April 28, 2011 § Leave a comment
I recently read an article on the Wall Street Journal’s website that gave pointers on what to say (and what not to say) when dealing with the IRS. Whether it be because you are being audited, or because you need to set up some type of payment plan for your taxes, having to deal with the IRS can prove to be nerve-wracking. This article gave practical advice to make dealing with the IRS a little less stressful. Rule number 1? Never ignore the IRS. If their notices are ignored enough, you may end up with a lien on your house or bank accounts. Which leads me to rule number 2: communicate with the IRS, but don’t over-communicate. Tell them what they need to know but don’t give away information that isn’t necessary. Other important pieces of information that may prove helpful? Always have documentation to back up your tax information, whether it be cancelled checks or receipts, and make sure you ask questions. Often times, people will find that, if they ask, the IRS will make it clear what their options are and what they need to do.
I found this article interesting because unlike some of the other articles that come out around tax season, this one actually gave suggestions on what to do if you DO end up being audited or needing to talk with the IRS. Many other articles simply give advice on getting the best refund and looking for tax breaks when filing your return.
April 6, 2011 § Leave a comment
A recent online Wall Street Journal article raised the issue of tax reform and five problems with current federal taxation that should be fixed. These five problems included employees not being able to deduct health care premiums, renters getting no tax breaks, the alternative minimum tax, the taxation of social security benefits, and rules regarding retirement account required minimum distributions. The author makes very good arguments as to why all of the previously mentioned issues need to be fixed. Take for instance the fact that many employees can not write off self paid for health insurance unless their employer provides a cafeteria benefit plan (which many don’t), while those employees with better benefit plans enjoy tax-free employer paid for health insurance and self-employed taxpayers can write off their health insurance premiums. The taxation of social security benefits is also a major issue. It seems unfair that you pay social security tax when it is withheld from your paycheck as well as income tax on it when it was included in your taxable income, and then have to deal with the government taxing it again once you begin collecting it. Triple taxation? This article raised some very good points and I’m sure these issues will continue to be brought up until some type of reform comes about.
April 6, 2011 § 1 Comment
A recent article on the Wall Street Journal’s website caught my eye. It was about a CPA by the name of Doug Stives, who left his job with an accounting firm to teach tax and accounting courses full-time at a business school in New Jersey. He then started a side consulting business, Doug Stives LLC. By maximizing his allocated expenses to his consulting business, Stives, though making 75% less than he was at his previous employment, is now taking home almost 90% as much. He is able travel more and is living a more enjoyable life. He says he “uses the tax code’s many quirks as the means through which he can live a fuller life.” What could be better than that? The key to Stive’s strategy is the Schedule C form, which is used to report profit or loss from a business. According to the article, ‘[o]n this form goes all of his income and expenses from his consulting work—advising clients, preparing returns, helping write textbooks and conducting continuing-education seminars that CPAs need to maintain their licenses.” Stives gets to choose where he takes his seminars and often picks vacation spots. By working half the time he is there (not counting travel days or weekends) he is able to deduct his entire airfare as well as a majority of travel costs as business expenses. There were many other deductions that Stives is able to take but the most interesting part is that he does it all by the book. He keeps accurate records, a separate credit card for business expenses, and is careful to observe IRS rules. I found this article to be inspiring and it really peaked my interest in getting the most out of your deductions.
April 6, 2011 § Leave a comment
I recently read an article from the Wall Street Journal entitled “30 Last-Minute Tax Tips”. It gave readers tips on everything from overlooked deductions to common errors to items that often trigger audits. One interesting deduction that is often overlooked are charitable contributions that come straight out of ones paycheck. Often people forget about these once tax season rolls around and because employers don’t include this number anywhere on an employee’s W-2 it often goes un-deducted.
Certain items that can trigger audits included home mortgage interest deduction in excess of $50,000, rental real estate losses, and the home buyer tax credit. I think it was wise to include a section on audit triggers because it helps give taxpayers a heads up as to what they can expect. The section on common errors was also helpful, advising people not to overstate their charitable deductions and to make sure not to miss out on the Making Work Pay credit that is available. This article was very informative and will hopefully help taxpayers get the most out of their tax return.