Happy Saint Patrick’s Day Love For Japan

Many of us enjoy having fun on Saint Patrick’s Day. Everyone’s Irish on March 17th.

Celebrating Saint Patties by dressing in green, holding parades, eating special meals, and drinking green beer is an annual tradition for the Irish and the Irish At Heart.

Chicago Illinois has a long tradition of dying the Chicago River green for the St Patrick’s Day celebration.

In Japan St. Patrick’s Day Parade has been held in Tokyo and other regions, a beautiful cultural exchange between Ireland, the Irish at Heart, and Japan.

St. Patrick’s Day 2011 presents an opportunity for the entire world to spread Irish Charm to those affected by the earthquake, tsunami, and nuclear power plant failures in Japan.

Love Japan on this Saint Patrick’s Day March 17, 2011

1. Love Japan
2. Contribute to Earthquake Relief
3. Contribute to Tsunami Relief
4. Choose a Charitable Organization
5. Make a Tax Deductible Contribution
6. Claim Your Tax Deductible Contribution On Your Tax Return
7. Love Japan

Happy Saint Patrick’s Day

Daniel Stoica is a Consulting, Accounting and Tax Professional based in Roscoe Illinois, U.S.A. Serving Local, National, and International Clients

Tax Topic 416  Farming and Fishing Income

If you have income from your farming or fishing business, you may be able to avoid making any estimated tax payments by filing your return and paying your entire tax due on or before March 1st of the year your return is due.
This rule generally applies if at least 2/3 of your total gross income was made from farming or fishing in either the current or the preceding year. If March 1st falls on a weekend or legal holiday, you have until the next business day to file your return and pay the tax.

If you choose not to file by March 1st, you can make a single estimated tax payment by January 15th to avoid an estimated tax penalty.
If these special rules do not apply, you may have to make quarterly estimated tax payments.
For more information on estimated tax, refer to Publication 505, Tax Withholding and Estimated Tax.

Income and expenses from farming are reported on Form 1040, Schedule F (PDF).
Additionally, self-employment tax may be required if net earnings from farming are $400 or more.
Self-employment tax is figured on Form 1040, Schedule SE (PDF).
For additional information, refer to Topic 554, Self-Employment Tax.
For more information on farming, refer to Publication 225, Farmer’s Tax Guide.

Income and expenses from fishing are reported on either Form 1040, Schedule C (PDF) or Form 1040, Schedule C-EZ (PDF).
Fishermen may also be required to file Form 1040, Schedule SE (PDF) to figure self-employment tax if their net earnings from fishing are $400 or more.
For general information about the rules applying to individuals, including commercial fishermen, who file Schedule C or C-EZ, refer to Publication 334, Tax Guide for Small Business.
Also see the article titled “Fishing Tax Center” on IRS.gov for additional information on fishing income, deductions, and other tax issues for commercial fishing.
If your trade or business is a partnership or corporation, see Publication 541, Partnerships, or Publication 542, Corporations.

Taxable or Non-Taxable Income?

This is one of the most frequently asked questions: Is this type of income taxable or non-taxable?

It is an excellent question to continuously ask about all the different types of income.

Please consider the following:

IRS Tax Tip 2011-25,  February 04, 2011

Generally, most income you receive is considered taxable but there are situations when certain types of income are partially taxed or not taxed at all.

To help taxpayers understand the differences between taxable and non-taxable income, the Internal Revenue Service offers these common examples of items not included as taxable income:

• Adoption Expense Reimbursements for qualifying expenses
• Child support payments
• Gifts, bequests and inheritances
• Workers’ compensation benefits
• Meals and Lodging for the convenience of your employer
• Compensatory Damages awarded for physical injury or physical sickness
• Welfare Benefits
• Cash Rebates from a dealer or manufacturer

Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your taxable income are:

Life Insurance If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable unless the policy was turned over to you for a price.

Scholarship or Fellowship Grant If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.

Non-cash Income Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.

All other items—including income such as wages, salaries, tips and unemployment compensation — are fully taxable and must be included in your income unless it is specifically excluded by law.

These examples are not all-inclusive. For more information, see Publication 525, Taxable and Nontaxable Income.

