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Thoughts on the new Form 1040 – Postcard?

September 10, 2018

Thoughts on the new Form 1040 – Postcard?

The form is smaller, but not exactly the postcard we were all supposed to be able to use to file our tax returns.

Form 1040 — Page 1

Notice that there are now just two lines instead of four to list dependents. More than two and you will need to file at least one additional schedule.

There are ten lines of income items missing from page 1 of the new form. The majority of my clients use at least one of those lines. If you have income that would usually go on those lines you will need to report it on Schedule 1 (a new form).

There is no section to list adjustments to income (fifteen lines on the 2017 Form 1040). Two of the deductions included in this section have been eliminated, but the remainder will need to be reported on Schedule 1.

Form 1040 – Page 2

The line items for income and various other taxes are not listed on form 1040 but on Schedule 2.

The lines for nonrefundable tax credits are eliminated, except for the child tax credit/credit for other dependents. Again, the majority of my clients use at least one of those credits. They will need to report those on Schedule 3.

The itemized list of other taxes is gone from Form 1040. If you are like many of my clients, you will need to report these taxes on Schedule 4.

Under the “Payments” section six lines are eliminated, which are used by many taxpayers. They will need to report these on Schedule 5.

Foreign address, if needed and third party designee (used by most taxpayers who have their returns prepared professionally) is reported on Schedule 6.

Bottom line. For most taxpayers filing the “Postcard” 1040 requires the filing of an additional 6 schedules. All will use at least 1.

 

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IRS assignment of accounts to private collection agencies

February 7, 2017

 

IRS assignment of accounts to private collection agencies

 

You might have recently been hearing on the radio and television some sleazy advertisements indicating that the IRS has hired private collection agencies to resolve tax debts, and that if you owe the IRS you should immediately contact the firm in the advertisement, (and presumably pay them some exorbitant up-front fee). These are generally put out by what I consider “ambulance chaser” tax representation professionals (I am using the word “professionals” quite loosely here.)

 

While it is true that the IRS has contracted with four private collection agencies to help with collecting outstanding debt, most taxpayers should not need to worry about being contacted by these agencies. The agencies are listed below, so if by chance you are contacted it will only be by one of these and any other contact will most likely be a scam.

 

                             CBE Group

                             Conserve

                             Performant

                             Pioneer

 

The accounts that will be assigned by the IRS to these agencies are ones where the taxpayer owes money, but which the IRS is not actively working. These would include older, overdue accounts or ones where a lack of resources prevents the IRS from working them.

 

 Before transferring accounts to one of the agencies listed above, the IRS will give the taxpayer and their representative written notice that their account is being transferred to a private collection agency. The agency assigned will then send a letter to the taxpayer and their representative confirming the transfer.

 

When working with these collection agencies, their employees must identify themselves as contractors of the IRS collecting taxes, must follow all provisions of the Fair Debt Collection Practices Act and must be courteous, respecting taxpayer rights. Also, they will not ask the taxpayer for payment using a prepaid debit card, or demand that payment be sent to them. Rather they will direct the taxpayer to the electronic payment options available at IRS.gov/Pay, or to make checks payable to the U.S. Treasury and send them directly to the IRS.

 

 You do not have to work with these collection agencies and can request in writing

that the agency return your account to the IRS collections division.

 

 THIS IS SOMETHING I STRONGLY URGE YOU TO DO.

 

The IRS will not assign accounts to private collection agencies for taxpayers who are:

 

               Ø Deceased

Ø  Under the age of 18

Ø  In designated combat zones

Ø       Victims of tax-related identity theft

Ø Currently under examination, litigation, criminal investigation or levy

Ø  Subject to pending or active offers in compromise

Ø         Subject to an installment agreement

Ø         Subject to a right of appeal

Ø       Classified as innocent spouse cases

Ø In presidentially declared disaster areas and requesting relief from collection

 

The above categories should encompass the majority of taxpayers who are currently in debt to the IRS, so please do not fall for the scare tactics employed by the tax representation companies on the television and radio. Rather contact a reputable, experienced tax professional in your area.

