Jan's Tax & Accounting

Serving your accounting needs since 1975


Earned Income Tax Credit

There will be more questions to answer this year for those qualifying for Earned Income Tax Credit.  The IRS has determined they lose $13 billion per year due to fraudulent EIC claims.  As a result, they want more proof that people actually qualify.  Some of the things you may have to present are divorce decrees or marriage licenses, proof a qualifying child lived with you (school records), receipts to prove you paid more than half of the housing, utilities, and food for the year.  Self-employed individuals may have to supply invoices to prove their income.

A word to the wise - keep good records.  If you haven’t in the past, start now.  With the federal deficit so high and the pressure being put on the IRS to collect the money, it stands to reason they are going to require more and more substantiation.

Head of Household Filing Status

A related issue is claiming the filing status Head of Household.  The IRS is comparing addresses on tax returns.  When they find two taxpayers both claiming Head of Household and using the same address, they start thinking there is a problem.  That may not be the case but it does point out another problem area.  To qualify as Head of Household there are three rules:
1. An individual has to have paid more than half of the cost of keeping up the home for the year,
2.  The individual must either be unmarried or considered unmarried,
3. A qualifying person must share the individual’s home for more than half of the year unless the qualifying person is the individual’s parent.
In the case of divorced individuals that have joint custody, the home where the child lived the majority of the year is the only one that can use that child for Head of Household filing status.

Fresh Start Program

The IRS started a program to help people get compliant with their taxes. The initiative centers on changes to the IRS collection practices that will lessen the negative impact on taxpayers.  The changes include:
1. Adjustments to the IRS Lien Policies
2. Creating easier access to Installment Agreements
3. Expanding the Offer in Compromise program to cover more taxpayers.
The program also has provisions to help small businesses that owe payroll taxes.

Tax Liens

Once a tax liability is fully paid, you have to ask the IRS to withdraw a tax lien.  Due to manpower cuts, they will not be monitoring the removal of liens as in the past.  A withdrawal of a federal tax lien is more beneficial than a release because a withdrawal clears the lien immediately from the debtor’s records as if the lien had never been filed.
If your debt to the IRS is less than $25,000 and you agree to make payments by monthly bank account debits, you can request the IRS withdraw a lien.  They normally won’t do it until they have received at least three consecutive debit payments.

Mandatory E-filing

E-filing is now mandatory for tax preparers that completed more than 10 tax returns in the year. If for some reason we have to paper file, there is a Form 8948 that has to be attached to the tax return.  There are penalties for not including this new form.

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