Let’s face it; life happens. It is almost inevitable that a situation will arise in which you will need a significant amount of money in a limited amount of time. When this happens, most people turn to their savings. But, what if your only access to cash is through your retirement plan? You heard that you will be penalized for taking the money out before “time.” Well, what is that timeframe, and what if you are experiencing an emergency and you need cash now? Will the IRS waive the penalties? The short answer is in certain situations, yes.

An early withdrawal from an retirement account typically means taking money out of the account before you reach the age 59 ½ . All early withdrawals are reported to the IRS, and are subject to a 10% tax penalty in addition to any inco...

When faced with a tax issue, you want to make sure you select the right tax professional to resolve your problem. It’s just like choosing any other professional (i.e. mechanic, dentist, and electrician), you want to make sure that the person is competent and charges a reasonable rate. There are several different types of tax professionals. The main three are CPAs (certified public accountants), enrolled agents, and tax attorneys. So, the natural question becomes, what is the difference between the three?

CPA
A certified public accountant (CPA) is an accountant who has passed the CPA exam; and depending upon the state, has satisfied the applicable work experience requirement. Don’t take this lightly; passing the CPA exam is no easy feat. Thus, CPAs are very capable and kn...

You own a small business with a few employees. Business has been great in the past; but this month has not produced as much income as you wanted. Payroll is coming up soon. You are now faced with a dilemma; there is not enough money to cover the employees’ pay and the employment taxes. You think “if I don’t pay the employees, they will quit and I will have to deal with the department of labor.” So you choose to pay the employees now and pay the taxes later. Let’s say that business continues to decline and you have yet to pay the past due employment taxes. What’s going to happen to you and your business?

Let’s recap from the last time. Employment taxes are amounts that are required to be withheld from employees’ wages and paid over to the federal government. An employer m...

If you are a business owner with employees, you are required to deposit and report employment taxes. The employment tax realm contains a myriad of withholding tax requirements and due dates. Also, you must prepare and file form W-2 (Wage and Tax Statement) for each paid employee. Those W-2s, along with form W-3 (Transmittal of Wage and Tax Statements) are then sent to the Social Security Administration. It is common for many employers to utilize payroll tax professionals (payroll companies) to handle the employment taxes on their behalf. However, it is crucial for all employers to understand the basics of employment taxes. Why you ask? Because ultimately the IRS holds you, the employer, and not the payroll company responsible for any mistakes. For purposes of this post,...

You are sorting through a pile of mail. You see an envelope that reads “2018 tax document.” You are now frozen with fear because you already filed your 2018 tax return. As you open the envelope, you realize that the letter is actually a form 1099-MISC that you did not include on your tax return. You begin an internal debate: Should I amend my tax return, or should I just ignore the 1099-MISC?

It is not uncommon to forget something on your tax return. However, if it amounts to a major mistake, you may need to file an amended tax return. Common situations that require amending your tax return include: claiming the incorrect filing status; mistakenly omitting income; and errors in credits and/or deductions. If you choose to roll the dice and not amend your tax return, you m...

Lately, I have noticed an increase in clients whose tax returns have been incorrectly prepared. I have seen where some of the mistakes are a result of people preparing their own taxes; however, a majority of the mistakes are stemming from actually tax preparers. Needless to say that errors in a tax return can cause a multitude of problems. But regardless of who prepared the return, if the errors result in a tax liability, you, the taxpayer are ultimately responsible. Thus, the question becomes what do I look for in choosing a tax preparer? In 2018, the IRS published a list of ten tips for choosing a tax preparer. The tips are summarized below.

1. Check the Preparer’s Qualifications. All tax preparers are required to register with the IRS each year. The IRS has directory...

Let’s continue the discussion from last week. Let’s assume that the IRS ended up filing substitute returns on your behalf. The substitute returns resulted in balances due; however, you had your tax returns prepared according to the deductions and credits in which you are entitled. Those return resulted in the IRS owing you a refund. You send the returns to the IRS. Six weeks later, you receive a letter from the IRS stating that your claim of refund was disallowed. Heartbroken, you ask yourself, “How is this possible when they owe me money?”

Simply, if you think that you are due a refund, you must file your tax return within 3 years of the original due date. This is the statute of limitations, or expiration date, for claiming your tax refund. For example, if you just rece...

Too often, people will file an extension for their federal tax return, but for reasons unknown, forget to file the return by the extension due date. In this situation you are giving the IRS the authority, by law, to file a tax return for you. The IRS will file a substitute return based on information provided to it by other sources. In addition, it will not include any expenses, deductions, or exemptions to which you may be entitled.

After the substitute return, or SFR, is filed, the IRS will send a notice asking you to consent to the proposed assessment of tax. If you fail to respond, a statutory notice of deficiency is issued. If you fail to respond to the notice of deficiency, then IRS will start the collection process. The collection process includes liens, levies,...

One day you receive a notice from the IRS. The notice states that you have unreported stock trades for the previous tax year. The notice adds the selling price of the stock as income, which increases the amount of taxes owed. Now the IRS says that you owe a large sum of money. Suddenly, you feel lightheaded. Once you regain your composure, you remember that your financial advisor said that you lost money in stocks that year. “This isn’t right,” you think. You then notice a paragraph telling you that you have 30 days to appeal.

The IRS has an administrative appeals process by which it works with taxpayers to settle disputes. The IRS Office of Appeals (IRS Appeals) role is to independently review a tax dispute. In doing this, IRS Appeals usually considers the position of b...

You are the owner/operator of a small business with no employees. Your business was formed as a single member LLC; thus, you report your business income/loss on schedule C of your individual tax return. In 2018, your business made a profit. You pick up your returns from your accountant and notice that you owe a significant amount in federal taxes. You think “How can this be? My business was not that profitable.” You examine the return and instantly notice an amount for self-employment tax.

Self-employment tax is essentially some of the taxes that would have been withheld from your wages if you were an employee. It consists of Social Security and Medicare taxes. As a self-employed individual you are required to pay both the employee and the employer equivalent portion o...