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I Haven’t Paid Taxes in Years. What Should I Do? And More Tax Q&A – Ask the Tax Pro 2/21/13

with 4 comments


The experts from Corporate Tax Network answer tax questions for free on the LegalZoom Facebook Page on Thursdays. Did you miss the last Ask the Tax Pro? Don’t worry. We’ve got it all right here.

Daniel: I haven’t paid and filed taxes for 3-4 years in a row now. How would I immediately find a solution for this?

Corporate Tax Network: Daniel, I would recommend that you file your tax returns as soon as possible. If you owe, you may be able to request an installment agreement, if you cannot pay the amount owed in full within 120 days.

Daniel: What happens if I fail to do this?

Corporate Tax Network: Once the IRS determines that your returns have not been filed, they will start sending you notices. They may also file the return based on the information they have on record, if they dont hear from you. This is generally not going to work in your favor, since they will not claim all the deductions you may be entitled to. If you owe, they will penalize you, and interest will accrue until the taxes have been paid.

Jeremiah: Tax Question: What are the most business friendly states and does it make sense to file out of the state you’re doing business in because of tax breaks?

Corporate Tax Network: Great question, Jeremiah! Wyoming is known to be the most business-friendly state and not far behind are South Dakota, Nevada, Alaska and Florida. These states have no corporate or personal state income taxes and offer many business incentives. It does not make sense to register out of the state you’re doing business in because you would still have to register in the state where your business is located. If your business derives sales within a state, owns or leases property within a state or employs people in the state engaged in activities outside simple solicitation, you are liable to pay tax to that state. You would be better off just registering in the state where you have your business operations. Good luck!

Danielle: Tax question: are there any tax benefits to the sale of my home that was sold for $38,000 less than I bought it for? I used it as a rental since 2007.

Corporate Tax Network: Danielle, generally, losses from the sale of your home are not deductible. If If you converted your home to a rental property and then sell it for less than its tax basis, you MAY have a deductible loss since the house was rented out for at least six years. A lot of factors come into play in determining whether your loss is deductible or not – the purchase price of the condo, its value when you rented it out, how much depreciation did you claim, among other things. I suggest that you discuss this with your tax advisor before filing your tax return. Good luck!

Heidi: they took my taxes again this year supposly old student loans but nothing is gettin paid someone is frauduantly takin my tax money

Corporate Tax Network: Hi Heidi, I am sorry for the trouble you are having. I would recommend that you contact the IRS at 1-800-829-1040 to determine what information they have on record regarding the creditor that is trying to collect the funds from your refund. You may need to speak to the creditor directly to resolve the issue. If there is a fraudulent activity, the IRS does have a department directly handling such issues.

Amyel: Tax..we opened our LLC in 2012 but did not make no money, do we need to file on the business since there was not $1 in profit? We produce music & this first year has went to making songs & getting equipment. Thanks!

Corporate Tax Network: Hi , single member LLCs are automatically taxed as sole proprietorships by the IRS, unless the member elects it to be treated as a corporation. If the LLC is taxed as a sole proprietorship, and no income was generated but the LLC was active, the member can deduct the startup costs incurred to establish the LLC. You will have to file Schedule C and attached it to your 1040. In addition, you will have to comply with the state law and file any required tax return.
Multi- member LLCs are automatically taxed as a partnership by the IRS, unless they elect to be taxed as a corporation. The LLC itself is not taxed, although is required to file an informational tax return regardles tof whether the business generates a profit. Also, multi- member LLCs have to comply with the state laws and file any required tax returns.

Please consult your tax accountant for further explanation on the forms you might need to file at the state level.

Jimmy: if my tax prepairer change a mistake on mx taxes do i have to wait 21 more days?

Corporate Tax Network: Jimmy, If you already filed your tax return, you would need to amend it. You do not need to wait to amend a tax return.

Kevin: I have medical bills from Dec 17 can I put towards this year’s tax returns even do I have not paid them?

Corporate Tax Network: Hi Kevin, since the tax return is filed based on the “cash basis” you would claim the medical expenses in the year they are paid.

