INNOCENT SPOUSE RELIEF

Types of Innocent Spouse Relief

Are you a married or formerly married taxpayer whose spouse or former spouse has given you an unexpected gift – an income tax liability from a previous tax year? You may want to contact your local Colorado Springs accountant to see if you qualify for relief of this income tax liability under innocent spouse rules.

Normally, when a joint income tax return is filed, the law makes both the taxpayer and the spouse responsible for the entire tax liability, even if you later divorce. However, in some cases, a spouse or former spouse will be relieved of the tax, interest, and penalties on a joint tax return under three types of relief available to married persons who filed joint returns.

1. General relief available to all filers;
2. Separate liability relief available to joint filers who are treated as no longer married; and
3. Equitable relief for taxpayers who do not qualify for the other two types of relief.

General relief is available when there is an understatement of tax regardless of whether the couple is still married and living together, is separated, divorced, or one spouse is deceased at the time of the request. An understatement of tax exists when there is a difference between the tax calculated on a tax return and the tax that should have been shown on the return. If innocent spouse relief is granted, the requesting spouse may also be entitled to a refund of any amount of the tax liability previously paid by the requesting spouse. The qualifications for general relief are complex so please contact your local Colorado Springs CPA for help on seeing if you qualify for this type of relief.

Separate liability relief is available to spouses who are divorced, legally separated, or living apart and it allocates the tax liability stemming from an understatement of tax between the electing spouse and the other spouse. If successful, the electing spouse is able to limit his or her liability to the portion of an assessed deficiency properly allocable to him or her. Please consult with a Colorado Springs certified public accountant to see if you meet the criteria for this type of innocent spouse relief.

 Equitable innocent spouse relief may be available to a spouse who is otherwise ineligible for the other forms of relief. The typical situations unique to this type of relief involve the underpayment of tax rather than a dispute about the amount of tax liability for the year. An underpayment of tax occurs when the requesting spouse and the nonrequesting spouse report an item correctly on an original or amended return but are unable to pay the tax resulting from such item. Under this relief, either money for payment of taxes reported on a return never reaches the IRS because the nonrequesting spouse misappropriated the funds for his or her personal use or the nonrequesting spouse cannot pay for an unpaid liability that arises out of that spouse’s income. This relief may also be granted in addition to other innocent spouse relief, for example, when the requesting spouse seeks to be relieved from and underpayment of tax and not just an understatement of tax. Your Colorado Springs CPA can help you apply your circumstances to this type of relief to see if you qualify for equitable relief.

Procedures for Seeking Innocent Spouse Relief

A spouse or former spouse seeking innocent spouse relief must first file Form 8857, Request for Innocent Spouse Relief. The filing must take place no later than two years after the IRS commences collection activities (consult with your Colorado Springs CPA for details) and provides that spouse with notice of innocent spouse rights. The requesting spouse may request one, two, or all three types of innocent spouse relief in one request. Once the requesting spouse files a Form 8857, the IRS must send a notice to the nonrequesting spouse’s last known address that informs the nonrequesting spouse of the claim for relief. This notice gives the nonrequesting spouse the opportunity to submit information for the IRS to consider in making its determination. Further, filing for innocent spouse relief puts an immediate halt on federal and state collection activities.

Before making any decisions related to seeking innocent spouse relief, please take the time to check with your Colorado Springs accountant and trusted Colorado Springs business advisors  The Shafer Group.  Your Colorado Springs tax planning and potential relief of a tax liability you are not responsible for are too important to not discuss further with a Colorado Springs accountant at The Shafer Group.

Job Loss Creates Tax Deductions

When job searching, it’s important to keep track of your job search expenses as these costs may be a tax deduction when your Colorado Springs accountant files your income taxes.  Although taxes are not at the top of a job hunter’s priority list, taking the time to check with your Colorado Springs accountant and trusted Colorado Springs business advisor will prevent possibly overlooking a tax deduction and potential tax savings.

You can deduct certain expenses you have in looking for a new job in your present occupation, even if you do not get a new job, but only expenses that exceed 2% percent of your adjusted gross income count.  You cannot deduct these expenses if you are looking for a job in a new occupation; there was a substantial break between the ending of your last job and you’re looking for a new one; or you are looking for a job for the first time.