 

 I feel that these companies are being irresponsible in their marketing tactics, since many taxpayers might feel that the information given by myself, other tax professionals and the IRS has somehow changed, and that taxpayers will be contacted by collectors directly, without any pre-warning.

 

 Please be aware that:

      ü You still will not receive a collection call without first being informed in writing by both the IRS and the private collection agency.

 ü You will not receive at any time an email from them.
 ü They will not demand that you send payment to them
 ü They will not ask for your social security number
 ü They will not ask for your banking information

If you are informed that your account has been assigned to a private collection agency please exercise your right to have it returned to the IRS, and direct them that all future correspondence should be through your authorized representative indicated in IRS Form 2848 (Power of Attorney and Declaration of Representative).

Reg Davies, EA, MBA

Accounting & Tax Services of Charlotte

704-277-5681 ● RegDavies@CharlotteTaxGuy.com

http://www.CharlotteTaxGuy.com

Reg Davies is an Enrolled Agent in Charlotte, NC with in excess of 30 years experience in tax & accounting for individuals and businesses.

 

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Should you itemize or take the standard deduction when filing your tax return?

February 17, 2016

As a quick rule of thumb, most people who own a home and pay mortgage interest will lower their tax bill by itemizing their deductions, while those renting a home will be better off taking the standard deduction.

For filing your 2015 tax return the standard deductions based upon filing status are as follows:

1.  Single $6,300
2.  Married Filing Jointly $12,600
3.  Head of Household $9,250
4   Married Filing Separately $6,300
5.  Qualifying Widow(er) $12,600

If you are 65 or older or blind, your standard deduction is higher than these amounts.

If someone can claim you as a dependent, your deduction may be limited.

When determining if you should take the standard deduction or itemize, a quick calculation totaling the following expenses and comparing them to the above standard amounts should give you a quick idea which direction to take.

1.  Unreimbursed medical expenses (in excess of 10% of adjusted gross income)
2.  Home mortgage interest
3.  State & local income taxes or sales taxes (not both)
4.  Real estate taxes
 5. Personal property taxes
 6. Charitable contributions
 7. Casualty or theft losses
 8. Unreimbursed employee business expenses and other allowed miscellaneous expenses (in excess of 2% of adjusted gross income)

Special rules and limitations may apply when calculating your allowed itemized deductions. Please contact your tax professional for more information.

The above is a general overview of standard vs. itemized deductions as regards the filing of US individual tax returns. You should consult your tax professional regarding your specific situation. It is for informational purposes only and not intended to be construed as tax or estate planning advice. You may contact me directly for advice specific to your own tax situation.

Reg Davies
Accounting & Tax Services of Charlotte

For help with this or any other tax issues contact Reg Davies “The Charlotte Tax Guy” at
704-277-5681
RegDavies@CharlotteTaxGuy.com
http://www.CharlotteTaxGuy.com

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Watch out for Year End Tax Scams

December 4, 2015

With the new year approaching and tax filing season about to start, now is a good time to remind my clients and others about safeguarding their personal information so as not to fall prey to identity thieves.

In order to fraudulently file a tax return electronically, the only information an identity thief needs is your full name, social security number and date of birth, plus the same information for any dependents listed on the return. The thief then uses bogus earnings and other information to prepare the return and claim a refund, which will be issued by the IRS before any matching of W-2 information etc. can be done.

The majority of fraudulent tax returns filed by identity thieves are filed during the first two months of the year. The first the legitimate taxpayer learns about it is when they try to file their correct tax return, and it is rejected because the IRS shows a return has already been processed.

