Lower your taxes

Now that we are in the middle of the summer, many people are getting ready to send their children back to school. As we turn the corner on 2013, this is the best time to call your accountant and sit down with them and review what has been going with your finances for the first half of the year. Right now your accountant has time to go over your income and has plenty of information for them to forecast what your taxes will be.  They can see if your behind or ahead with the amount that your paying in taxes. They also can fine tune the withholding, so that you do not have any surprises come next tax season.
If your a business owner this is even more critical for you.  Your income can vary through out the year and it is best for you to go over all this so that you can manage your business more effectively.  If you have not done the accounting for the first half of the year yet, the accountant can help you quickly with that by looking at your 2013 bank statements. 
In my experience many people get frustrated when they have to pay an unexpected amount of money at tax time. This can be thwarted by accomplishing this exercise in a timely manner.  As an accountant our "hands are tied" when the year ends. So if your interested in saving money.  Give your accountant a call, make an appointment. 

The income tax return rewards promisquity, illicit behavior and broken homes.

I am  referring to the filing status. Exactly I am focusing on the single filing status versus the Head of Household. Taxpayers who qualify for the Head of Household filing status benefit from a higher standard deduction and lower tax rates compared to the single filing status. You can claim the Head of Household filing status on your tax return if you are unmarried at the end of the year, have cared for a closely-related dependent for over half the year, and paid more than half the cost of maintaining a home for yourself and your dependent or dependents.

It is true that to be able to claim the Head of Household filing status you can have a qualifying relative, in most cases it is your mom or dad, but it can be a grandparent or sibling. But this post pertains to the majority of the cases by which a taxpayer claims the Head of Household filing status and that is by a qualifying child.
The typical situation is you have a single parent, for example a mom, with a child/children and because she has met the criteria for Head of Household status she can reduce their income (AGI), in 2013, by $8.950. If her filing status was single that amount would be only $6,100. The difference is $2,850. However if she was married and filing separate her income would be reduced by the same amount as if she filed single. Understand we are just mentioning one line on the 1040 income tax return. Proponents of the Head of Household status say that a single mom needs the extra $2,850 of deductions. "Make ends meet." My quick answer to that is, what about the father?
But the IRS also has a solution. Because the very next line on the tax return has exemptions. A dependent child is an exemption and that is where she can take her child, as a dependent, which as a result decreases her income tax. There are other lines on the tax return where having a child also is a benefit to reduce tax debt.  Line 51 has child tax credit which is a dollar for dollar reduction in tax debt. Line 64 which is the earned income credit. That focuses on the working class and really has tax benefits. This credit increases as you have more qualifying children up to three. The maximum credit allowed for 2012, was $5,891. This is not a deduction of income, this is actual dollars that can be received to you in your pocket(or wherever else you want to put it). Versus $475, if your single with no child. Lastly line 65, the additional child tax credit. If one was not enough the IRS in their wisdom has provided another. Who knows they may come up with a third. So it is not an either or, as a single parent the income tax return has other line item that apply. Lets get rid of the Head of Household. You can be single, married, married filing separate which is the same as single in dollar terms, and a qualifying widow. This occurs when a mom or dad dies and they have qualifying children. So they get for two years an increase in their filing status deduction.  I don't think anyone should be opposed to that. It is the least we can do.
What kind of message is the IRS sending when they reward a single parent by lowering their tax because they are a Head of Household. Your better off not marrying your partner because if you do you will have to pay more income tax. Now to be fare you can also qualify as a Head of Household being married. Which in today's lingo would be called separated. 
But my point is that the IRS helps single parents when in many of the cases, conducted themselves in a manner which is immoral.  The taxpayers of this country are funding immoral behavior. If I have sex (not make love), get a woman pregnant, we have a child and then I have the child live with me, I pay less tax, because now I'm a Head of Household and now I get a deduction of $2,850.  To me that is unjust. Why do we as a nation have to pay for that.  We are rewarding immorality.
These actions have consequences because the child sees this behavior and mimics it in their life. Today this behavior has become the norm.  As a result you have more and more people filing for Head of Household status.  How do Head of Households dwellings look compared to married couple filing jointly dwellings? Shouldn't the IRS promote filing jointly? It seems they penalize you when you do the right thing and stay married. If you were ever married you know, that is not easy. That is something that children should see and mimic.  Togetherness, family, unity, etc. Not divorce, seperated, broken home, etc.
My contention is that the IRS should reward marriage.  The IRS knows that your married, you claim it every year you file your taxes and they know who your married to.  Your spouse files with you. So how about this, after 5 years of marriage the couple gets a $250 tax credit and each year there after. Once they hit 10 years they get a $500 refund each year until they get to 20 years then the refund goes to $1,000 and stays until the marriage ends. This way the IRS is promoting moral behavior. Isn't that what the government should be doing? Don't we save as a country if our children see and do the right things?  Wouldn't we save tax money if we have more families where there is a Dad and a Mom? Wouldn't life be better, the neighborhoods closer, unity amongst our nation? Because when you have unity at home it is much easier to have that expand outward. Lets try this IRS. Lets get back our children, our community, our country.  Our acceptance of immorality has corrupted our society from the inside out. Lets have our government send an example. We need leadership disparately. But it doesn't have to be only from our government. We can each do our part and steer our country in the right direction.