Deductible Job Search Expenses include:

-        Employment and outplacement agency fees

-        Job counseling and referral services

-        Professional career consultants

-        Cost of preparing a resume

-        Travel and transportation expenses (if undertaken primarily to look for a new job)

-        Automobile expenses used in job hunting

-        Local and long distance phone calls to prospective employers

An individual cannot deduct personal, living, or family expenses as job related expenses such as the cost of a new suit, shoes, and a tie for interviewing; the cost of a phone or phone service, fax machine, computer or internet service; the cost of newspapers and magazines.

IRS Develops New Program to Determine Employer’s Share of FICA Taxes on Unreported Tips

The IRS has recently announced a new program to determine the employer’s share of FICA taxes on unreported tips by using data from employees’ Forms 4137, Social Security and Medicare Tax on Unreported Tip Income.  Employees use this form to report and pay their share of Social Security and Medicare taxes (FICA taxes) on tips they did not report to their employer.

Most employers in industries where tipping is common know they must pay the employer’s share of FICA taxes on tips that employees report to them.  However, employers are also subject to FICA tax on unreported tips under Code Section 3121(q).  The IRS believes many employers do not realize that they are liable for these taxes on tips employees do not report to them.

An employer’s liability for its share of FICA taxes on unreported tips arises when they receive a “Section 3121(q) Notice and Demand” from the IRS which instructs the employer to include the FICA taxes reported on the notice and demand on the employer’s next Form 941, Employer’s Quarterly Federal Tax Return.  Interest charges and deposit penalties will not be assessed to the employer if it properly reports the taxes as instructed in the notice and demand, and pays the tax due with its Form 941, or if it timely deposits the required amount in accordance with the notice and demand instructions.

 Prior to the development of this new program, the IRS issued notice and demands based on tip audits using estimates, including data from Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips.  Under the new program, the information collected from employees’ Forms 4137 will be used as the base for the Section 3121(q) Notice and Demand.

 The IRS is intending on issuing a pre-notice to notify an employer of the liability at least 30 calendar days in advance of issuing the Section 3121(q) Notice and Demand.  Staff will be designated by the IRS to resolve any discrepancies that are noted by employers on the pre-notice.

 Before making any decisions related to your company’s payroll tax, please take the time to check with your Colorado Springs accountant and trusted Colorado Springs business advisors at The Shafer Group.  Your Colorado Springs payroll taxes are too important to not discuss further with a Colorado Springs CPA at The Shafer Group.

Employment Taxes To Rise for S Corporations Engaged in Professional Service Businesses

Congress is about to close a major loophole in the tax law which has allowed owners of S corporations to avoid taxes on a portion of S corporation income.  Historically, a shareholder’s distributive share of  S corporation earnings has not been classified as self-employment income and, therefore, has not been subject to Social Security and Medicare taxes.  The current self-employment tax on $100,000 in income is $15,300.  Owners of S corporations have been able to avoid these Social Security and Medicare taxes in part by paying themselves a low salary and enjoying the employment tax savings on the remaining S corporation net income.

 This is about to change.  Under one of the provisions buried in the pending American Jobs, Closing Tax Loopholes and Preventing Outsourcing Act (H.R. 4213),  S corporation owners would be subject to Social Security and Medicare taxes on their S corporation income if: (1) the business is engaged in providing professional services including health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services, and (2) the principal asset of such business is the reputation and skill of 3 or fewer employees.  The change would be effective for tax years beginning in 2011.

 Are S corporations for small professional service businesses dead?  Not necessarily: factors such as IRS audit visibility, business expense deductibility and extent of legal liability should be considered.  Before making any decisions related to your company’s status as an S corporation, please take the time to check with your Colorado Springs accountant and trusted Colorado Springs business advisors at The Shafer Group. Your Colorado Springs corporate tax planning decisions are too important to not discuss further with a Colorado Springs CPA at The Shafer Group.

Essentials of the New Health Care Reform Law

For businesses, there are no major tax hikes until 2013 which gives the government time to create health exchanges for uninsured individuals to use in 2014. However, tax relief begins in 2010 for small businesses with an available nonrefundable credit for providing insurance to full-time employees. Companies with 10 or less full-time employees and average annual wages of less than $25,000 are eligible for a full 35% credit of the actual cost or the average group premium for small businesses in the employer’s state, whichever is lower. Larger businesses are eligible for progressively lower credits, until a company reaches 25 full-time employees or average annual wages of $50,000. Businesses are also required to contribute 50% of the cost of worker health insurance premiums and determination of an employee’s full-time status is based on a complex formula utilizing 2,080 as the amount of hours for a full-time employee. In 2014, the maximum credit increases to 50%, but is only available to small businesses that purchase health insurance from the exchanges.