The taxpayer then has to file a correct paper return, explaining that the previous one filed was a fraud. At this time the IRS will issue a bill to the taxpayer for the amount of any refund issued to the thief. Fortunately, by following the correct procedures in reporting the identity theft, the legitimate taxpayer will not need to pay this, but as you can imagine it becomes a nightmare to sort out, and can cost the taxpayer if he or she needs to hire a tax representative to help with the resolution of the issue.

While I can certainly be hired help resolve the situation, I would much prefer that it does not happen to you in the first place.

To help avoid this situation, please remember not to give out any personal information to sources you do not know, and have not initiated contact with.

Below is an article I published earlier in the year, which deserves re-visiting at this time.
Reg Davies

Accounting & Tax Services of Charlotte
704-277-5681
RegDavies@CharlotteTaxGuy.com
www.CharlotteTaxGuy.com

Ten Things to Know about Identity Theft and Your Taxes

Learning that you are a victim of identity theft can be a stressful event. Identity theft is also a challenge to businesses, organizations and government agencies, including the IRS. Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund.

Many times, you may not be aware that someone has stolen your identity. The IRS may be the first to let you know you’re a victim of ID theft after you try to file your taxes.
The IRS combats tax-related identity theft with a strategy of prevention, detection and victim assistance. The IRS is making progress against this crime and it remains one of the agency’s highest priorities.

Here are ten things to know about ID Theft:

1. Protect your Records. Do not carry your Social Security card or other documents with your SSN on them. Only provide your SSN if it’s necessary and you know the person requesting it. Protect your personal information at home and protect your computers with anti-spam and anti-virus software. Routinely change passwords for Internet accounts.

2. Don’t Fall for Scams. The IRS will not call you to demand immediate payment, nor will it call about taxes owed without first mailing you a bill. Beware of threatening phone calls from someone claiming to be from the IRS. If you have no reason to believe you owe taxes, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484.

3. Report ID Theft to Law Enforcement. If your SSN was compromised and you think you may be the victim of tax-related ID theft,  file a police report. You can also file a report with the Federal Trade Commission using the FTC Complaint Assistant. It’s also important to contact one of the three credit bureaus so they can place a freeze on your account.

4. Complete an IRS Form 14039 Identity Theft Affidavit. Once you’ve filed a police report, file an IRS Form 14039 Identity Theft Affidavit. Print the form and mail or fax it according to the instructions. Continue to pay your taxes and file your tax return, even if you must do so by paper.

5. Understand IRS Notices. Once the IRS verifies a taxpayer’s identity, the agency will mail a particular letter to the taxpayer. The notice says that the IRS is monitoring the taxpayer’s account. Some notices may contain a unique Identity Protection Personal Identification Number (IP PIN) for tax filing purposes.

6. IP PINs. If a taxpayer reports that they are a victim of ID theft or the IRS identifies a taxpayer as being a victim, they will be issued an IP PIN. The IP PIN is a unique six-digit number that a victim of ID theft uses to file a tax return. In 2014, the IRS launched an IP PIN Pilot program. The program offers residents of Florida, Georgia and Washington, D.C., the opportunity to apply for an IP PIN, due to high levels of tax-related identity theft there.

7. Data Breaches. If you learn about a data breach that may have compromised your personal information, keep in mind not every data breach results in identity theft. Further, not every identity theft case involves taxes. Make sure you know what kind of information has been stolen so you can take the appropriate steps before contacting the IRS.

8. Report Suspicious Activity. If you suspect or know of an individual or business that is committing tax fraud, you can visit IRS.gov and follow the chart on How to Report Suspected Tax Fraud Activity.

9. Combating ID Theft. Over the past few years, nearly 2,000 people were convicted in connection with refund fraud related to identity theft. The average prison sentence for identity theft-related tax refund fraud grew to 43 months in 2014 from 38 months in 2013, with the longest sentence being 27 years. During 2014, the IRS stopped more than $15 billion of fraudulent refunds, including those related to identity theft. Additionally, as the IRS improves its processing filters, the agency has also been able to halt more suspicious returns before they are processed. So far this year, new fraud filters stopped about 3 million suspicious returns for review, an increase of more than 700,000 from the year before.

