Need Help filing your FASFA? Go to the IRS......

Automated IRS System Helps College-Bound Students with Financial Aid Application Process 

College-bound students and their parents typically want to make every dollar and every minute of the college experience count including money spent on tuition and time spent on the college financial aid application process. The Internal Revenue Service is helping minimize the time spent on the completion of the Free Application for Federal Student Aid (FAFSA) form by automating access to federal tax returns with the IRS Data Retrieval Tool. This tool provides the opportunity for applicants to automatically transfer the required tax data onto the FAFSA form.
Here are some tips on using the IRS Data Retrieval Tool:

• Benefits The IRS Data Retrieval tool is an easy and secure way to access and transfer tax return information directly onto the FAFSA form, saving time and improving accuracy. Also, the increased accuracy reduces the likelihood of being selected for verification by the school’s financial aid office.
• Eligibility Criteria Taxpayers who wish to use the tool to complete their 2012 FAFSA form must:
• have filed a 2011 tax return;
• possess a valid Social Security Number;
• have a Federal Student Aid PIN (individuals who don’t have a PIN, will be given the option to apply for one through the FAFSA application process);
• have not changed marital status since Dec. 31, 2011.
• Exceptions If any of the following conditions apply to the student or parents, the IRS Data Retrieval Tool can not be used for the 2012 FAFSA application:
• an amended tax return was filed for 2011;
• no federal tax return for 2011 has been filed ;
• the federal tax filing status on the 2011 return is married filing separately; a Puerto Rican or other foreign tax return has been filed.
• Alternatives If the IRS Data Retrieval Tool can not be used and if the college requests verification documentation, it may be necessary to obtain an official transcript from the IRS. To order tax return or tax account transcripts, visit www.irs.gov and select  Order a Transcript  or call the Transcript toll-free line at 1-800-908-9946.

In addition to helping reduce the time and effort involved in completing and submitting the FAFSA form through the IRS Data Retrieval Tool, the IRS offers money-saving information to college students and their parents.  Important information regarding tax credits and deductions for qualifying tuition, materials and fees is available at the IRS Tax Benefits for Education: Information Center and in IRS Publication 970, Tax Benefits for Education both of which are available at www.IRS.gov.

Links:

• IRS Data Retrieval Tool/FAFSA 
• IRS Tax Benefits for Education: Information Center 
• IRS Publication 970, Tax Benefits for Education (PDF)
• Order a Transcript

Managing Your Tax Records After You Have Filed

Every couple of days the IRS publishes a tax tip full of important and useful information to keep up to date. 

Issue Number:    IRS TAX TIP 2012-71

Inside This Issue

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Keeping good records after you file your taxes is a good idea, as they will help you with documentation and substantiation if the IRS selects your return for an audit. Here are five tips from the IRS about keeping good records.
1. Normally, tax records should be kept for three years.
2. Some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.
3. n most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return.
4. Records you should keep include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.
5. or more information on what kinds of records to keep, see IRS Publication 552, Recordkeeping for Individuals, which is available on the IRS website at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Link:
Publication 552, Recordkeeping for Individuals (PDF 61K)

Taxpayers Get More Time to Contribute to IRAs in 2012

Issue Number:    IRS Tax Tip 2012-61

Inside This Issue

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You have two extra days this year to make contributions to your Individual Retirement Arrangements. That’s because April 15 falls on a weekend and Emancipation Day, a legal holiday in the District of Columbia, will be observed on Monday, April 16. That means the due date for filing your tax return and making contributions to your 2011 IRA is Tuesday, April 17.
Here are the top 10 things the IRS wants you to know about setting aside retirement money in a traditional IRA.
1. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit, formally known as the Retirement Savings Contributions Credit.
2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means you must make contributions for 2011 by April 17, 2012. If you contribute between Jan. 1 and April 17, you should designate the year targeted for the contribution.
3. The funds in your IRA are generally not taxed until you receive distributions from it.
4. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for your IRA contributions.
5. For 2011, the most you can contribute to your traditional IRA is generally the smaller of the following amounts: $5,000 for most taxpayers, $6,000 for taxpayers who were 50 or older at the end of 2011 or the amount of your taxable compensation for the year.
6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.
7. You must use either Form 1040A or Form 1040 to deduct your IRA contribution or claim the Credit for Qualified Retirement Savings Contributions.
8. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.
9. To contribute to an IRA, you must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment. If you file a joint return, generally only one spouse needs to have taxable compensation. However, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements, for additional rules.
10. Refer to IRS Publication 590 for more information on contributing to your IRA account.
Form 8880 and Publication 590 can be downloaded at www.irs.gov or ordered by calling 800-TAX-FORM (800-829-3676).

