IRS Notice CP40

If you receive a CP40 form from the IRS, it is to notify you that they have used all or part of your refund to pay your tax debt. The letter will go into more details about how they used your refund.

If you still owe money after the IRS has applied your refund to your taxes owed, you can do a few things:

1. Set up a payment plan to pay off the rest of your taxes. Payment plan info.
2. Have your accountant or someone else contact the IRS on your behalf to handle the issue. You will need to fill out Form 2848 in order to do this.
3. If you disagree with the notice, you can call the IRS to discuss your options.

If only part of your refund was used to pay off tax debt, you will receive the balance via check.

You can see an example of the form you will receive if this is the case, here.

You can always give me a call if you have any questions about the tax debt you have, what your refund will be, and what to expect after filing this year's taxes. 818-368-5374.

Review A Stone's Throw on Facebook and Yelp!

So many clients have taken the time to write a review about their experience working with me. Thank you!

Check out my reviews on Facebook here, on Google here, and on Yelp, here. I feature some on my website as well, which you can see here.

Please take a minute to give some feedback! My two best sources for new clients are my current clients (thank you!) and these awesome reviews!

Have a great 4th quarter everyone!

Five Tax Credits that Can Reduce Your Taxes

From IRS Tax Tip Newsletter 2013-33

Five Tax Credits that Can Reduce Your Taxes

A tax credit reduces the amount of tax you must pay. A refundable tax credit not only reduces the federal tax you owe, but also could result in a refund.

Here are five credits the IRS wants you to consider before filing your 2012 federal income tax return:

1. The Earned Income Tax Credit is a refundable credit for people who work and don’t earn a lot of money. The maximum credit for 2012 returns is $5,891 for workers with three or more children. Eligibility is determined based on earnings, filing status and eligible children. Workers without children may be eligible for a smaller credit. If you worked and earned less than $50,270, use the EITC Assistant tool on IRS.gov to see if you qualify. For more information, see Publication 596, Earned Income Credit.

2. The Child and Dependent Care Credit is for expenses you paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent. The care must enable you to work or look for work. For more information, see Publication 503, Child and Dependent Care Expenses.

3. The Child Tax Credit may apply to you if you have a qualifying child under age 17. The credit may help reduce your federal income tax by up to $1,000 for each qualifying child you claim on your return. You may be required to file the new Schedule 8812, Child Tax Credit, with your tax return to claim the credit. See Publication 972, Child Tax Credit, for more information.

4. The Retirement Savings Contributions Credit (Saver’s Credit) helps low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or a retirement plan at work. The credit is in addition to any other tax savings that apply to retirement plans. For more information, see Publication 590, Individual Retirement Arrangements (IRAs).

5. The American Opportunity Tax Credit helps offset some of the costs that you pay for higher education. The AOTC applies to the first four years of post-secondary education. The maximum credit is $2,500 per eligible student. Forty percent of the credit, up to $1,000, is refundable. You must file Form 8863, Education Credits, to claim it if you qualify. For more information, see Publication 970, Tax Benefits for Education.

Make sure you qualify before claiming any tax credit. You can always visit IRS.gov to learn about the rules. The free IRS publications mentioned are also available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

• EITC Assistant tool
• Publication 596, Earned Income Credit
• Publication 503, Child and Dependent Care Expenses
• Schedule 8812, Child Tax Credit
• Publication 972, Child Tax Credit
• Publication 590, Individual Retirement Arrangements (IRAs)
• Form 8863, Education Credits
• Publication 970, Tax Benefits for Education

IRS YouTube Videos:

• Earned Income Tax Credit - English | Spanish | ASL

IRS Podcasts:

• Earned Income Tax Credit - English | Spanish

Claiming the Child and Dependent Care Tax Credit

From IRS Tax Tip Newsletter 2013-34

Claiming the Child and Dependent Care Tax Credit

The Child and Dependent Care Credit can help offset some of the costs you pay for the care of your child, a dependent or a spouse. Here are 10 facts the IRS wants you to know about the tax credit for child and dependent care expenses.

1. If you paid someone to care for your child, dependent or spouse last year, you may qualify for the child and dependent care credit. You claim the credit when you file your federal income tax return.

