However, if you’re a homeowner, you can look at your home in another way: As a tax shelter. You may deduct the mortgage interest paid on your annual tax return and deduct the property taxes on your Schedule A. If you don’t currently own a home, this tax benefit is significant enough to make you look seriously at home ownership.

“Points”
The concept is simple, but it starts to get a little more complicated when you add in “points.” Points are one type of fee paid at closing to your lender. If you pay points when you buy your new home, these may be deducted in full in the year of purchase. However, if you refinance your loan, the points must then be deducted over the life of the new loan. In the event you are deducting points annually and then decide to refinance again, you will be able to deduct the balance of the points when you pay off the old mortgage. Of course, all these deductions are based on being able to itemize your deductions on Schedule A.

There are some limitations.

 Points must not be more than amounts generally charged in your area.
 Funds provided at closing must be at least equal to the points.
 Loan must be used to buy or build taxpayer’s main home.
 Points are stated as a percentage of the principal amount of loan.
 Points are clearly stated on the settlement statement as charged for the mortgage.

Predictably, there are limits on mortgage interest deduction. Only the interest on the first $1 million of home acquisition debt is deductible. (Acquisition debt is defined as debt to purchase, build or substantially improve the residence.) Home equity debt limits are the lesser of the fair market value of the home reduced by the acquisition debt or $100,000 ($50,000 if married filing separately).

Probably the greatest advantage of home ownership occurs when you decide to sell your home. If you have owned and lived in your personal residence for two out of five years, you can sell the home and not be taxed on a profit up to $250,000 for singles and $500,000 for couples. The way home values have increased in recent years, this can be a tremendous investment opportunity. This rule seems very straight forward and simple, but beware! There are a number of exceptions.

Job related move—if you have to move out of your area (a 50-mile radius), and are unable to meet the two year time period, you can prorate the time based on a formula utilizing a ratio consisting of the number of days that you owned and lived in the home to the total number of days in the relevant 24-month period (approximately 730), multiplied by the exclusion amount.

Health problems requiring a sale—if health problems force you to move from your principal residence, you can prorate the time and exclusion based on the formula above.

Ideally, a couple that kept good records of time of ownership could buy and live in a home for two years, sell for a profit and then repeat this process. Still, there are a number of pitfalls that cause tax problems, such as the special rules surrounding home offices and move out/rent/return situations that effect the two in five requirement (this involves adjusting for depreciation recapture). Given the many regulations and nuances of the tax laws, many people opt to hire a licensed tax practitioner, such as an enrolled agent.

So there you go…The roof over your head can be a substantial tax shelter, regardless of how much equity you do or don’t have. If you would like to learn more about your home as a tax deduction, or if you are a real estate investor looking to incorporate tax planning into your acquisition and disposition planning, give me a call at (970) 930-1040.

To your tax savings,

Jassen Bowman, EA

1. Are they recommended by a trusted colleague?

One way to start the search for an accountant is to ask people that you already trust for suggestions. Your banker, insurance agent, attorney, and financial planner most likely know and work with accountants on a regular basis. Also inquire to the companies that you do business with, such as you barber, florist, butcher, and plumber. Chances are, these sorts of business owners use an accountant for some business functions, since these tend to be the types of business owners that are excellent at what they do, but not so great with dealing with the complexities of taxes and accounting.

2. Ask around your Chamber of Commerce.

If you are familiar with your local Chamber, they can be an excellent resource. You can ask at Chamber events for referrals to accountants, and you are likely to meet many such service providers at Chamber functions, trade events, and leads groups. Also, many Chambers have an internal complaint system and can let you know whether or not complaints have been issued locally against an accountant or firm.

3. Do they have any complaints with the Better Business Bureau?

When many individuals decide to take action and make a complaint against a firm, they often think first of the BBB. Check with your local division, or look them up online, and make sure that the company you are considering hiring has a good record with the BBB. If they have a Gold Star award from the BBB, then you’re on the right track to working with a company that is reputable and stands by their word. The BBB’s new letter grading system can also help you in selecting a good firm.

4. Have they ever been investigated by your state Attorney General’s office or state board of accountancy?

This is another place to do your own due diligence. Complaints with the state AG or Board of Accountancy is an automatic red flag and should be highly considered before selecting a firm.

5. What services do they provide, and what services do you NEED?

Think about exactly what you’re looking for in a service provider. Do you need full service accounting, outsourcing all functions to another person or firm? Or do you just need year-end tax preparation? Knowing the answer to what services you need will help you pick the best person to do what you need, and will affect your budget for getting it done. For example, if you just need tax preparation, then you might be better off with an experienced tax preparer instead of a CPA firm that mostly does auditing and general accounting. If you only need payroll services, then you might want to hire a payroll company rather than a bookkeeper that does payroll on the side. If you need the books updated weekly or monthly, most communities have competent, independent full charge bookkeepers that you can hire.

If you’re looking for somebody to come set up your books and show you how to use your accounting software, you may want to consider a general CPA or a competent bookkeeper. If you do all your own books using Peachtree, Quickbooks, MS Money, or another popular commercial software package, it can be very helpful to have somebody to call should something go wrong. The large commercial accounting software publishers all provide some sort of certified expert rating system for individuals that are experts on using their software. You may want to look for and consult with such a certified expert on your particular accounting software. For example, Intuit offers its Quickbooks Certified ProAdvisor program to consultants. Finding one of these certified individuals can really help you a lot if you’re doing the books yourself.

If your only interest is in tax compliance, look for a CPA that specializes in taxation, or an Enrolled Agent (EA). An EA is an individual licensed directly by the U.S. Treasury to handle tax matters, and this individual can represent you before the IRS just like a CPA or an attorney. By nature of the credential, EAs are dedicated tax professionals and are generally more competent in areas of tax issues than a general CPA, unlicensed tax preparer, or bookkeeper.

Selecting the type of professional you need is a serious consideration in this process, and depends largely on what you plan on doing yourself, and what you expect to need help with.

