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How To Stop Procrastinating Filing Your Taxes

So, you don’t want to do your taxes eh? Well, there are tons of people who have thrown that task to people like us (i.e. paid preparers) so this post will be brief. Why? Because we’re pretty busy over here!

If you are delaying filing your return(s), why not take a look at this little info-graphic to help you get moving. Yeah, we didn’t make it and it’s from a competitor. But hey, we like what it has to say and did we mention we were busy?

Here’s to tax season!

taxes, infographic, h&r block

By Administrator|2013-03-24T17:34:03-06:00March 24, 2013|Categories: Tax Talk|Tags: i don't want to do my taxes, I don't want to file my taxes, procrastinating doing my taxes, tips to help stop procrastinating doing my taxes, tips to help stop procrastinating doing taxes|Comments Off

How Income Taxes Work

As we’re busy working through tax returns this season, we kept noticing a recurring theme. What’s that you may ask? Well, it’s the fact that there are a number of taxpayers who don’t have a clear understanding of how the tax system works. What do we mean by this? Keep reading.

A week ago we were working on a clients return. She had a modest income and produced various deductions that had in fact reduced her tax able income to zero. When she mentioned that she had some other items and we entered them in, she was perplexed that her refund didn’t increase. Well, we walked her through her return and showed her how she no longer had a tax liability and was only entitled to receive back what she had paid in. We then explained that deductions reduce taxable income rather than directly increase your refund. No one had ever told her this!

So with that being said, here is a brief overview of how the tax system works for most wage earning individuals (i.e. W2 employees).

Income What you take home from your job, what your bank pays you in interest, what your investments earn you in dividends and what your state gives you for a tax refund. All of these things get added up and total your income. This is where the calculation starts, but this is far from where it ends.

Deductions Did you pay interest on a student loan? Are you a teacher and pay for supplies used in your classroom? Did you make a contribution to a 401(k) or another pension plan? All of these amounts get subtracted from your income.

Taxable Income Once you take the income and subtract deductions, you wind up with something called Adjusted Gross Income (AGI). From here you get to take another set of deductions (the standard or you’ll itemize) and you get an exemption for every person in your household. AGI minus the above yields your taxable income which is just what it sounds like, the amount you actually are taxed on.

Tax So the next step is to take your taxable income and determine how much tax you have to pay on it. Pretty straightforward.

Credits The important thing to know about credits versus deductions is that credits reduce your Tax on a dollar for dollar basis. Do you qualify for the Earned Income Credit (EIC)? Did you pay to go to school and qualify for an education credit? These things will reduce your tax where a deduction only reduces your taxable income.

Payments This is what you had taken out of your check to cover your tax. It’s pretty much as simple as that.

Refund or Balance Due If the amount of your payments are greater then your tax (less credits), congratulations, you’ll get a refund. Didn’t have enough withheld from your check to cover your tax? Sorry, looks like you have a balance due.

And that in summary is how the system works. The important things to take away from this are:

Deductions reduce your taxable income. They don’t necessarily increase your refund.
Credits are worth more than deductions. Always see what credits you qualify for as some of them change from year to year.
Make sure you pay enough into the system or you will owe. You can adjust your withholdings via Form W4 with your payroll or HR department.

By Administrator|2013-03-17T20:27:37-06:00March 17, 2013|Categories: Tax Talk|Tags: how income taxes work, why do I have a balance due on my taxes, why do I owe on my tax return, why do i owe taxes, why do I owe taxes this year|Comments Off

Do Homeowners Associations Need To File A Tax Return?

Homeowners’ associations (HOAs) are organizations formed by a group of homeowners for the purpose of preserving and maintaining the appearance of an area and the ownership and maintenance of common property. Because most HOAs operate for the benefit of a specific group, rather than the community at large, many have difficulty meeting the tax-exempt purposes required under IRC sections 501(c)(4) and 501(c)(7). As a result, Congress enacted section 528 with the view that it’s not appropriate to tax revenues of an association of homeowners who act together if an individual homeowner wouldn’t be taxed on the same activity.

