This guest post is by Dagny Kight, author of “Lower Your IRS Debt”.

The Internal Revenue Service has announced another seemingly uncharacteristic new program befitting an ostensibly “kindler, gentler” tax collector. Last year it was the overhauled Offer in Compromise program which relaxed the requirements to lessen the liability for those deep in tax debt. (Read about the big changes in ebook, Lower Your IRS Debt) This year the IRS would like to kiss and make up with businesses that may be in violation of regulations governing the compensation of independent contractors. Dropping penalties to as low as 1% with an “amnesty” program, the IRS says all will be forgiven if employers step forward and come clean. Sounds like a good way to avoid a potentially complex problem. This is the IRS we’re talking about. Could amnesty be a deal with the devil?

Since 2008, businesses have struggled to find creative ways to cut labor costs and remain afloat. Replacing employees with independent contractors or converting full-timers into part-time contractors eliminates paying benefits and withholding taxes along with reducing payroll and tax reporting paperwork. There are benefits to both sides of the arrangement and for employees who find themselves converted into contractors, many are simply grateful to still have an income in the current economy.

Some employers might like to believe that as long as work is getting done, people are getting paid, and everybody’s happy with the arrangements, there’s nothing to worry about. Not in the IRS’s view! An employer can’t pay a worker like an independent contractor while treating them like an employee, even if the worker agrees to it. There are a lot of ways the IRS might get wise to what’s going on. A company risks audits and penalties if any worker’s tax forms raise a red flag. A disgruntled former employee could blow the whistle or a contractor’s legitimate inquiries for tax advice or unemployment benefits could have a business owner facing Federal tax scrutiny.

For employers who may have run afoul of tax regulations with independent contractors, wouldn’t taking the amnesty program be like dodging a bullet? If a business is found to have been in violation of tax laws, they’ll have to pay any back taxes that are owed. Amnesty will reduce penalties but from that day on, an employer’s business practices could remain under the IRS’s watchful eye for years to come. But this may be a bigger risk—A company might get a slap on the wrist from the Feds but state tax authorities will extend no special treatment. Audits and penalties at the state level could be severe.

A company’s best plan of action may be to bite that bullet instead. Invest the time and effort in getting compliant, as tough as that may be. The general rule is whether the worker is “under the direction and control” of the employer. An employee is; an independent contractor is not. The quickest route to legal status is to use workers provided by a placement agency. For existing workers, make sure no employee and contractor are doing the same job. Contractors may be given assignments but they choose how, when, even where they’ll get the work done. They just have to deliver it on time. No setting work hours, no training in company procedures, no instructions how to do the work, no requiring attendance at meetings. Payment is made on a commission or per project basis and a business should have an invoice from the contractor.

The IRS amnesty program looks tempting but be aware there are potential risks that can’t be mitigated once it’s determined that a company has violated Federal tax regulations. Confession may be good for the soul but a mea culpa to the Internal Revenue Service might not do much for the bottom line.

My guest blogger today is Dagny Kight.  She just completed a step-by-step guide to help people through the process of determining on their own if they can settle their tax debt for a lower amount.

Will the IRS lower your tax debt through “negotiation”? Tax resolution firms would like you to believe they can talk the IRS down on your behalf.

But the IRS likes to talk about just two things: Dollars and cents.

Under new IRS guidelines introduced in 2011, the IRS has a program that is designed to calculate your ability to pay your back tax debt. There is no “negotiation.” The forms for this program will take you through a detailed Financial Disclosure, documenting your income, expenses, assets, and debts. No matter how you ultimately settle your IRS tax debt, you will have to provide a full financial disclosure. This will involve gathering up all your bank and account statements, documentation for all your sources of income, monthly bills, loans, mortgage or lease paperwork, and even documentation for the market value of your assets including vehicles and valuables.

When I settled my own IRS debt for $1, I worked directly with the IRS examiners themselves. They weren’t intimidating; they were actually a pleasure to deal with! They told me what information they wanted and how they wanted it sent in with the IRS forms. I put everything I learned into my ebook, Lower Your IRS Debt with step by step, easy to follow instructions based on my own successful experience with this IRS program.

