IRS Electronic Deposit Rule Starts January 1st!

Electronic Federal Tax Payment SystemStarting on January 1, 2011, many businesses will be required to make federal tax deposits electronically.  You will no longer have the option of making your federal tax deposits using coupons at the bank.  Businesses that owe minimal amounts and were not subject to tax rules regarding coupons and filing will still be able to mail their payments with their filed tax return.  For example:  941 filers with a deposit liability of under $2,500 can still mail their payments if they want to.

But if you were required to use the coupon system and made deposits at the bank, then you’re going to have to switch over the Electronic Federal Tax Payment System (EFTPS.)  I’ll tell you the truth, I love EFTPS.  I use it myself and I don’t have to.  It’s free and it’s easy.  But in order to use it, you have to sign up.

First, go to their website:  https://www.eftps.gov/eftps/ 

It’s important to sign up before you actually have to make a payment because the signing up process takes some time.  Go ahead and get started today if you’re going to be making payments in January.  Make sure you have all of your information together before you start.  You’ll need all of your standard business information, including EIN number, and of course the bank account and routing number that you’ll be making your tax payments from.  You’ll be sent a PIN number and you’ll be able to start making payments after that.

You don’t even have to be a business to use EFTPS.  An individual is also able to have an EFTPS account.  I recommend that to people who have set up monthly installment agreements with the IRS.  When you make a payment on EFTPS you get confirmation that you made the payment.  That comes in really handy if you’re having an issue with the IRS.

The most important thing to know is that you need to make your payment on EFTPS one day before the payment is due by 8PM.  If you don’t do it by then, your payment will be late.  It’s okay to go in and schedule a payment in advance though.  Let’s say for example that your company owes $3,641 in payroll taxes for December and your payment is due January 17th.  You can go into EFTPS on January 2nd and schedule your payment for the 17th.  You can schedule payments up to 120 days in advance.

One more important piece of information:  When you use EFTPS, the government will not have unlimited access to your checking account.  You initiate all of your payments.  The IRS can’t just go in and grab your money without your say so.

I Got My PTIN Number!

PTIN number

Despite the 5 identification numbers that the IRS already has for me, I still got lost in the system! Glad I'm found.

If you don’t prepare taxes for a living, you probably don’t know and don’t care what a PTIN is.  But if you’ve ever had to deal with a government agency, then you might understand my complaint.

A PTIN is a Professional Tax-preparer Identification Number.  I’ve already got one, but the IRS decided to change the rules and make me pay for it.  I don’t really like paying for something that I got for free and have already had for nine years, but I can live with it.   It’s supposed to make the tax preparation industry safer for consumers.  I’d feel better though if I thought it would actually do that. 

It’s now against the law to get paid for filing tax returns without having a PTIN.   It’s not a bad law really, any reputable tax preparer already has a PTIN anyway.    The IRS claims that it’s going to use the PTINs to monitor our tax preparation work.  If we’re crooked, we’ll get caught.  (They’ve been doing that for years already but if it makes them feel better to say so that’s fine with me.)   The fee I pay for getting my PTIN back is supposed to cover the cost of monitoring the system.  The problem is, it’s only monitoring those of us who get PTINs — the cheaters – the crooked tax preparers that are scamming the system don’t pay the fee and they’re not monitored.

If you’ve ever done any audit work, you know what I’m talking about.  A taxpayer comes to you because they received an IRS letter about a problem with their return.  They come to you because they can’t find the person that they paid to do the return in the first place.  “What do you mean?”  You ask, “Your return says self-prepared.”  But of course, that’s not the case.  They paid some fly-by-night tax preparer who doesn’t have enough confidence in his work to actually sign the return and will disappear right after April 15th if not sooner.  Those guys never get caught because the bad returns were all supposedly prepared by the taxpayers.  These are the people who need to be caught and prosecuted.  The new PTIN registration does nothing to address this problem

I’m late getting my PTIN because quite frankly, I was sort of  lost in the system for awhile.  That wasn’t very comforting, but I think the IRS could find me if they really wanted to.  I currently have  five IRS identification numbers in addition to my social security number.  I have to sign  returns using my PTIN, but I also have to put my company name and Employer Identification Number on each return.  That’s two numbers right there on every tax return I prepare.  In order to electronically file a return I have to have my Electronic Return Originator (ERO) number(3).  Most people have to be fingerprinted my a local law enforcement office to get that number.  The Sheriff didn’t have to fingerprint me to get my ERO number because I already had my Enrolled Agent number (4).  Enrolled agents already go through a bunch of other stuff including having the IRS review your prior year’s returns before they’re allowed to practice.  Because I do audit work, I also have a CAF (Centralized Authorization File) number(5) that I must use every time I represent on of those sorry folks who went to a fly-by-night preparer. 