So what does this mean for your HOA? If you’re the treasurer for a small, self-managed community, there is a good chance that your HOA does not utilize the services of a CPA on a regular basis. As a result, you may be wondering… “hmmm… I don’t think we filed a tax return last year. Do I really need to do this?” The answer, according to the federal government, is “yes.” However, you will be relieved to know that you do have options regarding which form you can file.

A qualified HOA has two choices:

File Form 1120 and pay tax as if it were a C corporation
Elect to file Form 1120-H, U.S. Income Tax Return for Homeowners Associations

Now just what is a qualified homeowners association? Well, it is one in which the following apply:

At least 60% of the association’s gross income for the tax year consists solely of membership fees, dues or assessments from property owners
At least 90% of the association’s expenses for the tax year consists of expenses to acquire, build, manage, maintain, or care for association property, or in the case of a timeshare association, for activities provided to, or on behalf of, members of the timeshare association
No private shareholder or individual profits from the association’s net earnings except by acquiring, building, managing or caring for association property or by a rebate or excess membership dues, fees or assessments

Why elect to file Form 1120-H?

Net exempt function income is not subject to tax
You are not required to pay estimated taxes
A specific deduction of $100 is allowed
You are not subject to AMT
No balance sheet is required on the return
It is a simple one page form
The election to file Form 1120-H is available on a yearly basis.

Why file Form 1120?

You can tax advantage of graduated rates (15%, 25%, 34%, etc)
Form 1120-H is a flat 30% rate (32% for timeshare associations)
In certain situations, the tax may be lower filing Form 1120 versus Form 1120H
If there is a net operating loss (NOL), it can be used to offset another tax year. A NOL is not allowed on Form 1120-H.

How does Exempt Function Income factor in?

Exempt function income consists of dues, fees, or assessments paid by property owner-members for maintenance or improvement of the property. Conversely, interest, dividends, coin laundry income, vending machine income, rental of units owned by the association and rental of parking/storage/party room areas are all taxable. Thus, if you are a large association and have significant income from these sources, you may want to file Form 1120 because it may yield in your income being taxed at a lower rate.

What about state returns?

Each state varies, but if you have to file a Federal return, you may need to file a state return as well. In Illinois, a state return is required if you have income that is taxed at the Federal level.

For more information regarding HOAs, feel free to visit this IRS site.

By Administrator|2013-03-04T08:58:01-06:00March 4, 2013|Categories: Tax Talk|Tags: condo associatino tax return deadline, Do condo associations pay taxes, do HOAs file tax returns, do HOAs pay taxes, Do Homeowners Associations Need To File A Tax Return, does an hoa need to file a tax return, does your HOA file a tax return, HOA tax return deadline|Comments Off

Getting Rid of Debt

Debt – an obligation owed by one party (the debtor) to a second party (the creditor). Yeah, that’s the technical definition. However, the definition that most are familiar with is that little monkey in your wallet that keeps throwing all your cash into thin air. But just how can you get that monkey to stop? This post will offer you the basic outline of how to make it all happen.

Our very own Jared Rogers is no stranger to debt and the effects it can have on your life. While never a big spender, he did manage to rack up some debt when he was beginning his professional career. You know the new car necessary for work. Then there were the student loans taken out for business school. Then there was the condo and the merging of finances when he got married. However, after a few years of dedicated work, he and his wife eliminated most of their debt (with the exception of the mortgage) by following a simple formula. How much debt? Somewhere in the neighborhood of $65,000.

Jared just recently signed up to be a debt coach to a family over at The Debt Movement. Here are the simple steps that he suggests to those looking to get rid of that debt monkey for once and for all:

Track Your Spending. If you don’t know where you’ve been, how will you know where you are going? The first step in any debt elimination process is to know where all the money is being spent. This can be done with something as simple as a spending journal that you carry in your pocket or as elaborate as using financial software. However you do it, it is imperative that you actually identify where your hard earned dollars are seeping out of your bank account. Many individuals think they know what they spend their money on, yet are often shocked when they find out how much when analyzed by category.

