Hart Enterprises & Services LLC
What do I do if I receive a notice from the IRS about my taxes?
First don’t over stress or panic! Carefully read the notice and determine why it was sent, what the IRS is requesting, and what they want you to do. After reading it you should call our office and bring it to our attention as soon as possible as they sometimes have a time limit.
What is the difference between a C and an S corporation?
A C Corporation and an S Corporation are exactly the same in respect to liability protection. The difference is in how you are taxed. A C Corporation has what is referred to as a double taxation. First the corporation is taxed, and secondly the dividends paid by the corporation are taxed on the shareholders’ tax returns. An S Corporation is not taxed at the corporate level, only at the shareholder level. Most small businesses are eligible to file as S corporations. But the appropriate election must be made.
How do I find out about my refund?
Refer to the date stamp on your tax booklet, if the date passes you can use the “Where’s My Refund” link on the Resources pages of our website! Have your tax booklet ready as you will need this information to gain access to the database.
How long do I keep my records and tax returns?
We personally suggest you keep your records and tax returns for at least 5 years from the date the return was filed or the date the return was required to be filed, whichever is later.
What are the consequences of early withdrawals from my retirement plans?
If you withdraw money from a 401(k) or an IRA before age 59 ½, the distribution is taxable and there is a 10% penalty on the taxable amount. The main exceptions that let you withdraw money early without penalty are as follows:
- Qualified retirement plan distributions if you separated from service in or after the year you reach age 55 (does not apply to IRAs).
- Distributions made as a part of a series of substantially equal periodic payments (made at least annually) for your life or the joint lives of you and your designated beneficiary.
- Distributions due to total and permanent disability.
- Distributions due to death (does not apply to modified endowment contracts)
- Qualified retirement plan distributions up to the amount you paid for unreimbursed medical expenses during the year minus 7.5% of your adjusted gross income for the year.
- IRA distributions made to unemployed individuals for health insurance premiums.
- IRA distributions made for higher education expenses.
- IRA distributions made for the purchase of a first home (up to $10,000).
- Distributions due to an IRS levy on the qualified retirement plan.
- Qualified distributions to reservists while serving on active duty for at least 180 days.
Are there plans with tax savings for college?
The main plans for saving for college are the 529 plans and the Coverdell plan.
What is a 529 plan?
A Qualified Tuition Program (QTP), also called a "529 plan," is established and maintained to let you either prepay or contribute to an account established for paying a student's qualified higher education expenses at an eligible institution. States and eligible educational institutions can establish and maintain a QTP. You do not get any federal deductions for the account, but any income earned in it is tax-free. One of the big advantages of a 529 plan is that many states allow you to deduct some contributions to the plan from your state tax return.
What college expenses may I deduct?
There are several ways you can claim deductions for college expenses on your tax return. They are the tuition deduction, the American Opportunity credit and the Lifetime Learning Credit. If we are preparing your return we will determine which ones you qualify for and which one gives you the greatest tax benefit.
What is the child tax credit?
The child tax credit is a credit of $1000 per child from the IRS. In order to qualify the child must: 1. Be under 17 at the end of the tax year 2. Be a citizen of the United States 3. Be your child 4. Live with you for more than half the year 5. Not be treated as the qualifying child of someone else
What medical expenses are deductible?
A deduction is allowed only for expenses paid for the prevention or alleviation of a physical or mental defect or illness. Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body. Except for insulin, only prescription drugs are deductible. The cost of health insurance is deductible. You may also deduct the cost of traveling to and from the care provider. You can deduct only the part of your medical and dental expenses that exceeds 7.5% of your adjusted gross income.
What do I need to keep for my charitable contributions?
First, is your contribution cash or non-cash?
If you make a cash donation, you must have a bank record or written communication from the charity showing the name of the charity and the amount of the donation. A bank record can be the cancelled check or a statement from a bank or credit union—so long as it lists the charity’s name, the date, and the amount of the contribution. Personal records such as bank registers, diaries and notes are no longer considered acceptable proof of contributions.
Any used items (such as clothing, linens, appliances, etc.) must be in good condition and may only be deducted at the price you could reasonably ask for the item in used condition. For contributions worth $250 or more, you must have a written receipt or letter from the organization. For contributions worth $500 or more, you must file Form 8283 (Noncash Charitable Contributions) and attach it to your Form 1040.