2. You can claim the Child and Dependent Care Credit for “qualifying individuals.” A qualifying individual includes your child under age 13. It also includes your spouse or dependent who lived with you for more than half the year who was physically or mentally incapable of self-care.

3. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.

4. You, and your spouse if you file jointly, must have earned income, such as income from a job. A special rule applies for a spouse who is a student or not able to care for himself or herself.

5. Payments for care cannot go to your spouse, the parent of your qualifying person or to someone you can claim as a dependent on your return. Payments can also not go to your child who is under age 19, even if the child is not your dependent.

6. This credit can be worth up to 35 percent of your qualifying costs for care, depending upon your income. When figuring the amount of your credit, you can claim up to $3,000 of your total costs if you have one qualifying individual. If you have two or more qualifying individuals you can claim up to $6,000 of your costs.

7. If your employer provides dependent care benefits, special rules apply. See Form 2441, Child and Dependent Care Expenses for how the rules apply to you.

8. You must include the Social Security number on your tax return for each qualifying individual.

9. You must also include on your tax return the name, address and Social Security number (individuals) or Employer Identification Number (businesses) of your care provider.

10. To claim the credit, attach Form 2441 to your tax return. If you use IRS e-file to prepare and file your return, the software will do this for you.

For more information see Publication 503, Child and Dependent Care Expenses, or the instructions for Form 2441. Both are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

• Form 2441, Child and Dependent Care Expenses and instructions
• Publication 503, Child and Dependent Care Expenses

Four Things You Should Know if You Barter

Via IRS Tax Tip Issue 2013-19

Small businesses sometimes barter to get products or services they need. Bartering is the trading of one product or service for another. Usually there is no exchange of cash. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services.

The IRS reminds all taxpayers that the fair market value of property or services received through a barter is taxable income. Both parties must report as income the value of the goods and services received in the exchange.

Here are four facts about bartering:

1. Barter exchanges.  A barter exchange is an organized marketplace where members barter products or services. Some exchanges operate out of an office and others over the internet. All barter exchanges are required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, annually. The exchange must give a copy of the form to its members and file a copy with the IRS.

2. Bartering income.  Barter and trade dollars are the same as real dollars for tax reporting purposes. If you barter, you must report on your tax return the fair market value of the products or services you received.

3. Tax implications.  Bartering is taxable in the year it occurs. The tax rules may vary based on the type of bartering that takes place. Barterers may owe income taxes, self-employment taxes, employment taxes or excise taxes on their bartering income.

4. Reporting rules.  How you report bartering varies depending on which form of bartering takes place. Generally, if you are in a trade or business you report bartering income on Form 1040, Schedule C, Profit or Loss from Business. You may be able to deduct certain costs you incurred to perform the bartering.

For more information, see the Bartering Tax Center in the business section at IRS.gov.

Additional IRS Resources:

• Bartering Tax Center
• Schedule C, Profit or Loss from Business, and instructions

IRS YouTube Videos:

• Miscellaneous Income - English | Spanish | ASL

Important Facts about Mortgage Debt Forgiveness

Important Facts about Mortgage Debt Forgiveness

If your lender cancelled or forgave your mortgage debt, you generally have to pay tax on that amount. But there are exceptions to this rule for some homeowners who had mortgage debt forgiven in 2012.

Here are 10 key facts from the IRS about mortgage debt forgiveness:

1. Cancelled debt normally results in taxable income. However, you may be able to exclude the cancelled debt from your income if the debt was a mortgage on your main home.

2. To qualify, you must have used the debt to buy, build or substantially improve your principal residence. The residence must also secure the mortgage.

3. The maximum qualified debt that you can exclude under this exception is $2 million. The limit is $1 million for a married person who files a separate tax return.

4. You may be able to exclude from income the amount of mortgage debt reduced through mortgage restructuring. You may also be able to exclude mortgage debt cancelled in a foreclosure.

5. You may also qualify for the exclusion on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home. The exclusion is limited to the amount of the old mortgage principal just before the refinancing.