Determine Your Profit. Now that you know what you’re spending money on, you need to determine if it is more or less than the income you take in. If your spending is like the government, you will see a nice big fat deficit that you will have to balance. Unfortunately, unlike Uncle Sam, you can’t just sell your debt to China and keep on operating like business as usual! So the next step is to look at your spending and identify the discretionary categories (e.g. entertainment, clothing, etc.) that appear to be out of whack or excessive.

Balance The Budget. Once you know where the problem areas are, you must next get them in line. Everyone’s living expenses will vary depending on where you live and the associated cost of living. For example, a resident of New York City might spend 50% of their monthly budget on housing costs while someone in Mexico Missouri might only spend 25%. However, there are certain “standards” that you can start with to put you on the right path. The next step would be to try and align as many categories as you can with the ideal budget.

Pay Yourself First. One thing that gets us all in trouble is the unexpected emergency. But just like they say, expect the unexpected. With that being said, you should always pay yourself first. It doesn’t matter if it’s 5% or 10% of what you make, but you should put that away (preferably in a separate account) for a rainy day. But why first? Well, it will ensure you don’t have to tap high interest credit cards or take out a pay-day loan when the car’s engine implodes and you need to get to work. Additionally, it will ensure you do it. When the money for the month is spent, but there are still bills, someone doesn’t get paid right? Stop making that someone you and pay yourself before the phone, electric and cable companies all take their cut. Ideally, if you get your check direct deposited into your bank account, why not have them split it between your checking and savings? You can’t spend what you don’t miss and if your savings is out of sight, it will be out of mind.

Apply The Debt Accelerator. The reality for most of us is that we make more than enough money to handle our debt obligations. The world of credit is based on ratios and lenders do a pretty good job of making sure you can pay them. The corrupter/interrupter is often the mismanagement of one’s discretionary spending. However, if you put yourself on a budget, you can easily start to generate a monthly profit (i.e. income greater than expenses) that you can then apply to your debt (a.k.a the debt accelerator). From here you simply tally all your debts and calculate how long it would take to pay off the smallest debt using the normal payment plus the debt accelerator. Then you simply get to work paying extra on that debt until it is gone. Once vanquished, you take that old payment and apply it to the next debt that can be paid off the quickest. This is what is known as debt snowballing and is a tried and true technique to eliminate your debt.

That’s it; there really is nothing more to it when it comes to getting rid of debt. Sure, you can make the process complicated, but it’s really just as simple as outlined above. The hard part is staying committed to the plan and not giving up when you hit a setback. If you do, simply brush yourself off and get back on the road to financial freedom. The sooner you do, the quicker you can leave the debt monkey on the side of the road to hitchhike with someone else!

By Administrator|2020-09-21T12:15:39-06:00February 24, 2013|Categories: Accounting Talk|Tags: debt accelerator, debt snowball, debt snowball method, getting rid of debt, how to get out of debt, pay yourself first, standard monthly budget percentages, the debt movement|Comments Off

Are My Social Security Benefits Taxable?

A few days ago a client came into our office to have their taxes done. Despite being married, this person was adamant that they wanted to file under the “single” filing status. When we got to the bottom of it, the reason was due to their perception that their spouse’s social security benefits could impact his tax situation or she could lose them. Despite all of the information we provided this individual, we ended up not doing the return because they didn’t want to use the correct status.

Which brings us to our question; when are Social Security (regular, disability, or survivor) benefits subject to taxation? The answer is it depends. Particularly, it depends on the amount of your Adjusted Gross Income (AGI), the total amount of your Social Security benefits and where your income comes from.

For someone filing using the status of Single, Head of Household, Widow or Married Filing Separately (and you lived apart), your benefits will generally not be taxable unless the total of your modified AGI, plus one-half of your Social Security benefits exceeds $25,000.
If you are married and file a joint return, your modified AGI plus one-half of your Social Security benefits would generally need to exceed $32,000 before taxes kick in.
If you are married filing a separate return, and you lived with your spouse, your threshold is actually zero, and your Social Security benefits generally may be taxable from dollar one.