Links:

• Publication 590, Individual Retirement Arrangements (IRAs)
• Form 8880, Credit for Qualified Retirement Savings Contributions

Taxpayers guide to identity theft -- what you should know

The IRS is very serious about protecting you against identity theft. In the past few weeks the Justice department tax division has issue over 200 indictments in 23 states. The following information was taken from the IRS website. For a more information on what the IRS is doing and how to protect yourself visit www.irs.gov.

What is identity theft?

Identity theft occurs when someone uses your personal information such as your name, Social Security number (SSN) or other identifying information, without your permission, to commit fraud or other crimes.

How do you know if your tax records have been affected?

An identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund. Generally, the identity thief will use a stolen SSN to file a forged tax return and attempt to get a fraudulent refund early in the filing season. 

You may be unaware that this has happened until you file your return later in the filing season and discover that two returns have been filed using the same SSN. 

Be alert to possible identity theft if you receive an IRS notice or letter that states that:

• More than one tax return for you was filed,
• You have a balance due, refund offset or have had collection actions taken against you for a year you did not file a tax return, or 
• IRS records indicate you received wages from an employer unknown to you. 

What to do if your tax records were affected by identity theft?

If you receive a notice from IRS, respond immediately. If you believe someone may have used your SSN fraudulently, please notify IRS immediately by responding to the name and number printed on the notice or letter. You will need to fill out the IRS Identity Theft Affidavit, Form 14039. 

For victims of identity theft who have previously been in contact with the IRS and have not achieved a resolution, please contact the IRS Identity Protection Specialized Unit, toll-free, at 1-800-908-4490.

How can you protect your tax records?         

If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost/stolen purse or wallet, questionable credit card activity or credit report, etc., contact the IRS Identity Protection Specialized Unit at 1-800-908-4490.

How can you minimize the chance of becoming a victim?

• Don’t carry your Social Security card or any document(s) with your SSN on it.
• Don’t give a business your SSN just because they ask. Give it only when required.
• Protect your financial information.
• Check your credit report every 12 months.
• Secure personal information in your home.
• Protect your personal computers by using firewalls, anti-spam/virus software, update security patches, and change passwords for Internet accounts.
• Don’t give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.

Important note: The IRS Does not initiate contact with taxpayers by email to request personal or financial information. For more information visit:

IRS.gov/identitytheft  IRS.gov/phishing

The IRS is Taking Action

Identity Theft Crackdown Sweeps Across the Nation; More than 200 Actions Taken in Past Week in 23 States