6. Proceeds of refinanced mortgage debt used for other purposes do not qualify for the exclusion. For example, debt used to pay off credit card debt does not qualify. 

7. If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Submit the completed form with your federal income tax return.

8. Other types of cancelled debt do not qualify for this special exclusion. This includes debt cancelled on second homes, rental and business property, credit cards or car loans. In some cases, other tax relief provisions may apply, such as debts discharged in certain bankruptcy proceedings. Form 982 provides more details about these provisions.

9. If your lender reduced or cancelled at least $600 of your mortgage debt, they normally send you a statement in January of the next year. Form 1099-C, Cancellation of Debt, shows the amount of cancelled debt and the fair market value of any foreclosed property.

10. Check your Form 1099-C for the cancelled debt amount shown in Box 2, and the value of your home shown in Box 7. Notify the lender immediately of any incorrect information so they can correct the form.

Use the Interactive Tax Assistant tool on IRS.gov to check if your cancelled debt is taxable. Also, see Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. IRS forms and publications are available online at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

• Interactive Tax Assistant tool
• Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments
• Mortgage Forgiveness Debt Relief Act and Debt Cancellation
• Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness

VIA IRS Tax Tip Issue # 2013-31

Ten Facts about Capital Gains and Losses

Ten Facts about Capital Gains and Losses

The term “capital asset” for tax purposes applies to almost everything you own and use for personal or investment purposes. A capital gain or loss occurs when you sell a capital asset.

Here are 10 facts from the IRS on capital gains and losses:

1. Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. Capital assets include your home, household furnishings, and stocks and bonds that you hold as investments.

2. A capital gain or loss is the difference between your basis of an asset and the amount you receive when you sell it. Your basis is usually what you paid for the asset.

3. You must include all capital gains in your income.

4. You may deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of personal-use property.

5. Capital gains and losses are long-term or short-term, depending on how long you hold on to the property. If you hold the property more than one year, your capital gain or loss is long-term. If you hold it one year or less, the gain or loss is short-term.

6. If your long-term gains exceed your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a 'net capital gain.’ 

7. The tax rates that apply to net capital gains are generally lower than the tax rates that apply to other types of income. The maximum capital gains rate for most people in 2012 is 15 percent. For lower-income individuals, the rate may be 0 percent on some or all of their net capital gains. Rates of 25 or 28 percent can also apply to special types of net capital gains.

8. If your capital losses are greater than your capital gains, you can deduct the difference between the two on your tax return. The annual limit on this deduction is $3,000, or $1,500 if you are married filing separately.

9. If your total net capital loss is more than the limit you can deduct, you can carry over the losses you are not able to deduct to next year’s tax return. You will treat those losses as if they occurred that year.

10. Form 8949, Sales and Other Dispositions of Capital Assets, will help you calculate capital gains and losses. You will carry over the subtotals from this form to Schedule D, Capital Gains and Losses. If you e-file your tax return, the software will do this for you.

For more information about capital gains and losses, see the Schedule D instructions or Publication 550, Investment Income and Expenses. They are both available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

VIA IRS Tax Tip Issue #2013-28

The ABCs of Baby Finance

Raising a child from birth through age 17 will cost a typical middle-income family almost $235,000, according to a 2012 report from the U.S. Department of Agriculture.

Consider the following advice to help you plan for your financial future, prepare for your new baby and protect your growing family.

1. Purchase life insurance. Life insurance is a foundation of financial preparedness and much more affordable than you might think. You should generally get better rates when you're young. Talk to your life insurance company about what amount will protect your family.

Saving for retirement, however, should take priority over saving for your child's college education. Student loans and part-time jobs abound for the college crowd, but loans generally cannot be used for retirement.

2. Start planning for college in the delivery room. The average cost of tuition and fees for the 2011-12 school year was $8,244 for a public college and $28,500 for a private one, according to the College Board. Financial aid and part-time jobs may help your child pay for college. Parents who want to chip in may consider setting aside some money today in a tax-advantaged 529 college savings plan.

3. Update your will and appoint a guardian. Name a contingent guardian and update your will to give your family some protection in case something happens to you.

