Five Tax Tips for Starting a Business

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For business planning and tax advice, or personal and business tax disputes, call Kevin Sayed, J.D., LL.M. Taxation, at 252-321-2020. All materials below originally published by the Internal Revenue Service.

 IRS Tax Tips:

Five Tips for Starting a Business

Understanding your tax obligation is one key to business success. When you start a business, you need to know about income taxes, payroll taxes and much more. Here are five IRS tax tips that can help you get your business off to a good start:

  1. Business Structure. An early choice you need to make is to decide on the type of structure for your business. The most common types are sole proprietor, partnership and corporation. The type of business you choose will determine which tax forms you file.
  2. Business Taxes.  There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax your business pays depends on the type of business structure you set up. You may need to make estimated tax payments. If you do, you can use IRS Direct Pay to make them. It’s the fast, easy and secure way to pay from your checking or savings account.
  3. Employer Identification Number (EIN).  You may need to get an EIN for federal tax purposes. Search “do you need an EIN” on IRS.gov to find out if you need this number. If you do need one, you can apply for it online.
  4. Accounting Method.  An accounting method is a set of rules that you use to determine when to report income and expenses. You must use a consistent method. The two that are most common are the cash and accrual methods. Under the cash method, you normally report income and deduct expenses in the year that you receive or pay them. Under the accrual method, you generally report income and deduct expenses in the year that you earn or incur them. This is true even if you get the income or pay the expense in a later year.
  5. Employee Health Care.  The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. You’re eligible for the credit if you have fewer than 25 employees who work full-time, or a combination of full-time and part-time. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities. For more information on your health care responsibilities as an employer, see the Affordable Care Act for Employers page on IRS.gov.

Don’t Forget to Report Certain Foreign Accounts to Treasury by June 30 Deadline

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All material originally published by the Internal Revenue Service. For help with reporting foreign bank accounts, penalty relief, or other tax matters call Kevin M. Sayed, J.D., LL.M. Taxation, at 252-321-2020

Issue Number:    IR-2016-90

Inside This Issue

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Don’t Forget to Report Certain Foreign Accounts to Treasury by the June 30 Deadline

WASHINGTON—The Internal Revenue Service today reminded taxpayers who have one or more bank or financial accounts located outside the United States, or signature authority over such accounts that they may need to file an FBAR by Thursday, June 30.

By law, many U.S. taxpayers with foreign accounts exceeding certain thresholds must file Form 114, Report of Foreign Bank and Financial Accounts, known as the “FBAR.” It is filed electronically with the Treasury Department’s Financial Crimes Enforcement Network (FinCen).

“Robust growth in FBAR filings in recent years shows we are getting the word out regarding the importance of offshore tax compliance,” said IRS Commissioner John Koskinen. “Taxpayers here and abroad should take their foreign account reporting obligations very seriously.”

In general, the filing requirement applies to anyone who had an interest in, or signature or other authority over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2015. Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is only available through the BSA E-Filing System website.

In 2015, FinCen received a record high 1,163,229 FBARs, up more than 8 percent from the prior year. FBAR filings have grown on average by 17 percent per year during the last five years, according to FinCen data.

The IRS is implementing the Foreign Account Tax Compliance Act (FATCA), which mandates third-party reporting of foreign accounts to foster offshore tax compliance. FATCA created a new filing requirement: IRS Form 8938, Statement of Specified Foreign Financial Assets, which is filed with individual tax returns. The filing thresholds are much higher for this form than for the FBAR.

The International Taxpayers page on IRS.gov provides the best starting place to get answers to important questions. The website has a directory that includes overseas tax preparers. International taxpayers will find the online IRS Tax Map and the International Tax Topic Index to be valuable resources.

Six Facts You Should Know Before Deducting a Charitable Donation

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If you need assistance with charitable giving and charitable donations, or non-profits, contact Kevin M. Sayed, J.D., LL.M. Taxation, with Colombo Kitchin Attorneys at 252-353-1096.  All materials below originally published by the Internal Revenue Service.

Issue Number:  IRS Tax Tip 2016-47

Inside This Issue

If you gave money or goods to a charity in 2015, you may be able to claim a deduction on your federal tax return. Here are six important facts you should know about charitable donations.