All contributions must be made to qualified charitable organizations.
If I donate my vehicle to charity, how much can I deduct on my tax return?
In the past there were a lot of charities asking you to donate your car, and there were a lot overinflated appraisals of the fair market value for these vehicles. But recently the IRS has gotten stricter on the way you determine the value of your car. Now you must claim the actual amount the charity received at an auction to sell the car, and the charity should give you timely acknowledgment to claim the deduction. If the vehicle is actually used by the charity instead of sold at auction, then you may claim the vehicle's fair market value.
What are the tax consequences of buying a home?
The main tax consequence of buying a home is that you may be able to deduct the property taxes you pay and any mortgage interest you pay. Points you pay may also be deductible. Please contact our office to determine the eligibility. Normal expenses for maintaining a home are not deductible, but you should keep records of any major expenses for repairs or improvements. If you have a taxable gain when you sell your home, these expenses may be deductible.
I received tax statements from my employer or bank after I filed my tax return. What should I do?
If we filed your return, bring the new tax documents to our office. We will determine if it is necessary for you to file an amended return. If we did not file your return for you, we can still help but we will also need to see a copy of the originally filed return.
What is an amended return, and when should I file one?
An amended return is simply a return filed with the IRS and/or state because of an error or an omission on your original return. You should file an amended return if there is a material difference between the original return and your new changes. As of now, an amended return cannot be electronically filed, and any expected refunds will take longer to receive than the original return (2-3 months, according to the IRS). Generally to claim a refund, your amended return must be filed within 3 years from the date of your original return or within 2 years from the date you paid the tax, whichever is later.
I haven’t been filing my tax returns what should I do?
First, you must determine if you were required to file in the years you did not file. There are many different items that could figure into this—such as your filing status, your sources of income, whether you had any tax withheld, etc. We can help you determine if you should have filed. Contact us and we can handle all of your prior year filings. It is very important that you do not just continue to not file. If you owe money the penalties for not filing are high. If you are owed a refund you will lose your claim to it 3 years after the due date of the return.
I didn't earn very much. Do I still have to file tax forms?
There are many different items that could figure into answering this question—such as your filing status, your sources of income, whether you had any tax withheld, etc. It is possible that a return will need to be filed if you earned as little as $400. Contact us to determine if you have a filing requirement or if you are due to receive a refund.
Is my social security taxable?
Usually if your income including social security benefits is less than $25,000 if single or $32,000 if married, your benefits are not taxable. If your income is higher than those limits, there are formulas to determine what percentage of your social security is taxable. Currently up to 85% of your social security may be taxable.
When can I make contributions to my IRA?
Generally for any tax year, you can make a contribution to your IRA up until the original due date of the return (usually April 15). Thus for tax year 2012, you can make contributions from January 1, 2012 through April 15, 2013.
What are the differences between a Roth and a Traditional IRA?
A traditional IRA lets you deduct contributions in the year you make them, and the distributions are included as income on your return when you withdraw from the IRA after reaching age 59½. A Roth IRA does not let you deduct the contributions, but you also do not report the distributions as income, no matter how much the Roth account has appreciated. With a Roth, you can exclude the income earned in the account from being taxed. Depending on your income, you may receive an additional tax credit for your contributions at tax time, whether for a Roth or Traditional IRA.
I donate my time and drive for charity wearing a uniform. What may I deduct?
If you drive to and from volunteer work, you may deduct either the actual cost of gas and oil or a standard amount of 14 cents per mile. Please note that any mileage reimbursement in excess of 14 cents per mile must be treated as income. You may also deduct the cost of buying and cleaning uniforms if the uniforms are not suitable for everyday use, and you must wear them when volunteering. You may not claim a deduction for the value of your time.
What are the tax consequences of selling a home?
If you sell your personal residence you can totally exclude from income up to $250,000 of gain if you are single, or $500,000 if married, regardless of your age at the time of the sale—if during the 5 years before the sale you owned the home and lived in it for a total of any 24 months. The exclusion is not a one-time election; instead it is available once every 2 years. Recent tax law has adversely changed the handling of gains on the sale of a home if you rented the property before you made it your personal residence. Please contact our office if you believe this situation will affect you.
If I buy a new home, can I deduct my moving expenses?
If you move to a new home because of a new principal workplace, you may be able to deduct your moving expenses. To do so, you must meet the conditions for both the distance and the time tests.
