If you don’t withhold enough in taxes each pay day, you may end up owing more money than you had planned come tax time. If you withhold too much, you may end up getting a large refund, but you, ultimately, give up more money each payday.

You have the option of working with your employer to adjust your withholdings each pay period. You can also figure your withholding if you have gotten married or divorced during the year, added a dependent, bought a house, changed jobs, or retired.

On the IRS website, there is a withholding calculator that will help you figure how much should be taken out of your pay each pay period. It will figure out the accurate amount of federal withholdings and gives you information to help you fill out your W-4, the Employee’s Withholding Allowance Certificate.  To find the calculator, go to the IRS.gov website and search for “withholiding calculator”. 

In order to use the withholding calculator, have the following items handy.

-Your most recent pay stubs.

-Your most recent federal income tax return.

 More tips for using the withholding calculator:

 -Fill in any information that applies to you.

-Make an estimate, if necessary. The results are only as accurate as the information you give.

-Check any links in the program if you have questions.

-Print the last screen. It gives you a summary of everything you entered with your calculations. You can use this to fill out a new W-4 if you need to, then give it to your employer.

-Keep the form you printed and a copy of your W-4 for your tax records.

The withholding calculator is a helpful resource for most people because it makes the process of figuring out your withholding so much easier.

If you are self-employed or are required to have an alternative minimum tax, or if your job is ending before the end of the  year, you will get a more accurate figure by taking a look at Publication 919, How Do I Adjust My Tax Withholding. The publication can be found at www.irs.gov or by calling 1-800-829-3676.

 If you have additional questions about tax withholding, contact a tax professional. 

Daniel Stoica Accounting Professional

Truckers and owners of heavy highway vehicles were notified by the IRS that their highway use tax return will be due on November 30^th, 2011. It is normally due by August 31^st.

The extension was put in place to help stop any confusion in regards to multiple filings in case Congress modifies the tax after September 30^th, 2011. Under the regulations that were recently filed by the Federal Register, the 2290 form-Heavy Highway Vehicle Use Tax Return, began on July 1^st, 2011. It applies to all vehicles that are used during the month of July, as well as vehicles that will be first used during August and September. Taxpayers are advised not to make payments before November 1^st.

To help truckers to apply for their state vehicle registrations before November 30^th, these new regulations are required by all states. They must accept the stamped Schedule 1 of the 2290 form as proof of payment. This will be provided by the IRS for the prior year, which ended on June 30^th, 2011. Federal law states that all state governments must get proof of payment of the highway use tax in order for truckers to get their vehicle registrations. Generally, once a taxpayer has filed their return and paid the taxes, the Schedule 1 is stamped by the IRS and returned to the taxpayer. States will then accept this Schedule 1 as proof of payment, but only through September 30^th. 

If anyone is registering a new or used vehicle between July and November, this new regulation will require all states to register the vehicles, without proof of payment, but only if the person who is registering the vehicle shows a copy of the bill of sale showing that the purchase was made within 150 days.

The highway use tax is used for trucks, tractors and buses with a weight of at least 55,000 pounds. Vans, pick-ups and panel trucks are not taxable because they are generally under 55,000 pounds.

Normally, the 2290 form and payments are due on August 31^st for trucks and all other taxable vehicles. The taxable amount can be up to $550 for each vehicle and is based on the weight of the vehicle. Other rules apply for vehicles with very little use on the roads, for logging, or for agricultural vehicles. It also applies to vehicles that transferred ownership during the year and were first used after July.

The IRS received nearly 650,000 2290-forms and highway use tax payments of $886 million last year.

Contact the IRS or a tax professional if you have any questions about this extension. 

Daniel Stoica Accounting Professional

Instead of having a yard sale this summer, consider donating to a worthy charity. There are, at least, four reasons to donate instead of having a garage or yard sale. Being charitable is a lot more fulfilling that making a profit.