The following examples will help illustrate some of the various scenarios that taxpayers may find themselves in. Additionally, they will walk through the calculation to determine how much tax they may have to pay.

Example One: Eric and Kathy are filing a joint return for 2012 and both received social security benefits during the year. Eric received net benefits of $7,500 and Kathy $3,500. Eric also received a taxable pension of $22,000 and interest income of $500. Since half of Eric and Kathy’s benefits ($5,500) plus their modified AGI of $22,500 doesn’t exceed $32,000, none of their benefits are taxable. Even though their benefits aren’t taxable, Eric and Kathy must file a return for 2012 because their taxable gross income ($22,500) exceeds the minimum filing requirement amount for their filing status.

Example Two: Jared and Aaronita are filing a joint return and have regular income of $15,000. They also have tax-exempt interest income of $12,000. Jared received Social Security benefits of $15,000 and Aaronita $5,000. Since half of their Social Security benefits ($10,000) plus their modified AGI ($27,000) exceeds the $32,000 threshold, they will have to pay taxes on their Social Security benefits.

Jared and Aaronita’s provisional income totals $37,000; their modified AGI of $27,000 plus one half of their Social Security benefits ($10,000). From this amount, they would subtract their threshold limit of $32,000. This gives them a result of $5,000. The law says that you must include the lesser of 50% of your benefits ($10,000) or 50% of the above result ($2,500) as additional income subject to tax. Based on the above, Jared and Aaronita would include $2,500 of their Social Security benefits as additional income subject to tax. If they are in the 15% marginal tax bracket, they’ll pay about $375 (15% of $2,500) in taxes on their total benefits of $20,000.

Example Three: Ricky and Bobby are married and live together, but file separate returns for 2012. Ricky earned $8,000 from his job and received $4,000 of Social Security benefits in 2012. Because Ricky is married filing separately and lived with his spouse during 2012, he must include 85% of his social security benefits in his taxable income. Thus, Ricky would enter $4,000 on his Form 1040, line 20a, and $3,400 on Form 1040, line 20b.

As you can see from the above, sometimes none of your benefits are taxable but that can increase to 50% all the way up to 85% in some circumstances. Thus, the one thing to keep in mind is that as your income increases, so will the portion of your Social Security benefits that is subject to taxation.

It is also important to note that these rules also apply to Social Security disability and survivor benefits. Many people assume that disability and/or survivor benefits are not subject to the rules regarding taxability of Social Security benefits. Unfortunately, this is not the case. Thus, if you are receiving Social Security disability or survivor benefits, you’ll need to make sure whether any of your benefits will be subject to tax.

This IRS website has a pretty cool tool to help you determine if your Social Security or Railroad Retirement Tier I Benefits Taxable. Additionally, IRS Publication 915 will give you much more detail regarding the taxation of your Social Security benefits and provides a number of worksheets you can use to do your own computations.

By Administrator|2020-09-21T12:33:03-06:00February 17, 2013|Categories: Tax Talk|Tags: Are My Social Security Benefits Taxable?, are social security benefits taxable, are social security benefits taxed, are social security disability benefits taxable, are social security disability benefits taxable income, Are Your Social Security Benefits Taxable?, Social Security benefits tax|Comments Off

Dealing With A Bad Day As A CEO

Sometimes heading up a business can be rough stuff. Things will not always go as planned, customers may be demanding and vendors may be unreasonable or uncooperative. While you are the head of the company, you are a human being after it is all said and done. Given the preceding statement, us humans have emotions and sometimes that will lead you to have a bad day.