Courtesy of the IRS – IRS Summertime Tax Tip 2015-01

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Charitable Contributions

July 29, 2015

2015 Year End Tax Planning

It might seem early, but now is a great time to start thinking about year-end tax planning. Over the next few months my blog posts will be focusing on several areas of tax deductions where people either miss out on allowable deductions, or believe that they are entitled to a deduction that is in fact not allowable per IRS rules.

Charitable Contributions

Let me say first that you MUST have proof for any charitable contribution you wish to claim as a deduction on your tax return. Throughout my career I have had clients say to me when asked about charitable contributions, “I didn’t get any receipts, just put down the “maximum” or “standard” amount that the IRS allows without a receipt.” Well, such an amount does not exist, and while there are some tax preparers who will allow this, any reputable, ethical one will tell you so. If your return is selected for examination, and the charitable contribution deduction has been a hot topic for the IRS for the last several years, if you cannot prove your deduction IT WILL BE DISALLOWED.

IRS Publication 526 specifies

You cannot deduct a cash contribution, regardless of the amount, unless you keep one of the following.

– A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. Bank records may include: a canceled check, a bank or credit union statement, or a credit card statement.

– A receipt (or a letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution, and the amount of the contribution.

Charitable Contributions in General

You can only take a deduction for charitable contributions for donations made to Qualified Organizations. These include nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals.

As an individual taxpayer, to deduct a charitable contribution you must file Form 1040 and itemize deductions on Schedule A (Form 1040). The amount of your deduction may be limited if certain rules and limits apply to you. The main limitation here is that the amount you can deduct for charitable contributions cannot be more than 50% of your adjusted gross income. Your deduction may be further limited to 30% or 20% of your adjusted gross income (AGI), depending on the type of prop¬erty you give and the type of organization you give it to. Your deduction may further be limited by the amount of total itemized deductions allowed based upon the amount of the AGI limits for your filing status.

Contributions You Can Deduct

  •  In general you can deduct contributions you make to a qualified organization of money or property for use by that organization.
  • The contribution made cannot be set aside for use by or to benefit a specific person.
  • For property donated to a qualified organization, the deduction is generally limited to the fair market value (FMV) of the asset at the time of the donation.
  • Expenses paid for a student living with you, sponsored by a qualified organization.
  •  Out-of-pocket expenses when you serve a qualified organization as a volunteer.

Contributions You Cannot Deduct

  • A contribution made to a specific individual.
  • A contribution made to a non-qualified organization.
  •  Any part of a contribution from which you receive, or expect to receive, a benefit.
  • The value of your time or services.
  • Your personal expenses.
  • Certain contributions to donor ¬advised funds.
  • Certain contributions of partial interests in property.

One major trap I see here that many well meaning people fall prey to is contributing to individuals, (especially around the Holiday season), and believing that since it is an act of charity it is therefore a charitable deduction. While certainly an admirable gesture, the IRS does not see this as a charitable contribution, but rather a gift to the recipient. In order to receive the benefit of a charitable contribution you should make the donation to a qualified organization that as a part of its operation helps out individuals and families in need. You cannot, however, instruct that organization that your contribution is for the benefit of any specific individual or group of individuals.

The above is a general overview of charitable donations as regards the filing of US individual tax returns. You should consult your tax professional regarding your specific situation. It is for informational purposes only and not intended to be construed as tax or estate planning advice. You may contact me directly for advice specific to your own tax situation.

Reg Davies
Accounting & Tax Services of Charlotte
704-277-5681
RegDavies@CharlotteTaxGuy.com
http://www.CharlotteTaxGuy.com
http://www.IRSAuditCharlotte.com
http://www.TaxProblemsCharlotte.com

IRS Circular 230 Disclosure
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in the communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

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BEWARE OF BOGUS IRS CALLS

July 23, 2015

IRS Phone Scam Don't be a victim

Just a quick reminder not to fall prey to bogus calls from “people” pretending to be IRS agents, demanding payment from you, threatening you with a law suit if you do not pay immediately and/or asking for personal information from you.