So it seems like the IRS has plenty of information on those of us who are reputable tax preparers already, but there’s still no protection against the bad guys who fly under the radar with no type of registration whatsoever.  They cut into our businesses, make the profession look bad, and cause problems for honest taxpayers who really need help.  If the IRS would address that problem, I wouldn’t complain about the PTIN fee so much.

EIC Tax Tips – Protect Your Child’s Identity

Protect yourself from identity theft. Don't let anyone have your child's social security card.

It’s hard to believe that someone would steal a child’s identity, but it happens all the time.

 

I’ve been posting a lot of last minute tax tips for people who have excess money to donate to charity or invest in retirement plans.  Somebody asked me, “What about the rest of us?  Do you have any good tax tips for people who don’t make a lot of money?”  To be honest, I don’t have as many tips there.  If you’re income is low enough that you wind up not paying income tax, you don’t need a lot of strategies for sheltering your income.   But that said, you do want to make sure that you protect what’s coming to you and I can help with that.

 

This is the time of year when I hear the question, “My son’s father wants to claim him on his tax return but he doesn’t have custody and doesn’t pay child support.  How can I stop him?”   Usually these questions are about the Earned Income Credit (EIC.)   When you combine EIC with the child tax credits, you can potentially have over $6,000 in tax refund money.  It’s no wonder that people fight over who claims the children.  Be sure to know the rules before you file.

 

In order to qualify to claim an Earned Income Credit, your child must meet three tests:

 

Relationship:  son, daughter, stepchild foster child, brother, sister, half brother, half sister, step brother, step sister or a  descendant of any of them, and

 

Age:  the child must be younger than the person claiming EIC and under age 19 (or under age 24 if a full time student) or be any age if permanently and totally disabled at any time during the year, and

 

Residency:  the child must have lived with the taxpayer in the United States for more than half of the tax year.  If you are in the military and stationed overseas, that counts as a temporary absence and you qualify as living with your child for the time that you are on active military duty.

 

The residency requirement is the one that’s going to prevent the absentee father from being allowed to claim the child.  Now that doesn’t mean he’s not going to try—there’s between $12 and $14 billion of EIC fraud every year.   But if you are the custodial parent, you should be claiming your child on your tax return.

 

Let me say something here are relationship.  “Stepchild” means that you married the child’s biological parent.  If you are just living with someone, even if you’ve been together for 10 years, you are not legally considered to be a “stepparent”.  A “foster child” means that the court placed a child in your home.  You have legal paperwork stating that you are the “foster parent”.  It does not mean someone that you care for and care about.  (At least not for IRS purposes.)

 

So how do you make sure that no one else claims your child on your return?

 

Protect your child’s identity:   I cannot stress enough how important it is for you to protect your child’s social security number.  Especially this time of year, there is a lot of child identity theft.  Most of the time, if someone steals your child’s identity, it’s someone you know, but I once dealt with a case where a thief was stealing baby ID’s from the hospital.  The tax windfall from an Earned Income Credit (EIC) can be pretty large, and it makes people do bad things.  If an identity thief has your child’s social security number, date of birth, and the correct spelling of the name, they’ve got you.  The social security card has two out of three.  Keep it safe.

 

If someone does claim your child illegally, (you’ll know because your tax return will be rejected when you try to electronically file it) fight back.  If you are in the right, go ahead and file your tax return exactly the way you’re supposed to; claiming your child and all the tax credits you are entitled to.  You will have to mail the tax return in and it will make for a horrible delay in processing your refund.  But the identity thief will get audited, you will win your case and you will get your money.   If you are not in the right, do not waste your time.  You will be audited too.  You’ll get 11 (sometimes 22) pages worth of questions you have to answer to prove you really do have custody of your child.  If you’re legit it’s easy, if not it’s a nightmare.

 

Some people will electronically file their return to get whatever refund they can first and then file an amended claim to add their child.  If possible, file the return correctly in the first place.  It gives you a stronger case in the IRS’ eyes and it will actually be processed faster than if you do the amendment.