But just what do you do when you’re having a not-so-stellar day? Well, this is the hard part of running any and all businesses – dealing with the “inner game” that goes on in your head. What exactly is the “inner game” you may ask? Well, it consist of all the thought processes that regulate what we do with our time, how we respond to situations and the internal programming that guides how we think about our world and our place in it. When you are having a bad day, this is how the inner game might play out:

Something goes wrong and threatens either the success of a particular task or worse your entire business. You start to dwell on what is going wrong and as a result, you begin to miss opportunities to correct the situation. As things compound on one another, your spirits begin to slide and you lose hope. This feeling begins to permeate your attitude, which others will no doubt pick up on. From there you may find yourself feeling as if “nothing is going right” and things are simply going from bad to worse.

The major take away from the above scenario is that the Law of Attraction works on all of us, whether we are consciously utilizing it or not. The Law of Attraction basically says that you attract into your life that which you think about most. Thus, whatever you spend most of your time thinking about is most likely the thing you’re taking the most action on.

So then, how do you fix a bad day as a CEO?

Have a pity party for 2 mins and then move on! Yes, you are a human. But “crying over spilled milk” isn’t going to fix the situation. At some point, you simply need to tell yourself that this is the situation you are dealing with and you need to work on fixing it.

Reaffirm what you do well. Bad days will usually make you doubt yourself. What did I do wrong? Why didn’t we win that sale? How much longer can we survive? However, the key to reversing these feelings is to remind yourself that you are in fact good at something and this is just a setback.

Acknowledge what is out of your control. We as humans like to control things – it’s in our nature. But the reality is that a good portion of our lives are not within our control. To fix a bad day, let go of what you have no control over (like that truck that crashed into your storefront) and focus on what you can fix.

Focus on what you can do. In every situation there are things that you can do to “right the ship” and get you back on track. If that means going out and drumming up business, visiting clients, firing that headache employee or just taking a quick break to clear your mind, identify what you CAN control.

Act on what you can. Nothing is going to fix itself and no one is going to help you. Being a CEO is a lonely job. At the end of the day, you are responsible for everything that happens in your company (good and bad). But sitting around waiting for the situation to get better is not the answer. So get up, dust yourself off and get to work. Remember, whatever you spend most of your time thinking about is most likely the thing you’re taking the most action on. So start thinking/acting on how to make tomorrow a good day!

By Administrator|2013-02-10T15:16:20-06:00February 10, 2013|Categories: Business Talk|Tags: dealing with a bad day, dealing with a bad day at work, dealing with bad days running a business, had a bad day, inner game, law of attraction|Comments Off

Filing Options For Married Taxpayers

So it’s the start of the next year and here you are gathering your papers together to file your taxes. Inevitably, sometime during the process you will encounter the question “what was your filing status?”

While this seems like a straightforward inquiry, it often poses a challenge for those who recently married, divorced or separated. Can I file as single if I didn’t change my name with the Social Security Administration (SSA)? Am I considered married if I’m separated but not divorced? What do I choose if my spouse passed away last year?

As with anything involving taxes, the answer often changes depending on the circumstances. In general, if you are married before December 31^st of a given year, your two options are to go married filing joint (MFJ) and married filing separate (MFS). But we’re pretty sure you might have the following questions:

Wait, I can’t file as single? Nope, not under ANY circumstances. You are now married and have to file as such.

But what if I didn’t change my name with the SSA? Doesn’t matter. You will show your maiden name on your return, but your filing status will NOT be single.

Okay, so what if I married someone from another country and we haven’t been married in the US yet? This opens up another can of worms that we’ll write about in another post. But the short answer is the same as point number one, you have to file MFJ or MFS.

What happens if my spouse leaves me? This one can get tricky.

Typically you would file MFJ
If you and your spouse aren’t on speaking terms (or you don’t know where they are) you would file MFS unless…
You have a child AND your spouse didn’t live with you for the last 6 months of the year – you may qualify to file Head of Household (HOH)

Okay, what if we got married and divorced in the same year? If on December 31^st you were legally divorced OR legally separated, according to state law, under a decree of divorce or separate maintenance then you can file as single.

What happens if I was married, but my spouse passed away? If you spouse died during the tax year you are filing (e.g. 2012 in 2013) you can file MFJ for that year. For 2013 and 2014 you may be able to file Qualifying Widow(er) if certain conditions are met.