6. Are they licensed in some way?

Credentials are not always the most important thing to consider, but they do reflect at least a minimum level of professional competency, in theory. If they are a CPA, they’ve passed a rigorous four part examination and have at least a bachelor’s degree in accounting and two years of professional experience, at a minimum. If they are an Enrolled Agent, they have passed a very rigorous three part exam covering individuals, businesses, and practices and ethics that is administered directly by the Internal Revenue Service.

The individual preparing your tax returns, doing your books, or processing your payroll doesn’t necessarily need credentials in order to do the tax and do it right, so experience is a critical piece of the puzzle you’ll want to inquire about.

Do keep in mind that if you’re audited by the IRS, only CPAs, EAs, or attorneys can represent you, unless you wish to represent yourself, which is not recommended.

7. How much experience do they have?

How many years have they been doing what they do? What type of companies do they generally work with, such as which industries and what size companies? Inquire as to how many of each of your type of entity they work with each year. If they’re experienced working with your type of legal entity, within your industry, or your size of company, they might be a good fit.

8. How do they charge, and how much?

Don’t be afraid to ask about the money. Some firms will charge by the hour, or on a piece rate for the type of work being done. Bookkeepers will usually charge an hourly rate, while tax preparers often charge a flat rate per form and schedule. If your tax return is pretty complex, expect to pay more, which could be a base rate plus an hourly rate for doing accounting work to generate the numbers needed for various line items on the return. If you’ll be seeking software assistance, find out what they will charge for this, usually at an hourly rate. It can’t hurt to know whether you’ll be over your head in terms of what you can reasonably afford for the services you are seeking.

A word of caution: Price should not be the ultimate determining factor when decided who to use and what services to do yourself. If you’re genuinely over your head when it comes to certain tasks, don’t be afraid to spend the money. There’s an old saying that goes like this, “Do what you do best, hire out the rest.” Accounting can be one of the most frustrating aspects of owning a business, and trying to do it all yourself can take time away from what you should be doing, which is running your business to the best of your ability to generate a profit.

9. Are you comfortable with the individual?

Even if you hire a large firm to do your accounting, there is still going to be an individual person that will be doing the work and with whom you will work with almost exclusively. You need to sit down with this person and make sure that you are comfortable working with them. If anything makes you uncomfortable in any way, you need to find somebody else. Think about it: This person is going to have access to an incredible amount of private financial information, so it has to be somebody you feel comfortable trusting.

10. Don’t be afraid to make a change.

Even after selecting somebody to work with, don’t be afraid to find somebody else if things aren’t working out. Your accounting is too important to the success of your business to leave it in the hands of an incompetent person or somebody you don’t completely trust. Problems with your current accountant could range from having just plain bad interpersonal chemistry to gross incompetence on their part, or perhaps you have the wrong specialist to meet your needs. Regardless, don’t hesitate to take your business elsewhere, since your accounting, bookkeeping, and taxes are simply that important to the life of your business.

Using the ten steps outlined in this article will give you a great start towards finding the accountant that is right for you. Identify the type of professional that can best provide the services you need, ask around for referrals, then check them out and interview them personally. This process will ensure that you get the best accountant for your business needs.

Until next time,

Jassen Bowman

Do you owe the state any sort of back taxes, other than unemployment taxes?

Then the state has an offer for you! Florida is joining an ever growing list of states that have recently offered tax amnesty programs. More and more state legislatures are trying to increase delinquent tax collections to fill the state coffers in these hard economic times by offering “deals” to everybody on their tax debts.

Here’s how Florida’s program will work. The state will waive ALL penalties on your tax liability that was assessed prior to July 1 of this year. In addition, the state will waive 1/4 of the interest charges. If you have not made the state aware of a tax liability that you know is there, they will waive 1/2 the pro-rated interest charges.

In order to participate, you have to be free of criminal prosecution and/or investigation for violation of state tax laws, and you can’t already be on a payment plan. The program ends on September 30th, so if you think you qualify, apply ASAP.

For more information, visit the Florida Tax Amnesty Program web site.

This is NOT an uncommon situation these days. Regular, working class folks that owe a few thousand this year that they can’t pay, and the same thing the next year, etc. Do this for 3 or 4 years, and suddenly you owe the IRS $10k, $15k, $20k…with penalties and interest growing it daily. So, what to do?

First and foremost, I have a rule. It kind of stems from my rule regarding work from home opportunities (“Never pay a fee to get a job”), and it goes like this: Don’t get screwed by a tax resolution firm promising you the world when you can easily fix the problem yourself.

Yes, the IRS carries a big stick. But they’re not going to hit you upside the head with it if you take care of the situation.

First of all, if you believe you’ve made mistakes on your tax returns that caused the liability, then you should have the tax returns amended. You have three years from the date a return was filed in order to correct it, so if you’re in that time window and you think you would owe less if they were fixed, start there.

Second, if your tax liability is under $25,000 and it’s personal income tax, then there is a special program available called a Streamline Installment Agreement that you should look at. Under this program, the IRS will let you enter up to a 5 year payment plan (or less, if you can shoulder the monthly payment), in order to pay this off. Warning: Penalties and interest still accrue while you’re on a payment plan!

If the tax debt is getting old, say older than 6 years, then another option might be to get you into a non-collectible status and just ride it out until the statute of limitations expires (which is 10 years). For this, you have to be able to demonstrate that, in a nutshell, you are flat broke and scrape by paycheck-to-paycheck. If you suddenly win the lottery, the IRS will see that and come knocking on your door again, of course.

The final option to consider, if you *are* broke and really just want the monkey off your back, is an Offer in Compromise. Despite the commercials you may see on TV, the Offer program is not a straight up “pennies on the dollar” deal, but you must rather demonstrate financial necessity. If you’re single with no kids, have a car payment, and don’t own anything of value (art, a house, coins, gold, guns, stocks, bonds, retirement accounts, classic cars, an island, etc.), and you make less than about $3000 to $4000 per month (it depends on what part of the country you live in), then you might be a candidate for making an Offer in Compromise of some nominal amount (it has to be at least $1). This route requires extensive personal financial disclosure and takes about 6 months from start to finish, most of which is simply waiting on the IRS to process the application. If you have kids or a spouse, the amount you can make and still qualify goes up. If you don’t have a car payment, the amount you can make and still qualify goes down.