 

One piece of advice I saw on a message board about this was to “Go ahead and file your return before he does, even if it’s wrong so that you beat him to it.”  Although filing your return as soon as possible will help prevent someone else from claiming your child, you need to know that it is illegal for a professional to e-file tax returns without having the actual W2s.  You’d be amazed at how often the final check stub is a little different from the actual W2.  Don’t file until you have everything you need.

 

In an ideal world, you wouldn’t have to be afraid of people stealing your child’s identity for financial gain.   We’re not dealing with ideal though.  Protect yourself and your child by keeping his social security card and other personal information safe.

Qualified Charitable Distributions

 

Qualified Charitable Distributions help save on taxes

If you are over 70 and 1/2, you may be able to take advantage of a Qualified Charitable Distribution.

 

UPDATED FOR 2018

 

The Qualified Charitable Distribution (also known as a Charitable IRA Rollover) is is a great strategy for seniors to reduce their taxable income under the new tax code.

 

What is a Qualified Charitable Distribution (or QCD)?  If you’re 70 and 1/2 or   older, you’re required to make required minimum distributions (RMDs) from your Individual Retirement Account (IRA.)  Even if you don’t need the money, you have to take it out of your retirement account and you have to pay tax on it.  If you don’t, the penalties are even worse than any tax you’d have to pay. Additionally, many seniors don’t get the benefit of claiming their charitable donations on their income tax returns because they don’t have enough other things to deduct like mortgage interest. With the new, higher standard deduction for 2018, even fewer seniors will be able to itemize their deductions.

 

The Qualified Charitable Distribution helps with this problem by allowing you to take money out of your IRA and make a direct contribution to a charity.  The distribution counts towards your RMD and it’s tax free to you because it went to the charity.  That’s a win/win situation!

 

Another advantage to the QCD is that the income from the distribution never shows up as income on the face of your tax return.  This is really helpful for people who may be able to claim other deductions or benefits based on having a lower Adjusted Gross Income (or AGI.)  For example:  The taxability of your Social Security income is based upon your AGI, so for some people, a lower AGI could reduce how much of their Social Security income gets taxed.

 

Can you make a contribution for more than your RMD?  Yes you can.  You can actually make a charitable distribution of up to $100,000 from your IRA with no federal income tax impact.  $100,000 – that wasn’t a typo.  If you’re in a financial position to make a donation like this, that would be $100,000 to a charity of your choice with no limitations as to its deductibility because it’s part of an IRA charitable rollover.

 

Can you make a QCD if you’re less than 70 and 1/2 years old?  No, I’m afraid not.  You must be at least 70 and 1/2 at the time you make the distribution.

 

If you’re interested in making a Qualified Charitable Distribution, talk it over with your financial advisor and your charity.  You’ll want to make sure that it’s done correctly and you’ll want to keep good records in case there’s ever any question about your RMDs.

 

Can I still take a charitable deduction on my tax return for my QCD?   No, the QCD will be exempt from tax so you can’t claim it as an additional deduction.

 

The Qualified Charitable Deduction is one of the best ways for seniors to reduce their tax liability under the new tax code. If charitable donations are something you do, then definitely check out the QCD.

Employers: Get Ready for Withholding Changes

Last night Congress approved the new tax proposal and the IRS has sent out notices concerning the new Social Security Withholding.  The new withholding rate will change to 4.2%.  It’s is recommended that you change your payroll calculations as soon as possible, but you are required to change by January 31 at the latest.  Any offsetting adjustments for over withholding must by made by March 31.

What you’re going to want to look for is Notice 1036.  As of this writing, it hadn’t been posted on the IRS website yet, but I expect it to be up shortly.  If you run payroll from a computer program, make sure you check for and download any updates before any January payroll is issued.  I believe that this will be the link to the new withholding tables once they become available:  http://www.irs.gov/pub/irs-pdf/n1036.pdf

According to the IRS post, even though the Social Security withholding rate has gone down, this does not change the future Social Security benefit to the employee.

Another Missouri Tax Credit: The Center for Head Injury Services

Updated May 21, 2016

 

Missouri Tax Credit for Center for Head Injury Services

 

 

I realize that I plug the Missouri Tax credits quite a bit, but when you’re choosing a charity, they really give you the best bang for your buck. You don’t just get a federal income tax deduction, you also get a 50% tax credit to offset your Missouri state income tax liability. The other thing that I really like about the Missouri Tax Credits is that the money you donate to these charities is staying right here in Missouri, helping our friends and neighbors. It’s a win/win/win situation.