Tax Topic 415  Renting Residential and Vacation Property

Formerly Renting Vacation Property and Renting to Relatives

If you receive rental income from renting a dwelling unit, such as a house or an apartment, you may deduct certain expenses. These expenses, which may include interest, taxes, casualty losses, maintenance, utilities, insurance, and depreciation, will reduce the amount of rental income that is taxed. You will generally report such income and expenses on Form 1040 (PDF) and Form 1040, Schedule E (PDF). If you are renting to make a profit and do not use the dwelling unit as a home, your deductible rental expenses may be more than your gross rental income. Your rental losses, however, generally will be limited by the “at-risk” rules and/or the passive activity loss rules. For information on these limits, refer to Publication 925, Passive Activities and At-Risk Rules.

If you rent a dwelling unit that you also use as a home, there are different limitations on your deductible rental expenses. You are considered to use a dwelling unit as a home if you use it for personal purposes during the tax year for more than the greater of: 14 days or 10% of the total days it is rented to others at a fair rental price. It is possible that you will use more than one dwelling unit as a home during the year. For example, if you live in your main home for 11 months, your home is a dwelling unit used as a home. If you live in your vacation home for the other 30 days of the year, your vacation home is also a dwelling unit used as a home unless you rent your vacation home to others at a fair rental value for 300 or more days during the year.

A day of personal use of a dwelling unit is any day that it is used by:

• You or any other person who has an interest in it, unless you rent your interest to another owner as his or her main home under a shared equity financing agreement
• A member of your family or of a family of any other person who has an interest in it, unless the family member uses it as his or her main home and pays a fair rental price
• Anyone under an agreement that lets you use some other dwelling unit
• Anyone at less than fair rental price

If you use the dwelling unit for both rental and personal purposes, you generally must divide your total expenses between the rental use and the personal use based on the number of days used for each purpose. However, you will not be able to deduct your rental expense in excess of your gross rental income. If you itemize your deductions on Form 1040, Schedule A, you may still be able to deduct mortgage interest, property taxes, and casualty losses on that schedule.

There is a special rule if you use a dwelling as a home and rent it for fewer than 15 days. In this case, do not report any of the rental income and do not deduct any expenses as rental expenses.

Another special rule applies if you rent part of your home to your employer and provide services for your employer in that rented space. In this case, report the rental income, but do not deduct any expenses as rental expenses.

IRS Helps Taxpayers Get A Fresh Start With Their Tax Liabilities

IRS Announces New Effort to Help Struggling Taxpayers Get a Fresh Start

Major Changes Made to Lien Process

IR-2011-20, Feb. 24, 2011

WASHINGTON — In its latest effort to help struggling taxpayers, the Internal Revenue Service today announced a series of new steps to help people get a fresh start with their tax liabilities.

The goal is to help individuals and small businesses meet their tax obligations, without adding unnecessary burden to taxpayers. Specifically, the IRS is announcing new policies and programs to help taxpayers pay back taxes and avoid tax liens.

“We are making fundamental changes to our lien system and other collection tools that will help taxpayers and give them a fresh start,” IRS Commissioner Doug Shulman said. “These steps are good for people facing tough times, and they reflect a responsible approach for the tax system.”

Today’s announcement centers on the IRS making important changes to its lien filing practices that will lessen the negative impact on taxpayers. The changes include:

• Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens.
• Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill.
• Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement.
• Creating easier access to Installment Agreements for more struggling small businesses.
• Expanding a streamlined Offer in Compromise program to cover more taxpayers.

“These steps are in the best interest of both taxpayers and the tax system,” Shulman said. “People will have a better chance to stay current on their taxes and keep their financial house in order. We all benefit if that happens.”

This is another in a series of steps to help struggling taxpayers. In 2008, the IRS announced lien relief for people trying to refinance or sell a home. In 2009, the IRS added new flexibility for taxpayers facing payment or collection problems. And last year, the IRS held about 1,000 special open houses to help small businesses and individuals resolve tax issues with the Agency.

Today’s announcement comes after a review of collection operations which Shulman launched last year, as well as input from the Internal Revenue Service Advisory Council and the National Taxpayer Advocate.

Tax Lien Thresholds

The IRS will significantly increase the dollar thresholds when liens are generally filed. The new dollar amount is in keeping with inflationary changes since the number was last revised. Currently, liens are automatically filed at certain dollar levels for people with past-due balances.

