DETROIT – Experts from the Michigan Association of Certified Public Accountants are gearing up for another season of taxes.
CPAs sat for hours taking your calls about any questions you had regarding filing your taxes.
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Help Me Hank would like to thank the following CPAs for their help:
Wayne Titus, AMDG Financial
Michele Ledford, AMDG Financial
Robyn Fuller, J&F Advisors
Ashley Johnson, J&F Advisors
Lorena Bencsik, Prime Numbers, LLC
Jamie Lopiccolo, Capocore Professional Advisors
Tax Tips to Prepare You
Bankrate.com has some great ways to make sure you take all advantage of what you can this season.
1. Maximize retirement plan contributions
If your employer offers a 401(k) or other type of deferred pension plan, make every effort to contribute the maximum amount allowable, especially if your company matches your contribution.
2. Adjust your withholding
Check your year-to-date withholding and consider changing the taxes withheld if you are expecting a large refund.
This is especially important if you are claiming the earned income tax credit, or EITC, or the additional child tax credit.
3. Protect your identity
If you received an Identity Protection PIN, or IP PIN in past filing years, then you must provide this number on your tax return not only this year but on all future tax returns. An IP PIN is a six-digit number assigned to taxpayers that helps prevent fraudulent returns from being filed under your Social Security number.
4. Make sure you get what you deserve
The IRS says 1 out of every 5 workers fails to claim the very valuable earned income tax credit. If you worked and earned less than $53,505 in 2016, then use the Assistant tool to determine if you qualify for the credit. You must file a return in order to receive the credit.
5. Declutter for your tax break
You can make money by donating all of those things you no longer need or want in your life. There are many charitable organizations that accept items other than cash such as clothing, books, electronics and other household items. The deduction is limited to the item's fair market value, and the items must be in good condition or better to be deductible. If the value of the noncash items is more than $500, then you must file Form 8283, Noncash Charitable Contributions, and fill it in with some details.
6. Cash in on scholarly tax breaks
If you, your spouse or dependents had higher education costs in 2016, there may be some tax savings for you. In fact there are multiple benefits available. The only difficult part is figuring out which one works best in your situation.
There are 3 different benefits: the American opportunity credit, the lifetime learning credit and the tuition and fees deduction. There are various requirements that may limit the benefit, but the IRS once again offers a useful tool: the Interactive Tax Assistant tool to help you find your way through the maze. You should receive Form 1098-T, Tuition Statement, from your school with the information required by the IRS to complete Form 8863, Education Credits.
7. Get health coverage in order
Make sure you know what you need to report to the IRS on your health insurance. The shared responsibility provision requires that you and your family have minimum essential coverage or qualify for a health coverage exemption. Otherwise, you must make an individual shared responsibility payment for all months that you didn't have coverage or an exemption.
Most taxpayers just need to do one thing: Check the box that indicates you had health care coverage for all of 2016. If that is not the case or you received advance payments of the premium tax credit on the marketplace, then you may need to fill out Form 8965, Health Coverage Exemptions, and Form 8962, Premium Tax Credit, to complete your tax return. For more information, visit the IRS page on the Affordable Care Act.
8. Know the rules about foreign accounts
Have a foreign bank account? Was the balance in the account(s) greater than $10,000 total? If the answer is yes to both, then you need to file what's commonly referred to as an "FBAR," a foreign bank account reporting form. The new name is FinCEN Report 114, FinCEN being an acronym for Financial Crimes Enforcement Network. As the name has the word "crime" in it, that should light a fire under your seat to make sure you're in compliance as the penalties are very high for failing to report.
9. Be generous without tax repercussions
Every so many years, the IRS changes the annual exclusion for gifts that you can give without having to file a gift tax return. If you gave more than $14,000 in cash, property or gifts to anyone, you must report the gift on Form 709. If you are married, you can give a combined $28,000 and remain under the radar.
Note that this applies to the person giving the gift; if you are receiving a gift, congratulations -- you don't have to do anything. That is, unless you receive a gift from a non-U.S. person. If you happen to receive such a gift that is greater than $100,000, you will have to report this on the IRS Form 3520.
10. Be smart when you file
When filing your return, the quickest and easiest way to receive your refund is to electronically file your return and use direct deposit. If you owe money, use IRS direct pay from your checking or savings account. And whatever else you do, please make sure you keep a copy of your filed tax return. Believe me, it saves so much trouble in so many ways in the event you do happen to need it.
Tax Nightmare: Buyer Beware Of Tax Relief Offers
Help Me Hank: Beware Tax Relief Rip-offs
We're at the end of another tax season and it's a good time for a Help Me Hank consumer alert on tax relief rip-offs. If you're ever in trouble with the IRS, you'd probably be frightened and looking for assistance. However, Ken Robinson of Lapeer wants to warn you about the risks of trusting the wrong person or business to help get the IRS off your back.
Robinson fell behind on his IRS payments and he needed help. "I wasn't sure if I was going to wake up one day, and the IRS was going to be outside my door," Robinson added, "I was very scared. I thought I was going to lose my business." That's when he saw a commercial on TV. Self-proclaimed tax experts offering to help taxpayers in trouble with the IRS.
Paying For Help, Not Results
Over the course of a year, Robinson says he paid the company $9,000 to help with his tax issues, but they never came through. "Cause they just kept saying they wouldn't get the paperwork."