Elsewhere on this blog, I cover the OIC program and Streamline Installment Agreements in further detail. Also look for the Guaranteed Installment Agreement post if you owe less than $10,000 — those are easy as pie and can be done over the phone using an automated voice response system.

If you qualify for a Guaranteed or Streamline Installment Agreement, you can easily do it yourself over the phone. Getting into Status 53 (Currently Not Collectible) is almost as easy, and takes less than an hour on the phone with the IRS. An Offer in Compromise is obviously a bit more complicated, and while plenty of people do these themselves, many choose to hire representation to help them out on this (but you still need to be weary of getting screwed on fees and doing business with a reputable firm).

If you have any questions about your individual situation, I welcome your phone call. All initial consultations are absolutely free of charge. My direct number is (970) 930-1040, or toll-free at 866-627-7654.

Make it a great day!

~Jassen Bowman

Most of the comments are from people that either got ripped off by a tax resolution firm, or tell about how they just did themselves, and others responded to THOSE comments asking about HOW to do it themselves.

Being in the tax resolution industry, having it be my livelihood, you would think I wouldn’t WANT people to know how to do it themselves, which couldn’t be further from the truth.

Let’s say you owe the IRS $15,000. You can generally resolve this yourself in one phone call. Granted, it’s an hour or two hour long phone call, but it’s still just one phone call. Instead of paying me $1500 to do that for you, you really are better off applying that $1500 towards the tax debt itself.

Those of us that honestly try to do right by our clients and work ethically and charge reasonable fees for our services always have, and always will, have this black cloud hanging over us because of the scumbags in our industry that rip people off. From charging unconscionably high fees, to collecting fees and then never DOING anything (which is what the class action suit against JK Harris was all about), to just doing mediocre work in the interest of ramming as many clients through the door as possible to maximize profits, the industry as a whole does have a bad rap, and understandably so.

One of the commenters on the MSNBC blog article just wanted to know who to contact at the IRS to resolve their tax issues. I posted this comment on their blog and hope the person sees it, since nobody else volunteered the information. I’ll repost it here for my readers:

For personal tax matters, call ACS at 800-429-7650. For business taxes, call 800-829-3903. The hold times are lengthy – expect to wait 30 minutes to an hour.

If you owe LESS than $10,000 in personal income taxes, ask for a Guaranteed Installment Agreement. They’re required to give it to you — just tell them what you can afford and get it set up.

If you owe between $10k and $25k in taxes, ask for a “Streamline Installment Agreement”. The person on the phone may need to have a call center floor supervisor approve it, but they’re painless.

While you’re on the phone, ask for penalties to be removed, and explain WHY you weren’t able to pay the tax on time. You might be surprised and just have them remove some penalties without having to send in a written request.

If you’re interested in seeing whether you qualify for an Offer in Compromise, download Form 656-B from the IRS web site — there is a worksheet on pages 9-11 that walks you through how to calculate your Offer amount. If you owe LESS than that amount, then you are NOT an Offer candidate – no matter what some sales guy tells you.

Bottom line is that you’re always going to be better off talking to a licensed professional, rather than a sales person that most likely doesn’t know much about actual tax code. Look at it this way: If you get a DUI and want to fight it in court, do you want a consultation with a sales guy at the law firm, or with an actual lawyer?

There are plenty of industries where the salesperson actually is a licensed professional, such as when you’re buying life insurance or working with a real estate agent to buy a house. The tax resolution industry, however, does NOT operate that way. There is a 99.9% chance that the sales guy on the other end of the phone is NOT a licensed taxpayer representative, and to be 100% honest, I have yet to meet a sales person in our industry (which we refer to as “openers” and “closers”, just so you know) that really knew much about taxes, beyond what they are told to say in their script, let alone be a licensed representative. I’m in no way trying to disparage the profession of sales, as I’ve been in it myself for years, but when it comes to owing money to the government, your salesperson needs to be a subject matter expert in order to really determine what services you actually need.

If you want to discuss your case (for free, what a concept, eh?) with a licensed person, feel free to send me an email, or call me directly at 866-627-7654.

Until next time,

Jassen Bowman, EA
(866) 627-7654

First, if you have filed an IRS Offer in Compromise and it is pending approval, or it has been accepted, you MUST file your tax returns on time and paid in full for a period of 5 years. If you fail to do this, your Offer in Compromise will be denied or, if already approved, REVOKED, and your full tax liability reinstated.

Second, if you filed your tax return and are waiting for that refund check, you’re going to be waiting for a very long time. One of the conditions of filing an Offer in Compromise is that the IRS will intercept (i.e., take) your tax refunds on any tax returns you file. They will do this through December 31st of the year in which your Offer in Compromise is ACCEPTED. Since it takes usually 6+ months for an Offer in Compromise to work it’s way through the complete bureaucracy of the IRS and negotiate it’s final acceptance, you really don’t want your Offer in Compromise to span multiple years.

If you are thinking about filing an Offer in Compromise anytime soon, do it NOW. Then, try to get it DONE before the end of this year. That way, you will get to keep any tax refund you might be due to get when you file your tax return next year.

If you need assistance with your Offer in Compromise, or have any questions about the Offer program, give me a call, toll free, at (866) 627-7654.

Until next time,

Jassen Bowman, EA

What? You didn’t know that the guy at Wal-Mart doing your taxes wasn’t licensed?

Nope, he’s probably not.

The retail tax return preparation industry has operated for decades with no oversight from the federal government. Retail tax preparation companies are left to their own devices to train their employees. Many of these folks are seasonal employees with very little actual tax training. I worked one tax season for a major retail tax chain, and I was appalled at the lack of training and low level of tax knowledge of most of the people I worked with. For the most part, most of the folks doing taxes in strip malls and other places across America only know how to run the computer software, not actually do a tax return. It’s a very scary proposition.