- The distance test is that your new principal workplace must be at least 50 miles farther from your old home than your old workplace.
- The time test states that you must work full-time in the general area of your new workplace for at least 39 weeks during the 12 months right after you move.
- You can claim this deduction even if you expect to work but haven’t started working at the time you file your return. Expenses you can deduct are transportation and storage of household goods and personal items and travel including lodging from your old home to your new home. Expenses of trips for house hunting are not deductible. If your employer reimburses you for these expenses, your deduction may be limited. If you spent less than the reimbursement you will have to report a portion for income. Please do not hesitate to call us if you have any questions about these rules.
How does getting married affect my taxes?
When you get married you will have the option of filing a joint tax return. In this case the one return will report the income and deductions of both spouses. The IRS has eliminated most cases where you would have saved taxes by remaining single. You also have the option to file as married filing separately, but in most cases this will increase your taxes.
Do I have to file a joint return with my spouse?
No, you can file either as married filing joint or married filing separate. If you file separately your taxes will most likely be higher. Many credits—such as earned income, education (American Opportunity and Lifetime Learning), and child care—are not allowed when you file separately.
There are special circumstances where people who are married but either does not want to or cannot file with their spouse can file as Head of Household, which therefore entitles them to these credits and a lower tax bracket. In order to qualify as a Head of Household you must meet the following conditions:
- You lived apart from your spouse for the last six months of the tax year. Temporary absences for special circumstances, such as for business, medical care, school, or military service, count as time lived in the home.
- You filed a separate return from your spouse.
- You paid over half the cost of keeping up your home for the year (not your spouse).
- Your home was the main home of your child for over half of the year.
- You can claim this child as your dependent.
If you do not meet all these conditions but are legally separated as of the last day of the year, you may also qualify to file as single.
How should I keep records for my business driving?
Keep a log in your vehicle and record the purpose and mileage of each trip. You also need to record the odometer readings at the beginning and end of each year, as the IRS will ask you for total miles driven during the year. Keep your repair bills as these normally record odometer readings when the car is serviced.
My employer tells me I will receive a 1099. What does this mean for my taxes?
When you receive a 1099, it means you are considered an independent contractor. You will not have any withholding or payroll taxes deducted from your pay. You should keep track of all business expenses and a journal of your mileage driven for work. If the amount you expect to receive is substantial, you should probably be making estimated tax payments. In addition to income taxes, you will owe self employment taxes on your net income (after calculating for your expenses). The self employment tax is approximately 15% of your net income. Please contact us if you have any questions about this.
Can I deduct expenses for a business run out of my home?
If you use a portion of your home for business purposes, you may be able to take a home office deduction whether you are self-employed or an employee. Expenses you may be able to deduct for business use of your home may include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, painting, and repairs.
You can claim this deduction only if you use a part of your home regularly and exclusively:
- As your principal place of business for any trade or business.
- As a place to meet or deal with your patients, clients or customers in the normal course of your trade or business.
Generally, the amount you can deduct depends on the percentage of your home that you used for business. Your deduction will be limited if your gross income from your business is less than your total business expenses.
What is depreciation?
For tax purposes, depreciation is the expensing of the cost of an item over its estimated useful life. If property you acquire to use in your business is expected to last more than one year, you generally cannot deduct the entire cost as a business expense in the year you acquire it. You must spread the cost over more than one tax year and deduct part of it each year. This method of deducting the cost of business property is called depreciation. There are many different methods of depreciation and other rules that allow you to claim the expense in one year.
I owe the IRS money. What are my options?
If you can afford to pay the amount you owe, it should be paid. But many times that is not the case. If you cannot afford to pay, you have several options. Ignoring the IRS should not be one of them!
The first option is to enter into an installment agreement with the IRS. To do this you need to fill out Form 9465, Installment Agreement Request. This form is fairly easy to complete, but we strongly recommend that if you owe a substantial amount of money you work with us to secure your agreement.
The second option, which is much harder to get approved, is an Offer-In-Compromise. The IRS will be reluctant to do this if they feel you have the resources to eventually pay. You should not attempt an Offer-In-Compromise without professional help you can trust. The IRS has also issued a consumer alert, advising taxpayers to beware of promoters’ claims that tax debts can be settled for “pennies on the dollar” through the Offer-In-Compromise Program.