I owed $42, 564.25 but I settled for $1! Start gathering up your financial paperwork and grab a calculator. Follow along with my ebook to fill out the forms for yourself and find out if YOU could Lower Your IRS Debt!

Daniel Stoica Accounting Professional

Do you work out of your house?  If you do, you may be able to deduct expenses for the business use of your home.

Here are six requirements that will help you determine if you qualify for a home office deduction.

1. First of all, in order for you to claim a business deduction for your home, you must use part of your home regularly and exclusively:
• as your principal place of business, or
• as a place to meet or deal with clients, customers or patients in the normal course of your business, or
• in any connection with your trade or business where the business portion of your home is a separate structure not attached to your home.

2. The amount you can deduct generally depends on the percentage of your home that you use for business. However, your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

3. For certain storage use, rental use or daycare-facility use, you are required to use the property regularly but not exclusively.

4. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

5. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home to figure your home office deduction and report those deductions on Form 1040 Schedule C, Profit or Loss From Business.

6. If you are an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be for the convenience of your employer.

To get more information about the home office deduction, check out IRS Publication 587, Business Use of Your Home, available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).

You may also want to contact a tax professional to find out more about tax deductions for your home office.

Daniel Stoica Accounting Professional

Did you know that free tax return preparation assistance is available for eligible military members and their spouses? The Volunteer Income Tax Assistance (VITA) program provides free tax advice as well as tax preparation, filing and other tax assistance to military members and their families.

Here is some helpful information for military members to keep in mind during tax season:

Tax Sites:

Volunteers at military-based VITA sites are trained to help with military-specific tax issues, such as combat zone tax benefits and the Earned Income Tax Credit guidelines.

Bring the following records:

To receive free tax assistance, you should bring the following records to your military VITA site:

• Valid photo identification
• Social Security cards for you, your spouse and dependents or a Social Security number verification letter issued by the Social Security Administration
• Birth dates for you, your spouse and dependents
• Wage and earning statement(s) like Form W-2, W-2G, 1099-R
• Interest and dividend statements (Forms 1099)
• A copy of last year’s federal and state tax returns, if available
• Checkbook for routing and account numbers for direct deposit
• Total amount paid for day care and day care provider’s identifying number
• Other relevant information about income and expenses

Dealing with joint returns:

If your filing status is Married Filing Jointly and you want to file your tax return electronically, both you and your spouse should be present to sign the required forms. If it isn’t possible for both of you to be present, a valid power of attorney that allows tax preparation can be used to sign and file the return.

Special exception:

There is a special exception to using a power of attorney for spouses in combat zones. The exception allows  the filing spouse to e-file a joint return with only a written statement stating the other spouse is in a combat zone and unable to sign.

For more information, review IRS Publication 3, Armed Forces’ Tax Guide, available on the IRS Web site at www.irs.gov or order a free copy by calling 800-TAX-FORM (800-829-3676).

Daniel Stoica Accounting Professional

The tax season is in full swing, and those who haven’t already filed may be starting to panic.

However, there is no need to panic because the IRS offers free assistance online, via telephone and in person.

Here are four resources to help you find the information that you need to file your taxes this year.

1. CLICK: The IRS website at www.irs.gov contains a wealth of tax information. You can even prepare and file your federal tax return at no cost through Free File.  Free File is a service offered by IRS and its partners who offer free tax preparation software and free electronic filing. You must go to www.irs.gov to use Free File. If you have tax questions, you can also check out 1040 Central on the Individuals page for the latest news. You can even check the status of your refund with Where’s My Refund?

2. CALL: Call the IRS Tax Help Line for Individuals, 800-829-1040, to get answers.  To hear pre-recorded messages covering various tax topics or to check the status of your refund, call 800-829-4477. To order free forms, instructions and publications, call 800-829-3676. TTY/TDD users may call 800-829-4059 to ask tax questions or to order forms and publications.

3. GET FREE HELP: Free tax preparation is available through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs in many communities. Volunteer return preparation programs are provided through partnerships between the IRS and community based organizations. They offer free help in preparing simple tax returns for low-to-moderate-income taxpayers. To find a site near you, visit www.irs.gov, or call 800-906-9887. Qualified taxpayers (age 60 or older) can also find help at a local TCE site by visiting www.aarp.org or calling 888-227-7669.