While I am generally opposed to most forms of government intervention in the lives of private citizens and most businesses, this is a change that I actually think is too long in coming. As a case in point, the Government Accountability Office recently mystery shopped 19 franchisees of major chain tax prep firms. Here is the verbatim report from the GAO study:

The GAO study targeted 19 outlets of chain commercial tax return preparation firms.27
The GAO staff asked tax return preparers at those 19 outlets to prepare federal tax
returns under one of two scenarios for which staff from the GAO, Senate Committee on
Finance and the Joint Committee on Taxation had previously completed tax returns and
agreed upon the contents of the return and the correct amount of tax.
According to the GAO, only two of the 19 tax return preparers had the correct tax
liability and refund amounts on the return they prepared and all 19 tax return preparers
made a mistake on the prepared returns. Although most of the 19 tax return preparers
included all income for which a payor had an information reporting requirement, three
tax return preparers reported incorrect amounts of ordinary dividends or capital gain
income. Eight of 19 tax return preparers reported the shopper’s prior year’s state tax
refund incorrectly. Several tax return preparers did not ask about income from sources
other than wages and, although all tax return preparers were told that there was income
from casual self-employment arrangements, 10 of the 19 tax return preparers did not
report this income as required. Several of the tax return preparers who did report this
income on the returns they completed did not provide the shopper with correct
information. One tax return preparer told the shopper that she did not have to report the
income unless it was more than $3,200. Others advised that the shopper had discretion
on whether to report this income because the IRS would not know about the income
unless it was reported.

The tax return preparers also made mistakes when it came to claiming the proper
amount of credits and deductions. For example, 10 shoppers were entitled to a credit
for child care expenses for their shopper, but none of the tax return preparers who
prepared a return for these shoppers claimed the credit. Although nine shoppers would
have benefitted by itemizing their deductions, two of the nine tax return preparers who
prepared their returns only claimed the standard deduction. Of the seven tax return
preparers who did itemize their shopper’s deductions, five prepared returns claiming an
incorrect amount of deductions. Six of these nine tax return preparers also erred in
determining the amount of education credit to claim for the shopper. The 10 tax return
preparers who were presented with an earned income tax credit scenario also made
significant errors. Only one of these 10 tax return preparers asked all of the required
questions and half of the 10 tax return preparers incorrectly reported that GAO’s
shopper was entitled to the earned income tax credit for two children when the shopper
was only entitled to claim the credit for one of her children.

So, again, the question: Who is preparing YOUR tax return? I hope and pray that it’s not some moron crammed into a cubicle at Wal-Mart, especially if your tax situation is anything more complicated than a couple W-2′s from a job or two and maybe your child tax credit or something. If you have investments, Earned Income Credit, Alternative Minimum Tax issues, a small business — anything even remotely sophisticated — please have your return done by a licensed professional. By this I mean either a Certified Public Accountant (CPA – licensed by the states) or an Enrolled Agent (EA – licensed by the IRS directly). You will most likely pay a few dollars more, but trust me, it’s worth it.

If you would like a review of an already filed tax return, or need to have your tax returns filed, please contact me directly at 866-627-7654, and I’ll help you out on this.

Until next time,

Jassen Bowman, EA

March 1, 2010: Yes, that was YESTERDAY. What was due: Paper Form 1099, 1098, W-2G, and associated summary report, Form 1096. For employers filing on paper, you have to submit copies of W-2′s and form W-3 to the government today. If you are filing these electronically, rather than on paper, you have until the end of the month to get them. In other words, if you missed the deadline, just file them electronically.

March 10, 2010: Employees that receive tips, report all tips over $20 to your employer by this date on Form 4070.

March 15, 2010: Corporate tax returns (Form 1120 or 1120S) are due this date. Also, if you are a small corporation wishing to elect treatment as an S corp, this is the due date for filing Form 2553 to make that choice effective for 2010. Also, large partnerships must have their K-1′s out to partners by today. If you have employees and are a monthly depositor, your Federal Tax Deposit is due today.

March 31, 2010: Electronically filed Forms 1099, 1098, W-2G, W-2, W-3, and 1096 due. For those of you that fall under it, your Heavy Vehicle Highway Use Tax is due today along with Form 2290 for heavy vehicles placed on the road in February.

April 12, 2010: Tip reporting time again for employees that earn tips over $20.

April 15, 2010: Individual tax returns are due! If you filed an extension, remember that an extension of time to file is NOT an extension of time to pay. If you are going to owe taxes on your return, you will accrue penalties and interest on that tax liability until you pay it. Also, household employee taxes are due today, as are your first estimated tax payments for 2010 if you are required to make them. On the business side, partnership tax returns, Form 1065, are due today. Monthly depositors with employees – you have another Federal Tax Deposit due today, as well.

April 30, 2010: First quarter Form 941 is due for employers. If your total payroll taxes are under $2500, then pay them with the return today. Also, deposit Federal Unemployment Tax today if it is over $500 due through the end of March.

Fun stuff, eh? Well, if you need help or have questions about any of these taxes, forms, or filing requirements, please feel free to leave a comment below. If it’s a bit more personal in nature, feel free to contact me directly for assistance.

Jassen Bowman
Enrolled Agent

• IRS Installment Agreements
• IRS Offers in Compromise
• Lien Releases
• Levy Releases
• Business financing options
• Asset protection planning
• Business restructuring

The Florida office handles personal tax matters, while the Colorado office handles business tax matters. The BBB record for Omni Financial Florida is located here:

http://www.bbbsoutheastflorida.org/Business-Report/Omni-Financial-30005392

The BBB has processed a total of 71 complaints against Omni Financial in Florida over the past 3 years, and has given them a C- rating.

The Denver BBB has given the Colorado office an A- rating, processing 29 complaints against the company in the past 3 years. The Denver BBB report is located here.