I just had one of my clients, a retiree, call me and tell me that she had just had a phone call from someone claiming to be from the IRS, and telling her that a lawsuit was about to be filed against her by them. This lady did the right thing by calling me immediately, because I was able to tell her that the caller WAS NOT an IRS agent and that she should not respond to the demands of the caller. If she responded at all, I told her to tell the caller that the IRS needs to go through her authorized representative (ME). If she did that she would most likely get an immediate hang up from the caller.

Please remember that the IRS will ONLY  make initial contact with you via US mail. You will receive a number of regular letters/notices from them, followed by a series of certified mail letters/notices. You will NEVER receive initial contact by phone, NEVER receive initial contact by text, NEVER receive initial contact by email, NEVER receive initial contact by fax. If you do, please immediately contact your professional tax representative if you have any questions, and also report any contact information you have for the scammer to the Treasury Inspector General for Tax Administration (TIGTA) at 1.800.366.4484 or at www.tigta.gov.

These scammers do not care who they hurt and steal from. Please do not become a victim, and help prevent others from becoming one also.

Regards,

Reg Davies, EA. MBA

704-277-5681

RegDavies@CharlotteTaxGuy.com

www.CharlotteTaxGuy.com

https://www.facebook.com/pages/JRD-Accounting-Tax-Services-of-Charlotte/32088062406?ref=bookmarks

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Reporting Gambling Income & Losses on your Tax Return

July 10, 2015

Reporting Gambling Income & Losses on your Tax Return

When many people take their summer vacations they will do so on cruises or at resorts where casinos or other gambling opportunities are available to them.

If you do so and win at these and other gambling venues, or even playing the lottery, your winnings are taxable and you are required to report them on your tax return. At the same time, you can deduct your losses and costs of gambling up to the amount of your reported gambling income.

The following are some brief points to remember regarding gambling income & losses.

 

  • Gambling Income: You are required to report in full all gambling income. This includes winnings from horse/dog racing, lottery winnings, casino winnings plus any other source of gambling income. Cash prizes are to be reported in the amount of cash received, and non-cash ones such as cars & trips should be reported at their fair market value at the time they are awarded.
  • Forms you might receive: Depending upon the kind of winnings and the amount won, the payer of your winnings might issue you a Form W-2G, Certain Gambling Winnings, which is also sent to the IRS. The payer will also issue you a Form W-2G if any income tax was withheld from your winnings, regardless of the amount won.
  • Reporting of winnings: You should report your winnings & prizes awarded for the year on Page 1 of your Form 1040, on the line “Other Income”. All of your gambling income is reportable for tax purposes, even if no Forms W2-G were issued.
  • Deduction of Losses: Gambling losses are reported on Schedule A of Form 1040 (Itemized Deductions). Report your losses for the year and the costs of lottery tickets etc. Remember that your reported gambling losses cannot exceed your reported gambling winnings. Allowed gambling losses are reported on Schedule A as Other Miscellaneous Itemized Deductions, and are NOT subject to the 2% limitation.
  • Gambling Records to keep: Keep track of all your wins & losses for the year. It is a good idea to keep a gambling log or diary. Also keep any receipts, statements or tickets you receive showing the cost of your gambling activity (This does not include travel, lodging, food etc.).

The above is for informational purposes only and not intended to be construed as tax or estate planning advice. You may contact me directly for advice specific to your own tax situation.