4. VISIT: If you want face-to-face assistance, you can find help at a local IRS Taxpayer Assistance Center. Locations, business hours and an overview of services are available at www.irs.gov. Just go to the Individuals tab and click on the Contact My Local Office link on the left under IRS Resources.

For more information about free services provided by the IRS, review Publication 910, IRS Guide to Free Tax Services available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

You may also contact an accounting and/or tax professional.

Daniel Stoica Accounting Professional

Did you or anyone in your family have significant medical or dental expenses last year?  If you did, you may be able to deduct those expenses when you file your tax return.

The following information will help you consider your medical or dental expenses when you file your tax return.

1. First of all, you must itemize your qualifying medical and dental expenses using Form 1040, Schedule A.

2. On Form 1040, Schedule A, you can deduct medical care expenses that exceed 7.5% of your adjusted gross income for the year.

3. You can include the medical and dental expenses you PAID during the year, regardless of when the services were provided. Make sure you have good receipts or records to prove your expenses.

4. You cannot count any expenses that have been reimbursed to you. Your total medical expenses for the year must be reduced by any reimbursement. Normally, it makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

5. You may include qualified medical expenses you pay for yourself, your spouse and your dependents. However, check with the IRS or a tax professional if you are divorced or separated because some exceptions and special rules apply to divorced or separated parents, taxpayers with a multiple support agreement or those with a qualifying relative who is not your child.

6. You can deduct expenses primarily paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body. For drugs, you can only deduct prescription medication and insulin. You can also include premiums for medical, dental and some long-term care insurance in your expenses. Starting in 2011, you can also include lactation supplies.

7. You may deduct transportation costs that are essential to medical care that qualify as medical expenses. You can deduct the actual fare for a taxi, bus, train, plane or ambulance as well as tolls and parking fees. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses, which is 19 cents per mile for 2011.

8. Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if used to pay qualified medical expenses including prescription medication and insulin.

For additional information about medical and dental expenses, see Publication 502, Medical and Dental Expenses or Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Some Helpful Links:

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

Daniel Stoica Accounting Professional

Every year, the IRS announces important changes that all taxpayers should understand before they file. Check out www.IRS.gov to get the most current updates on any new legislation that may affect your tax return.

Here are some of the tax change highlights:

Due date difference – it’s not the 15th this year. This year, you need to file your federal tax return by April 17, 2012. The due date is April 17 because April 15 is a Sunday and April 16 is the Emancipation Day holiday in the District of Columbia.

New forms for capital gains and losses as well as foreign financial assets. In most cases, you must report your capital gains and losses on the new Form 8949, Sales and Other Dispositions of Capital Assets. Then, you report certain totals from that form on Schedule D (Form 1040). If you had foreign financial assets in 2011, you may have to file the new Form 8938, Statement of Foreign Financial Assets, with your return.

If you converted from a traditional to Roth IRA. If you converted or rolled over an amount from a traditional IRA to a Roth IRA or designated Roth in 2010 and did not elect to report the taxable amount on your 2010 return, you generally must report half of it on your 2011 return and the rest on your 2012 return.

Standard mileage rates. The 2011 rates for mileage are different for January 1 through June 30 than for July 1 through December 31. For business use of your car, you can deduct 51 cents a mile for miles driven the first half of the year and 55 ½ cents for the second half. Medical and moving mileage are both 19 cents per mile for the early half of the year and 23 ½ cents in the latter half.

Alternative motor vehicle credit. You can claim the alternative motor vehicle credit for a 2011 purchase only if the vehicle is a new fuel cell motor vehicle.

Standard exemptions and deductions were increased.

• The standard deduction increased for some taxpayers who do not itemize deductions on IRS Schedule A (Form 1040). The amount depends on your filing status.
• The amount you can deduct for each exemption has increased $50 to $3,700 for 2011.

First-time homebuyer credit. The credit expired for most taxpayers for 2011. Some military personnel and members of the intelligence community can still claim the credit in 2011 for qualified purchases.