The IRS plans to review the results and impact of the lien threshold change in about a year.

A federal tax lien gives the IRS a legal claim to a taxpayer’s property for the amount of an unpaid tax debt. Filing a Notice of Federal Tax Lien is necessary to establish priority rights against certain other creditors. Usually the government is not the only creditor to whom the taxpayer owes money.

A lien informs the public that the U.S. government has a claim against all property, and any rights to property, of the taxpayer. This includes property owned at the time the notice of lien is filed and any acquired thereafter. A lien can affect a taxpayer’s credit rating, so it is critical to arrange the payment of taxes as quickly as possible.

“Raising the lien threshold keeps pace with inflation and makes sense for the tax system,” Shulman said. “These changes mean tens of thousands of people won’t be burdened by liens, and this step will take place without significantly increasing the financial risk to the government.”

Tax Lien Withdrawals

The IRS will also modify procedures that will make it easier for taxpayers to obtain lien withdrawals.

Liens will now be withdrawn once full payment of taxes is made if the taxpayer requests it. The IRS has determined that this approach is in the best interest of the government.

In order to speed the withdrawal process, the IRS will also streamline its internal procedures to allow collection personnel to withdraw the liens.

Direct Debit Installment Agreements and Liens

The IRS is making other fundamental changes to liens in cases where taxpayers enter into a Direct Debit Installment Agreement (DDIA). For taxpayers with unpaid assessments of $25,000 or less, the IRS will now allow lien withdrawals under several scenarios:

• Lien withdrawals for taxpayers entering into a Direct Debit Installment Agreement.
• The IRS will withdraw a lien if a taxpayer on a regular Installment Agreement converts to a Direct Debit Installment Agreement.
• The IRS will also withdraw liens on existing Direct Debit Installment agreements upon taxpayer request.

Liens will be withdrawn after a probationary period demonstrating that direct debit payments will be honored.

In addition, this lowers user fees and saves the government money from mailing monthly payment notices. Taxpayers can use the Online Payment Agreement application on IRS.gov to set-up with Direct Debit Installment Agreements.

“We are trying to minimize burden on taxpayers while collecting the proper amount of tax,” Shulman said. “We believe taking away taxpayer burden makes sense when a taxpayer has taken the proactive step of entering a direct debit agreement.”

Installment Agreements and Small Businesses

The IRS will also make streamlined Installment Agreements available to more small businesses. The payment program will raise the dollar limit to allow additional small businesses to participate.

Small businesses with $25,000 or less in unpaid tax can participate. Currently, only small businesses with under $10,000 in liabilities can participate. Small businesses will have 24 months to pay.

The streamlined Installment Agreements will be available for small businesses that file either as an individual or as a business. Small businesses with an unpaid assessment balance greater than $25,000 would qualify for the streamlined Installment Agreement if they pay down the balance to $25,000 or less.

Small businesses will need to enroll in a Direct Debit Installment Agreement to participate.

“Small businesses are an important part of the nation’s economy, and the IRS should help them when we can,” Shulman said. “By expanding payment options, we can help small businesses pay their tax bill while freeing up cash flow to keep funding their operations.”

Offers in Compromise

The IRS is also expanding a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers.

This streamlined OIC is being expanded to allow taxpayers with annual incomes up to $100,000 to participate. In addition, participants must have tax liability of less than $50,000, doubling the current limit of $25,000 or less.

OICs are subject to acceptance based on legal requirements. An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.

Tax Topic 414  Rental Income and Expenses

Generally, cash or the fair market value of property you receive for the use of real estate or personal property is taxable to you as rental income. You can generally deduct expenses of renting property from your rental income. Income and expenses related to real estate rentals are usually reported on Form 1040, Schedule E (PDF). If you provide substantial services that are primarily for your tenant’s convenience, you report your income and expenses on Form 1040, Schedule C (PDF). Income and expenses related to personal property rentals are reported on Form 1040 (PDF).