1. Donating is a time saver. If you add up all of the hours you spend preparing for and having your garage or yard sale, and then cleaning up afterwards, you will end up spending 20-30 hours on it. By donating, you may only spend an hour gathering your stuff, loading it into your car and driving to the Good Will or Arc Thrift Stores. 

2. You will get rid of you unwanted items. When you finish with a yard sale, you generally end up with some stuff left over. What do you do with it? Do you store it away for the next yard sale? Why not just save yourself the time and take it to the thrift store. It’s still in good shape, otherwise you wouldn’t be trying to sell it. If you give it to charity to start with, you won’t have to go through all of that.

 3. You will get a tax deduction for donating to a qualified charity, which can save you hundreds of dollars on your taxes. A lot of people do make some money holding garage or yard sales. If you make $300 for 30 hours of work, you are making $10 per hour. But you can make the same amount, if not more, by donating and taking a tax deduction. The IRS will give you about $150 on your federal tax return if you are in the 15% tax bracket and $1000 if you are in the 25% tax bracket.  So, a $1000 worth of donations will save you approximately $250 in taxes.

 4. You are helping people by donating. There are a lot of people who need your unwanted items and when you donate to places like Good Will or Arc, the items are sold, mainly to lower-income people, and part of the proceeds goes to developmentally challenged individuals. By donating, everyone wins and you feel good because you have done something to help others.

So, if you are thinking about having a garage or yard sale, please consider the alternative and donate to a charitable cause. You will save time while still getting rid of items you don’t need, you’ll lower your taxes, and you will be doing a good thing for others.

 Daniel Stoica Accounting Professional

One of the most common questions asked at tax time is, “How do I avoid being audited?” The question itself is more common than the probability of actually being audited. Only 1% of all taxpayers have actually been audited.

When you know what information on your return will trigger an audit, it will help you to avoid one. It is by no means a guarantee, but it will definitely reduce your chances. By looking at past audits, you will see what common issues you need to take a close look at.

High deductions – Deductions that are unusually high compared to your income sends a red flag to the IRS. They annually publish the “Statistics of Income” and, although the book offers a range for typical income, you have to use common sense here. If you are at the lower spectrum of the income bracket, and you happen to claim high deductions in association with that lower bracket, you might trigger an audit, despite the fact that the deductions may be valid.

High Income – Higher income is usually considered an advantage, but from the IRS’s perspective, it causes them to look a little closer, which can be a disadvantage. Past audits show that a chance for an audit of a taxpayer who makes less than $100,000 is 0.93%, whereas a taxpayer whose income is over $100,000 has a 1.77% chance of being audited. With income over $200,000, your potential for an audit jumps to 2.87% and anyone who makes $1 million will  have a 9.37% chance of being audited.

Cash Income – When you work in a profession where you handle cash, such as receiving tips, it makes the IRS curious. They will most likely compare your bank deposits and the income you have claimed on your taxes. If they don’t add up, you may find yourself being audited.

Self-Employment – Self-employed taxpayers tend to write-off as many expenses they can in order to keep as much of their money as possible. The IRS is sure to verify that these expenses and deductions are legitimate.

But just because some items on a tax return might trigger a red flag with the IRS, it isn’t a guarantee that you will be audited. Your best bet to avoid an audit, though, is to expect that it will happen. Make certain that your deductions are correct and you have a record of every expense and pay stubs to show the IRS, just in case.

Of course, not having to deal with an audit is the best thing that could happen, and if you keep yourself apprised of the issues the IRS looks at, you will avoid that letter from them.

 Daniel Stoica Accounting Professional

IRS Tax Tip: IR-2011-39, April 7, 2011

If you are one of those taxpayers who will do just about anything to get out of paying your taxes, and you think you found a way to get out of it, you might want to reconsider it because the IRS will find out.

The IRS recently released its annual list of the worst tax scams with a warning to consumers to not even try pulling one over on the government. There are probably many taxpayers who haven’t filed yet because they owe money. They may have been thinking about ways to get around paying them, which will cause a lot of problems down the line, including fines, liens, and even jail.