Self-employed health insurance deduction. This deduction is no longer allowed on Schedule SE (Form 1040), but you can still take it on Form 1040, line 29.

Alternative minimum tax (AMT) exemption amount increased. The AMT exemption amount has increased to $48,450 ($74,450 if married filing jointly or a qualifying widow(er); $37,225 if married filing separately).

Health savings accounts (HSAs) and Archer MSAs. The additional tax on distributions from HSAs and Archer MSAs not used for qualified medical expenses increased to 20 percent. Beginning in 2011, only prescribed drugs or insulin are qualified medical expenses.

Health coverage tax credit. Recent legislation changed the amount of this credit, which pays qualified health insurance premiums for eligible individuals and their families. Participants who received the 65 percent tax credit in any month from March to December 2011 may claim an additional 7.5 percent retroactive credit when they file their 2011 tax return.

Mailing a return. The IRS changed the filing location for several areas. If you’re mailing a paper return, see the Form 1040 instructions for the correct address.

Detailed information on these changes can be found on the IRS website – www.irs.gov.

Daniel Stoica Accounting Professional

Are you a small business owner or are you self-employed?  If you are, you probably have questions about taxes for your particular situation.  You can check out the IRS’s Small Business and Self-Employed Tax Center on the IRS website.

The IRS’s one-stop shop offers a variety of resources and online tools to help small businesses and self-employed individuals by providing resources such as:

• A-Z Index for Business, a fast way to find information
• Small business forms and publications
• Online applications for an Employer Identification Number
• Employment tax information – federal income tax, Social Security and Medicare taxes, FUTA and self-employment tax
• Tax-related news that could affect your business
• Small business educational events
• IRS videos for small businesses

Did you know that there is also a Tax Calendar for Small Business Taxpayers?  The Tax Calendar for Small Businesses and Self-Employed – Publication 1518 – is available online or as a printable PDF file. This 12-month calendar containts information on general business taxes, IRS and Social Security Administration customer assistance, electronic filing and paying options, retirement plans, business publications and forms, and common tax filing dates. Each page highlights different tax issues and tips that may be relevant to small-business owners, with room on each month to add notes, state tax dates or business appointments.  You can also download the tax events into your calendar or subscribe to the tax calendar events.  The calendar provides the small business owner with a ready resource for meeting their tax obligations.

If you have other questions about your tax obligations, you might want to contact a tax professional.

Daniel Stoica Accounting Professional

If you receive tips as compensation at your workplace, you need to be aware of some facts from the IRS.

Very Important: Tips are taxable. Tips are subject to the following taxes-  federal income, Social Security and Medicare.  The value of non-cash tips, such as tickets, passes or other items of value, is also considered income and subject to tax.

You must include tips on your tax return. You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip-splitting arrangement with fellow employees.

You must report tips to your employer. If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.

You need to keep a running daily log of your tip income. You can use IRS Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record your tip income.

For more information see IRS Publication 531, Reporting Tip Income, and Publication 1244. You can find these publications at www.irs.gov. You can also order these forms by calling 800-TAX-FORM (800-829-3676).

Daniel Stoica Accounting Professional

Do you know your tax filing status? Your tax filing status is used in order to determine your filing requirements as well as your standard deductions, your correct tax and your eligibility for certain deductions and credits.  Since there are five filing statuses, and since some people may qualify for more than one filing status, it can be confusing to determine which one is the best option for your particular situation.  The five filing statuses are Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) with Dependent Child.

The following are eight facts about filing status that can help you choose the best option.

1.  Your marital status for the entire year is determined by your marital status on the last day of the tax year. So, even if you got married on December 31, 2011, you would still be eligible to file as Married for 2011.

2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.

3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.

4. A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.

5. If your spouse died during the year and you did not remarry during 2011, usually you may still file a joint return with that spouse for the year of death.

6. A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.

7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.

8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2009 or 2010, you have a dependent child, have not remarried and you meet certain other conditions.

You can find out more information about determining your filing status in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

You may also want to speak with a tax professional about determining your tax filing status.

Daniel Stoica Accounting Professional