4. Take advantage of tax savings. The IRS allows you to take an exemption for dependent children, including those born or adopted anytime during the year. Depending on your income, you may also be entitled to a child tax credit for each qualifying child under age 17. Parents who work and pay for day care for their dependent children also may be able to take advantage of a child-care credit. If you work, visit the IRS withholding calculator to see if you should adjust the income tax withheld from your paycheck.

5. First-time parents? Prepare your baby budget now. Long before the due date, examine how your baby will affect everyday expenses. Stroll through baby stores, take notes, then redo your annual budget to include the new line items. This exercise can help you figure out if you need to cut spending in other areas.

6. Experiment with living on one income. If one parent is thinking of leaving the workplace to care for the baby at home, try living on one income, well before the baby arrives, to see how feasible it is.

7. Say bye-bye to brand names. Your baby won't know the difference between top-of-the-line baby blankets and less expensive, quality ones that feel just as snuggly. Hand-me-downs, consignment shops, garage sales and even eBay are great sources for gently used, quality children's clothes at bargain prices.

8. Think twice before buying a new home. A new home for your growing family sounds tempting, but you could find yourself baby-rich and house-poor. Not moving at all might be better, at least for a while.

9. Accept baby-sitting offers. Among the best financial assistance relatives and friends can give is volunteering to baby-sit. If they offer, graciously accept.

10. Use a flexible spending account for day care. If your employer offers a flexible spending account, you may be able to use it to pay up to $5,000 in child-care expenses a year. That money will be exempt from income taxes.

Reprinted from USAA.com https://www.usaa.com/inet/pages/advice-finances-abcsofbabyfinance?EID=corp_cc_13_03_U250-06

Medical and Dental Expenses on 2012 Tax Return

Excerpt from IRS Tax Tips Issue 2013-25

Seven Important Tax Facts about Medical and Dental Expenses

If you paid for medical or dental expenses in 2012, you may be able to get a tax deduction for costs not covered by insurance. The IRS wants you to know these seven facts about claiming the medical and dental expense deduction.

1. You must itemize.  You can only claim medical and dental expenses for costs not covered by insurance if you itemize deductions on your tax return. You cannot claim medical and dental expenses if you take the standard deduction.

2. Deduction is limited.  You can deduct medical and dental expenses that are more than 7.5 percent of your adjusted gross income.

3. Expenses paid in 2012.  You can include medical and dental costs that you paid in 2012, even if you received the services in a previous year. Keep good records to show the amount that you paid.

4. Qualifying expenses.  You may include most medical or dental costs that you paid for yourself, your spouse and your dependents. Some exceptions and special rules apply. Visit IRS.gov for more details.

5. Costs to include.  You can normally claim the costs of diagnosing, treating, easing or preventing disease. The costs of prescription drugs and insulin qualify. The cost of medical, dental and some long-term care insurance also qualify.

6. Travel is included.  You may be able to claim the cost of travel to obtain medical care. That includes the cost of public transportation or an ambulance as well as tolls and parking fees. If you use your car for medical travel, you can deduct the actual costs, including gas and oil. Instead of deducting the actual costs, you can deduct the standard mileage rate for medical travel, which is 23 cents per mile for 2012.

7. No double benefit.  Funds from Health Savings Accounts or Flexible Spending Arrangements used to pay for medical or dental costs are usually tax-free. Therefore, you cannot deduct expenses paid with funds from those plans.

You’ll find more information in IRS Publication 502, Medical and Dental Expenses. Also see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. They are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

• Publication 502, Medical and Dental Expenses
• Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans

IRS YouTube Videos:

• Medical and Dental Expenses - English | Spanish | ASL

IRS Podcasts:

• Medical and Dental Expenses - English | Spanish

Updated Interest Rates 2013

Excerpt IRS Tax Tips Issue 2013-24

Interest Rates Remain the Same for the Second Quarter of 2013

WASHINGTON – The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning Apr. 1, 2013.  The rates will be: 

• three (3) percent for overpayments (two (2) percent in the case of a corporation);
• three (3) percent for underpayments;
• five (5) percent for large corporate underpayments; and
• one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. 

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during January 2013 to take effect February 1, 2013, based on daily compounding.