Individually, beginning in 2013, single taxpayers with wages in excess of $200,000 will pay a Medicare surtax of 0.9%; married taxpayers pay the same surtax for wages in excess of $250,000; employees pay all of the surtax. Self-employed taxpayers are also subject to this surtax. Single taxpayers with adjusted gross income in excess of $200,000 and married taxpayers with over $250,000 will be subject to a special 3.8% Medicare tax on unearned income (interest, dividends, capital gains, annuities, royalties and passive rental income).

 Beginning in 2014, individuals who remain uninsured will pay a penalty tax equal to the greater of $95 or 1% of income above the filing threshold; the penalty caps at $285. For families, the penalty is equal to $95 for each uninsured adult in the household plus $47.50 for each person under 18. In 2015, the penalty increases to $325 or 2% of income above the filing threshold and is capped at $975. In 2016, the penalty cap rises to $2,085 and in 2017 and after, the penalty is indexed for inflation.

 Beginning in 2014, single taxpayers with household income of between approximately $11,000 and $44,000 and a family of four with household income of between approximately $22,000 and $88,000 will be eligible for a tax credit pegged to a percentage of income. The credit will be sent by the Treasury directly to the exchange.

 Other highlights:

1. Beginning in 2014, businesses with 50 or more full-time employees with no health plan will owe an excise tax of $2,000 times the total number of employees, less $60,000.
2. Businesses that offer health plans but have low income employees who purchase insurance from an exchange rather than through the business will have to pay $3,000 a year for each low income employee who opts out of the employer coverage.
3. Starting in 2018, insurance firms and self-insurers with high cost plans will be required to pay a 40% excise tax on the value of plans in excess of $10,200 for self-only plans and $27,500 for family coverage.

 Before making any decisions related to your company’s health insurance plans, please take the time to check with your Colorado Springs accountant and trusted Colorado Springs business advisors at The Shafer Group.  Your Colorado Springs health insurance planning and potential tax savings are too important to not discuss further with a Colorado Springs accountant at The Shafer Group.

2010 Roth IRA Conversion Rules

Beginning in 2010 the adjusted gross income limit of $100,000 is nonexistent for Roth IRA conversions.   However, just because the conversion limit of $100,000 is lifted, the income restrictions for new contributions into a Roth were not.  In general, one way around this “the backdoor approach” allows high income earners to contribute to a non-deductible IRA and immediately afterwards convert to a Roth IRA. 

If both taxpayer and spouse want to convert an IRA, flexibility allows the taxpayer to choose the two year option on paying the tax and defer the income claimed until 2011 and 2012 while the spouse can choose to pay the entire tax in 2010. 

 Before making any decisions related to your retirement accounts, take the time to check with your Colorado Springs accountant and trusted Colorado Springs business advisors at The Shafer Group.  Your  Colorado Springs retirement planning is too important.

Your Business: Making Sense of Colorado State Taxes

It may be hard to think about taxes when you are busy running a company, but it’s something important that you must consider.  In order to manage your taxes in an orderly and accurate way, you should be working with a CPA who is licensed to practice in the area of Colorado state taxes.  This way, you can feel confident that your business taxes are being handled with care.

Working with a licensed Colorado Springs accountant means that you are dealing with an experienced professional who has a deep understanding about the tax laws that affect your business.  The easiest way to prepare your business for tax season is to be prepared all year round with clear records, accurate reporting and regular reports.  An accountant can take care of all of this for you, monitoring your finances and ensuring that the best possible choices are made to protect your money.

It can be devastating to have to give up a business that you have developed from the ground up, simply because you failed to file your taxes correctly and are facing a large repayment bill.  By working with a CPA, you can learn more about the overall financial picture of your company and can work with them to determine what kind of taxes you may owe and if you qualify for any important deductions or tax credits.  Learning more about how taxes affect your business is one way to take control and understand where you stand.

You don’t have to be an expert in tax laws to run a business, but you do need the know-how to hire a trained expert.  CPA’s will work with you to make sure you are paying the proper amount in taxes in order to avoid high penalties or fees due to inaccurate or late payments.  The help that you will receive when you hire a CPA firm to assist your business with its taxes fair outweigh the cost.  Making an investment in yourself and your business is a good start for continued success.