The annual “dirty dozen”, as the IRS refers to scams people have used to evade paying taxes, are listed below. They range from putting money in offshore accounts to claiming non-existence dependents.  Some of the most devious scams have been perpetrated by dishonest tax preparers who used tactics to get more of a refund for their clients and take some off the top for themselves.

Besides the obvious scams, there are some methods that have most likely crossed the minds of many taxpayers. The IRS has reported that some taxpayers have lied about how much they earn, embellished or made up charitable donations and claimed they withheld more in Social Security in order to reduce their taxable income.

The IRS has also reported that some taxpayers try to get out of paying their taxes by claiming that paying taxes is not mandated in the constitution. (There are several videos on YouTube that claim this, as well). Others have even gone as far as to claim that it’s “against their religion”. The Supreme Court has, again and again, determined this to be a unjustified argument.

If the IRS believes you have tried any of these scams, you will be audited and fined $5,000 or more, or even incarcerated for worse offenses. And, if you know someone who has tried to pull off one of these scams, you should notify the IRS. You may be rewarded for your honesty.

Here is the full list of the worst scams:
• Hiding income offshore – This is where taxpayers deposit money in banks in such places as the Cayman Islands or Switzerland
• Identity theft and phishing – This scam has been running rampant for quite some time. People steal IDs and Social Security numbers to take another person’s identity
• Return preparer fraud – Tax preparers making false claims on their clients’ tax returns for their own gain
• Filing false or misleading forms – exaggerating or claiming false information on your tax return to pay less on their taxes
• Frivolous arguments – claiming that paying taxes is unconstitutional or against your religion
• Nontaxable Social Security benefits with exaggerated withholding credits – trying to take more credits and deductions on income that is actually taxable
• Abuse of charitable organizations and deductions – claiming to have given to charity or exaggerating how much you actually did give to a charity
• Abusive retirement plans – transactions that taxpayers use to avoid the limits on contributions to IRAs, as well as transactions that are not properly reported as early distributions
• Disguised corporate ownership – Corporations are formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity by means such as improperly using a third party to request an employer identification number,
• Zero wages – reporting that you made no money at all during the tax year
• Misuse of trusts – the inappropriate use of private annuity trusts and foreign trusts to shift income and deduct personal expenses
• Fuel tax credit scams – individuals who claim the tax credit for nontaxable uses of fuel when their occupations or income levels make the claim unreasonable

To avoid becoming one of the “dirty dozen”, consult with a trusted tax professional to prepare your taxes.

Daniel Stoica Accounting Professional

More than half of the people who filed their taxes got refunds this year, a little more than usual, but the amount of those refunds has surged over the last ten years. Many Americans have overpaid on their taxes throughout the year to get a larger refund at tax time.

Last year’s refunds averaged over $3,000, and this year’s average is not far behind, according to the Internal Revenue Service. This is nearly twice as much as the $1,700 average from 1999.

Current tax data from the IRS shows the growth in refunds hasn’t been limited to any one income level. People who suffered job or investment losses during the recession overpaid inadvertently, giving them bigger refunds.  The past decade also brought short-lived tax benefits where many taxpayers may not have adjusted their withholdings. A few examples include: the American Opportunity Education Credit; the Home-Buyer Credits; and the Expanded Child Credit.

Tax professionals and other financial advisors often frown on large tax refunds because they add up to interest-free loans to the government, thereby reducing investment capital in the same amounts. Many advise that it’s better to have the money in hand every month and invest it, spend it or just let it earn interest.  To many Americans, thought, a $3,000 check looks a lot better than $3,000 coming out of their paychecks over the year.

If your refund seems too big or too small, fixing it usually means making changes to your W-4. It’s the form your employer uses to figure withholdings on your paycheck. Amending it involves three worksheets and two tables, which is sometimes overwhelming to the average person.

The W-4 can be a headache even for people familiar with the 1040. A withholding allowance isn’t the same thing as an exemption. It’s intimidating for even the most seasoned taxpayers. If you aren’t comfortable filling out your own W-4, don’t try. It’s better to hire a tax professional.