Revenue Ruling 2013-6, announcing the rates of interest, is attached and will appear in Internal Revenue Bulletin 2013-13, dated March 25, 2013.

Voluntary Worker Classification Settlement Program

Excerpt from IRS Tax Tips Issue 2013-23

IRS Expands Voluntary Worker Classification Settlement Program; Relief From Past Payroll Taxes Available to More Employers Who Reclassify Their Workers As Employees

WASHINGTON — The Internal Revenue Service has expanded its Voluntary Classification Settlement Program (VCSP) paving the way for more taxpayers to take advantage of this low-cost option for achieving certainty under the law by reclassifying their workers as employees for future tax periods.

The IRS is modifying several eligibility requirements thus making it possible for many more interested employers, especially larger ones, to apply for this program. Thus far, nearly 1,000 employers have applied for the VCSP which provides partial relief from federal payroll taxes for eligible employers who are treating their workers or a class or group of workers as independent contractors or other nonemployees and now want to treat them as employees. Businesses, tax-exempt organizations and government entities may qualify.

Under the revamped program, employers under IRS audit, other than an employment tax audit, can qualify for the VCSP. Furthermore, employers accepted into the program will no longer be subject to a special six-year statute of limitations, rather than the usual three years that normally applies to payroll taxes. These and other permanent modifications to the program are described in Announcement 2012-45 and in questions and answers, posted on IRS.gov.

Normally, employers are barred from the VCSP if they failed to file required Forms 1099 with respect to workers they are seeking to reclassify for the past three years. However, for the next few months, until June 30, 2013, the IRS is waiving this eligibility requirement. Details on this temporary change are inAnnouncement 2012-46.

To be eligible for the VCSP, an employer must currently be treating the workers as nonemployees; consistently have treated the workers in the past as nonemployees, including having filed any required Forms 1099; and not currently be under audit on payroll tax issues by the IRS. In addition, the employer cannot currently be under audit by the Department of Labor or a state agency concerning the classification of these workers or contesting the classification of the workers in court.

Interested employers can apply for the program by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees.

Employers accepted into the program will generally pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Employers applying for the temporary relief program available for those who failed to file Forms 1099 will pay a slightly higher amount, plus some penalties, and will need to file any unfiled Forms 1099 for the workers they are seeking to reclassify.

More information is available on IRS.gov, keyword “VCSP.”

Summer Camp Deductions?

I recently came across a great article for parents on summer camp expenses and if what you purchase for your kids for camp is deductible. As summer comes to an end, this question might be on your mind or something to file away for next summer. This article contains great info on whats deductible, what's not and how to claim those deductions on your taxes. Check out this article on Forbes here, or read the article below!

Paying For Summer Camp: Is Any Of It Deductible?

My son starts summer camp tomorrow. And this is what I have learned as a parent about summer camp: it’s expensive. Super expensive.

Last week, I took all three kids to Dick’s Sporting Goods to stock up on camp items: shin guards, mouth guards, cleats, shin guard covers (who knew?), new hockey stick… The list for all three was pretty long. Long enough that I had to put the shiny new Mizunos that caught my eye back on the shelf; they’ll have to wait. This trip was all about stocking up on camping equipment for the kiddos. And it was insane.

I happened to run into a mom that I knew at the store. Her cart was piled higher than mine. Her son was headed to football camp and apparently the requirements for pads and other gear were completely different from what he wears during the regular season. So, she, like me, was spending more than expected to get him ready.

When it comes to taxes, there is good news and bad news to be had with respect to summer camp.

I’ll give you the bad news first: almost everything that you bought in order to send your kid to camp is non-deductible. That includes:

• Sports equipment. It’s personal in nature and not deductible, even if it’s required.
• Clothing. Again, it’s personal in nature even if specifically required. And yes, even if those are clothes that your child would never, ever wear outside of camp.
• Fans and furniture for overnight camp. Still, personal in nature and not deductible.

Now for the good news: some of the expenses involved in simply getting ready for camp are deductible. That includes:

• Physicals. The cost of a physical or well exam is deductible; you do not have to be sick in order for the visit to be deductible.
• Shots. Vaccines and immunizations are considered preventative care and are deductible.
• Fees for doctors. Most doctors charge a fee to complete forms for camp now. If those are part of your medical care, they are deductible.