As you can see, picking the right status can be a challenge. If you need further help, check out IRS Publication 17 or their tool What Is My Filing Status? If you want to know if it’s better to file MFJ or MFS, check out this post we did last year.

By Administrator|2020-09-18T11:37:15-06:00February 7, 2013|Categories: Tax Talk|Tags: can i file head of household if i am married, Filing Options For Married Taxpayers, If I divorced do I file as married, If I got married can I file as single, married filing jointly, married filing separately|Comments Off

Who do I issue a 1099-Misc to?

****UPDATE as of 01/01/21****

The information below was originally written when money paid to independent contractors was reported on Form 1099-MISC. As a result of the The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act), independent contractor payments are now reported via Form 1099-NEC effective tax year 2020 (being filed in 2021). The deadline for filing remains January 31st.

While most of the information below for Form 1099-MISC applies to Form 1099-NEC and generally is still relevant, please refer to the YouTube video below for instructions on how to complete Form 1099-NEC.

******** Original Post Begins Below **********

If you employ an independent contractor in your trade or business, you are obligated to report their earnings to them and the IRS. This is typically done via the IRS form 1099-MISC. But just who is supposed to receive this form, when is it due and what are the penalties if it’s not filed on time?

Who Receives Form 1099-MISC

Form 1099 goes out to independent contractors if you pay them $600 or more to do work for your company during the tax year. Additionally, those whom you pay at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest should also receive a 1099.

Taxpayers should note that if you earned less than $600 and you don’t get a 1099, this doesn’t mean you don’t have to report the income. All income (it doesn’t matter if it’s $1) is taxable and should/must be reported.

In addition to individuals, you must also send a 1099 to the following if you paid them for doing work:

Businesses that file on form 1040 Schedule C (i.e. sole proprietors/self employed)
Single member LLCs, as they are considered disregarded entities (DREs) and also file on Sch C
Partnerships or Multimember LLCs as they essentially file the same return as a partnership

However, there are some instances in which you don’t need to issue a 1099-MISC. These exceptions include:

Suppliers of merchandise, telegrams, telephone, freight, storage, and similar items, with the exception of those who deal in fish or other aquatic life
Corporations (e.g. those who’s names contain Corporation, Company, Incorporated, Limited, Corp., Co., Inc. or Ltd.) are also exempt from 1099 requirements, with the exception of those you pay for medical or health care, or law firms that you’ve hired for legal services
Those corporations that have filed a S-Corp election with the IRS
Tax-exempt organizations or to American or foreign governments

Need the specifics on who is exempt and who isn’t and don’t mind reading the Internal Revenue Code? Check out section Treasury Regulations, Subchapter A, Sec. 1.6049-4(c)(1)(ii) where it talks about a corporation, as defined in section 7701(a)(3).

When Is Form 1099 Due?

Generally you must furnish a copy of form 1099-MISC to the recipient by January 31^st of the year following when the payments were made. If you are reporting payments in boxes 8 or 14, then you have until February 15^th of the year following when the payments were made.

In addition to the recipient, you must also send a copy to the IRS (along with Form 1096) by January 31st IF you are reporting amounts in Box 7 for Nonemployee Compensation. If you are reporting amounts in any other box:

You must submit it by February 28^th of the year following when the payments were made if you are sending it via paper
If you are submitting everything electronically, then you have until March 31^st of the year following payment.

What are the penalties for filing late?

If you fail to file a correct information return by the due date and you cannot show reasonable cause, you may be subject to a penalty. The amount of the penalty is based on when you file the correct information return. Currently, the penalty is:

$50 per information return if you correctly file within 30 days; maximum penalty $532,000 per year ($186,000 for small businesses)
$100 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $1,596,500 per year ($532,000 for small businesses)
$260 per information return if you file after August 1 or you do not file required information returns; maximum penalty $3,193,000 per year ($1,064,000 for small businesses)

Obtaining the information needed to file Form 1099

To ensure that you issue a correct 1099 to the recipient, complete Form W-9, Request for Taxpayer Identification and Certification. The W-9 includes the individual or businesses legal name, tax ID number, address and their signature attesting to the correctness of the content. You will then use this information to create the 1099 and send it to the IRS.

