Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Oct 4

    Millbrook, Alabama resident Janika Bates obtained names and social security numbers of student loan borrowers from electronic databases of a former employer, and used them to make false claims for tax refunds. Bates was sentenced to 94 months in prison following her conviction of aggravated identity theft, wire fraud, and conspiracy to make false claims for tax refunds.

    But what about the victim?

    The consequences of having your identity stolen can be numerous. If your identity is stolen, your tax refund will be more than likely held up by the IRS. A victim sometimes won’t see his refund for a minimum of eleven weeks, or until he can convince the IRS that he really is a victim of identity theft. The burden of proving you have become a victim of identity theft is primarily placed on you. An identity theft victim is faced with the possibility of lost job opportunities, being refused loans, education, housing or cars, or even being arrested for crimes he didn’t commit.

    Over the past year the IRS has put filters into place to address different issues or flags of identity theft. In 2012, the IRS planned on spending approximately $330 million to fight against identity theft, but due to limited resources additional funds are needed. The filters that were placed in service this last year help to differentiate justifiable returns from counterfeit ones and prevent recurrence. If a return is caught by a filter, it is reviewed manually to validate the information. To validate the information the IRS may contact the taxpayer to verify the correct information, or the IRS may send a correspondence audit notice to the taxpayer.

  • Feb 22

    When you think about receiving additional income, do you automatically wonder, “How is this going to affect my taxes or how much should I withhold to cover the additional income tax?” Well, you should know while most income you receive is taxable, there are several types of income that the IRS can’t touch. Listed below are some of the types of income that increase the money in your pocket without having to pay a percentage to the IRS:

    1. Tax free interest. Such as interest earned on bonds issued by state, territory, municipality or any political subdivision (municipal bonds).
    2. Carpool reimbursements. If you form a carpool to carry passengers to and from work, any payments received from the passengers are not included in your income.
    3. Profit from selling your house. It has to be your principal residence for two of the most recent five years. You can exclude as much as $250,000 in gain ($500,000 on a joint return) when you sell it. This can be claimed every two years.
    4. Compensation in the form of health care. If your employer pays your health coverage, this can be considered nontaxable compensation.
    5. Compensation in the form of life insurance.Coverage of term life insurance of $50,000 or less paid by the employer isn’t taxed to you. You pick the beneficiary and the company pays the premium. The company can deduct the expense and you have additional tax free income.
    6. Compensation in the form of sending you to school. Your company can pay and deduct as much as $5,520 per year in education assistance for either undergraduate or graduate courses.
    7. Compensation in the form of transportation fees. If you drive to work and have to pay to park, your company is now able to provide you free parking up to the maximum value of $230 per month.
    8. Compensation in the form of a cafeteria plan. A cafeteria plan can contain several benefits such as a Flexible Spending Account. You, as the employee, choose the nontaxable benefits and you have no additional income (this may include life insurance, disability benefits, dependent care, and/or accident and health benefits).
    9. Gifts and other nontaxable gifts such as tuition or medical expenses paid on someone else’s behalf.
    10. Inheritance.
    11. Disability insurance payments. If you purchase supplemental disability insurance with after tax dollars the benefits are nontaxable. Compensatory damages for physical injury or physical sickness and disability benefits from a public welfare fund are considered nontaxable.
    12. Child support payments.
    13. Employee discounts. If you purchase property from your employer and receive a discount, you do not have to include that discount as part of income nor pay tax on that discount.
    14. Meals on work premises. If the cost of meals served on your employer’s premises and furnished for the convenience of the employer, it is nontaxable.
    15. Employer provided vehicle. If your employer provides you a car for business use, the personal use in that car is considered nontaxable (non-cash fringe benefit).
    16. VA benefits.
    17. Compensation paid under a worker’s compensation act or a statue in the nature of a worker’s compensation act.
    18. Bankruptcy. Cancelled debt under Title 11 of the US Code.
    19. Disaster relief payments.
    20. Cash rebates.
    21. Scholarships and Fellowships.

    These are twenty-one types of income the IRS can’t touch, and more importantly leaving more money in your pocket. And I will let you in on a little secret… there are EVEN a few MORE!

  • Feb 8

    The Internal Revenue Service has announced that the optional standard mileage rates for use of a vehicle for business or medical purposes rose 1 cent, effective January 1, 2013.