Chris: Can i continue my taxes although i haven’t recieved by 1099-T from my college? i am no longer a student but was a student for the entirety of 2012.

Corporate Tax Network: Hi Chris, In order to file an accurate return you must have received all your tax documents. As required by the Internal Revenue Service, Form 1098-T is mailed by Jan. 31 to all students who had qualified tuition and other related educational expenses billed to them during the previous calendar year. If you haven’t received the 1098-T we strongly suggest contacting your university and requesting a copy of the tax form in order to file your income taxes.

Patricia: Hi-I retired from a full time job about a year ago & I have been thinking about working on my own as a “girl friday” type of job (multiple personal tasks – running errands, cleaning, ironing, personal assistant, companion, dog-walking, etc.) in my community.
My question is: what legalities such as insurance, bonding or any other factors do I need to start my business? Thank you.

Corporate Tax Network: Hi Patricia, you may want to check out the state department of revenue website to see if there are any licenses for your line of work. You may need to consult with an attorney, who is well versed in your state’s legal compliance requirements in order to determine if any forms need to be filed.

Michael: When is that educational tax credit going to go through so I can file my taxes?

Corporate Tax Network: Hi Michael, unfortunately we don’t have a set date when the form will be released for e-filing, we expect and hope that all the forms will be released before the end of the month, but can’t make any guarantees.

Stephen: What steps can I take in 2013 to reduce my AGI for filing next spring? As it is probably too late to take the steps for the 2012 year. The goal is qualify for more EITC.

Corporate Tax Network: Stephen, there are alot of moving parts involved, when computing the EITC. Here is a helpful IRS link where you can enter “what-if” scenarios and find out if you would qualify for EITC.http://www.irs.gov/Individuals/EITC-Home-Page–It%E2%80%99s-easier-than-ever-to-find-out-if-you-qualify-for-EITC

Robert: Can you use shipping receipts as an Tax Write Off?

Corporate Tax Network: Robert, If the shipping cost is related to your business, then yes!

Vanetta: We had the bank of our house “payoff” part or all of our loan in a loan modification…. we still own/live in the house and are going to keep the house, do we have to claim this as “income” the information that is on the government website is very confusing as not of the “examples” apply to our situation. Our Example: we had 2 loans, one was paid in full from the mortage company in 2012, the first loan is still active with another mortage co. and they are going to “payoff” some of that loan this year 2013. We are going to doing a modification so we can keep the house this year. When I am doing my taxes I don’t fully understand the way the government has worded the “extra income” for our situation. (Sorry I explained this two ways hopefully you understand what I am trying to say)

Corporate Tax Network: Vanetta, a loan modification or a refinancing, does not result in taxable income, unless the bank also forgave some of the debt.

Drew: The person who took care of my books for my business passed away. I have not been able to locate any of the info on employees ,past and present, as far as tax info(ss#’s, etc.) . I went through over 25 employees last year and have been able to contact 3( the ones who currently are employed) to get 1099 forms to them. What can I do? Will I have to claim that payroll as my income if I cannot locate info?

Corporate Tax Network: Drew, you don’t have to claim the payroll as your income but you may be subject to some hefty penalties and interest if you do not comply with your payroll obligations. The IRS requires employers to provide accurate 1099s and W-2s, whichever is appropriate, to their employees by January 31st, file Form W-3 with copy A of all W-2s by Feb. 28, deposit and pay payroll taxes when they are due and file fully completed employment tax forms on time. The IRS might provide relief from these penalties as long as you communicate with them about your inability to reconstruct your records. Please call the IRS business hotline at (800)829-4933 for assistance. Good luck!

April: can a boyfriend claim head of house hold of child if he is not the father and her mother didnt work…

Corporate Tax Network: Hi April, You can claim the head of household filing status on your tax return if you are not married at the end of the year, have cared for a closely related dependent for over half of the year and paid more than half the cost of maintaining a home for yourself and your qualifying dependents. The types of relatives who can be qualifying person for the head of household status include: child, step child, adopted child, brother or sister or a descendant of one of these, mother or father, brother, sister, grandparent, niece or nephew.