Additional history and complaint information from Omni customers is available at the following places:

RipOff Report: Omni Financial Complaints

Complaints Board: Omni Financial Complaints

This guy used to work here, and details on his blog his ethical issues with the company: Jon Harrington

This blog outlines multiple lawsuits against the company, tax liens filed against the company for failure to pay their own taxes, and much more: Tax Consultants Uncovered

Hopefully, this information will helpful to you in deciding whether or not to hire this firm. There are definitely associates within Omni Financial that do excellent work for their clients, and achieve successful tax resolutions for them. However, as with all consulting services, be sure to do your homework and exercise full due diligence before spending thousands of dollars on such services.

If you have questions about anything that this, or any other firm, might be telling you, particularly from their sales guys calling you on the phone, please feel free to contact me. In other words, feel free to contact me as your “BS filter” if you feel so inclined.

First, you need to understand that most attorneys do not specialize in tax representation. Even tax attorneys, who specialize in tax matters, normally specialize in tax law, not IRS collections or audit representation. If you are facing a criminal tax investigation or are taking a matter straight to tax court, then an experienced tax attorney is your logical choice. For other types of IRS matters, you will probably need somebody with the accounting background on top of the legal background.

Your next logical person to consider is a CPA, and depending upon the nature of your IRS issue, a CPA is the way to go. If your tax problem is primarily based on direct accounting matters, such as justifying mathematical calculations, validating specific deductions or income items, or filing missing returns, then a CPA is probably the person you need.

You will most likely want to secure the services of an Enrolled Agent if your tax problems involve any of the following:

• General audit investigation covering multiple years
• Collections action from a Revenue Officer (field collections agent)
• Any sort of administrative Appeals involvement
• Liens, levies, wage garnishments, etc. that you need released
• Payroll tax issues
• Attempting to reduce penalties
• Filing an Offer in Compromise

An Enrolled Agent is specifically licensed directly by the U.S. Treasury Department to represent taxpayers on matters involving issues like those listed above, and is generally more experienced than CPA’s and attorneys in regards to these specific issues.

In my upcoming book (to be published soon) about resolving your IRS issues on your own, I’ll be writing very specifically about the issues listed above. The book will be able to help you wisely select your representative if you decide not to pursue tax resolution on your own (which, for complicated cases, I really don’t recommend).

I hope this provides some basic help in selecting the type of licensed representative to help with your IRS problems. Most important of all — make sure the person working your case really is licensed. There are a lot of companies in my industry that employ unlicensed representatives to work your case, so beware of this.

Until next time,

Jassen Bowman

When it comes down to choosing who is going to represent you in front of the IRS, you have some decisions to make. A big one is what kind of representation you’re looking for. For all intents and purposes, your choices are a CPA, an enrolled agent, or an attorney. In other words, your choices are a number cruncher, a tax expert, or, well, ya know, one of those folks that’s the butt of the best jokes ever written. :p

So, back to our scenario. When your fighting back against the IRS, pick the guy you want on your side:

The CPA:

The Lawyer:

The Enrolled Agent:

Granted, these are just stereotypes, and we all know how accurate stereotypes are…but still….I’m just sayin!

New data released by the IRS today offers interesting insights into the distributional spread of the federal income tax burden, new analysis by the Tax Foundation shows. The new data shows that the top-earning 25% of taxpayers (AGI over $62,068) earned 67.5% of the nation’s income, but they paid more than four out of every five dollars collected by the federal income tax (86%). The top 1% of taxpayers (AGI over $364,657) earned approximately 21.2% of the nation’s income (as defined by AGI), yet paid 39.4% of all federal income taxes. That means the top 1% of tax returns paid about the same amount of federal individual income taxes as the bottom 95% of tax returns.

So, what does that mean? In short, it means that rich people are the one that support the vast majority of all federal programs. The top 1% of all income earners paid in 95% of all total taxes collected by the federal government.

The reason I like to point this out is because, as a tax preparer and tax consultant, I hear a lot of people complain about the tax breaks that rich people get. However, it really just isn’t so. A huge example is that the Earned Income Credit that lower income families receive, which is the credit that enables them to receive thousands of dollars in tax refunds every year beyond the tax liablility they had had, is actually PAID FOR BY RICH PEOPLE. Yes, the money has to come from somewhere in the IRS system, and it comes from other taxpayers.

The other thing I like to point out is that rich people are usually the folks that own the businesses that the rest of us work for. In other words, the wealthy, evil rich people and evil, wealthy corporations are the ones that provide the rest of us with a job. Working that job is a voluntary arrangement, so if we don’t like it, we’re welcome to leave.

That right there is the reality of our economic and tax situation. So, the next time you hear somebody complaining about how unfair the system is, keep these things in mind. Particularly with the earned income credit, the IRS is acting as a wealth distribution service to GIVE FREE MONEY to lower income families that was taken from higher income families that actually EARNED that money.

There’s the old saying, “Don’t steal, the government hates competition,” and I personally believe it’s true. The system will never be fair, but it’s actually quite balanced. Lower income earners get free money they never earned, and higher income earners, through their businesses, get significant tax write-offs that not everybody does.

Thus ends my rant for the day.

Be happy, be great!

Jassen Bowman, EA

Just visit:

http://www.YouTube.com/JassenBowman

We hope that you enjoy the content that is going up on the video channel and that it is helpful in your fight against the IRS.

Sincerely,

Jassen Bowman
Enrolled Agent

P.S. I’m also an adult figure skater & judge, so I tend to post a lot of figure skating related stuff, too. B)

Now, just for the record, my intention here is not to weight the merits of the case against Wesley Snipes, nor get into the discussion about the legitimacy of the government’s tax authority or lack thereof. My intention here is to simply explain how to avoid a similar fate yourself.

So, what exactly IS “willful failure to file a tax return”, and why does the IRS consider this to be such an egregious error?

First, one needs to understand the mission of the IRS. The IRS mission statement is to “provide America’s taxpayers top quality service by helping them understand and meet their> tax responsibilities and by applying the tax law with integrity and fairness to all.” I want to put emphasis on the “meet their tax responsibilities part”. Whether you think you have a “responsibility” to pay taxes or not, the government thinks you do, and they’ve tasked the IRS without collecting that tax.

