BIDaWIZ Blog » TAX ADVICE

Do I Have To Repay The First Time Homebuyer Credit Immediately?

The BIDaWIZ Team — Wed, 03 Jun 2015 11:01:40 +0000

The first-time homebuyer credit for homes purchased in 2008, with few exceptions, must be repaid over a 15 year period and takes the form of a $7,500 interest-free loan. What happens if the home is sold or no longer is your primary residence? In this instance, the repayment may be due in the year that chance occurs as referenced in IRC Section 36.

Is the repayment limited if I sell to an unrelated party?
Possibly. The tax increase due to accelerated repayment is limited to the amount of gain (if any) from the sale. To determine the gain for this purpose, a taxpayer must reduce the adjusted basis in the home by the amount of the first-time homebuyer credit that has not been repaid. This means that if you had a loss, you would reduce the basis in the property.

What if there is an involuntary conversion of the home?
In this case, the accelerated repayment requirement does not apply if a taxpayer purchases a new primary residence within two years from the date when the disposition or the cessation of use occurs. The general repayment rules apply to the new principal residence as if it were the converted home.

What if the taxpayer passes away?
If a taxpayer dies during a repayment period, no credit repayment is required for the year of death or any subsequent taxable year.

How is the credit repaid?
To repay the credit, the taxpayer must increase the Federal income taxes by 6 2/3% (or 1/15) of the amount of the credit for each taxable year in the 15 year repayment period. The repayment period begins with the second taxable year following the year of qualifying home purchase.

Tax Nexus For Employers That Allow Employees To Telecommute

The BIDaWIZ Team — Fri, 08 May 2015 21:24:32 +0000

Employers that allow their employees to telecommute across state lines may be at risk for exposing their company to additional tax filings. Each state has a different set of rules for establishing nexus or “doing business” in their state, but there are a few general principles to follow.

Telecommuting and state tax nexus
Generally speaking, a business can establish state tax nexus if they have a business location, perform services or generate sales within a particular state. In certain states, this includes employees that regularly and consistently telecommute across state lines. This may be the case even if the out-of-state employer made no sales in the state and the employee telecommuted only part time. Furthermore, there are some states in which nexus is triggered even if the telecommuters are performing back office administrative functions.

Do we have nexus?
The first step is to determine the specific activities that the employee is conducting within their state of residence. You will also need to determine if any company sales are generated from that state. Then you’ll need to review these activities in accordance to state specific rules. For instance, each state has a different definition of, “doing business” in their state and whether or not nexus is created. It’s also important to note that the guidance in the State Department of Revenue websites and specific State citations may not always explicitly cover every specific situation. For example, the term “generally” will be used often in the state citations to cover the exceptions. You also may need to reference past State Supreme Court cases. If you have an employee telecommuting from Florida, an example would be the Florida Technical Assistance Advisement No. 09A-058,17. In this advisory, it was determined that a mail order seller’s use of a Florida-based independent contractor consultant to provide process improvement services to personnel of the company at its corporate headquarters located outside Florida did not cause the company to have sales/use tax nexus in Florida. Working out of her Florida home, the consultant helped the company to research and select new products that it would offer for resale in its mail-order business. The consultant did not have any contact with customers of the company, nor did she provide any services that were detectable by the company’s customers. The Department of Revenue agreed with the company that the term “transaction of business” in the Florida use tax nexus statute “generally … includes activities that further the taxpayer’s ability to establish and maintain a market in this state.” Finding that the consultant’s process improvement activities were provided directly to the company’s corporate headquarters personnel rather than to customers in Florida, the Department ruled that the company was not required to collect and remit Florida use tax on its mail-order sales of merchandise. While this specific case covers use/sales tax, it may be referenced if there are no other similar cases covering telecommuting.

What are the implications for establishing tax nexus?
The result is that the out-of-state employer may be subject to additional corporate tax liabilities and required to file additional returns. The implications can also be long-lasting as several states also have trailing nexus rules.

Should your company offer telecommuting as an option?
While telecommuting provides employees with significant work/life balance, the business must evaluate the financial benefits for providing that option versus the potential additional corporate income tax liabilities and the administrative costs of filing additional state income tax returns. It’s certainly possible that it may be worthwhile to offer telecommuting, but the state tax requirements must first be reviewed.