Reg Davies

Accounting & Tax Services of Charlotte

704-277-5681

RegDavies@CharlotteTaxGuy.com

www.CharlotteTaxGuy.com

www.IRSAuditCharlotte.com

www.TaxProblemsCharlotte.com

IRS Circular 230 Disclosure

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in the communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

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July 1, 2015

Ten Things to Know about Identity Theft and Your Taxes

Learning that you are a victim of identity theft can be a stressful event. Identity theft is also a challenge to businesses, organizations and government agencies, including the IRS. Tax-related identity theft occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund.

Many times, you may not be aware that someone has stolen your identity. The IRS may be the first to let you know you’re a victim of ID theft after you try to file your taxes.

The IRS combats tax-related identity theft with a strategy of prevention, detection and victim assistance. The IRS is making progress against this crime and it remains one of the agency’s highest priorities.
Here are ten things to know about ID Theft:

1. Protect your Records. Do not carry your Social Security card or other documents with your SSN on them. Only provide your SSN if it’s necessary and you know the person requesting it. Protect your personal information at home and protect your computers with anti-spam and anti-virus software. Routinely change passwords for Internet accounts.

2. Don’t Fall for Scams. The IRS will not call you to demand immediate payment, nor will it call about taxes owed without first mailing you a bill. Beware of threatening phone calls from someone claiming to be from the IRS. If you have no reason to believe you owe taxes, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484.

3. Report ID Theft to Law Enforcement. If your SSN was compromised and you think you may be the victim of tax-related ID theft, file a police report. You can also file a report with the Federal Trade Commission using the FTC Complaint Assistant. It’s also important to contact one of the three credit bureaus so they can place a freeze on your account.

4. Complete an IRS Form 14039 Identity Theft Affidavit. Once you’ve filed a police report, file an IRS Form 14039 Identity Theft Affidavit. Print the form and mail or fax it according to the instructions. Continue to pay your taxes and file your tax return, even if you must do so by paper.

5. Understand IRS Notices. Once the IRS verifies a taxpayer’s identity, the agency will mail a particular letter to the taxpayer. The notice says that the IRS is monitoring the taxpayer’s account. Some notices may contain a unique Identity Protection Personal Identification Number (IP PIN) for tax filing purposes.

6. IP PINs. If a taxpayer reports that they are a victim of ID theft or the IRS identifies a taxpayer as being a victim, they will be issued an IP PIN. The IP PIN is a unique six-digit number that a victim of ID theft uses to file a tax return. In 2014, the IRS launched an IP PIN Pilot program. The program offers residents of Florida, Georgia and Washington, D.C., the opportunity to apply for an IP PIN, due to high levels of tax-related identity theft there.

7. Data Breaches. If you learn about a data breach that may have compromised your personal information, keep in mind not every data breach results in identity theft. Further, not every identity theft case involves taxes. Make sure you know what kind of information has been stolen so you can take the appropriate steps before contacting the IRS.

8. Report Suspicious Activity. If you suspect or know of an individual or business that is committing tax fraud, you can visit IRS.gov and follow the chart on How to Report Suspected Tax Fraud Activity.

9. Combating ID Theft. Over the past few years, nearly 2,000 people were convicted in connection with refund fraud related to identity theft. The average prison sentence for identity theft-related tax refund fraud grew to 43 months in 2014 from 38 months in 2013, with the longest sentence being 27 years. During 2014, the IRS stopped more than $15 billion of fraudulent refunds, including those related to identity theft. Additionally, as the IRS improves its processing filters, the agency has also been able to halt more suspicious returns before they are processed. So far this year, new fraud filters stopped about 3 million suspicious returns for review, an increase of more than 700,000 from the year before.

Courtesy of the IRS – IRS Summertime Tax Tip 2015-01

The above is for informational purposes only and not intended to be construed as tax or estate planning advice. You may contact me directly for advice specific to your own tax situation.