What does this have to do with filing tax returns? It’s pretty simple, actually. In order for the IRS to collect taxes from you, they have to know HOW MUCH to collect. If there’s no dollar figure for them to go on, they’re pretty much in the dark. A tax return provides this number. Not only that, but a tax return includes your most recent address and perhaps even your phone number, so it provides contact information to the IRS for how to reach you in order to collect said tax.

Since the IRS collects the vast majority of the information that they need in order to do THEIR jobs via tax returns, they consider the filing of those tax returns to be one of YOUR biggest responsibilities in this whole process. In fact, it’s considered so important that the penalties for failing to file a tax return on time are the steepest penalties that the IRS charges. This penalty is 5% of the balance due per month or fraction of a month, with a 25% cap. On top of that, the IRS is going to charge you interest not only on the principal, but also on all penalties. So, the failure to file penalty, plus interest, can really add up quickly, and can do so in less than 6 months.

Compare the failure to file penalty with the other common penalty for individual income tax payers: the failure to pay penalty. This penalty is “only” one half of one percent per month, and also has a 25% cap. Note that it takes 50 months to max out this penalty, whereas it only takes 5 months to max out the failure to file penalty.

Now, what happens if you don’t file your tax returns? We work with clients all the time that haven’t filed tax returns in years and years, sometimes even decades. In the majority of cases, the IRS doesn’t pursue criminal charges on these individuals, unless the circumstances are such that the taxpayer is blatantly and purposefully refusing to comply with the law, which is apparently what got Wesley Snipes into such hot water.

Most of the time, the IRS will file a return on your behalf, called a Substitute For Return, or SFR. This tends to be a bad thing, since the IRS knows nothing about your dependent exemptions, may not know your current marital status, and has no records of your medical expenses, charitable donations, or any of the other hundreds of other legitimate tax deductions you might otherwise be eligible for. This means that they take the income information provided to them by employers, banks, pension companies, etc., and use that as the basis for preparing a tax return. At best, the only deductions you’ll get are the standard deduction and one personal exemption, and nothing more. Also, they will tax you at the highest tax rate for whatever income they have record of. As you can see, having the IRS file your tax return for you is a very BAD IDEA.

There are a lot of people that don’t file tax returns because they know that they are going to owe. They think that simply not filing means that the tax won’t get assessed against them, which isn’t true. Once an SFR is filed, the penalties and interest are then calculated based on when the return SHOULD HAVE BEEN FILED, not when the SFR was done. That means that years worth of penalties and interest could already have accrued, which can easily double your tax bill.

So, the lesson to be learned here is that, even if you haven’t filed tax returns in years, it’s better to take the time to get caught up, because just about any tax return you file is going to be better than what the IRS comes up with. Also, if you file the return on your own, you’re looked at much more favorably in the eyes of almost any Revenue Officer (i.e., “collections guy”) that gets assigned to your case, and demonstrates a willingness to play ball with the IRS and work towards a satisfactory resolution of the situation.

Shameless plug: If you’re behind on filing tax returns, give me a call, we can help you out, generally for less money out of your pocket than a CPA or retail tax chain (H&R Block, Liberty, Jackson Hewitt, etc.) will charge. My direct number is 720-259-5460.

Until next time, take care!

_

Tax Analyst

Phoenix Financial Group

Raising your health insurance deductible just a few thousand dollars can cut your premium by up to half. But that leaves you responsible for out-of-pocket costs. And even if you itemize, those are deductible only to the extent they exceed 7.5% of your adjusted gross income. Is there a way to capture premium savings from high-deductible insurance and tax savings for out-of-pocket expenses? Fortunately, there are two. This post will discuss the first option, and we’ll post the next one in coming days.

If you have self-employment income, even from a startup or sideline business, you can take advantage of a little-known tax break to save a bundle on your family’s health care costs. Medical expense reimbursement plans (“MERPs”) let you reimburse your employees, their spouses, and their dependents for uninsured medical costs. Plan benefits are deductible by the business, and nontaxable to the employee. Here’s how they work:

· You have to establish the plan for employees. If you operate as a proprietorship, partnership, LLC, or “S” corporation, you’re considered “self-employed,” and not eligible. If you’re single, you can establish a C corporation and pay benefits to yourself as an employee. If you’re married, you can hire your spouse and pay benefits to them. (If you operate as an S corporation, you and your spouse are both considered self-employed. In that case, segregate part of your income through a proprietorship or C corporation and pay benefits through that entity.)

· You have to offer benefits to all employees. However, you can exclude those under age 25; those who regularly work less than 35 hours per week; those who work less than nine months out of the year; and those who have worked for you for less than three years.

· You’ll need a written plan document. No special IRS filings are required for plans with less than 100 employees. You’ll deduct benefits as “employee benefits” on your business return, which may also lower self-employment tax bill.

Example: You’re self-employed as a real estate agent. You hire your spouse to provide marketing support, and establish a MERP for his or her benefit. The plan covers your employee, their spouse (meaning you!) and your dependents.

Once you’ve established the plan, you can still deduct 100% of your health insurance costs. This includes major medical and supplemental coverage, Medicare Parts A and B coverage, qualified long-term care, and “Medigap” coverage. You can even reimburse your spouse for any after-tax premiums they pay through their employer.

You can also write off 100% of your out-of-pocket costs and bypass the 7.5% floor for itemized deductions. This includes routine expenses such as co-pays, deductibles, and prescriptions; occasional expenses such as eyeglasses, teeth cleaning, and chiropractic care; and big-ticket items like orthodontics, fertility treatments, and schools for learning-disabled children. It also includes nonprescription medicines and health-care supplies. You can reimburse your employee, or you can use business dollars to pay health-care providers directly. For more information, please call our office toll free at 1-866-627-7654.