    The standard mileage rates for use of car, van, pickup or panel van are now:

    • 56.5 cents per mile for business,
    • 24 cents per mile for medical or moving purposes, and
    • 14 cents per mile in service of a charitable organization.

    The rate for service to a charitable organization remains unchanged.

    The standard mileage rate for business is based on an annual study of the fixed and variable costs or operating an automobile. The medical and moving rate is based on the variable costs.

    A taxpayer always has the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

  • Jan 25

    Taxpayers enjoy the idea of knowing when they are likely to receive their federal income tax refund. We all know the state is usually a little slower getting their refunds out, but the IRS has recently stated taxpayer’s federal refunds may be delayed this year. In the past, tax preparers have been provided an e-file refund cycle chart issued by the IRS. This chart provided an estimated date of receiving federal refunds based on the e-file date of the return. However, this year, the IRS is not producing an e-file refund cycle chart and the IRS has revised Publication 2043 due to the uncertainty of issuing federal refunds. The IRS has stated that, “most taxpayers will have their refunds within 23 days.” This is a considerable delay from prior years.

    One might ask why there will be such a delay this year. The IRS’s reason behind the refund delay is because they have a new processing method. This new processing method focuses strongly on fraud prevention and identity theft. The IRS will be analyzing the returns by completing multiple fraud checks. These fraud filters consist of looking for “Incoming Transactions.” The IRS is not stating what defines an “incoming transaction,” but this could be anything from a change in dependents to a change in address. These returns will be placed in a different category for refunding purposes which could cause a delay in receiving refunds.

    So, before you make plans on how you might spend your federal refund, you need to consider the fact that you will not be receiving that refund as quickly this year as you have in the past.

  • Dec 31

    President Roosevelt signed Social Security into law on August 14, 1935. Also known as a social insurance program (a governmental old-age pension program), it was designed as a safety net to provide retired individuals age 65 or older a continuing source of income after retirement. Over the years this law has been through many amendments, changes, and transformations.

    There are 11 all-important facts that everyone should know about the current situation with social security no matter your age, working or economic situation.

    1. Right now you, as an employee, pay 4.2 percent of your wages in social security tax up to a maximum of $110,000 in wages. This percentage will return to 6.2 percent starting January 1, 2013.
    2. Your employer pays a 6.2 percent social security tax on each employee’s wages. So currently a total of 10.4 percent social security tax is paid on your wages. Starting January 2013 this increases to 12.4 percent.
    3. An average employee will pay $2,522 into social security this year. A maximum wage earner (wages of $110,000 or more) will pay $4,624 in social security tax. A self-employed maximum wage earner (wages of $110,000 or more) will pay $11,450 in social security tax. (Note these totals exclude the Medicare Tax)
    4. In 2010, fifty four million people received benefits totaling $701 billion.
    5. In 2010, the annual shortfall of the Social Security trust fund was $62 billion and that amount is expected to grow each year.
    6. The ratio of workers to retirees has dramatically decreased over the years. When the program first began there were more than 40 workers for every retiree. In 1955, there were 8 workers to each retiree. As of today, the ratio is 2.9 to 1. It is predicted that in 2030, there will be 2.1 workers per retiree.
    7. When the Social Security Act was created, life expectancy was 67. So only a few people collected Social Security for more than two years. The life expectancy today is considerably different. The average life span of a man is approximately 81 years and the average woman lives to be approximately 84 years old. Therefore many people are now collecting Social Security for decades. Life expectancies are projected to increase, so later retirement ages are an attempt to offset this.
    8. Currently Social Security has enough funds to pay scheduled benefits through 2032.
    9. Social Security is currently paying out more than it is receiving and this is expected to persist for the next 75 years. At this rate, Social Security will be out of money by 2033.
    10. The trustees forecast inflation rates to increase from 1.8 percent to 3.8 percent. If this occurs, Social Security will run out of money faster.
    11. In 2033, taxes will only cover 75 percent of promised benefits. When the trust fund reserves are depleted, it will not be allowed to borrow money. The current law states that the benefits paid should match the income received.

    Reform of the Social Security Act is desperately needed for the future workers of America. Hopefully a solution can be found, before we have to resort to an increase in tax or a decrease of benefits to the recipients. As a working American, you should closely monitor the Social Security Act and explore additional options of saving for your retirement.

  • May 18

    It’s true; there are certain people for whom this article won’t apply. There are those of you who are perfectly fine paying the amount of tax you pay every year, thank you very much.