More questions? Browse answers or ask nexus tax questions online.

Are Travel Expenses Deductible When On A Long-Term Project?

The BIDaWIZ Team — Fri, 27 Mar 2015 21:09:48 +0000

The short answer is that it depends. Generally, the rules for deducting travel and living expenses while away from home depend on how long the work is being performed away from your family home.

Where is your tax home?
The first step we need to do is establish where your tax home is as per IRS Publication 463 and the Internal Revenue Code (IRC) Sections 162 & 274. This is your regular place of business, regardless of where you maintain your family home. Generally speaking, if you and your spouse do not live at your tax home, you cannot deduct the cost of traveling between your tax home and your family home. You also cannot deduct the cost of meals and lodging while at your tax home. However, there is an exception to the rule in which you are only on a temporary assignment. This means that you expect to be at your temporary assignment for less than a year. In this case, your tax home does not change to your work location, but continues to be where you reside. Thus, you would be able to deduct travel expenses and living expenses that are not reimbursed by your employer.

What if my assignment is longer than a year?
If you expect to work for more than 1 year in the new business location, you would not be able to deduct travel and living expenses as your tax home changes to the new location. Travel and living expenses are considered personal expenses in this instance.

How does a taxpayer claim these expenses?
Please note that if the taxpayer meets the temporary assignment requirement for a tax home, they can deduct the expenses on Form 2106, which flows to Schedule A of your form 1040. If the taxpayer is self-employed, the expenses are reported on Schedule C, assuming the business is taxed as a sole proprietorship or disregarded entity.

More questions? Browse answers or ask travel expense tax questions online.

What If My Client Doesn’t Disclose A Foreign Financial Account?

The BIDaWIZ Team — Fri, 27 Mar 2015 20:33:41 +0000

If your client holds foreign financial accounts with a value exceeding $10,000, it most likely needs to be reported on the report of Foreign Banks and Financial Accounts (FBAR) FinCEN 114. Unfortunately, sometimes clients do not disclose this information to their accountant even if the client questionnaire requests it. What should you do if your client does not report this account until after the filing deadline passes?

What if a client does not disclose their foreign accounts?
First, it is important to note that the FinCEN 114 is due on June 30th of the following calendar year and is filed via the BSA E-Filing System. If this reporting will be filed late, the client needs to include a reason for filing late on the cover page of the electronic report or enter a customized explanation using the “Other” option.

Is there a penalty for filing FinCEN 114 late?
The IRS may not impose a penalty for the failure to file the delinquent FinCEN 114 as long as the income from the account has been reported properly and taxes are paid on the US tax return. In addition, the client must not have been previously contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent forms are submitted.

Are there any other forms that need to be filed?
The client may also need to file Form 8938, if the account was $50,000 on the last day of the tax year or $75,000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad). This is filed with the tax return. If this is filed late, the taxpayer may need to amend the tax return and include this form. There are certain exceptions and other considerations to filing though. For instance, is the taxpayer the sole owner of the account or is this a shared interest? Is the taxpayer married? It may be possible that this form doesn’t need to be filed if an exception is met and the taxpayer is below the reporting threshold. Specifically, if the $110,000 is a joint account with a spouse and they file separately, the taxpayer’s interest is actually $55,000 and below the form 8938 threshold.

What if the client doesn’t want to file the FinCEN Form 114?
We would recommend that you explain to the client the risks and penalties for not reporting should an audit reveal the client’s failure to report the account and income. Explain that you’re simply following the rules as per IRS guidance. If you receive further push-back, this may be one of the scenarios when you have to seriously consider giving the client an ultimatum; either they report it correctly or they find another accountant. However, try to first explain the risks and penalties for not doing so. You can even share with them IRS publications and the IRC references.

More Questions? Ask your foreign tax questions or find a tax accountant online.

Do You have Any Unclaimed Tax Refunds?

