The taxes alphabet

Taxes can be fun, accountant is a seerious word, but the tax preparation can be a lot of fun.

A is for Alimony

Alimony payments are deductible by the payer and taxable as income to the recipient. The deduction is “above the line” which means that you do not have to itemize to claim the deduction

B is for Barter.

The treatment of bartered goods and services is like accepting cash: the exchange of services is still reportable and taxable. You must include in gross income on your federal income tax return the fair market value of goods and services received in exchange for goods or services you provide.

C is for Capital Losses

When you sell or otherwise dispose of a capital asset, the difference between the amount you sell it for and your basis is a capital gain (if the value at disposition is more than your basis) or a capital loss (if the value of the disposition is less than your basis). You can only deduct capital losses on investment property, not on personal use property.

D is for Deductible Taxes.

If you itemize, you may be able to deduct state and local taxes; real estate taxes; foreign income taxes and property taxes on your federal income tax return. You may not deduct federal income taxes, Social Security taxes, Medicare taxes, FUTA (federal unemployment taxes), and RRTA (railroad retirement taxes).

E is for Educator Expenses.

If you are an eligible educator, you can deduct up to $250 of any unreimbursed expenses paid or incurred for books, supplies, computer equipment, other equipment, and supplementary materials used in the classroom; these expenses must be paid or incurred during the tax year

F is for FSA.

FSAs are flexible spending accounts. The most common FSA is a health flexible spending arrangement which allows you to pay qualified medical expenses from a fund set up with pre-tax dollars: withdrawals from the fund are income tax free.

G is for Gift Expenses.

Generally, if you provide an item to a customer (or a customer’s family) without an expectation of payment or compensation, that’s a gift. The IRS limits the amount that you can deduct for gifts: you can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year.

H is for Home Improvements.

In most cases, repairs to your home increase your basis for purposes of calculating a gain or a loss at sale, but your run of the mill home repair expenses – even if significant – are not deductible on your federal income tax return

I is for Injured Spouse.

You are an injured spouse if your share of your tax refund as shown on your joint return was, or is expected to be, applied against your spouse’s past-due federal debts, state taxes, or child or spousal support payments. If you are an injured spouse, you may be entitled to get your share of the refund released to you.

J is for Job Search Expenses.

If you itemize, you can deduct out of pocket expenses related to your job hunt even if you don’t get a new job.

K is for Kiddie Tax.

When income is unearned (generally, income from dividends and interest) for children under the age of 18, or under the age of 23 while a full time student, the first $950 is considered tax-free and the next $950 is taxed at the child’s rate. Unearned income over $1,900 is taxed at the child’s parents’ tax rate

L is for Levy.

One of the ways that the IRS works to make sure they get paid is the use of a levy. A levy is a legal seizure of your property.

M is for Making Work Pay Credit.

There is no Making Work Pay Credit for 2011. That also means no Schedule M.

N is for Non-Citizen Spouse.

Generally, a husband and wife cannot file a joint return if either spouse is a nonresident alien at any time during the year. However, if you were a nonresident alien or a dual-status alien and were married to a U.S. citizen or resident alien at the end of 2011, you may elect to be treated as a resident alien and file a joint return.

O Is For Offer in Compromise.

If you can’t pay your tax debt in full, you might consider an Offer in Compromise (OIC) which allows you to resolve your tax obligations for less than the full amount you owe.

P is for Penalty on Estimated Tax.

If you receive income without having any federal income taxes withheld, you should consider making estimated payments throughout the year to avoid any penalties.

Q is for Qualified Dividends.

For 2011, taxpayers who would normally have paid a 10% or 15% ordinary income tax rate will pay 0% on qualified dividends. All other taxpayers pay a mere 15%.

R is for Refund.

If you e-file and use direct deposit, you can receive your refund in as few as ten days.

S is for Standard Deduction.

For the tax year 2011, the standard deduction for single taxpayers or for those married filing separately is $5,800; for married taxpayers or qualifying widow(er)s, the standard deduction is $11,600; and for head of household, the standard deduction is $8,500.

T is for Tuition and Fees Deduction.

You may be able to deduct qualified tuition and related expenses of up to $4,000 that you pay for yourself, your spouse, or a dependent, as a tuition and fees deduction.