Financial Matters: How to Develop a Budget with a Colorado Springs Accountant

Struggling with bills every month and finding that it’s difficult to save any money?  A Colorado Springs accountant can help you figure out a budget that works right into your lifestyle.  As trained experts in all financial matters, an accountant can analyze your financial status and help to come up with a plan that allows you to save money and still pay your bills on time.

Budgeting can be difficult for anyone, not just those who are starting out on their own.  Without a clear understanding of where your money is going and your actual spending habits, you could be wasting thousands of dollars per year that could be invested or saved in a retirement fund.  Many people realize too late the importance of budgeting in their financial future.

It may seem simple to create a budget, but sometimes it can difficult to determine how money you need to live on each month.  Taking into consideration any bills you have to pay, including rent and utilities, is an important step in creating a budget.  You must find out exactly how much money you have coming in each month and compare it with the bills you owe.  This way you can figure out how much of a surplus you have every month for savings and expenses.

A Colorado Springs accountant is trained to look for ways that you could be saving money.  Many people don’t realize that they are spending high amounts of money of things like going out and clothing, when in fact they could be saving that money for something more useful.  When you are made aware of what you spending your money on and how much you are really spending, it can really open up your eyes to the changes that you need to make.

Don’t be afraid to ask for help with budgeting your money.  A licensed CPA is prepared to assist you with your finances and will help you create a plan that maximizes your savings and puts your money to good use.

Protecting Your Retirement with a Colorado Springs CPA

Today, more than ever, it’s absolutely necessary to protect your future with a safe retirement plan.  Understanding how the various options work, and seeing how your money can grow, are just two of the benefits that you get when you work with a Colorado Springs CPA to protect your retirement plan.

There are many things to consider when it comes to your retirement.  Investments must be closely monitored and analyzed, savings plans must be managed, and a specific plan should be followed to ensure you are maximizing the amount you save.  If these items are carefully managed, you can be prepared to enjoy a relaxing retirement.

When planning for your retirement, be sure to consider how you will protect your assets and financial portfolio.  A Colorado Springs accountant understands what it takes to keep your retirement plan on track for the remainder of your career.

You may think that it’s too late to plan for your retirement, but you should think again.  Experts say that anyone can benefit from developing a retirement savings plan, no matter how far into their career they are.  With retirement planning, every little bit can make a big difference.

If you are hoping to retire when you are ready, start by creating a plan if you don’t already have one, and be sure to protect what you have if you do.  An accountant can help you protect your financial future and plan for a time when you no longer have to work but wish to be financially independent.  Being able to take care of yourself and your spouse down the road is most important of all.

When considering your retirement plan, take the time to consider how you will maintain and protect it.  Doing so will help you to evaluate the best options to take and, with the advice of an accountant, you can learn how to protect your retirement effectively and with minimum losses.

Your retirement is too important to ignore.  Work with a CPA to manage your retirement plan, and you’ll able to enjoy your senior years and feel confident that you and your spouse will be taken care of.

How to Plan for Your Colorado Springs Real Estate Sale

Transferring an estate in a Colorado Springs real estate sale can be a complicated process.  Dealing with the laws regarding tax liability can be frustrating for those who don’t deal with the process every day.  Trying to understand how estate planning and sales work is quite an undertaking for anyone.

Professional Colorado CPAs are experts at handling estate and trust planning.  By taking the time to understand your needs, a CPA can minimize tax liability of your beneficiaries, and secure the financial future of your loved ones.

Since estate sales typically occur after someone has passed away, it can be a difficult time to figure out the details and understand the small print.  With a licensed Colorado accountant helping you, you can plan for the future by having every detail about what you wish to do with your estate well-thought out and authorized.  This will reduce the stress your family may feel when dealing with a difficult situation.

Many people don’t deal with planning the important details about real estate sales and tax preparation until it’s too late.  Good intentioned people often leave their families with confusing information and a high tax liability without even realizing it.  Without proper preparation, it could happen to anyone.

Planning for the future security of your family is important.  An accountant is trained to deal with the laws involved and can advise you on the best course of action to take.  Be sure to find someone who is a fully licensed CPA, as they are experts in the area of financial planning and tax laws.

As it can be difficult to evaluate the services of a CPA before you work with them, try asking friends and families for their recommendations, or look online for local firms.  Many firms offer free consultations which can be a highly beneficial way to evaluate their experience and to get some advice on your proposed financial strategy.

Planning for the future is the best way to protect the financial future for your loved ones.  Take the time now to speak to a CPA and learn more about how developing a plan for your estate and trust planning can be very important.