If you pay a professional to do your taxes, he or she will most likely give you free help with your W-4. Most accountants do offer it. H&R Block doesn’t charge to fill out your W-4, if you are using them to prepare your taxes. Turbotax has a W-4 feature as part of its software program. The IRS also offers a withholding calculator at the IRS website. Make sure you have your paycheck and your tax return when you have this done to avoid any complications or delays.

Daniel Stoica Accounting Professional

You might be impacted by the Affordable Care Act tax provisions, whether you are a small business owner or an individual.

President Obama signed The Affordable Care Act into law on March 23, 2010. The goal of the health reform is to guarantee that all Americans have access to affordable health insurance. The law will affect nearly every American, including those who are on government run health insurance, people who pay for their own insurance, small businesses, seniors on or eligible for Medicare, and large employers who offer medical coverage.

The Affordable Care Act contains several tax provisions that will begin as different areas of the health reform legislation are put into action. Action on the health reform law is the duty of the Department of Health and Human Services. The purchase of health insurance is included in many worker’s jobs and tax-related benefits. Almost all of the new regulations involve the involvement of the Department of Labor and the IRS.

Below is a list of some of the tax-related effects of the Affordable Care Act that have been decided. For the complete list, please visit www.irs.gov.

Employer-Provided Health Coverage is not taxable
Starting in the 2011 tax year, the Affordable Care Act requires your employer to report your health insurance coverage on your W-2. This is only for your information. It is there to let you know the value of your health care benefits. The amount doesn’t affect your tax liability because the cost of your employer’s contribution will not be included in your income and is not taxable.

Small Business Health Care Tax Credit
If you own a small business, this credit will help you to afford coverage of your employees. It is for businesses with low to moderate income workers. The credit encourages small business employers to offer health insurance coverage for the first time or keep coverage it may already have. The credit is available to small business employers that pay at least half the cost of coverage for their employees.

To qualify for the small business tax credit you must meet the following eligibility rules:
-Provide health care coverage: You must cover the cost of at least 50% of health care coverage for some of your workers based on the single rate.
-Company size: You must have fewer than 25 full time employees. An employer with fewer than 50 part time employees may be eligible.
-Average annual wage: You must pay an average annual wage of less than $50,000.

If you are eligible, the credit is worth up to 35% of your premium costs. This rate increases to 50% (35% for tax-exempt employers) on January 1, 2014. The credit decreases slowly for companies with average wages between $25,000 and $50,000, and for companies with 10 to 25 full time employees.

Health Coverage for Older Children
Health care coverage for your children under the age of 27 is now tax-free. It applies to a variety of work place and retiree health plans. This change became effective in September of 2010 and allows employers with cafeteria plans to allow employees to make pre-tax contributions to pay for this benefit. This tax benefit also applies to people who are self-employed to also qualify for the self employed health insurance deduction on their federal income tax return.

If you are uncertain about any details of the Affordable Care Act tax, it is a good idea to talk to a tax professional. He or she can assist you in determining which one will bring the most tax benefits for you.

Daniel Stoica Accounting Professional

April 15th (or April 18th in 2011) has passed and, hopefully, you have finished your return and have sent it in to the IRS.  However, you may be someone who found out that you owe taxes and can’t afford to pay, so you did not file your tax return. Unfortunately, not filing your tax return is actually worse than filing and not having the ability to pay. It is always better to file your return and work out a payment with the IRS than to avoid filing and paying altogether.  In other words, file your return immediately. 

There is a 5% penalty for each month you are late. The maximum is 25%, but if your return is more than 60 days late, it will be a minimum of $100, or the balance of the taxes owed, whichever is smaller.

Not paying at all doesn’t get it paid. Think of all of the possible sources of money you might have. If you cannot produce the funds, there are a few other places to get the money. One of your best solutions is to negotiate directly with the government and agree to some sort of payment plan. The government is the top creditor that must be paid when you owe. Any assets, excluding your home or business, can be liquidated if you owe taxes. And don’t even think about trying to hide your assets. That’s fraud, and you will go to jail.