    However, since you are a regular reader of Taxing Times, you are probably in the second group: those who would love to pay less in taxes THIS year. (If not, then just move on to the next article.)

    There are two things which you must understand:

    Absolute Tax Law #1: Our tax system is not fair. Yes indeed, the Mitt Romneys, Warren Buffets, Barack Obamas, and Rick Santorums of our country operate under a vastly different system than most “regular’ taxpayers. This is NOT because they are wealthy and politically connected – though they most certainly are – and the sooner you quit complaining about those who seem to be wealthy and connected… and make the decision to join their ranks, the sooner you will pay less in taxes too.

    Because all of these men, and others like them, understand the second law…

    Absolute Tax Law #2: A tax return is a report, NOT a strategy. Yes, we’re pretty good at coming behind with our magic brushes and cleaning up the messes made by many of our clients. But there is a better way…

    It’s called tax planning, and it’s basically comprised of three parts:

    1. Strategic review. Assess the current situation, and identify short, mid and long-term strategies to lessen your taxes and grow your wealth.
    2. Implementation. This can be a little tricky (especially if you do it yourself), because there are bound to be accounting and local regulatory questions which arise. We recommend you stay with your same team who developed the tax strategy so they make sure you’re doing what you need to do.
    3. Proper compliance. There are plenty of folks out there who will claim to be able to give you “the secrets to paying less taxes!” But are they willing to put their name on the dotted line and defend it? If not, run as fast as you can from these charlatans. They are dangerous to you. They may just be blowhards, or they may lead you down a path to a fraudulent return.

    But the main thing to understand is that in order to really get your tax situation improved you must plan ahead.

    Otherwise, you’re just cleaning up a mess when filing your tax returns.

    Caveat: There isn’t a magic wand we can use to help everyone save on taxes. Sometimes, if your goal is  to save taxes, then you must complicate your tax life by investing. Investing in your own business or in the businesses of others. Sometimes, the path to building wealth involves paying more taxes for a time. Building wealth should be your real goal, not just cutting your taxes.

  • May 4

    While you can’t go totally paperless, there is a good chance you can dramatically down-size your pile. Now is a great time to reduce your paperwork. However, there is always that question, “What can I throw away and what do I need to keep?”

    There is no need to keep all those scraps of papers, receipts, and paper copies of documents. You can scan them. Once scanned a great way to organize them is filing them electronically according to years. Many banks even offer free online access to bank statements and credit card statements. You can download the statements right to the year it belongs and you have it.

    How long should you keep your tax return? Seven years is usually sufficient. Typically the biggest audit risk is the first three years after a return is due or filed, whichever is later. Whether you scan or want to keep the paper copy that is up to you. It is important to shred documents and not just put them in the garbage.

    Some information you need to keep longer. It is recommended that you keep tax forms relating to retirement accounts until those accounts are empty. These are form 8606, which helps you calculate your tax basis for future retirement plan withdrawals; form 5498, which shows individual retirement account contributions; and form 1099-R, which shows IRA withdrawals. It is also suggested to keep W-2’s, in some form, until you start drawing social security.

    Make sure you keep good backups. If you have hard copies, make sure you have backups in a different location, houses burn and flood. If you like the idea of keeping things electronically, keep a backup in a different location, computers spontaneously combust from time to time too. Either way, it is imperative that if asked, you are able to reproduce important documents.

  • Apr 19

    If you paid qualifying expenses to adopt, or in an attempt to adopt, an eligible child in 2010 or 2011 you may be eligible to claim a tax credit of up to $13,360. If you adopt a special needs child, you may qualify for the full amount of the adoption credit even if you paid little or no adoption-related expenses.

    Generally, a child with special needs is someone the State has determined wouldn’t be adopted without its assistance. “Special needs” includes what many think of immediately as special physical or emotional circumstances. What many don’t know is that it also includes older children and/or siblings, as well as any other condition that makes it difficult to find an adoptive family. The term “special needs” is disliked by many in the profession, but is used in State laws to indicate eligibility for federal financial assistance.

    The credit has been around since 1997, but up until the 2010 tax year, it was always a non-refundable credit – meaning the credit would offset taxes owed but any unused portion had to be carried over to the next tax year.