Most individuals operate on a cash basis, which means they count their rental income as income when it is actually or constructively received, and deduct their expenses as they are paid. Some specific types of income are:

• Amounts paid to cancel a lease – If a tenant pays you to cancel a lease, this money is also rental income and is reported in the year you receive it.
• Advance rent – Generally you include any advance rent paid in income in the year you receive it regardless of the period covered or the method of accounting you use.
• Expenses paid by a tenant – If your tenant pays any of your expenses, those payments are rental income. You may be allowed to deduct the expenses if they are considered deductible expenses.
• Security deposits – Do not include a security deposit in your income if you may be required to return it to the tenant at the end of the lease. But if you keep part or all of the security deposit during any year because the tenant damaged the property or did not live up to the terms of the lease, this money is taxable income in the year this determination is made. If the security deposit is to be used as the tenant’s final month’s rent, you include the money as income when you receive it, rather than when you apply it to the last month’s rent.

Some examples of expenses that may be deducted from your total rental income are:

• Depreciation – You begin to depreciate your rental property when you place it in service. You can recover some or all of your original acquisition cost and improvements by using Form 4562 (to report depreciation) beginning in the year your rental property is first placed in service, and beginning in any year you make improvements or add furnishings.
• Repairs – Repairs just keep your property in good working condition but do not add to the value of the property.
• Operating Expenses
• Uncollected rents – If you are a cash basis taxpayer, you cannot deduct uncollected rents as an expense because you have not included those rents in income.

For information on depreciation, refer to Publication 946, How To Depreciate Property. Repair costs, such as materials, are usually deductible. For a discussion of the difference between repairs and improvements, refer to Publication 527, Residential Rental Property (Including Rental of Vacation Homes).

There are special rules relating to the rental of real property that you also use as your main home or your vacation home. For information on income from these rentals, or from renting at an amount less than the fair market value, refer to Topic 415, Renting Residential and Vacation Property (formerly Renting Vacation Property and Renting to Relatives).

If you do not use the rental property as a home and you are renting to make a profit, your deductible rental expenses can be more than your gross rental income, subject to certain limits. For information on these limitations, refer to Topic 425, Passive Activities -Losses and Credits.

IRS Holds Saturday Open House on February 26 to Help Taxpayers

Tax Help is available to taxpayers directly from the IRS.

Do not miss this no-cost resource!

IRS Holds Saturday Open Houses on Feb. 26 and March 26 to Help Taxpayers

IR-2011-19, Feb. 23, 2011

WASHINGTON — The Internal Revenue Service announced today that nearly 100 IRS offices will be open on Saturday, Feb. 26, and Saturday, March 26, to help taxpayers.

The location of participating offices is listed on IRS.gov.

“We are opening our doors on these Saturdays to help taxpayers who may not have a chance to seek assistance during the work week,” said IRS Commissioner Doug Shulman. “If taxpayers need help preparing their tax returns or have an account question, we encourage them to visit one of our open houses.”

On Saturday, Feb. 26, and Saturday, March 26, the IRS offices will be open from 9 a.m. to 2 p.m. local time. IRS staff will be on site to help taxpayers work through issues.
More than 35,000 taxpayers attended similar events last year resolving over 95 percent of their issues.

During the open-house hours, IRS personnel will be available to provide services such as tax return preparation, assist with account questions and help with a variety of other issues.
IRS offices in 10 locations will also offer free seminars designed to provide information on new tax laws affecting federal tax returns and detail other services provided by the IRS.

In addition to IRS help, community organizations partner with the IRS. Volunteer Income Tax Assistance (VITA) programs assist people who earned $49,000 or less, and Tax Counseling for the Elderly (TCE) programs assist individuals age 60 and over with their 2010 income tax return preparation and electronic filing.
Many of these sites have Saturday hours while others offer assistance at various times during the week.
Taxpayers can call 800-906-9887 to locate partner sites in their area.

In addition to the open houses on Saturday, Feb. 26, and Saturday, March 26, the IRS expects to open many of its offices on two additional Saturdays later this year.

Tax Topic 413 – Rollovers from Retirement Plans

A rollover occurs when you withdraw cash or other assets from one eligible retirement plan and contribute all or part of it within 60 days to another eligible retirement plan.

This transaction is not taxable but it is reportable on your Federal Tax Return.