Since your son is not related to your boyfriend he cannot file head of household but can file single and claim your son as his dependent.

Tammy: What is the best course of action for someone who has missed intermittent years of filing taxes? (Elderly grandparent)

Corporate Tax Network: Hi Tammy, If you have not filed your taxes for a few years you should do it as soon as possible. This is the same as filing for the current year except you may need to contact the IRS to get all your tax documents together so you can file your back year’s taxes.
If you need your state tax information, you should call the state agency to obtain any state withholdings. Start with the oldest tax year first and be sure to use the correct tax tables. You might need to hire a tax accountant to guide you in the whole process. If you owe taxes, you will have to pay the interest and penalties, so please try to file your returns as soon as possible.

Soma: I sold my business last year and the person who bought my business made a lump sum payment in 2012. Thereafter, starting in August 2012 she hAs continued making monthly installments. In terms of my taxes, what taxes do I owe? Is it based on the payments already made or the entire sum of what the business was sold for? Thanks.

Corporate Tax Network: Soma, You can either 1) report the entire gain in 2012, even though you didn’t receive all of the money, or 2) you can elect to be taxed on an installment basis. With an installment basis, you determine a profit ratio for the entire transaction, such as Gross Profit divided by Total Sales Price. The percent is then applied for each payment. So if the ratio is 20% and you receive $10,000 in 2012, then $2,000 would be profit and $8,000 would be a return of capital. If there is interest on the payments, that is not included in the sales price and is reported separately as interest income.

Brian: If I owe arears (back pay) In childsupport will I see my tax return money or does that money go to childsupport?

Corporate Tax Network: Brian, If a parent is behind in paying child support your state’s child support enforcement office can seize your income tax refund. You may want to talk to an attorney, to see what options you may have to prevent this.

Rebecca: I have a quit claim deed from an estate to my husband from 2006. We want to put the building in joint name (my husband and I). Can we just use the exact same info/format from the old document and just put in the new names, or do we need an attorney to draw it up and file it?

Corporate Tax Network: Rebecca, you may want to come back during Tuesday’s and Friday’s for an attorney’s advice, and re-post your question. An attorney would be more equipped to answer your question.

LegalZoom: Attorney Joe Escalante will be here tomorrow, Rebecca. Here’s the info: http://zoo.mn/bFreeJoe

Eddie: My question is what is the price of starting a LLC. And what type of tax form do I file with an LLC.

Corporate Tax Network: Hi Eddie, a single member LLC would file a Scheudle C- on form 1040. A multi member LLC would file a form 1065. You can also make an election for the LLC to be taxed as a corporation, in which case you would file form 1120- for C-corp or 1120S for S-corp tax treatment. I would suggest that you contact LegalZoom for pricing information.

LegalZoom: Our LLC packages start at $99 + state fees. You can get details and find your state’s filing fee here: http://www.legalzoom.com/limited-liability-company/limited-liability-company-pricing.html?cm_mmc=social-_-fb-_-attp-_-na

Chris: I am a 60+year old long term unemployed Oregonian (due to age and vision problems).
I recently inherited some funds.
I haven’t filed in a long time because of lack of income (I’ve subsisted off of loans from my family and settlement from an injury).
I’m considering investing in my education to improve my hirability.
I also inherited some interest in a property which will be sold within the year.
A portion of my inheritance I am using to pay the medical expenses of the deceased and passing on to other family members.
Long and involved I know but if you are able to provide pointers as how to proceed I would greatly appreciate them.

Corporate Tax Network: Chris, Generally speaking, an inheritance is not considered taxable income as it is taxed as part of the estate tax, typically calculated and paid before the beneficiaries receive distributions. You will be liable to pay the capital gains tax if the property you have inherited is sold at a gain. Also, you will have to pay the tax on any income derived from your inheritance, such as rental, dividend or interest income. We suggest that you discuss the matter of the medical expenses with the executor of the estate.