The BIDaWIZ Team — Fri, 13 Mar 2015 20:08:03 +0000

If you haven’t filed your 2011 tax return and claimed your refund yet, you may be one of the 1.2 million taxpayers that are owed $1 billion in 2011 tax refunds. The IRS estimates more than half of the refunds are for at least $698.

When is the deadline to claim your 2011 tax refund?
The clock is ticking, so you’d better act fast if you want your tax refund. You need to file a return for 2011 no later than April 15th, 2015. If you don’t file by then, the monies will be handed over to the US Treasury.

The total tax refunds may be even higher
If you don’t file a tax return, the IRS does it for you in what is called a substitute for a return or ghost return. The return is constructed based on the income reported by third parties on W-2 and 1099 forms. However, the IRS usually claims the standard deduction for you as they don’t have access to your itemized deductions and the associated supporting documentation. Therefore, there could potentially be than the $1 billion in reported unclaimed tax refunds as itemized deductions haven’t been applied to these ghost returns.

Why is there so much in unclaimed tax refunds?
In some cases, people earned too little income so they didn’t need to file a tax return, even though they had taxes withheld from their wages, or they made quarterly estimated tax payments.

In other cases, people with low or moderate incomes might not have claimed the maximum Earned Income Tax Credit (EITC) of $5,751 for having three or more children. You might have been eligible for the EITC in 2011 if you had three or more children and earned less than $43,998 ($49,078 married filing jointly). The income limit was $40,964 ($46,044 married filing jointly) for those with two children. The income limit was $36,052 ($41,132 married filing jointly) for those with one child, and $13,660 ($18,740 married filing jointly) for those who were childless.

Do I simply need to file a 2011 tax return to get the money owed to me?
While you just need to submit your return to claim a refund, the money won’t be sent to you unless your financial house is in order. You must have filed your tax returns for 2012 and 2013. And if you owe money to the IRS, your refund will be applied to that balance. It also might be used to offset unpaid child support or federal debts, like student loans.

More tax questions? Browse answers or ask tax refund questions online.

Is It Too Risky To File Your Taxes With Software Like TurboTax?

The BIDaWIZ Team — Wed, 18 Feb 2015 21:46:18 +0000

This tax season has gotten off to a rough start for many taxpayers that utilize do-it-yourself (DIY) software to file their returns. Here’s the scenario, you use online tax software such as TurboTax to file your tax return every year. However, this time around, when you log into your account to file your tax return, you receive a message that your return has already been filed. This is the frightening scenario that is now impacting some taxpayers and this could just be the tip of the iceberg. An estimated 55 million U.S. returns are filed each year utilizing tax software. Are you at risk?

What do we know so far?
We are certain that some taxpayers have noted that their personal information was used to file fraudulent tax returns. The suspicious activity was detected by the Minnesota State Department of Revenue and other states have noted similar behavior. The common thread throughout all of the reports is that the fraudulent returns were filed with TurboTax software. As a result, Intuit, the maker of TurboTax, halted the transmission of state returns for about 24 hours. Intuit has since included additional security measure in their tax filing process to prevent fraud. As of now, the other large tax software providers such as H&R Block and TaxACT have not reported the same unusual activity.

Was there a security breach?
At this time, this is the big unknown. The FBI has started an investigation and Intuit has stated that they do not believe that their computer systems have been compromised. Furthermore, Intuit is working with a third party security firm, Palantir, to investigate the fraudulent activity further. The explanation that Intuit has given thus far is that the activity is the result of phishing email scams and possibly a breach of an outside third party database unrelated to Intuit.

Who is at fault?
Intuit’s explanation is certainly plausible. There are many sophisticated email phishing scams and other ways for hackers to access personal information. However, we are concerned that it appears as though the scheme targeted only TurboTax and none of its competitors.

Should I reconsider filing with tax software?
That’s a question only the taxpayer can answer. The risk for fraud and identify theft has always existed with any form of tax preparation. Having said that, the risk is certainly greater with online tax software than it is with a tax professional. Furthermore, as is the case with almost every online service, users must agree to the terms of service which disclaims TurboTax from being responsible in the event of fraud. This means that if you are a victim of fraud and another party filed your tax return for you, you’re on your own in resolving the matter.

