FAQ

Will you be audited?: The IRS recently released the Fiscal Year 2007 IRS Enforcement and Service Tables as well as the FY 2007 Enforcement Revenue and Individual Audits Chart. Interesting reading, especially if you play fast and loose with the tax code (otherwise known as "audit lottery"). Basically, audits and enforcement are up…in some cases substantially over prior years. I doubt that this trend will be reversed in the near future. There is much less compliance to the tax code, primarily because of the complexity of the law and the fact that tax preparers are virtually unregulated at either the state or federal levels. It's always been astounding to me that you have to have a license to cut somebody's hair, or install their plumbing, or even apply makeup…but not to prepare a federal or state tax return. Amazing.

What do I do if I receive a notice from the IRS about my taxes?
Don’t panic! the first thing to do is carefully read the notice—to determine why it was sent, what the IRS is requesting, and what they want you to do. It may be nothing of importance; it may even be a notice in your favor. After reading it you should bring it to our attention.

How do I find out about my refund?

The best way is to use the Check Your Refund link from the Resources pages of our website! To look up the status of your federal or state refund, you will need your social security number, filing status, and exact amount you’re expecting back.

What do I need to bring when I am having my taxes prepared?

Following is a list of the more common items you should bring if you have them.

§ Wage statements (Form W-2)

§ Pension, or retirement income (Forms 1099-R)

§ Dependents' Social Security numbers and dates of birth

§ Last year's tax return

§ Information on education expenses

§ Information on the sales of stocks and/or bonds

§ Self-employed business income and expenses

§ Lottery and/or gambling winnings and losses

§ State refund amount

§ Social Security and/or unemployment income

§ Income and expenses from rentals

§ Record of purchase or sale of real estate

§ Medical and dental expenses

§ Real estate and personal property taxes

§ Estimated taxes or foreign taxes paid

§ Cash and non-cash charitable donations

§ Mortgage or home equity loan interest paid (Form 1098)

§ Unreimbursed employment-related expenses

§ Job-related educational expenses

§ Child care expenses and provider information

And any other items that you think may be necessary for your taxes.

What are the consequences of early withdrawals from my retirement plans?

If you withdraw money from a 401(k) or an IRA before age 59 ½, the distribution is taxable and there is a 10% penalty on the taxable amount. The main exceptions that let you withdraw money early without penalty are as follows:

Qualified retirement plan distributions if you separated from service in or after the year you reach age 55 (does not apply to IRAs).
Distributions made as a part of a series of substantially equal periodic payments (made at least annually) for your life or the joint lives of you and your designated beneficiary.
Distributions due to total and permanent disability.
Distributions due to death (does not apply to modified endowment contracts)
Qualified retirement plan distributions up to (1) the amount you paid for unreimbursed medical expenses during the year minus (2) 7.5% of your adjusted gross income for the year.
IRA distributions made to unemployed individuals for health insurance premiums.
IRA distributions made for higher education expenses.
IRA distributions made for the purchase of a first home (up to $10,000).
Distributions due to an IRS levy on the qualified retirement plan.
Qualified distributions to reservists while serving on active duty for at least 180 days.

I haven’t been filing my tax returns what should I do?
First, you must determine if you were required to file in the years you did not file. There are many different items that could figure into this—such as your filing status, your sources of income, whether you had any tax withheld, etc. This is a link to the IRS instructions for filing requirements for 2007: http://www.irs.gov/individuals/article/0,,id=96623,00.html. If you determine you should have filed, contact us and we can handle all of your prior year filings. It is very important that you do not just continue to not file. If you owe money the penalties for not filing are high. If you are owed a refund you will lose your claim to it 3 years after the due date of the return.

Is my social security taxable?
Usually if your income including social security benefits is less than $25,000 if single or $32,000 if married, your benefits are not taxable. If your income is higher than those limits, there are formulas to determine what percentage of your social security is taxable. Currently up to 85% of your social security may be taxable.

What are the tax consequences of selling a home?
If you sell your personal residence you can totally exclude from income up to $250,000 of gain if you are single, or $500,000 if married, regardless of your age at the time of the sale—if during the 5 years before the sale you owned the home and lived in it for a total of any 24 months. The exclusion is not a one-time election; instead it is available once every 2 years. Recent tax law has adversely changed the handling of gains on the sale of a home if you rented the property before you made it your personal residence. Please contact our office if you believe this situation will affect you.

How should I keep records for my business driving?
Keep a log in your vehicle and record the purpose and mileage of each trip. You also need to record the odometer readings at the beginning and end of each year, as the IRS will ask you for total miles driven during the year. Keep your repair bills as these normally record odometer readings when the car is serviced.

I owe the IRS money. What are my options?

If you can afford to pay the amount you owe, it should be paid. But many times that is not the case. If you cannot afford to pay, you have several options. Ignoring the IRS should not be one of them!

The first option is to enter into an installment agreement with the IRS. To do this you need to fill out Form 9465, Installment Agreement Request. This form is fairly easy to complete, but we strongly recommend that if you owe a substantial amount of money you work with us to secure your agreement.
The second option, which is much harder to get approved, is an offer in compromise. The IRS will be reluctant to do this if they feel you have the resources to eventually pay. You should not attempt an offer in compromise without professional help you can trust. The IRS has also issued a consumer alert, advising taxpayers to beware of promoters’ claims that tax debts can be settled for “pennies on the dollar” through the Offer in Compromise Program.

Can I deduct expenses for a business run out of my home?

If you use a portion of your home for business purposes, you may be able to take a home office deduction whether you are self-employed or an employee. Expenses you may be able to deduct for business use of your home may include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, painting, and repairs.

You can claim this deduction only if you use a part of your home regularly and exclusively:

As your principal place of business for any trade or business.
As a place to meet or deal with your patients, clients or customers in the normal course of your trade or business.

Generally, the amount you can deduct depends on the percentage of your home that you used for business. Your deduction will be limited if your gross income from your business is less than your total business expenses.