Do you have 1099s that you need to file? Shoot us an email at the address below or give us a call at 773-239-8850. Our filing services are extremely affordable (as low as $10/form) and not only will your documents be filed with the IRS, SSA and state, they can also be mailed to the recipient!

By Administrator|2021-02-08T15:16:52-06:00January 30, 2013|Categories: Tax Talk|Tags: #TCC, 1099 late filing penalty, 1099 misc, 1099 misc vs 1099 nec, 1099 nec, 1099 nec 2020, 1099 nec explained, 1099 nec forms, 1099-nec training, do c corps get a 1099, do companies get 1099, do incorporated companies get 1099, do llc companies get 1099, do ltd companies get 1099, do partnerships get a 1099, do s corps get a 1099, form 1099 nec, Form W-9, Form W9, How to fill out 1099-NEC video, How to fill out IRS Form 1099-NEC, Independent Contractor, new 1099 form, new 1099 form 2020, new small business tax law, new tax form 2020, new tax law, new tax laws 2020, new tax laws for 2020 small business, nonemployee compensation, paying independent contractors, small business, small business 1099, small business taxes, tax filing 2020, when are 1099s due, who do i issue 1099 misc to|Comments Off

Chicago’s Protection Against Unfair Tax Preparers

In February 2012, there was a group of taxpayers in Chicago (and other states) that were pretty irate with one tax preparation company. Essentially, consumers were complaining of being told that the preparation of their tax return would cost $ and were told they had to pay $$$ when they went to get their return. There were a host of other charges made regarding this firm (e.g. inability to cash refund checks, checks for lesser amounts, etc) which ultimately led to the company being barred by the Illinois Attorney General from conducting business in Illinois.

Taxpayers in urban areas are sometimes targeted by unscrupulous tax preparation companies. These companies often use deceptive advertising practices, fail to fully disclose the cost of their services and often prey on the ignorance of those taxpayers who are less knowledgeable of their options. Well, the IRS and other governmental agencies got tired of getting complaints from Senators and Congress on behalf dissatisfied taxpayers. The result? The elimination of certain “predatory” products (e.g. Refund Anticipation Loans) as well as greater regulation/enforcement of preparers.

In an effort to protect Chicagoans, the Chicago City Council passed an ordinance in 2012 to help educate and protect them against unfair tax preparers. If you are a taxpayer using a paid preparer in 2013, know that most* tax preparers must do the the following:

Offer a detailed explanation of their available services.
Prior to rendering any service must provide the price of each offered service, any and all fees, and an estimate of the total charge based upon the services chosen for purchase.
Inform customers of the reasonable period of time they can expect to wait for a refund.
Tell customers they have the right NOT to utilize an alternative settlement product.
Certify that they provided a clear explanation and the required disclosures.
Inform customers of their right to file a complaint.

We recommend that you visit the City’s website and print the appropriate copy (English or Spanish) applicable to you. That way you can discuss it with your preparer if they give you any indications that they may not be on the “level” so to speak. Personally, we’d look for another preparer if one gives you any reason to believe that they may be unscrupulous. Matter of fact, we know just who to recommend!

Until next time.

* This ordinance applies to preparers physically located in the City of Chicago, with the exception of CPAs and Attorneys.

By Administrator|2020-09-21T12:32:19-06:00January 14, 2013|Categories: Tax Talk|Tags: chicago bill of rights for consumers using tax preparation services, Chicago Ordinance to Educate and Protect Chicagoans Against unfair tax preparers, chicago tax preparation, chicago tax preparation rights, chicago tax preparer ordinance, chicago taxpayers bill of rights|Comments Off

2013 Tax Changes – The Fiscal Cliff Fallout

On January 1^st, 2013, HR 8, the American Taxpayer Relief Act of 2012, passed the Senate and the House of Representatives. Below is a summary of the tax impact from what was changed and maintained by the bill.