Isn’t tax software the cheapest and fastest way to file?
Yes. The fee for filing online with tax software will almost always be less than hiring a tax professional. However, there is more risk with filing online and there are tax compliance and planning limitations with these programs. A software program simply cannot replace a CPA or Enrolled Agent. Still, if you do decide to continue to file online or on paper, there are additional security measures to take. You may want to consider obtaining an Identity Protection PIN (IP PIN) from the IRS. This process can take months to process, but it can provide added protection. Once the pin number is issued, it becomes your personal password that must be included on your tax return or the IRS will not process the return.

More tax questions? Browse answers or ask tax filing questions online. You can also find accountants online here.

Tax Reporting For US Citizens With Foreign Pension Income

The BIDaWIZ Team — Fri, 13 Feb 2015 01:25:44 +0000

There are over 4 million tax returns filed every year with a taxpayer claiming a federal tax credit via Form 1116. It should come as no surprise that the source of the foreign income covers countries across the world, with Canada and the United Kingdom representing the largest portion of the mix. In fact, over 10% of the Form 1116 forms filed were due to foreign taxes paid in Canada (source: IRS statistics 2011). Do you qualify for the foreign tax credit?

Can you claim a tax credit for foreign pension income?
Generally, the answer is yes. In filing the Form 1116, you will be given the option of classifying the income in a certain category. For instance, if the pension income is due to a distribution, we can apply certain tax principles and the language in the publications to classify the income as general category (column B). Specifically, if we reference the Form 1116 instructions it states that, “General category income is income that is not passive category income or income described in categories c, d, and e, discussed later.” Foreign pension income is not defined in any of these other income categories. Furthermore, if we review the definition of passive income in IRC Section 469, pension income does not fall in the passive income category. This is just one example of the care that needs to be put forth in completing this form.

When do we file the Form 1116?
The first step is to file your foreign tax return reporting all of the income, deductions and exemptions, which results in a net tax that can be claimed on the Form 1116. If no foreign tax is due, then the Form 1116 is not applicable. See page 2 of Form 1116 under the Header, “Foreign Taxes Not Eligible for a Credit.”

What if foreign taxes are withheld?
If you are certain that the foreign taxes withheld with be your final foreign tax liability, then you may file the Form 1116. For instance, in Canada if you aren’t electing Section 217 treatment, the tax deducted would be considered your final tax obligation to Canada and no Canadian return is necessary to be filed. You would be able to claim the foreign tax credit for the amount on Form 1116.

More Questions? Ask your foreign tax questions or find a tax accountant online.

How Much Does It Cost To Hire A Tax Professional To File A Return?

The BIDaWIZ Team — Thu, 15 Jan 2015 20:54:30 +0000

The tax filing season is set to start next week when the IRS will begin accepting tax returns. Tax filers can buy do-it-yourself (DIY) software or hire a tax professional to file their return. Those interested in hiring a tax professional, may be interested to know how much it costs. An annual survey conducted by the National Society of Accountants (NSA) provides some guidance as to what you can expect in fees.

How much does it cost to hire a tax pro to file a 2014 tax return?
According to the National Society of Accountants (NSA), it costs $273 to hire a tax professional to prepare an itemized individual tax return, which includes a state tax return. The tax prep fee increased 4.6% as compared to the $261 average a year ago, but a lower growth rate than the 6.1% year over year increase last year. If the taxpayer is just claiming the standard deduction, the average cost is $159 versus $152 a year ago or an increase of 4.6%. You may be asking yourself how $273 is affordable when you compare that to online tax software program which range from $10 to $72 to file a federal and state tax return. While it is less expensive than the average price to hire a tax professional, there are other factors to consider. First, the tax professional will undoubtedly be able to provide advice and consultations that simply aren’t available with a tax software program. Second, the tax filer does not have to spend time completing online tax forms. Third, the tax filer will have peace of mind that a CPA or Enrolled Agent is partly accountable for their return. Fourth, the $273 fee for an itemized federal return and state return or $159 for a simple return, are only averages. There are many tax preparers that offer services below these rates. Many of the accountants in our network can attest to that as you can submit a request here to file your taxes online and receive quotes from multiple tax professionals.