Tamanika: If a judge orders that the parents alternate years to file the exemption for the child, does that also mean alternate years to claim dependency? I thought it was a difference. Please explain

Corporate Tax Network: Hi, the dependency exemption is an amount you can deduct from your income when calculating your federal income taxes. Usually you get to take a deduction from your income of a set amount for yourself, your spouse and your children who are your dependents. However, special rules apply regarding the dependency exemption for children of divorced and separated taxpayers. Generally, the custodial parent is entitle to the dependency exemption. The custodial parent is the parent having custody for the greater portion of the calendar year. Where parents have joint physical custody of a child, it may not be clear which parent is the custodial parent at that instance; a log must be kept. The spouse who is not claiming the exemption should sign the appropriate release and attached it to the return.

Brandon: What concrete facts can you share about taxes on Kickstarter and other crowdsourced funding platforms? What percentage would one expect to be taxed at? What surprises can one protect against?

Corporate Tax Network: Brandon, since crowdsourced funding platforms is a relatively new concept, the IRS has not really gotten around to issuing guidelines about its tax implications. As a recipient, you don’t have to report gifts but as a donor, there is no reporting requirement if you don’t give more than $14,000 to KS. If you are the recipient and you give something back in return for the money, this will probably be considered income subject to self-employment tax. You can subtract all your expenses to fulfill the project so it will definitely reduce or eliminate your tax liability. This is a gray area but give the IRS time – I am pretty sure they will catch on and issue more guidelines on this.

John: The W4 for Federal and Postal Employees differs from ones issued by private and corporate employees since they do not have 401k’s (Thrift Savings Plan in federalese) and Flexible spending plans. The question is where should a federal employee put these amounts when using a tax prep program such as TurboTax?

Corporate Tax Network: John, your employer would have reported the retirement contributions on your W2 form, in box 12. You would input the same information into the tax software.

Beth: How far back can taxes be adjusted and how does one do this.

Corporate Tax Network: Beth, if you are making an adjutsment and will expect a refund, you can go back as far as 3 years. However if you are amending to report unreported income, and pay tax on it, there is no time limit.

Chui: ¿Do notaries in California need to file the income earn? Is there a limit not to do so?

Corporate Tax Network: Chui, any income generated would have to be reported on your tax return. if you have an unincorporated business, you would report your business income and expenses on a Schedule C. If you need to know the income threshholds for filing a tax return, here is a good reference material:http://www.irs.gov/uac/Do-I-have-to-File-a-Tax-Return%3F

Yolanda: If a couple files their tax return together and are not married by the court, do they have to get a court divorce to do taxes separate the next year?

Corporate Tax Network: Yolanda, a couple can only file a joint return if they are married. If a return was incorrectly filed as joint, you may need to amend that tax return and file as “single”

Kimberly: Is there a way to claim my sons college tuition …..18000.00

He lives with his dad, but I give money every year, per the divorce decree.

Corporate Tax Network: Kimberly, if your divorce decree stipulates that you are able to claim your son as a dependent, then you can claim his tuition as well. If you are not claiming your son, then unfortunately you would not qualify to claim it.

An: Can you write off the expenses of fostering a pet?

Corporate Tax Network: Hi, no, unfortunately this would not qualify as an expense. If you made a charitable contribution to a 501(c)(3) non profit organization, then your donation would qualify. However the donation would have to be reduced by the fair market value of the benefit that was given to you in return.

Joshua: I was a student all year for 2012. I got VA benefits, but had no income.. Do I have to file taxes?

Corporate Tax Network: Hi Joshua, you may not need to file a tax return if your income is below the filing threshhold, however if you had any tax withheld, you may be eligible for a refund. Here is a link to the IRS website which will help you determine if you have to file a tax return: http://www.irs.gov/uac/Do-I-have-to-File-a-Tax-Return%3F

Heather: When I filed my taxes this year I had remaining OR state tax owed from 2012 that I had been repaying via a plan. After all was said and done I was getting a refund from the IRS as well as from OR. I expected OR to deduct what I still owed them from my refund, but the IRS also deducted that amount from my federal refund stating they were sending it to state. So now OR has been double paid. What do I do now? How do I go about getting back my money and in a timely manner?