You can roll over most distributions from an eligible retirement plan except for:

1. The nontaxable part of a distribution, such as your after-tax contributions to a retirement plan (in certain situations after-tax contributions can be rolled over),
2. A distribution that is one of a series of payments based on your life expectancy, or the joint life expectancy of you and your beneficiary, or paid over a period of ten years or more,
3. A required minimum distribution,
4. A hardship distribution,
5. Dividends on employer securities, or
6. The cost of life insurance coverage.

Further exclusions exist for certain loans and corrective distributions.

Any taxable amount of a distribution that is not rolled over must be included in income in the year of the distribution.

If a distribution is paid to you, you have 60 days from the date you receive it to roll it over to another eligible retirement plan.
Any taxable distribution paid from an employer-sponsored retirement plan to you is subject to a mandatory withholding of 20%, even if you intend to roll it over later.
If you do roll it over, and want to defer tax on the entire taxable portion, you will have to add funds from other sources equal to the amount withheld.
You can choose to have your employer transfer a distribution directly to another eligible retirement plan or to an IRA.
Under this option, the 20% mandatory withholding does not apply.

In general if you are under age 59 1/2 at the time of the distribution, any taxable portion not rolled over may be subject to a 10% additional tax on early distributions unless an exception applies.
For a list of exceptions refer to Tax Topic 558.
Certain distributions from a SIMPLE IRA will be subject to a 25% additional tax.

Tax Credits and Benefits for Disabled Taxpayers

These tax tips are of particular interest to people with disabilities and those who care for people with disabilities.

IRS Tax Tip 2011-24, February 03, 2011
Taxpayers with disabilities and parents of children with disabilities may qualify for a number of IRS tax credits and benefits.

Here are seven tax credits and other benefits which are available if you or someone else listed on your federal tax return is disabled.

1. Standard Deduction Taxpayers who are legally blind may be entitled to a higher standard deduction on their tax return.
2. Gross Income Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income are excluded from gross income.
3. Impairment-Related Work Expenses Employees who have a physical or mental disability limiting their employment may be able to claim business expenses in connection with their workplace. The expenses must be necessary for the taxpayer to work.
4. Credit for the Elderly or Disabled This credit is generally available to certain taxpayers who are 65 and older as well as to certain disabled taxpayers who are younger than 65 and are retired on permanent and total disability.
5. Medical Expenses If you itemize your deductions using Form 1040, Schedule A, you may be able to deduct medical expenses.See IRS Publication 502, Medical and Dental Expenses.
6. Earned Income Tax Credit EITC is available to disabled taxpayers as well as to the parents of a child with a disability.If you retired on disability, taxable benefits you receive under your employer’s disability retirement plan are considered earned income until you reach minimum retirement age. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability who have no qualifying children, but are older than 25 and younger than 65 do — in fact — qualify for EITC. Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.
7. Child or Dependent Care Credit Taxpayers who pay someone to care for their dependent or spouse so they can work or look for work may be entitled to claim this credit.There is no age limit if the taxpayer’s spouse or dependent is unable to care for themselves.

Five Tax Tips if You Changed Your Name Due to Marriage or Divorce

IRS TAX TIP 2011-23,  February 02, 2011

If you changed your name as a result of a recent marriage or divorce you’ll want to take the necessary steps to ensure the name on your tax return matches the name registered with the Social Security Administration.

A mismatch between the name shown on your tax return and the SSA records can cause problems in the processing of your return and may even delay your refund.

Here are five tips from the IRS for recently married or divorced taxpayers who have a name change.

1. If you took your spouse’s last name or if both spouses hyphenate their last names, you may run into complications if you don’t notify the SSA. When newlyweds file a tax return using their new last names, IRS computers can’t match the new name with their Social Security Number.
2. If you were recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.
3. Informing the SSA of a name change is easy; you’ll just need to file a Form SS-5, Application for a Social Security Card at your local SSA office and provide a recently issued document as proof of your legal name change.
4. Form SS-5 is available on SSA’s website at http://www.socialsecurity.gov, by calling 800-772-1213 or at local offices. Your new card will have the same number as your previous card, but will show your new name.
5. If you adopted your spouse’s children after getting married, you’ll want to make sure the children have an SSN. Taxpayers must provide an SSN for each dependent claimed on a tax return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return. Form W-7A is available on the IRS website at http://www.irs.gov, or by calling 800-TAX-FORM (800-829-3676).