In fact, Robinson says his situation continued to get worse. "Meanwhile, nothing's getting done...I'm still getting letters from the IRS." While he grew more and more frustrated with the company, he felt he had invested too much time and money to fire them.
Robinson was on the verge of filing bankruptcy when he finally turned to The Ayar Law Groups in Southfield. Tax attorney Venar Ayar says he sees too many people run into trouble when the hire the wrong "experts" to help. "The scams, unfortunately, in my business are too prevalent," Ayar added.
How To Protect Yourself
Ayar says many tax relief companies start with good intentions, but end up hiring too many marketing experts and not enough tax experts to work with
clients and the IRS. He says the biggest tell-tale sign of a bad company is that you end up talking with a salesperson. Ayar shared some guidelines people should use when hiring an expert to help with tax problems.
1) Make sure you speak with the person who will actually speak to the IRS on your behalf, before signing any agreements.
2) The only people who can speak to the IRS are attorneys, certified public accountants, or enrolled agents. No matter what fancy title a salesperson might use, if you're not dealing with one of those experts, you're not really speaking with the person who will truly do the work.
3) Check the experts credentials. You can check their backgrounds with the Michigan Bar Association, the IRS, or the state boards of accountancy.
4) Look for customer reviews. Check with the Better Business Bureau.
5) Beware of experts who use fear to motivate you to hire them.
6) Beware of experts who promise results that seem too good to be true. The IRS will negotiate, but only if you truly cannot pay. "Would you negotiate with someone who clearly was able to pay you and give them any discount? Of course you wouldn't, the IRS doesn't either," said Ayar.
7) Be suspicious of someone who asks for a huge up front payment. Look for a reasonable payment plan.
The first firm Robinson worked with is currently out of business. Robinson says the Ayar Law Group has helped him solve his tax issues, but he wants people to learn from his mistake. "Just cause they're on TV does not mean they're going to help you" Robinson added, "I know there are other companies out there that I'm sure are doing the same thing."
Avoid the Audit
Related examinations - returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.
Avoid getting audited. Here are a few red flags you should watch out for:
1. Making mistakes
Even if you do so by accident, errors on your tax return will give the IRS pause.Putting down the wrong Social Security Number and calculating something incorrectly are common mistakes that might cause the IRS to take a second look.Be sure that you enter the correct information and double check everything.
2. Incomplete information
It's easy to make mistakes on your return if you're filling it out yourself. And one mistake that will raise a red flag for the IRS is if your return is missing information. The IRS might wonder what other information is missing and audit you.
3. High income
If you make more than $200,000 your chances of being audited increase, a recent report on the IRS' enforcement activity said. People with incomes of $200,000 or more had an audit rate of 3.7 percent. That's about one out of every 27 returns. And the more you earn, the more likely you will be audited.
4. Being too charitable
Giving or donating to charity is commendable, but don't over-exaggerate how much you give. The IRS is aware of how much people around your income level donate, so if you report giving away much more you're going to raise some eyebrows.
5. Not reporting all taxable income
You must report all 1099 and W-2 forms. Remember, the IRS gets copies of everything you receive. Failure to report all your taxable income may cause red flags.
6. Excessive deductions
By all means, deduct everything you're allowed to. But don't overstate your deductions or lie about them. The IRS is well aware of what is outside the norm for people at your income level.
7. Home office deductions
Be careful about deducting for having a home office. As we mentioned, deductions raise eyebrows. To qualify for this deduction, your home office space must be used exclusively as your place of business. If you're entitled to the deduction, take it - but be prepared to prove that you regularly use the space for your business. And be sure to only deduct items that were used for your business.
8. Owning a small business
If your business runs mostly on cash or cash incentives - you're a taxi driver, car washer, work in a hair salon or bar - you're more likely to get audited.Workers in these professions tend to not accurately report all of their taxable income, like the amount of tips earned. If you are the owner a small business, be sure to report all the income you've received to avoid getting audited. Don't push the envelope. Also, don't try to pass off a hobby as a business just to try to get a deduction.
9. Not reporting a foreign bank account
Foreign bank accounts have come under increasing scrutiny in the last few years. The IRS has actively tried to get foreign banks to disclose account information and launched initiatives encouraging tax evaders to come clean. If you've got a foreign bank account and fail to report it, you could face severe penalties if the IRS finds out.
10. Not filing
Clearly you're asking to be audited if you've filed returns in the past, but stop doing so. Maybe you are unsure of how you will pay your tax bill, but you'll be charged with late payment penalties if you miss the filing deadline. And you could get into even more financial trouble if you're identified as a non-filer.
If you do pull a fast one of the IRS, think twice before you brag about it. Many cases start out with a whistleblower reporting how you failed to pay the taxes you owed. Why? Because the IRS offers a reward of up to 30 percent on the additional tax, penalty and other amounts it collects from the tax evader.
If you are audited, you'll be notified by mail or telephone - not email. The length of the audit will depend on its type, the complexity of items being reviewed, the availability of information being requested, the availability of both parties for scheduling of meetings and your agreement or disagreement with the findings. If you are audited, know that you do have rights:
- 'B7 'B7A right to professional and courteous treatment by IRS employees.
- 'B7 A right to privacy and confidentiality about tax matters.
- 'B7 A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.
- 'B7 A right to representation, by oneself or an authorized representative.
- 'B7 A right to appeal disagreements, both within the IRS and before the courts.
- 'B7 For more information on what to expect if you're audited, visit the IRS website.