Corporate Tax Network: Heather, I would recommend that you contact the OR department of revenue, and explain your situation. The should (hopefully) have both of the payments on file, and can issue a refund. If they don’t have both payments on file, you will need to get proof from the IRS that the amount was collected by IRS and remitted to the state, and send it it along with a letter of explanation to the state.

An: In 2008 I lost an investment property to foreclosure. I had a 1st and 2nd (not purchase money)…before the foreclosure I refinanced to pay for the upgrades on to pay off a silent partner $25,000. I owed $700,000 and the property sold for $350,000…I was given a 1099A for both the 1st and the 2nd so I filed insolvencey with the IRS so I did not have to pay taxes on the loss of $350,000…after this the 2nd mtg (Wells Fargo) send me to collections for $50,000 and settled for $20,000…but before this they took ALL the money I had in my savings and checking account (almost $2,000). In March 2012 I paid off the collection ($20,000) and just a couple weeks ago I got a 1099 C (cacellation of debt) for $30,000!!!! They already 1099ed me in 2008 and now they are again!!!!…my tax person said I can file insolvency again, but I am in a much better financial position now then I was in 2008…what can I do???

Corporate Tax Network: I would strongly suggest calling the bank to find out if the $30,000 was already included in the 2008 1099A. If not, ask why are they issuing a 1099C for 2012 and not for 2008 tax year. If they can re-issued the 1099C and reported for 2008 you could amend your 2008 taxes to include the cancelled debt. Otherwise, you will have to report the cancelled debt in your 2012 income taxes. You could exclude the cancelled debt from your gross income if you meet certain exclusions such as the insolvency or bankruptcy. Please read more information on the IRS publication 4681.

Jamie: Is there some change in how home offices are deducted this year?

Corporate Tax Network: Yes. There is an option to claim the home office deduction, beginning in 2013.

Below is the news release from the IRS on this new method.

IRS Announces Simplified Option for Claiming Home Office Deduction Starting This Year; Eligible Home-Based Businesses May Deduct up to $1,500; Saves Taxpayers 1.6 Million Hours A Year
IR-2013-5, Jan. 15, 2013

WASHINGTON — The Internal Revenue Service today announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes.

In tax year 2010, the most recent year for which figures are available, nearly 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction).

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

“This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction,” said Acting IRS Commissioner Steven T. Miller. “The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013.”

The new option provides eligible taxpayers an easier path to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.

Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014. Further details on the new option can be found in Revenue Procedure 2013-13, posted today on IRS.gov. Revenue Procedure 2013-13 is effective for taxable years beginning on or after Jan. 1, 2013, and the IRS welcomes public comment on this new option to improve it for tax year 2014 and later years.

Maurice: What expenses are justified for a tax write off for an LLC when taking out clients to dinner or a nightclub?

Corporate Tax Network: Maurice, your business expenses must be reasonable and necessary. In order to take clients to a loud place- where no business will be discussed, you must at least have a meeting prior to going there ( club, baseball game, etc) The meeting has to be business related, and you have to document who you were with and what you discussed. Such meetings are expected to have a positive impact on your income, so if you show low revenue, and an extensive amount of M&E expenses, this would create a red flag.

Sandip: Why are partners of a partnership subject to employment taxes on their full distributive share, rather than just their guaranteed payments while S-Corp employee-shareholders are subject only to employment taxes on their salaries and not their distributive share?

Corporate Tax Network: Thank you for your question, Sandip. General partners who actively participate in the decision-making and operational activities of the partnership or LLC are considered self-employed in the eyes of the IRS. Since your ownership is not passive, all your income including your share of the profits, are assumed to be received to compensate you for your services to the partnership. On the other hand, your share of the profits from an S corporation are treated as distributions stemming from your ownership of stock in a corporation and is therefore not compensation income. This is why shareholders who are also employees of the S corporation only pay employment tax on their compensation income.

 

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February 25th, 2013 at 6:18 am