Today I’m going to talk about the Center for Head Injury Services. The Center serves over 800 people each year who have head injuries or other cognitive disabilities. Their programs include employment assessment, job placement and day services.

The Missouri tax credits available fall under the categories of Neighborhood Assistance Program (NAP) tax credits and Youth Opportunity Tax Credits (YOP).   It’s available to businesses or individuals who contribute $500 or more to the organization.

Charities that qualify for Missouri Tax Credits have already been pre-screened by the state and meet pretty strict requirements about how they spend your money.   The idea behind these grants is that a well run non-profit organization can provide these valuable services better than the state can.

So why is the Center for Head Injury Services so important?  Many reasons.  Did you realize that over 2 million people suffer from brain injuries every year?  And what most people don’t realize is that brain injuries can cause permanent limitations and chronic health conditions that require long term support.  Brain injuries aren’t like a disease that can be cured.  The Center for Head Injury Services is a comprehensive resource to all types of head injury victims and their families.

They provide adult day care and therapy for persons with severe injuries and vocational and employment services to persons with less severe injuries.  They also provide counseling to families having trouble adjusting to disability issues.  They serve people with all types of head injuries whether its from a car accident, a stroke or an aneurysm.   Bottom line:  they do good work.

Even if you’re unable to qualify for a Missouri Tax credit, a donation to the Center for Head Injury would be money well spent.

One final thing, the Center for Head Injury Services has an equipment loan program.  If you have equipment that you are no longer using, they could use crutches, walkers, canes, wheel chairs, bath & shower chairs and benches, commodes, and other types of rehabilitative equipment.  Donating these items doesn’t qualify for the Missouri Tax Credit, but it would certainly be a good use of these items. You also might be able to qualify for a deduction on your federal return for “non-cash” contributions.

To learn more about the Center for Head Injury Services, click here:  https://www.headinjuryctr-stl.org/

 

Last Minute Tax Tip: MO Tax Credit–Almost Home

Missouri Tax Credit for Almost Home

Photo from the Almost Home website

Here’s another charity that you might want to take a look at, it’s called Almost Home. Almost home serves teen mothers and their children with up to two years of housing, counseling, education and other support services. Since they opened back in 1993, Almost Home has served over 1,500 mothers and their children.

Almost Home currently has Missouri tax credits available to individuals and corporations for donations of between $100 and $100,000. Many of the tax credit programs don’t even start until you make a donation of $1,000 or more, so this is a good program for persons with a smaller charitable donation budget. As usual with Missouri tax credit programs, the credits are good for a 50% credit against your Missouri state income tax liability. This tax credit is in addition to the usual deductions that you get to claim for charitable contributions on your federal and state income tax return.

For a donation to Almost Home to count towards the Missouri Tax Credit, the donation must be in cash, stocks, bonds, securities or real property. If you can’t make that type of contribution but would still like to help Almost Home, they have a wonderful wish list on their web site. Donations of clothing, toys or supplies won’t qualify for the Missouri tax credits, but would be most graciously and gratefully accepted by the organization.

Almost home qualifies for Missouri Tax Credits under the Missouri Maternity Home Tax Credit program which is admistered by the Department of Social Services.

For more information about Almost Home and the tax credit program, please click on the link to their website: http://www.almosthomestl.org/donate/tax-credits

For information on the Missouri Maternity Tax Credit program, click on the Missouri website: http://www.dss.mo.gov/dfas/taxcredit/maternity.htm

Almost Home was established by the Franciscan Sisters of Mary. Their primary areas of concern are establishing and achieving personal goals related to health care, emotional stability and education; teaching appropriate parenting skills; and empowering members for independent living.

Military Money Tip: File Your Claim for Stop Loss Pay before Dec. 18

Retroactive Stop Loss Service Pay for Military

Photo by Sgt. Richard Rzepka

The new deadline for eligible service members to apply for Retroactive Stop Loss Special Pay (RSLSP)  is closing in.  The date has been extended to December 18 and the law requires that it not be extended again. 

What is Stop Loss?  Stop loss is basically when service members’ terms of duty were involuntarily extended.   A bill passed in 2009, called the War Supplemental Appropriations Act, authorized a retroactive stop loss special pay of $500 for every month or partial month served in stop loss status.    If your service was involuntarily extended between 9/11/2001 and 9/20/2009 you may be eligible. 

In order to receive the stop loss pay, you must submit a claim.  The average benefit is $3,700. 