WASHINGTON – The Internal Revenue Service and the Justice Department today announced the results of a massive national sweep cracking down on suspected identity theft perpetrators as part of a stepped-up effort against refund fraud and identity theft.
Working with the Justice Department’s Tax Division and local U.S. Attorneys’ offices, the nationwide effort targeted 105 people in 23 states. The coast-to-coast effort took place over the last week and included indictments, arrests and the execution of search warrants involving the potential theft of thousands of identities and taxpayer refunds. In all, 939 criminal charges are included in the 69 indictments and informations related to identity theft.
In addition, IRS auditors and investigators conducted extensive compliance visits to money service businesses in nine locations across the country in the past week. The approximately 150 visits occurred to help ensure these check-cashing facilities aren’t facilitating refund fraud and identity theft.
“This unprecedented effort against identity theft sends a strong, unmistakable message to anyone considering participating in a refund fraud scheme this tax season,” said IRS Commissioner Doug Shulman. “We are aggressively pursuing cases across the nation with the Justice Department, and people will be going to jail. This is part of a much wider effort underway at the IRS to help protect taxpayers.”
“The Justice Department is working closely with the IRS to investigate, prosecute, and punish tax refund crimes committed through the theft of identities,” said Principal Deputy Assistant Attorney General John A. DiCicco of the Tax Division. “Now, more than ever, we must remain vigilant against the unauthorized use of identification information to defraud the U.S. government.”
The national effort is part of a comprehensive identity theft strategy the IRS has embarked on that is focused on preventing, detecting and resolving identity theft cases as soon as possible. In addition to the law-enforcement crackdown, the IRS has stepped up its internal reviews to spot false tax returns before tax refunds are issued as well as working to help victims of the identity theft refund schemes.
The law-enforcement sweep started last week across the country, reflecting investigative efforts stretching back months and even years.
The nationwide effort by the Justice Department and the IRS led to actions taking place in 23 locations across the country with 105 individuals. The actions included 80 complaints/indictments and informations, 58 arrests, 19 search warrants, 10 guilty pleas and four sentencings. A map of the locations and additional details on the actions are available on IRS.gov, the IRS Civil and Criminal Actions page and the Department of Justice Tax Division page.
Beyond the criminal actions, the IRS enforcement personnel conducted a special sweep last week and on Monday to visit 150 money services businesses to help make sure these businesses are not knowingly or unknowingly facilitating identity theft or refund fraud. The visits occurred in nine high-risk places identified by the IRS covering areas in and surrounding Atlanta, Birmingham, Ala., Chicago, Los Angeles, Miami, New York, Phoenix, Tampa and Washington, D.C.
In addition, the IRS has more than 250 check-cashing operations under audit across the country and will be looking for indicators of identity theft as part of the exam effort.
The information from these audits and compliance visits will be used to assist continuing IRS investigations into refund fraud and identity theft.
The IRS also is taking a number of additional steps this tax season to prevent identity theft and detect refund fraud before it occurs. These efforts includes designing new identity theft screening filters that will improve the IRS’s ability to spot false returns before they are processed and before a refund is issued, as well as expanded efforts to place identity theft indicators on taxpayer accounts to track and manage identity theft incidents.
To help taxpayers, the IRS earlier this month created a new, special section on IRS.gov dedicated to identity theft matters, including YouTube videos, tips for taxpayers and a special guide to assistance. The information includes how to contact the IRS Identity Protection Specialized Unit and tips to protect against “phishing” schemes that can lead to identity theft.
Identity theft occurs when someone uses another’s personal information without their permission to commit fraud or other crimes using the victim’s name, Social Security number or other identifying information. When it comes to federal taxes, taxpayers may not be aware they have become victims of identity theft until they receive a letter from the IRS stating more than one tax return was filed with their information or that IRS records show wages from an employer the taxpayer has not worked for in the past.
If a taxpayer receives a notice from the IRS indicating identity theft, they should follow the instructions in that notice. A taxpayer who believes they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. The taxpayer should contact the IRS Identity Protection Specialized Unit at 800-908-4490. The taxpayer will be asked to complete the IRS Identity Theft Affidavit, Form 14039, and follow the instructions on the back of the form based on their situation.
Taxpayers looking for additional information can consult the Taxpayer Guide to Identity Theft or the IRS Identity Theft Protection page on the IRS website.

What is the right business structure for me?

I get this question a lot. The following post will explain the different choices available to you and the pro and cons. It is a good starting point.

Four Basic Forms

• C Corporation (and PSC or Professional Service Corporation)
• S Corporation
• General Partnership
• Limited Partnership

Recently Developed Alternatives

• LLC (Limited Liability Corporation)
• LLP (Limited Liability Partnership)
• LLLP (Limited Liability Limited Partnership)
• And the very basic form, Sole Proprietorship
  
  Two Most Important Factors

• Tax rates imposed on enterprise’s income and appreciation (after factoring double taxation)
• The investor’s potential personal liability for the enterprise’s obligations and actions. Note that owners and officers are liable for fraud and taxes regardless of the business form.

Three Fundamental Questions

•  First – Will the enterprise benefit from the double tax that might occur using a C corporation or from the one time pass-through tax offered by non-C corporation alternatives.
• Second – If a pass-through entity is preferred, would the enterprise benefit more from the use of the S corporation or the partnership taxation rules.
• Third – If the partnership rules are preferred, which business form is most suitable: general partnership, limited partnership, LLC, LLP or LLLP.