    In 2010 the Affordable Care Act made the credit refundable so the money would go immediately into the pockets of the adoptive parents rather than being applied to future taxes. But, unless Congress extends the credit by the end of this year, the huge benefit of being a refundable credit will be short lived.

    The Adoption Credit is the largest tax credit available and the IRS isn’t about to give it out to just anyone. Adoptive parents seeking the credit should expect long waits and the possibility of an audit.

     

    Document, document, document

    To claim the credit on your 2010 or 2011 return, you must file a paper return and attach certain required documentation. As of December 31, 2011, approximately 43 percent of the returns seeking the credit have been referred to the IRS’s Examination function because of incomplete or missing documentation. The time it has taken for the IRS to audit these predominately legitimate adoption credit claims (additional taxes were assessed only about 17 percent of the time) has resulted in considerable delays in the payment of the related refunds.

    The IRS has acknowledged the delays, and said it has updated its website with the list of required documentation and its processing to reduce delays. But, if the IRS doesn’t receive the required documentation it will spend extra time ensuring that the claim isn’t fraudulent, according to IRS spokesman Terry L. Lemmons.

    “When you have a credit of this size it’s really important for us to make sure we have the documentation so we get it only to the people who qualify,” he said.

    Given the huge amounts of money involved, even if everything is submitted correctly, taxpayers claiming this credit will likely have to wait a couple of months or more to see their refund checks.

  • Apr 11

    The IRS now has another tool in its bag of tricks they will employ to catch you doing it wrong.

    Many business owners who accept credit card payments are about to receive a new mysterious form in the mail. It’s called the “1099-K.” It’s a new little gift for small business owners from the IRS, and they are due to the IRS on April 2, 2012 (normally March 31), while paper 1099-Ks are due February 28, 2012.

    Essentially, if you received over twenty thousand dollars of revenue via credit cards or had more than 200 transactions, your merchant account has reported it to the IRS. Naturally, the IRS is going to want you to do the same so they can match the numbers…

    And you can guess what happens if the numbers don’t match, right?

    Whether you report your income on Form 1120, Form 1065 or Form 1040 Schedule C, the IRS will be asking you to separately report your credit card receipts on your 2012 tax return. (You can get a little peek at it on the 2011 return. The lines are there, but the instructions tell you not to complete them.)

    You know, just to make sure that you had your numbers right. After all, the IRS is most interested in ensuring your books are nice and up-to-date right?

    WRONG! They think you’re cheating…

    And with the reported tax gap continuing, they’re not always wrong. (At least about the other guys, not you.)

    So, yet another reason for you to make sure that you have someone meticulous, experienced and careful in your corner.

  • Mar 9
    1. I was a first time homebuyer or long time homeowner and received a check because of it. If you were a first time homeowner and closed on your house in 2008, your $7,500 credit must be paid back via your tax return. Also, if your residence has changed since you bought your new house, part of your credit must be repaid.
    2. I rolled over my IRA into a ROTH. While this helped you in the long run, the money that was rolled over has to be reported on your tax return. Many taxpayers opted for a 2 year deferral. Part of your rollover may need to be included on your tax return.
    3. My child, who is away at college, has a part time job even though I am able to claim them. Sometimes, part time jobs may put your college age child over the threshold for earned income making it necessary for them to file a tax return. You can still claim them, however, it may be required that they too file a tax return. We also need to confirm, if they have already filed a tax return, they indicated they were dependents of another person-YOU!
    4. I sold some stock this year but only had a small loss. Although you may think since you had a small loss, you don’t want to worry about calling the broker and getting the statement. The broker reports only the cash you received to the IRS. It is up to you to inform them that you actually had a loss. Otherwise you will get a notice of tax deficiency.
    5. I am 70 ½ but didn’t take my Required Minimum Distribution from my IRA this year because I forgot. As people, we understand life happens and things get forgotten. However, by being proactive and informing the IRS that you forgot and it is an honest mistake can often help eliminate the 50% penalty that goes along with forgetting. Yes, 50 PERCENT TAX PENALTY. It is important to let us know so we can beg for forgiveness on your behalf.

    You may be thinking on some of these, “Really? You want me to tell you about that so I can owe more taxes? Why in the world would I do that?” Well, let me tell you why. In each of the above scenarios, the IRS already knows it happened! That’s right, there are reporting requirements for each of these and the IRS WILL contact you for their money. It is much better to handle it correctly to start with than to owe more later.