Work with the IRS to come up with a payment plan. You will need to send an “Installment Agreement Request” using a 9465 form. Send it to the IRS for review and approval.

You might qualify for a payment plan if you don’t owe more than $25,000 and you have to pay it off within five years. The length of your payments is a combination how much you owe and the interest rate. Interest rates change every quarter, so they aren’t guaranteed maximum payments. If the interest rate goes down, you may end up paying it off sooner. This doesn’t happen very often, but it does happen. However, if you overpay, the IRS will owe you interest.

If you don’t qualify for the payment plan, you can check the IRS’ Collection Financial Standards to find an alternative for paying.

If the IRS approves your request, you will be charged a fee of $105, but it can be lowered to $52 if you set up monthly payments through electronic funds transfer. The IRS deducts the fee from your first payment.

Even though your 9465 form is approved, you will still owe interest, and a late payment penalty may be added on any taxes not paid by the due date. File your return on time and pay as much of the tax as you can to avoid additional fees.

The 9465 form is easy to fill out. You will fill out your name, address, Social Security number, the name of your bank and your employer. You will then enter how much you owe and how much you can pay each month. Almost all requests from those who promise to pay within 12 months and stay current with this year’s taxes qualify for the payment plan.

If you have any questions about filing a tax return, your best bet is to contact a tax professional. 

Daniel Stoica Accounting Professional

June is unofficially the “wedding month” since that’s when many couples tie the knot. It is also the halfway point to the end of the year, which means keeping your tax changes in the back of your mind.

When you are planning your wedding, your taxes are most likely the last thing on your mind, but there are a few things to think about that will keep tax issues from bothering you while you are concentrating on your big day. If you are currently planning your wedding, or if you just recently got married, look into your new tax situation. You can save some money and maybe even keep an eye out for a possible future refund check.

Once you are married and settled, the first things you will need to take care of are name and address changes. Then, when tax season gets closer, think about whether or not you’ll itemize deductions, which tax return form is right for you and your spouse and what filing status you’ll use. A tax professional can help you with these issues.

There are a few things you should take into consideration as tax time approaches.

-Make Certain You Use Your Correct, Legal Name

You must provide your correct, legal name and identification number to claim exemptions on your tax return. If you changed your name when you got married, make sure you update your Social Security card right away so the number matches your new name when you file your taxes. Use Form SS-5, Application for a Social Security Card.

-Did You Change Your Address?

If you and your spouse have moved to a new address, get a change of address from the Post Office so they can forward any tax refunds or mail from the IRS. The Post Office will also send your new address to the IRS so they can update their records. You should probably contact the IRS, as well, by filing Form 8822.

-Are You Expecting a Refund Check?

Every year, the Postal Service returns thousands of tax refund checks, mainly because the addressee has moved. Notifying both the Postal Service and the IRS of your address change as soon as possible will ensure the delivery of any refund checks you may be waiting for. To check the status of a pending tax refund, go to the IRS web site and use the “Where’s My Refund?” service.

-Your Filing Status Will Probably Change

Your marital status as of December 31st will determine if you are considered married for that tax year. Married couples have the option of filing their federal income tax return either jointly or separately in any given year. Choosing the right filing status can save you money.

Filing a joint return (Married Filing Jointly) allows spouses to use their combined income and take combined deductions and expenses on a single tax return. Both spouses must sign the return. Both spouses are also held responsible for the contents.

With separate returns (Married Filing Separately), each spouse is responsible for their own tax return. Separately, they sign and file, and each is responsible for his or her own tax return. They are taxed on their own income separately, and can only take his or her individual deductions and credits. If one spouse itemizes deductions, the other must do the same.

Which filing status is right for you? It depends on your specific situation. You should consult with a tax professional to determine what situation is best for you and your new spouse.

Daniel Stoica Accounting Professional

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