U is for Unreasonable Compensation.

S corporations must be sure that compensation paid to shareholders who are also employees is not unreasonable.

V is for Vacation Home.

Assuming that your vision of a vacation home and the IRS’ vision are similar enough, you can get a tax break or two on purchasing and owning a vacation home.

W is for Wash Sale.

A wash sale is, at its most basic, when you sell or trade stock or securities at a loss while simultaneously (or nearly simultaneously) buying something nearly identical.
For tax purposes, you generally cannot deduct losses from sales or trades of stock or securities in a wash sale.

X is for X-Mark (Signature).

No matter how thorough and accurate your tax return is, it’s not considered a valid return unless you sign it. If you are filing a joint tax return, your spouse must also sign.

Y is for Year End.

Y is for Year End. Tax returns are filed based on your tax year end. Individual filers have a calendar year which means that federal income tax returns are due on April 15 of each year – unless that day falls on a Saturday, Sunday or holiday as it does in 2012. This year, we have both (!) so returns are due April 17, 2012

Z is for Zero.

The general rule is that the more exemptions that you claim, the less in federal taxes is withheld. If you claim zero exemptions, the maximum amount of withholding will be taken from your check.

Please give us a call 773-728-1500 if you have any questions regarding your tax return, we the accountants in Chicago are here to help you!!

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Chicago Businesses – Watch out for scams

Many of us are looking for cash. We’re all looking for ways to create wealth and save taxes. But when a prospective tax scheme or business strategy sounds too good to be true, it usually is.

Many times I have seen how a client became caught up in an elaborate business ruse, and as aCPA in Chicago area, who have helped countless businesses in filing their corporation tax returns, I have to sort through the resulting disaster for them. They never had to needlessly lose money in this way.

Considering these days economic times, when the wolves come out in sheep’s clothing, there are more crooks out there, and they’re looking for an edge. It’s a recipe for disaster.

Some of the most common scams you should watch out for:

The non licensed business coach, or tax adviser

“Coach” is a title someone often uses when they weren’t smart enough to finish school and get a graduate degree. Now there are great reasons for “coaching” in certain areas of business, but when they start giving tax and legal advice, watch out.

There are a plethora of call center operations that rope would-be entrepreneurs into paying money to talk to someone wearing sandals and a headset who has no business offering tax and legal advice, or doesn’t know anything about running a business.

The “I have a deal for you guys.”

It’s called “affinity fraud.” A friend or relative tells you that someone in their neighborhood or church has found a “great new business” to invest in, and you should chip in big money, too.

On its own, investing in a start-up can be a great idea if you can stomach the risk, but watch out if someone says you don’t need a lawyer or makes big promises. Be realistic, and make sure you use a lawyer to properly document the investment. Suing to recoup losses can often prove too costly to make a lawsuit worth it.

The corporate credit “shelf corporation.”

I have had numerous clients come through my office wondering what they might do with a “shelf corporation” they paid $5,000 to $15,000 for.

Many of  were sold on flashy terms like Dunn and Bradstreet numbers, Paydex scores and unsecured credit, and how they would somehow win larger loans by using the shelf corporation name. The truth is there is no short-cut process. Building corporate credit takes time.

The bogus state filing fee bill.

You register a corporation or LLC in your state, or make the other required filings. Then, all of a sudden you get a piece of mail with a state insignia on the envelope, telling you that you owe another fee.

Plain and simple, these can often be a scam. There are so many times I’ve had clients call me and say, “We got this piece of mail about a state fee. What’s this all about?” And I say, “It’s a scam. Don’t pay it.” And they say, “Really?” Don’t ignore any notice you receive that looks official, but make sure you get a second opinion.

Conclusion

Unfortunately the list could go on and on. So what’s the best way to avoid a scam?

Ask for credentials, make sure you understand who is actually going to be doing the work for you or giving advice, perform due, and get a second opinion from a trusted licensed adviser when tax and legal matters are at stake.

Finally, don’t forget, if it’s too good to be true, it probably is.

Don’t forget to call us at 773-728-1500 if you have any questions related to tax planning issues.  We also provide bookkeeping services for businesses in the Chicagoland area.

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