  1. Qualified Charities. You must donate to a qualified charity. Gifts to individuals, political organizations or candidates are not deductible. An exception to this rule is contributions under the Slain Officer Family Support Act of 2015. To check the status of a charity, use the IRS Select Check tool.
  2. Itemize Deductions. To deduct your contributions, you must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with your federal tax return.
  3. Benefit in Return. If you get something in return for your donation, you may have to reduce your deduction. You can only deduct the amount of your gift that is more than the value of what you got in return. Examples of benefits include merchandise, meals, tickets to an event or other goods and services.
  4. Type of Donation. If you give property instead of cash, your deduction amount is normally limited to the item’s fair market value. Fair market value is generally the price you would get if you sold the property on the open market. If you donate used clothing and household items, they generally must be in good condition, or better, to be deductible. Special rules apply to cars, boats and other types of property donations.
  5. Form to File and Records to Keep. You must file Form 8283, Noncash Charitable Contributions, for all noncash gifts totaling more than $500 for the year. If you need to prepare a Form 8283, you can prepare and e-file your tax return for free using IRS Free File. The type of records you must keep depends on the amount and type of your donation. To learn more about what records to keep see Publication 526.
  6. Donations of $250 or More. If you donated cash or goods of $250 or more, you must have a written statement from the charity. It must show the amount of the donation and a description of any property given. It must also say whether you received any goods or services in exchange for the gift.

 

 

Top 10 Tax Tips about Debt Cancellation

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All material below originally published by the Internal Revenue Service. For help with debt related income, interest income, debt write-offs, or other business or personal debt tax matters, contact Kevin M. Sayed, J.D., LL.M. Taxation at 252-321-2020, at Colombo Kitchin Attorneys.

Issue Number:    IRS Tax Tip 2016-30

Inside This Issue

Top 10 Tax Tips about Debt Cancellation

If your lender cancels part or all of your debt, it is usually considered income and you normally must pay tax on that amount. However, the law allows an exclusion that may apply to homeowners who had their mortgage debt cancelled in 2015. Here are 10 tips about debt cancellation:

  1. Main Home. If the cancelled debt was a loan on your main home, you may be able to exclude the cancelled amount from your income. You must have used the loan to buy, build or substantially improve your main home to qualify. Your main home must also secure the mortgage.
  2. Loan Modification. If your lender cancelled part of your mortgage through a loan modification or ‘workout,’ you may be able to exclude that amount from your income. You may also be able to exclude debt discharged as part of the Home Affordable Modification Program, or HAMP. The exclusion may also apply to the amount of debt cancelled in a foreclosure.
  3. Refinanced Mortgage. The exclusion may apply to amounts cancelled on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home and only up to the amount of the old mortgage principal just before refinancing. Amounts used for other purposes do not qualify.
  4. Other Cancelled Debt. Other types of cancelled debt such as second homes, rental and business property, credit card debt or car loans do not qualify for this special exclusion. On the other hand, there are other rules that may allow those types of cancelled debts to be nontaxable.
  5. Form 1099-C. If your lender reduced or cancelled at least $600 of your debt, you should receive Form 1099-C, Cancellation of Debt, by Feb. 1. This form shows the amount of cancelled debt and other information.
  6. Form 982. If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. File the form with your federal income tax return.
  7. IRS.gov Tool. Use the Interactive Tax Assistant tool on IRS.gov to find out if your cancelled mortgage debt is taxable.
  8. Exclusion Extended. The law that authorized the exclusion of cancelled debt from income was extended through Dec. 31, 2016.
  9. IRS Free File.  IRS e-file is fastest, safest and easiest way to file. You can use IRS Free File to e-file your tax return for free. If you earned $62,000 or less, you can use brand name tax software. The software does the math and completes the right forms for you. If you earned more than $62,000, use Free File Fillable Forms. This option uses electronic versions of IRS paper forms. It is best for people who are used to doing their own taxes. Free File is available only on IRS.gov/freefile.
  10. More Information. For more on this topic see Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments.

 

Your Social Security Benefits May Be Taxable

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For questions about tax planning, estate and trust planning, or past due taxes and filings, call Kevin M Sayed, J.D., LL.M. Taxation, at 252-321-2020. All material originally published in IRS Tax Tip 2016-18:  Your Social Security Benefits May Be Taxable.

 Your Social Security Benefits May Be Taxable

If you receive Social Security benefits, you may have to pay federal income tax on part of your benefits. These IRS tips will help you determine if you need to pay taxes on your benefits.

  • Form SSA-1099.  If you received Social Security benefits in 2015, you should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of your benefits.
  • Only Social Security.  If Social Security was your only income in 2015, your benefits may not be taxable. You also may not need to file a federal income tax return. If you get income from other sources you may have to pay taxes on some of your benefits.
  • Free File.  Use IRS Free File to prepare and e-file your tax return for free. If you earned $62,000 or less, you can use brand-name software. The software does the math for you and helps avoid mistakes. If you earned more, you can use Free File Fillable Forms. This option uses electronic versions of IRS paper forms. It’s best for people who are used to doing their own taxes. Free File is available only by going to IRS.gov/freefile.
  • Interactive Tax Assistant.  You can get answers to your tax questions with this helpful tool and see if any of your benefits are taxable.  Visit IRS.gov and use the Interactive Tax Assistant tool.
  • Tax Formula.  Here’s a quick way to find out if you must pay taxes on your Social Security benefits: Add one-half of your Social Security to all your other income, including tax-exempt interest. Then compare the total to the base amount for your filing status. If your total is more than the base amount, some of your benefits may be taxable.
  • Base Amounts.  The three base amounts are:
    • $25,000 – if you are single, head of household, qualifying widow or widower with a dependent child or married filing separately and lived apart from your spouse for all of 2015
    • $32,000 – if you are married filing jointly
    • $0 – if you are married filing separately and lived with your spouse at any time during the year