Reg Davies

Accounting & Tax Services of Charlotte

704-277-5681

RegDavies@CharlotteTaxGuy.com

www.CharlotteTaxGuy.com

www.IRSAuditCharlotte.com

www.TaxProblemsCharlotte.com

IRS Circular 230 Disclosure

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in the communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

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Estate Tax when the surviving spouse is not a U.S. citizen

June 30, 2014

Estate Tax when the surviving spouse is not a U.S. citizen

When one spouse in a marriage passes away, the surviving spouse generally gets an unlimited marital deduction against the assets of the estate, thereby paying no federal estate tax. When the surviving spouse is a non-citizen (including resident alien), however, that spouse is not entitled to the unlimited marital deduction. The surviving spouse is still entitled to an exclusion of $3.54 million before the calculation of federal estate tax. Therefore, if the estate is $3.54 million or less there is no federal estate tax regardless of citizenship status.

For a non-citizen surviving spouse who elects not to become a citizen by the due date of the return (nine months after the date of death, plus a six month extension request if needed), that spouse can set up a Qualified Domestic Trust (QDOT). With this, it is the trust that inherits the estate and receives the unlimited deduction. The surviving spouse can be the only beneficiary of the trust, and receives income from the trust free of any estate tax. Distributions of any assets of the trust to the surviving spouse before his or her death, and distributions to others subsequent to his or her death are subject to estate tax. An exception to this rule can be applied for when distributions are made because the spouse has an urgent, immediate need and no other resources.

 

 

The above is for informational purposes only and not intended to be construed as tax or estate planning advice. You may contact me directly for advice specific to your own tax situation.

Reg Davies

Accounting & Tax Services of Charlotte

704-277-5681

RegDavies@JRDFinancialService.com

www.CharlotteTaxGuy.com

www.IRSAuditCharlotte.com

www.TaxProblemsCharlotte.com

IRS Circular 230 Disclosure

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in the communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

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Delinquent Tax Returns

June 4, 2014

Delinquent Tax Returns

Why is it imperative that you file your delinquent tax returns?

For one thing it is illegal for you to not file a tax return when you are required to do so.

When you have a tax due for any given tax year, you are charged penalties and interest, which continue to accrue until the return is filed and the tax is paid. While the failure to file penalty for individual taxes due will max out five months after the due date of the return at 25% of the tax due (5% per month for five months), interest will continue to accrue until the tax is paid, along with a ½% per month failure to pay penalty on the unpaid balance.

Even if you anticipate a tax refund for a given year it is essential that you file your tax return ASAP.

There is a statute of limitations for the length of time you have to file for an income tax refund, which starts running from the due date of the return. A claim for refund must be made within three (3) years from the due date of the original return, including extensions. This means that if you have not yet filed your 2010 tax return, and did not file a timely extension, on April 15, 2014 you ran out of time to claim any refund due for that year. If you did file a timely extension you have until October 15, 2014 to file a return and claim your refund.

Another reason that you need to catch up with all delinquent tax returns is that the IRS might put a hold on your current tax refund. Under the Delinquent Return Refund Hold Program the IRS can withhold any refund due to a taxpayer until all delinquent returns are filed and any tax due plus penalties and interest is paid. Exceptions would be,

1. Where the taxpayer can show reasonable cause why a return was not required to be filed.
2. Where the taxpayer can establish that an economic hardship exists.
3. Where the taxpayer is in a declared disaster/emergency area and releasing the refund is appropriate at that time.

Of course each individual’s tax situation is different, and there might be legitimate reasons for not filing a tax return (the standard tax protester reasons do not apply here), so those with unfiled tax returns should consult a competent tax professional.

Reg Davies, EA, MBA
JRD Tax, Accounting & Financial Business Services
704-277-5681
http://www.jrdfinancialservice.com
http://www.charlottetaxguy.com
regdavies@jrdfinancialservice.com

Reg Davies is an enrolled agent, licensed to practice before the IRS. He has in excess of 30 years experience preparing individual and business tax returns, and representing clients before the IRS with their tax issues.

Please be aware that the above is for informational purposes only, and should not be construed in any way to be tax advice, either in general or specifically related to your own situation.

 

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