For more information, check out the Defense Department website:  http://www.defense.gov/home/features/2010/0710_stoploss/

Or you can call your specific military service branch:

Army:   877-736-5554

Marine Corps:  877-242-2830

Navy:  901-874-4427

Air Force:  800-525-0102

Who is eligible:  Active or Reserve military members who experienced “stop loss” or the survivor of a service member who did.

This is money that the government owes our military  members for service to our country.   The only way to receive Retroactive Stop Loss Special Pay is to submit an application by December 18th.  If you think you might qualify for stop loss pay, please contact your service branch office to learn more and begin the RSLSP claim process.   If you know anyone who you think might qualify for RSLSP, please contact them and encourage them to apply.

Last Minute Tax Tip: Hire Your Kids

Hire your kids

Reduce your taxes, hire your kids to work for you!

Do you own your own small business as a sole proprietorship? Do you have kids? If so, did you know that you can pay your kids to work in your business and they won’t be subject to social security and Medicare taxes? Now if you pay them more than their standard deduction, they could be subject to income tax withholding but even so, not having to pay the employment tax is a big savings. You also don’t have to pay Federal Unemployment taxes either.

Why is this good to know? Well if you pay your kids wages from your business, it’s a business deduction and that’s money you’re keeping in the family and not paying self employment taxes on. It’s important to keep the wages commensurate with work that the kids actually perform. The IRS isn’t going to buy the idea that your 4 year old is earning $50,000 a year doing statistical analysis for your company. But what can your kids actually do?

My first job was handling all of the scut work that the secretaries in the office wouldn’t do. I cleaned the white board in the meeting room, made the coffee, made photocopies and ran errands. I was happy because I was getting paid, the secretaries were happy because they didn’t have to do those jobs any more, and the boss was happy because his staff was happy. I was 15 at the time, but frankly a much younger kid could have handled that job.

My son’s in college now, but he used to be my IT guy. For the cost of a Chucky Cheese pizza and some tokens, he’d take care of any computer problems I had. After he left for school, I had to hire a professional to help me. The freelance IT person I hire costs me $99 per hour. I had no idea how valuable my son was as an employee until he went away. I had never paid him a wage. (Granted, I’m paying through the nose for tuition but that’s another story.) What I should have done was pay him a wage and let him buy his own pizza. That would have reduced my self-employment taxes.

So what about your kids, do they help you with your business? Can they? Would they? If the answer is yes, then you might want to consider putting them on the payroll.

Who’s allowed to do this? There are only two categories of businesses where you can put your children on the payroll without paying employment taxes. One is sole proprietors; that’s businesses that file a schedule C with their 1040 tax return. The other is partnerships where both of the partners are the parents of the children working. If there is even one partner who is not a parent of the child, then you must pay the payroll taxes. Also, if you own a corporation of any kind, you must pay employment taxes on your child’s wages.

With the year end fast approaching, and winter break heading this way, now might be a perfect time to test the waters for hiring your kids. The money you pay them now will reduce your taxable income for 2010.

Last Minute Tax Tip: Another Missouri Tax Credit

Save kids lives, donate to the St. Louis Crisis Nursery

St. Louis Crisis Nursery still has tax credits available for 2010. For a gift of $1,000 you can receive a tax credit worth $500 against your Missouri state income tax return. $1,000 is the minimum amount you must donate in order to qualify for the tax credit. In addition to claiming the Missouri tax credit, you will also be able to deduct your contribution against your federal income.

This program is limited in scope so you should call first to make sure that the tax credits are still available. Contact Betsy at (314) 292-5770. Even if you can’t qualify for the Missouri Tax Credit, you may still wish to make a donation. The whole focus of the St. Louis Crisis Nursery is saving babies’ lives and keeping kids safe. Who doesn’t think this is a good thing?

The Crisis Nursery qualifies for the tax credits under the Youth Opportunities Program and the Neighborhood Assistance Programs. It’s important to remember that many of these tax credit programs are in danger of being discontinued in the future so you may never get another opportunity to take advantage of them.

If you’d like to learn more about the Saint Louis Crisis Nursery, check out their website at: http://www.crisisnurserykids.com/index.htm

For more information about Missouri tax credits, you can go to the Missouri website: http://dor.mo.gov/taxcredit/ or just call me.

Remember, time is of the essence here.  There are only so many credits available and they are for 2010.  If you have any interest in this tax credit program whatsoever, call Betsy at (314) 292-5770  now.