Remember that medical expenses are deductible only if you itemize on a Schedule A and only to the extent that the total medical expenses paid during the year exceeds 7.5% of your adjusted gross income (AGI). You’ll find your AGI on line 37 of your federal form 1040:

 

And more good news: some of the costs of camp may qualify as child and dependent care expenses. Those expenses can be used to claim a credit on your federal form 1040 at line 48:

 

Credits are desirable because they are dollar for dollar reductions in the amount of tax due. In comparison, deductions are simply reductions in your taxable income.

To claim the child and dependent care credit, you must have qualifying expenses. Generally, that means that the expenses must be used for child and dependent care of a qualifying child while the child’s parent or parents work or look for work. The amount of the credit is based a percentage of work-related expenses and can be up to 35% of your expenses.

Following are some tips for sorting out how camp expenses might (or might not) qualify:

1. Overnight camp is fun for the parents but doesn’t qualify for the credit. I enjoy a break away from the kids overnight as much as the next girl. But for tax purposes, the cost of sending your child to an overnight camp is never considered a work-related expense for purposes of the credit.
2. Soccer camp might be okay. Ditto for Legos and drama camp. The cost of sending your child to a day camp may be a qualifying expense even if the camp specializes in a particular activity. You’re not required to choose the cheapest child care option (not that you have to seek out the most expensive, either, since the credit is limited) so feel free to send your kid to the geekiest, sportiest, most dramatic, most artsy camp you want.
3. Tax forms matter. To claim a credit for child care expenses, you’ll need to attach a federal form 2441 (downloads as a pdf) to a federal form 1040, federal form 1040A, or form 1040NR. You cannot file a federal form 1040EZ or federal form 1040NR-EZ and claim the credit.
4. Stay at home and unemployed spouses (unless looking for a job) make you ineligible for the credit. Okay, this is unpopular. But it is what it is. The child care credit is classified for tax purposes as “work-related.” To qualify for the credit, you must pay child and dependent care expenses so that you and your spouse, if married, can work or look for work. However, if you don’t find a job or if you don’t have any earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment for the year, you may not claim the credit.
5. As much as I’d love for you to, you can’t pay for my kids to go to camp and claim the credit. For tax purposes, expenses that you pay for summer camp must be for child considered a “qualifying person.” In most cases, this means your dependent child under the age of 13 (some exceptions apply). It may be appealing to ship off your neighbor’s kids, your best friend’s kids – or those of your favorite tax attorney – for the summer but those expenses won’t count for purposes of the credit.
6. Find your kid’s Social Security card. To claim the credit, you must include your child’s name and Social Security number. I’ll be the first to admit that I haven’t memorized the Social Security numbers for all of my kids but I know where to look for them. You should, too. If you don’t have this information on your return, you may lose the credit. The same goes for an ITIN (more info on those here).
7. Summer camp isn’t the same as setting up a tent in your backyard and calling it Camp Erb. You have to make payments to an actual child care provider who will be identified on your tax return by name, address and bona fide tax ID number. So, yes, that means paying above the table and reporting those payments appropriately. In addition, your summer camp provider cannot be your spouse, your qualifying child’s parent or your dependent; if the provider happens to be your own child, he or she must not be claimed as your dependent and must also be at least 19 years old by the end of the year.
8. Ice cream is delicious but may not be a qualifying expense. Qualifying expenses at camp are those that focus on child care and do not usually include the cost of food and clothing (see above) as well as “extras.” However, if you can’t actually separate those costs out from the rest of the care – and if they are considered incidental to the care – you may be able to include them.
9. Changing your mind is okay but won’t result in a tax break. Nobody signs up for summer camp in summer. It’s like applying for college: you have to start early. Many camps start filling up in January, so you have to send in deposits early. I don’t know about you but I’m not that organized… If your schedule changes or if you find a place your child likes better, that’s okay, but any money that you may lose because you’ve put it down as a deposit won’t qualify as a child care expense. Similarly, if you pay in full for camp early, you can’t include the cost as a child care expense until the child care is actually received.
10. It’s not a donation if your kids don’t actually go to camp. What if you change your mind – as mentioned above – and your child doesn’t go and the payment is already made to a charitable organization (like the YMCA or church)? If the payment is not refundable, that doesn’t change anything: you can’t re-characterize it after the fact. Money is lost, lesson is learned. But if the payment is refundable and you choose to redirect it (meaning you tell the organization to keep it and use it as a donation), you may be able to re-classify the payment as a charitable donation. If that’s the case, get a receipt.
11. Getting there may be half the fun but likely not a qualifying expense. If there are transportation costs associated with summer camp – whether by bus, subway, taxi or car – the costs may qualify as an expense for purposes of the credit if the camp takes the child to or from the place where the child care is provided. However, the costs that you spend on your own transportation to get your child to summer camp will not qualify as an expense for purposes of the credit.