Government Cuts and how it effects the IRS

Because of the tremendous government debt that has accumulated, the congress voted to decrease the funding to various governmental agencies.  The IRS was a casualty of these spending cuts. Now you may stand on one side of the fence or the other when you question if that was a cut worth taken. However, I and other colleagues in the tax world have felt the lack of IRS support when issues come up for either the owners of business or your average Joe.  The IRS has taken a few days off so far this year.  This is not so bad you just get a hold of them the next business day. But now it really has become difficult just to get thru to an IRS representative.  Hold times have increased and lately I'm getting a recorded message informing me that they have "heavy volume" and to either call the next business day or to go to their website. Going to their website is not an option, I call because only a IRS rep will be able to resolve the issue. 
A solution for the IRS is for them to have a live chat on their website.  That way you can get a IRS rep via real time. That way you can save money on phone calls and wait time.  I always wondered how much does the IRS pay monthly for their phone calls. That probably would be enough for the US government to pay for some of the programs they have cut. 

But it is just not that it is difficult to get thru, it is also taking longer for the IRS to get back when I send responses to them on cases that they need to review and make a decision on. I have sent out packages and clients call me and ask me what is going on? I ask them have you received any letters? To which they respond no. So then I need to take of matters and call the IRS which ties up their phone system even more.
I understand that congress wants to limit spending.  Hey I'm on board with that. I just do not think that cutting the IRS just to cut their budget, is not a good solution to a complicated problem. There is a lot of red tape in the IRS.  That needs to be resolved.  Using technology wisely is another issue. When I have a new case I need to send my power of attorney(POA) to the IRS rep via fax. That kills a lot of time.  There has to be a way for us to send POA's by internet. You can purchase goods by internet and pay by credit/debit card, really, lets get with the program and move this correspondence thing into the new millennium. Fax machines have been around since the 80's. Hey, is Reagan the president?
My point is, instead of just cutting a needed governmental agency so that our national debt doesn't hit the moon, lets see what is clogging up the drain so that it moves correctly.  Cutting the funds to the agency does not fix anything, in reality it just shows how inefficient the system has become. Lets get to the heart of the matter. If I was the IRS commissioner what I would say is please gives us back our funds, we are already behind regarding the work load. To compensate, I will facilitate the duties and work so that our costs go down on the back end and then the US government would not have to fund us the amounts previously given years past.

Small business on the hit list with the IRS

Sam Graves R-Mo., wrote a letter to the IRS expressing his concerns about the thousands of notices that the IRS is sending out to small businesses. The reason for the notice is that the IRS is claiming that small businesses are underreporting their income.  In his letter he is stating that the IRS feels that these businesses receipts compared to other businesses are lower than the average. Grave also wrote that the business owner has only 30 days to respond to the notice and supply the IRS with substantial information to respond to their inquiry.