Health Savings Accounts (“HSAs”) let you buy high-deductible health insurance to cut monthly premiums, then establish deductible savings accounts for routine medical costs. You (and your employees, if any) can establish HSAs if you meet four tests:

· 1. You’re covered by a high deductible health plan (“HDHP”) with deductibles of at least $1,000 (singles) or $2,000 (families) and out-of-pocket limits up to $5,100 (singles) or $10,200 (families). The plan can’t provide any benefit, other than certain preventive care benefits, until the deductible for that year is satisfied. This means no drug card—you’re not eligible if you’re covered by a separate plan or rider offering prescription drug benefits before satisfying your policy deductible.)

· 2. You’re not covered by any plan that isn’t an HDHP, either individually, as a spouse, or as a dependent.

· 3. You’re not eligible for Medicare.

· 4. You can’t be claimed as a dependent on anyone else’s return.

If you qualify to open an HSA, you can contribute 100% of the insurance deductible up to $2,650 (singles) or $5,250 (families). If you or your spouse is age 55 or older, you can make extra “catch up” contributions up to $600 in 2005. (This amount climbs $100 annually to $1,000 in 2009.) If you and your spouses are covered by different HDHPs, you can contribute up to the lower deductible.

Withdrawals for “qualified medical costs” are tax-free. These include any deductible medical expense or nonprescription drug that isn’t reimbursed by insurance. You can use your HSA to pay for qualified long-term care premiums, COBRA continuation coverage, health insurance while you receive unemployment compensation, and Medicare premiums (but not “medigap” coverage). Withdrawals for any other purpose are taxed as ordinary income plus a 10% penalty.

MERPs and HSAs won’t make your visit to the doctor less painful. But they may be the best kind of tax strategies because they give you new deductions for money you’re already spending. For more information about the tax benefits of HSA’s, please give us a call at 1-866-627-7654

There are several ways to write off charitable gifts depending on what you give and any “strings” you keep attached. You can deduct up to 50% of your adjusted gross income for cash gifts to “501(c)(3) organizations” or public charities. These include churches, symphonies and museums, schools and colleges, and traditional charities like the United Way. If you give more than 50% of your adjusted gross income in a single year, you can carry forward the excess for 15 years. You can deduct up to 30% of your adjusted gross income for cash gifts you make to private foundations. If you give more than 30% of your adjusted gross income, you can carry forward that excess for up to five years.

Depending on how much you give, you may need some paperwork to audit-proof your deduction. If your gift of $75 or more entitles you to dinner or a banquet, the organization has to disclose the value of those benefits. (You don’t need to reduce your deduction for token items such as calendars and tote bags or “intangible religious benefits.”) If you give more than $250, you’ll need a written receipt dated no later than the filing date of your return. If your donation to a college entitles you to buy athletic tickets, you can deduct 80% of your gift. The right to buy tickets is valued at 20% of the gift, regardless of the amount.

You can deduct charitable gifts as business expenses if you can show they bear a direct relationship to your business and you make them with a reasonable expectation of financial return commensurate with the amount paid. You can offer charitable gift coupons, pay part of your income or sales to charity, or link gifts to the business you generate through the charity.

Gifts of Property

Many donors claim rich deductions for charitable gifts without ever spending a dime of cash. Don’t overlook gifts of property and appreciated assets for valuable deductions:

· Gifts of clothing, furniture, electronics, and household items are deductible at fair-market value, such as the price they would bring at a resale shop. These deductions can be far more valuable than you realize. Consider buying software, available at any office-supply store, for tracking gifts and their value. You might be surprised how much you save!

· Gifts of life insurance are valued at the policy’s cash value, plus any ongoing premiums you pay through the charity.

· Deductions for remainder interests in your home or other property are determined according to the property’s value, your age, and the current “Section 7520” rate (published monthly by the IRS).

· If you’re selling your home or other property that includes a structure to be demolished after the sale, consider donating the structure to your local fire department for “target practice.” You’ll get a charitable deduction equal to the structure’s fair market value!

Gifts of Appreciated Assets

Appreciated assets such as securities, real estate, and artwork that you’ve held for more than a year make ideal charitable gifts.

· You can deduct the fair market value of the gift. (For securities, fair market value is the average of the high and low sale prices on the date of the donation. For real estate, artwork, and personal property, you’ll need an appraisal. Appraisal fees are a miscellaneous itemized deduction.)

· You avoid tax on capital gains you would pay if you sold the property then gave cash.

· If you give art or tangible personal property (books, furniture, etc.) your deduction depends on how the charity plans to use it. If the charity plans to use it for “exempt” purposes, such displaying donated art for students to study, deduct the fair market value. If the charity sells the gift, your deduction is limited to your basis or actual cost, whichever is less.

Used cars and trucks have become popular charitable gifts. But Congress and the IRS have cracked down on abusive valuations. For gifts after December 31, 2004 you can deduct the vehicle’s fair market value only if the recipient uses it for “exempt” purposes (such as a church using a van to drive parishioners). If the charity sells the vehicle, your deduction is limited to the charity’s actual proceeds. If you claim more than $500, you’ll generally have to attach a certification to your return that states the vehicle was sold in an arm’s-length sale and includes the gross proceeds from the sale.

Volunteer Expenses

You can’t deduct the value of time you volunteer to charitable organizations. But you can deduct the following volunteer expenses as charitable gifts on Schedule A:

1. Travel, meals, and entertainment related to volunteer and charitable activities (actual expenses or 12 cents per mile, plus parking and tolls)

2. Telephone calls and office supplies

3. Convention expenses

4. Part of organizational dues (the organization can tell you how much)

5. Uniforms and work clothes, including laundry and dry-cleaning expenses, for clothing not usable as ordinary street clothing (Girl Scout uniforms, etc.).

If you haven’t filed tax returns in a number of years and are in the process of playing “catch up” in response to IRS collections actions, don’t forget to dig through your files for proof of charitable gifts. Claiming these deductions, rather than just rushing through the completion of the tax return in order to get them done at the demand of the IRS, can save you significant amounts of money on your tax bill.

If you have additional questions about the tax benefits of gifting, feel free to give us a call at 1-866-627-7654.