Tax advantages of an S corporation over a C corporation for closely held Corporations

• Single Taxation – taxable income is passed to the owners. Note that C corporations use tax planning to avoid double taxation, which includes bonus and salary distributions to eliminate taxable income at the corporate level.
• No accumulated earnings taxes.
• Losses pass though to shareholders subject to the passive loss and at risk rules.
• Accrual Method of Accounting - C corporations must use the accrual rules when gross receipts exceed $5,000,000, while S corporations do not.

Tax advantage of a C corporation over an S corporation

• C Corporation - Tax rate is 34% up to $10,000,000
•  Individuals – Top tax rate is 39.6%
• Alternative Minimum Tax – AMT is determined at the shareholder level for S corporations and at the corporate level for C corporations. Currently the corporate AMT rate is 20% while the individual rate can be as high as 28% if AMT exceeds $175,000. An AMT credit for individuals does not allow a credit for exclusion preference items, while a C corporations generates AMT credit against regular tax for all items causing AMT. C corporations with average gross receipts less than $5,000,000 for the first test year and $7,500,000 or less in subsequent years are totally exempt from AMT.
• Fringe Benefits – partners in S corporations with more than a 2% ownership are treated as partners in partnerships for fringe benefit purposes.

Partnership versus S Corporation Taxation

Background

In a partnership, general partners are liable for partnership liabilities while limited partners have limited liability. Also, in many states, the limited partners cannot participate in the partnership’s business operations and retain limited liability. A Limited Liability Company (“LLC”), with proper planning, will be taxed as a partnership while giving the owners limited liability similar to corporate stockholders. Moreover, unlike limited partners, LLC owners can materially participate in the LLC business activities without incurring personal liability.

General Information

LLCs and are created by statutes. The LLC’s principal competitor for choice of a business entity for small businesses is the S corporation. This is because both entities are the only entities that offer all of the following:

• Pass-through tax treatment to all owners
• Limited liability to all owners
• Material participation by all owners without losing limited liability

          However, following are tax differences between a partnership and an LLC (taxed as a partnership):

• Formation. Tax-free formation of an S Corporation requires the stockholders to satisfy an 80% control test, and the stockholder’s must avoid gain by excess debt under f357(c), while an “LLC” has no control requirement upon formation and it is much less likely that a contributing member will trigger gain from excess debt upon formation.
• Capital Structure. An LLC can allocate cash flow in the same flexible manner as a partnership, while S corporations’ single class of stock requirement prohibits any non-pro rata allocation except by salaries for services performed.
• Income Allocation. An LLC can allocate income, gain, loss, and deductions as agreed to by the partners so long as the allocations have ‘substantial economic effect.” S corporation income and losses must be allocated pro rata based strictly on stock ownership.

Limited Liability Partnerships (LLP)

An LLP is a registered partnership that offers partners liability protection from malpractice, errors, and omissions of the other partners, but not from commercial or contract liability of the partnership.

Although LLPs offer less liability protection than LLCs, professional organizations that have multi-state practices opt for this business entity form because some states prohibit “professionals” from operating as LLCs and many states require that all members of a LLC be members of the same profession.

Limited Liability Limited Partnerships (LLLP)

An LLLP is a registered partnership that offers general partners liability protection from malpractice, errors, and omissions of the other general partners, but not from commercial or contract liability of the partnership.

Sole Proprietorship

There are no requirements to form a sole proprietorship. Taxable income of the business is the taxable income of the Sole Proprietor. There is no liability protection. If there are no employees, there is no payroll reporting. A tax deduction of up to 60% of health plan benefits is available.

DISCLAIMER
THIS SUMMARY IS DESIGNED AS A GUIDE TO UNDERSTANDING OF THE VARIOUS RETIREMENT PLANS AVAIABLE AND THEIR TAX BENEFITS AND CONSEQUENCES. THIS SUMMARY IS NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL SERVICES.

Paldino Company CPA Files and Uploads - Mamaroneck, NY 10543 - 914-253-6857 - AmericanTowns.com

Paldino Company CPA Files and Uploads - Mamaroneck, NY 10543 - 914-253-6857 - AmericanTowns.com