When returns are processed a computer scores them. The higher the score the higher the probability that a change needs to occur with the return. What needs to be accurate in these cases are bank reconciliations and deposits made to the bank accounts to be included in income. If the owner infused capital into the bank account that must be noted and properly accounted for. Bookkeeping and compiling accurate financial statements are critical when the IRS is focusing on receipts. When your accounting is slack, then you really have to scramble and do the due diligence needed before you submit records to the IRS.  Many times in my experience owners who do their on "books" do not do an accurate job in this regard and when the IRS sends a notice they start to panic. All of this can be prevented from the start. However many times in the "real world" accountants are working to fix problems as a opposed to preventing headaches. 

5 Tips when calling the IRS

I have had to call the IRS. The tips I have for when your speaking to the IRS is by no means a scientific study. It just comes from my experiences when speaking to them.

1) Give yourself plenty of time when calling. It may take an hour for you to speak to a representative. So what I do is call them and I leave the speaker on and work away on something else. Today I called for a client at 6:00 pm I waited for about 10 minutes to speak to the clerk that dispatches the call to different topic sections, and after I was transferred a recorded message told me that we're sorry and because of the heavy volume they could not take my phone call and then said for me to call the next business day or check out their website.
2) When calling them even though you might be aggravated and ready to chew out somebody, anybody, take a deep breath and calm yourself down. They have the upper hand and if your going to wait for an hour to get to talk to someone it is best that your calm. This will help you to have the IRS rep assist you in your case and maybe if your lucky enough, they may have suggestions to help you get what your looking to accomplish.
3) When the conversation is completed get the name and ID number of the IRS rep. This maybe needed in the future because if they ask you to do something or they are advising you to do something it is best you have the date and time of the call, along with the IRS rep's name and ID number in case things go wrong. Basically your representing yourself, almost acting as your own lawyer.
4) If you get a IRS rep that your not able to communicate with effectively, you can always excuse yourself and call the IRS again. I do this quite often because not every IRS rep is the same. Like with anything you have your good, not so good, and not good at all. So instead of getting angry and making things worse just "spin the wheel" again and see what lady luck does for you.
5) Best times to call the IRS. Mondays are the worst day to call. Today being Monday I chose to call at the end of the day. However they were so busy that this strategy did not work. Best day to call is Friday. The best time to call is usually towards the end of the day. But not too late because I have been on hold for an hour and when the time hits 7:00 pm, they cut off the phone lines and even though your on hold they will not pick up. Which kind of aggravated me because I thought that if I'm on hold that they would have to take my call. Yeah right. So I finally hung up around 7:15 pm. Then I called back real quick and sure even though they had closed. During tax season they usually extend their phone hours. That is why I was not sure what time they shut off their phone system. But when I called back at 7:15 pm I gathered that you can be on hold and they do not have to answer your call.

Tax Relief

LLC advantange for small business.

If you do not know already an LLC (Limited Liability Company) is a legal form of company that provides limited liability to its owners.  A Limited Liability Company (LLC) is a business entity having certain characteristics of both a corporation and a partnership or sole proprietorship. One thing to note is that an LLC falls under the jurisdiction of the state of where it is registered. So it is best to find out the particulars of the state of where your thinking of registering before you register so there is no surprises going forward.

 What I do like about the LLC especially for a small business or one just starting out is that, you do not have to file a separate tax return for the business. But be careful this only pertains to a single member LLC. If you have a business with more than one "owner" or in the case of an LLC, member, then your stuck filing the dreaded business return.
A single member LLC has the distinct advantage of filing a schedule C with their individual 1040 return. This should minimize tax return costs and it also, for the most part, decrease the amount of administrative costs with regards to bookkeeping and record keeping. However I say this reluctantly because people may take this to the extreme and that is not my intention. What I am referring to is that the schedule C does not require a balance sheet disclosure it is more of a profit and loss statement.  Now keep in mind I am specifically mentioning small businesses with little activity. 
In this case, a small "one man show" formed as a LLC has the best of both worlds in my view because it has the protection of limited liability and it does not have to file its own separate tax return. Of course in these cases there are quite a few if, and, or buts. If you have questions about your business formation, I would be glad to help.