Ten Key Tax Tips for Farmers and Ranchers

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 All material originally published by the IRS as, IRS Tax Tip 2016-15:  Ten Key Tax Tips for Farmers and Ranchers. For help with tax planning, business planning, or estate planning for farmers contact Kevin M Sayed, J.D., LL.M. Taxation, at 252-321-2020, or ksayed@ck-attorneys.com, with Colombo Kitchin attorneys.

Ten Key Tax Tips for Farmers and Ranchers

Farms include ranches, ranges and orchards. While some may raise cattle, poultry or fish and others grow fruits or vegetables, all will report their farm income on Schedule F, Profit or Loss from Farming. If you own a farm or ranch, here are 10 tax tips:

  1. Crop insurance. Insurance payments from crop damage count as income. Generally, you should report these payments in the year you get them.
  2. Sale of items purchased for resale.  If you sold livestock or items that you bought for resale, you must report the sale. Your profit or loss is the difference between your selling price and your basis in the item. Basis is usually the cost of the item. Your cost may also include other expenses such as sales tax and freight.
  3. Weather-related sales. Bad weather such as a drought or flood may force you to sell more livestock than you normally would in a year. If so, you may defer tax on the gain from the sale of the extra animals.
  4. Farm expenses. Farmers can deduct ordinary and necessary expenses they paid for their business. An ordinary expense is a common and accepted cost for that type of business. A necessary expense means a cost that is proper for that business.
  5. Employee wages. You can deduct wages you paid to your farm’s full- and part-time workers. You must withhold Social Security, Medicare and income taxes from their wages.
  6. Loan repayment. You can only deduct the interest you paid on a loan if the loan is used for your farming business. You can’t deduct interest you paid on a personal loan.
  7. Net operating losses.  If your expenses are more than income for the year, you may have a net operating loss. You can carry that loss over to other years and deduct it. You may get a refund of part or all of the income tax you paid in prior years. You may also be able to lower your tax in future years.
  8. Farm income averaging.  You may be able to average some or all of the current year’s farm income by spreading it out over the past three years. This may cut your taxes if your farm income is high in the current year and low in the prior three years.
  9. Tax credit or refund.  You may be able to claim a tax credit or refund of excise taxes you paid on fuel used on your farm for farming purposes.
  10. Farmers Tax Guide. For more details on this topic see Publication 225, Farmer’s Tax Guide. You can get it on IRS.gov/forms anytime. You can order it on IRS.gov/orderforms to have it mailed to you.

 

Who Can Represent You Before the IRS?

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Please call Kevin M. Sayed, J.D., LL.M. Taxation, with Colombo Kitchen attorneys for help with representation before the IRS (252-321-2020).  All material here originally published by the Internal Revenue Service.

Issue Number:  IRS Special Edition Tax Tip 2016-02

Inside This Issue

Who Can Represent You Before the IRS?

Many people use a tax professional to prepare their taxes. Tax professionals with an IRS Preparer Tax Identification Number (PTIN) can prepare a return for a fee. If you choose a tax pro, you should know who can represent you before the IRS. There are new rules this year, so the IRS wants you to know who can represent you and when they can represent you. Choose a tax return preparer wisely.

Representation rights, also known as practice rights, fall into two categories:

  • Unlimited Representation
  • Limited Representation

Unlimited representation rights allow a credentialed tax practitioner to represent you before the IRS on any tax matter. This is true no matter who prepared your return. Credentialed tax professionals who have unlimited representation rights include:

Limited representation rights authorize the tax professional to represent you if, and only if, they prepared and signed the return. They can do this only before IRS revenue agents, customer service representatives and similar IRS employees. They cannot represent clients whose returns they did not prepare. They cannot represent clients regarding appeals or collection issues even if they did prepare the return in question. For returns filed after Dec. 31, 2015, the only tax return preparers with limited representation rights are Annual Filing Season Program Participants.

The Annual Filing Season Program is a voluntary program. Non-credentialed tax return preparers who aim for a higher level of professionalism are encouraged to participate.

Other tax return preparers have limited representation rights, but only for returns filed before Jan. 1, 2016. Keep these changes in mind and choose wisely when you select a tax return preparer.