TAX RATES

Income tax rates made permanent. For 2013 and beyond, the top individual income tax bracket will increase from 35% to 39.6% for taxpayers with taxable income of $400,000 or more ($450,000 or more Married Filing Jointly). Taxpayers with income below the thresholds will not see an increase in tax rates.

Capital gain rates. Beginning in 2013, the maximum capital gains tax will increase from 15% to 20% for taxpayers with taxable income of $400,000 or more ($450,000 or more Married Filing Jointly).

Payroll tax holiday. The 2% reduction in Social Security tax for employees and self-employed individuals expired at the end of 2012 and will not be extended for 2013. An employee’s Social Security portion of FICA will increase from 4.2% to 6.2%, with a corresponding increase in self-employment tax. Result? A little less take home pay each pay check.

Employer withholding. On December 31, 2012, the IRS issued guidance on withholding, assuming expiration of the 2001 and 2003 tax rates and subsequent tax rate increases at all income levels. The IRS instructed employers to begin using the new withholding rates as soon as possible, but no later than February 15, 2013. As this guidance was issued before the new law, the IRS is expected to release new withholding tables to reflect the changes in tax rates shortly.

Alternative Minimum Tax (AMT). The AMT “patch” is applied retroactively to January 1, 2012, and made permanent. For 2012, the AMT exemption amounts will be $50,600 for individuals and $78,750 for married couples.

Estate Tax. Beginning in 2013, the estate tax rate will increase from 35% to 40% for estates that exceed $5 million in value.

EXTENDERS

Earned Income Credit. The enhanced Earned Income Credit amounts have been extended for five years.

Child Tax Credit. The $1,000 amount for each child for the Child Tax Credit has been extended Permanently.

American Opportunity Credit. The partially-refundable American Opportunity Credit has been extended for five years.

Tuition and fees. The adjustment to income for tuition and fees has been extended through 2013.

Educator expenses. The adjustment to income for educator expenses for primary and secondary teachers has been extended through 2013.

State and local general sales taxes. The deduction on Schedule A, Form 1040, for state and local general sales taxes has been extended through 2013.

Qualified principal residence indebtedness. The exclusion from income for qualified principal residence indebtedness has been extended through 2013. This is good news for those who were in the process of foreclosure proceedings at the end of 2012 that had not yet been finalized.

Mortgage insurance premiums. The deduction for mortgage insurance premiums as mortgage interest on Schedule A, Form 1040, has been extended through 2013.

Charitable distribution of IRAs. The provision allowing tax-free distributions from IRAs for charitable purposes has been extended through 2013.

Energy Tax Extenders A variety of energy tax credits have been extended for energy-efficient homes, alternative fuel vehicle refueling property, and energy-efficient appliances.

AGI PHASEOUTS

Phaseout on itemized deductions. Beginning in 2013, itemized deductions will begin to phase out for taxpayers with AGI of $250,000 or more Single, $275,000 or more Head of Household, or $300,000 or more Married Filing Jointly.

Phaseout of personal exemptions. Beginning in 2013, personal exemptions will begin to phase out for taxpayers with AGI of $250,000 or more Single, $275,000 or more Head of Household, or $300,000 or more Married Filing Jointly.

OTHER ITEMS

Unemployment Compensation. The temporary extension for unemployment benefits has been extended for one year.

Sequestration. The mandated sequestration spending cuts that were scheduled to take effect at the end of 2012 were delayed for two months by the new legislation.

Marriage Penalty. In 2001, legislation enacted marriage penalty relief to avoid a higher tax bill for a married couple as compared to two single individuals. As evidenced by the $400,000/$450,000 income thresholds for increased tax rates and standard deduction, the provisions for marriage penalty relief expired beginning in 2013.

By Administrator|2013-01-07T14:17:36-06:00January 7, 2013|Categories: Tax Talk|Tags: 2013 tax changes, 2013 tax changes for individuals, 2013 tax credits, 2013 tax increases, fiscal cliff tax changes|Comments Off

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