Despite uncertain real estate prices, buying a house is still a smart choice for most families. Buying, rather than renting, replaces nondeductible rent with deductible mortgage interest. You can borrow tax-free against your home’s growing equity. And you can sell your home for up to $500,000 profit, tax-free.

Mortgage Interest

Tax-deductible mortgage interest is the cornerstone of most families’ tax planning. You can deduct interest on up to $1 million of “acquisition indebtedness” you use to buy or substantially improve your primary residence and one additional home. You can deduct interest on up to $1 million of construction loans for 24 months from the start of construction. (Interest before and after this period is nondeductible.) And points you pay to buy or improve your primary residence are generally deductible the year you buy the home if paying points is an established practice in your area.

Home Equity Interest

You can deduct interest you pay on up to $100,000 of home equity loans or lines of credit secured by your primary residence and one additional residence. Using home equity debt to pay off cars, colleges, and similar debts lets you convert nondeductible personal interest into deductible home equity interest.

Make sure you compare after-tax rates before you refinance consumer debt with home equity debt. If you can buy a car with a special interest rate, your nondeductible personal interest may still cost less than deductible home equity interest. If you can transfer a credit card balance to a new card with a low introductory rate, you could save money and avoid the paperwork needed to refinance your home.

If you pay points to refinance your home, you can’t deduct those points immediately. However, you can amortize them over the life of the loan. If you pay off the loan before fully deducting your points (including refinancing with a new lender), deduct the remaining balance the year you retire the loan.

You can still deduct the interest you pay on home equity balances over $100,000 if you use the proceeds for a deductible purpose. If you use home equity debt to buy stocks, for example, you can deduct it as investment interest; if you use it to finance your business, you can deduct it as a business expense.

Property Tax

You can also deduct property taxes you pay on your primary residence and vacation homes. Microsoft founder Bill Gates can deduct over $1,000,000 he pays on his Seattle-area compound. But be aware that property tax deductions may be limited by the AMT.

Tax-Free Income From Selling Your Home

The Taxpayer Relief Act of 1997 made important changes when you sell your primary residence. The old law, effective for sales before May 5, 1997, let you roll unlimited gains into a new home and offered a one-time $125,000 exclusion if you sold your home after age 55. The new law lets you exclude up to $250,000 of gain ($500,000 for joint filers) every two years, with no need to roll your gains into a new home.

You can exclude $250,000 if:

1. You owned the home for two of the last five years,
2. You occupied it as your primary residence for two of the last five years, and
3. You haven’t used the exclusion within the last two years.

You and your spouse can exclude up to $500,000 if:

1. Either of you owned it for two of the last five years
2. Both of you used it as your primary residence for two of the last five years, and
3. Neither of you has used the exclusion within the last two years.

You can exclude part of your gain (calculated by dividing the number of months you qualify by 24) without meeting that two-year minimum, if your move is due to:

• Change in employment (you, your spouse, a co-owner of the house, or any other person whose principal abode is in the home accepts a job whose location is at least 50 miles farther from the home than their previous place of employment);

• Health (a qualifying person or their relative moves to treat a disease, illness, or injury or to obtain or provide medical care for a qualified individual); or

• “Unforeseen circumstances” (including, but not limited to, involuntary conversion, natural or man-made disaster, or a qualifying individual’s death, unemployment, change in employment or self-employment status, divorce, or multiple births from the same pregnancy).

Taking advantage of the tax shelter over your head won’t guarantee gains. You have to consider how long you’ll own your home, the cost of maintaining and repairing it, and the eventual cost of selling it. But the “tax shelter over your head” is still likely to prove a long-term winner.

You can deduct mortgage interest you pay on up to $1 million of “acquisition indebtedness” to buy your primary residence and one additional residence. If your total mortgage indebtedness tops $1 million, you can still deduct the interest you pay on their first $1 million. If one mortgage carries a substantially higher rate than the second, it makes sense to deduct the higher interest first to maximize deductions.

You don’t need to buy an actual house (or even a condominium) to take advantage of second-home mortgage interest deductions. You can deduct interest you pay on a loan secured by a timeshare, yacht, or motor home so long as it includes sleeping, cooking, and toilet facilities.

You can’t exclude gains from selling your vacation home the way you can for selling your primary residence. But you can still use the exclusion to save tax when you sell your vacation property if you convert it to your primary residence. Let’s say you live in Chicago and you buy a vacation home in Hilton Head. You can sell your Chicago home once your children are grown, and exclude up to $500,000 in gain. If you move to your Hilton Head home and occupy it as your primary residence, you can sell it two years later and exclude up to another $500,000 in gain.

You can also rent your home to earn income and help finance the cost of owning the home. If you rent for 14 days or less, your income is tax-free. Longer rentals are taxed according to how long you use it personally. (Personal use includes days your family uses the house, days you rent it for below-market rates, days you trade its use for someplace else, and time you donate as a charitable gift, but not days you use to prepare it for rental.)

If you use it personally for more than the greater of 14 days or 10% of the rental days, it qualifies as residential property. You’ll have to report your income—but your expenses may offset it enough to avoid paying tax. To figure the rental portion of mortgage interest and property taxes, divide the days of rental use by 365. For maintenance and utilities, divide the days of rental use by the days of total use (including rental and personal use). You can deduct rental expenses such as advertising, commissions, and travel—but not depreciation. You can deduct expenses up to your income, but not beyond. (Depending on your income, you might still itemize excess mortgage interest and property tax.)

If you use it personally for less than the greater of 14 days or 10% of rental days, it qualifies as rental property. To figure the rental portion of your mortgage interest, property taxes, maintenance, and utilities, divide the days of rental use by the days of total use. (There’s no separate formula for “empty days” with mortgage interest and property taxes as there is when you treat the home as residential property.) You can deduct rental expenses such as advertising, commissions, and travel. And you can deduct depreciation. If the property generates a loss, you can deduct it against outside income if you qualify for the rental real estate loss allowance or you qualify as a real estate professional.

Together, this combination of tax-advantaged income, price appreciation, and vacation fun are making second homes America’s favorite investment. For more information, please give us a call at 1-866-627-7654.