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.

Benefits of Filing on Time

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Benefits of Filing on Time

We will all soon be faced with our annual duty to file our income taxes with the turn of the calendar to 2016. Most businesses must file by March 15th, and most individuals must file by April 15th. Many people find this to be an anxious endeavor. Some find themselves in a position where they have failed to file on time in previous years, or failed to make payments on tax obligations for various reasons. People find themselves owing seemingly overwhelming balances to the federal or state government. People each have personal reasons to justify delaying or avoiding filing taxes.

However, almost everyone agrees that being in good stead with Uncle Sam by filing taxes provides a sense of relief.

Filing on time, even if you cannot pay, almost always avoids extra penalties for failure to file returns. Failure to file penalties can be some of the steepest penalties to pay. Even if you cannot pay, you should file your taxes. The government will work with most taxpayers to find a solution to repay taxes as long as the taxpayer completes all filings owed to the government. Start off 2016 by getting your filings up to date. If you need help, a tax attorney can help you figure out how to get into Uncle Sam’s good graces. Then that professional can help you can avoid seizures of your assets, wages, or bank accounts. One of the top personal injury Monheit Law lawyers.

Written by Kevin Sayed, tax, business and estate and trust lawyer, Colombo Kitchin Attorneys, J.D., LL.M. Taxation.

IRS Tax Tips for Deducting Gifts to Charity

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Please call Kevin M. Sayed, J.D., LL.M. Taxation, with Colombo Kitchen attorneys for help with gift tax issues (252-321-2020).  All material here originally published by the Internal Revenue Service.

Issue Number:  IRS Special Edition Tax Tip 2015-20

IRS Tax Tips for Deducting Gifts to Charity

The holiday season often prompts people to give money or property to charity. If you plan to give and want to claim a tax deduction, there are a few tips you should know before you give. For instance, you must itemize your deductions. Here are six more tips that you should keep in mind:

  1. Give to qualified charities. You can only deduct gifts you give to a qualified charity. Use the IRS Select Check tool to see if the group you give to is qualified. You can deduct gifts to churches, synagogues, temples, mosques and government agencies. This is true even if Select Check does not list them in its database.
  2.  Keep a record of all cash gifts.  Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift. The statement must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, or bank, credit union and credit card statements. If you give by payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document from your employer. It must show the total amount withheld for charity, along with the pledge card showing the name of the charity.
  3. Household goods must be in good condition. Household items include furniture, furnishings, electronics, appliances and linens. These items must be in at least good-used condition to claim on your taxes. A deduction claimed of over $500 does not have to meet this standard if you include a qualified appraisal of the item with your tax return.
  4. Additional records required.  You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.
  5. Year-end gifts. Deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2015. This is true even if you don’t pay the credit card bill until 2016. Also, a check will count for 2015 as long as you mail it in 2015.
  6. Special rules.  Special rules apply if you give a car, boat or airplane to charity. If you claim a deduction of more than $500 for a noncash contribution, you will need to file another form with your tax return. Use Form 8283, Noncash Charitable Contributions to report these gifts. For more on these rules, visit 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.

Tax Filing Extension Expires October 15th

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For help with tax disputes and overdue taxes with the IRS, NCDOR, or with income, gift, trust or estate tax planning, call Kevin M. Sayed, J.D., LL.M. Taxation, at 252-321-2020.

Excerpt from the IRS publication at the following website – http://www.irs.gov/uac/Newsroom/Tax-Filing-Extension-Expires-Oct.-15-for-Millions-of-Taxpayers;-Check-Eligibility-for-Overlooked-Tax-Benefits

IRS YouTube Videos                                                                                        Oct. 15 Tax Deadline: English | Spanish | ASL IRS Tax Payment Options: English | Spanish | ASL IRS2Go 5.2: English | Spanish | ASL Online Payment Agreement: English | Spanish | ASL

IR-2015-109, Sept. 28, 2015

WASHINGTON — The Internal Revenue Service today urged taxpayers whose tax-filing extension runs out on Oct. 15 to double check their returns for often-overlooked tax benefits and then file their returns electronically using IRS e-file or the Free File system.

About a quarter of the 13 million taxpayers who requested an automatic six-month extension this year have yet to file. Although Oct. 15 is the last day for most people, some still have more time, including members of the military and others serving in combat zone localities who typically have until at least 180 days after they leave the combat zone to both file returns and pay any taxes due.

“If you still need to file, don’t forget that you can still file electronically through October 15,” said IRS Commissioner John Koskinen. “Many people may not realize they may be eligible to use Free File available on IRS.gov/freefile. Free File is free tax software that takes the guesswork out of return preparation. Even if you’re filing in the final days, filing electronically remains easy, safe and the most accurate way to file your taxes.”