Of course, there are still no tax breaks for water balloons, marshmallow sticks or lightning bug jars… But be sure to include those things in your plans anyway. Enjoy your kids – and your summer!

Accounting Questions, Granada Hills Tax Professional

I am constantly asked by clients whether or not tips and earned cash are taxable and need to be reported by law. Services include restaurant employees, baggage handlers at an airport, hairdressers, etc who receive gratuity for their services. Another big question is whether or not bonuses and commissions are taxable.

The answer to all of the above situation is yes. Even if you earn tips or even the full amount of your services that you provide in cash, this income must be reported on a W-2 as well as an individuals income tax return.

In general an employer will report withhold federal income tax, social security and Medicare tax from your W-2. This is then used for the employee to fill out their individual tax return. Often times however, tips or bonuses are not reported on the W-2 but still must be reported on your individual return.

Not sure if your tip or bonus is taxable. Take this tricky example. An employee is awarded a free service (say, a gift certificate to a restaurant or a massage at a local spa) as a reward for good performance (highest sales for the month, meeting a goal, etc). Is this gift taxable? Yes.

Note that your employer is required by law to provide you with your W-2 for the previous year no later than January 31!

If you have more questions about taxable and non-taxable sources of income – check our IRS’s page (link: http://www.irs.gov/businesses/small/article/0,,id=117613,00.html) or give me a call. Every situation is different and with over 27 years of experience I can guarantee that you will pay the least amount of taxes legally!

Give me a call today – 818 368 5374 or send me an email by clicking Granada Hills Tax Professional

I filed my tax return. Now what?

The IRS filing deadline for this year is Monday April 18, 2011. If you are on track to file on time, below is some information on what to expect after you file. 

 

Refund Information
You can go online to check the status of your 2010 refund 72 hours after IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after you mail a paper return. Be sure to have a copy of your 2010 tax return available because you will need to know your filing status, the first Social Security number shown on the return, and the exact whole-dollar amount of the refund. You have three options for checking on your refund:

·       Go to http://irs.gov and click on “Where’s My Refund”

·       Call 800-829-4477~24 hours a day, seven days a week, for automated refund information

·       Call 800-829-1954 during the hours shown in your tax form instructions

·       Use IRS2Go. If you have an Apple iPhone or iTouch or an Android device you can download an application to check the status of your refund.

You can also be in touch with me to assist you in tracking your refund status.

What Records Should I Keep?
Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRAs and business or rental property — should be kept longer.
You should keep copies of tax returns you have filed and the tax forms package as part of your records. They may be helpful in amending already filed returns or preparing future returns.

Change of Address
If you move after you filed your return, send Form 8822, Change of Address, to the Internal Revenue Service. If you are expecting a paper refund check, you should also file a change of address with the U.S. Postal Service.

If you are filing an extension, the above issues still apply to you both in tracking your refund once you file and amending and saving information pertinent to your tax return. Remember that if you filed or will soon file an extension for this year, your filing deadline is October 17, 2011.

I am here to answer any questions regarding procedures and expectations once you file your return. I am also available to file extensions on your behalf and prepare your taxes for the extension deadline in October. For more information, you can call 818-368-5374 or click Tax Preparation Porter Ranch