduction for home equity loans.

So how do you prepare for next tax season?  The IRS continues to recommend doing a paycheck check-up.  The IRS has all the tools to complete a check-up on their website.  It’s also a good idea to talk to a financial advisor or tax preparer to plan ahead for next year.  If possible, wait until after the filing deadline when your tax preparer has time to sit down and think.  We would be happy to help!


Protecting Yourself this Tax Season

Every tax season brings a new post on how to avoid scams.  Redundant but relevant, as this is the time when scammers prey on taxpayers.  We provided some basics last year in Tax Scams.  If you don’t have time to read much further, know these basic tips:

  1. Never give out your Social Security Number to someone who calls you.  Ever.
  2. The IRS will never contact you by phone to demand money.  Ever.
  3. The IRS will not threaten  police action or ask for credit/debit card numbers over the phone
  4. The IRS will not call about an unexpected refund.  You are being scammed.

The IRS will communicate by letter through the mail.  If you need to contact them, they can be reached at 800-829-1040.  The IRS Is protecting consumers in several ways, so when you place that call be prepared to supply:

  • Social Security numbers or ITIN and birth dates for anyone on the tax return
  • Filing status
  • A copy of the tax return in question
  • Any IRS letters or notices received by the taxpayer

If you are contacting the IRS on behalf of another person you will need to complete Form 8821 and Form 288.  These will give Power of Attorney and Tax Information Authorization. If the other party is deceased then a copy of the death certificate and Form 56 are required.

What do criminals do with the information they steal?  Withdrawing money from bank accounts and using credit or debit cards for purchases are among the typical crimes.  Also common are selling the stolen information or filing a fake return io claim the money. Knowing how the stolen information is used, there are several important steps to take immediately after you suspect you’ve been victimized to minimize damages

  1. Figure out what information was breached.
  2. Utilize credit bureaus to determine the extent of the damage.
  3. Contact credit card companies and your bank to re-establish new accounts and freeze old ones.
  4. Reset all passwords.

For more information about protecting yourself and your investments, visit Tax Scams and Consumer Alerts.


Gambling and Tax Laws

If games of chance such as poker, horse racing, or playing the lottery are among your recreational hobbies, the new tax law brought some minor changes.  The IRS website includes a description of changes as they relate to each type of gambling.  It is the best place to verify current and future tax law plans, but the two biggest impacts are described below as well.

How Gambling Affects Taxes

The change that affects the most gamblers and therefore is the one most talked about, is how losses can be deducted.  While many types of itemized deductions were eliminated under the new law, gambling losses are still allowed! The change to these deductions is that they can only be deducted to the extent of gambling winnings for that tax year.  

At year-end, calculate all your losses.  Everything from non-winning lottery and bingo ticket costs to money spent and lost on slots.  You can then claim an itemized deduction for all these betting losses throughout the tax year, against your winnings.  For example, if you spend and lose $10,000 and win $9,000 during the year, you could deduct for the $1,000 difference.  If you lose $10,000 and win $11,000 you would be responsible for taxes on the $1,000 difference.

The increase in the amount of the standard deduction may make it more attractive to many taxpayers over taking itemized deductions.  Gamblers too may find taking the standard deduction a more beneficial decision than itemizing losses. If your losses are greater than the standard deduction amount than itemizing is likely your best choices.  Otherwise, take the standard deduction or talk with your tax preparer.

The tax law also includes changes for professional gamblers.  Expenses for travel, lodging, food, and the like are lumped in with losses now for deduction purposes.  These expenditures can no longer be separately itemized. Small time gambling hobbyists will be the ones most likely to still see returns under the new law, while gambling professionals are not going to be so lucky.

Do you have additional questions about gambling under the new tax law? Contact our office today and we will get you the answers……you can bet on it!