What are the fees for business tax returns and other services?
The survey indicated a wide range of average prices for different type of services. For instance, the average fee to prepare a business return such as a form 1065 or 1120 can cost $634 and $817 on average versus $590 and $806 a year ago or up 7.5% and 1% respectively. Most accountants offer these services with a one hour free consultation with an average value of $100.

If you’re wondering how the pricing in your area compares to the rest of the country, the survey provided details. Those in the Pacific states (AK, CA, HI, OR, WA) can expect the highest fees at $348 vs. $303 a year ago, followed by the Mid-Atlantic states (NY, NJ, PA) at $314 vs. $274 a year ago, followed by the South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) at $268 vs. $270 a year ago and then the East South Central states (AL, KY, MS, TN) at $262 vs. $294 a year ago. The New England states (CT, ME, MA, NH, RI, VT) were at $246, the West South Central (AR, LA, OK, TX) states were at $205, East North Central states (IL, IN, MI, OH, WI) were at $240, the West North Central states (IA, KS, MN, MO, NE, ND, SD) were at $198, and the Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) states were at $256.

More tax questions? Browse answers or ask 2014 tax questions online. You can also find accountants online here.

Tax Research Support For Accounting Firms

The BIDaWIZ Team — Wed, 31 Dec 2014 15:36:05 +0000

We are announcing the launch of our new research support services specifically tailored to accounting firms. Firms can now utilize our extensive team of accounting and tax professionals to obtain answers to complex client matters.

Tax Research Support – Ask technical tax and accounting questions to our team of professionals that will do the research for you and respond with thorough answers that reference authoritative sources (IRC & Tax Court Cases). We can help support your practice when a client situation arises. In addition, you’ll experience these benefits:

Improve Productivity – Focus on more important revenue generating tasks. Avoid spending hours looking through citations and publications when we can help.
Reduce Costs – You’ll have access to our professionals at only a fraction of the price it would cost to hire a resource internally or utilize limited off-the-shelf tax research software.
Broaden Expertise – We’ve answered over 18,000 client questions since our inception. We can help you grow your practice by leveraging our expertise.

Marketing/Branding – We’re also working with solo practitioners and small firms in marketing and branding services for accountants. They include professional content writing services, newsletter management, website design/development, and search engine optimization. Many practitioners don’t have the time and/or expertise to manage the content and grow their newsletter lists. We have a lot of experience in this area and can help you grow your practice.

Please let us know if you’re interested in any of the above services. You can email us directly at admin@bidawiz.com or call at 866-991-3665 to learn more about the service and pricing options.

When Will The IRS Accept Your 2014 Tax Return?

The BIDaWIZ Team — Tue, 30 Dec 2014 20:57:18 +0000

The 2014 tax season is scheduled to begin on time. According to the IRS, the agency will start accepting both electronic and paper tax returns on January 20th, 2015. This comes as a surprise given that lawmakers waited until December 19th to address renewing several tax extender provisions.

How can the IRS be ready to accept returns on time?
The IRS commissioner John Koskinen commented that the agency reviewed the late tax changes and determined that they updated all of their systems to reflect the latest tax laws. The IRS also has about 3 weeks to complete any updates.

How should I file my tax return?
Whether you utilize tax software or tax professional, filing electronically will help to ensure an accurate and timely filed return. Furthermore, taxpayers that file electronically should receive their tax refund fairly quickly.

When can I expect my refund?
When you file your tax return, you will be given an option to receive your refund by direct deposit, paper check, or to buy Savings Bonds. Most taxpayers that e-file and elect to be paid via direct deposit can expect to receive their federal tax refund within 10 to 14 days after the return is accepted. If you don’t receive your federal tax return after 21 days, then you may need to contact the IRS. If you filed a paper tax return and elected to be paid in the mail, it will take much longer. Usually, it will take 4 to 6 weeks in that case.

How can I track my refund?
You can track your refund on the IRS site called Where’s My Refund, but the length of time it takes for the information to appear varies greatly depending on how you filed. If you filed electronically, information about your refund will generally appear 72 hours after the IRS acknowledges receipt of your return. However, if you sent your return by mail, it will take three to four weeks for a status update. If there’s no information yet, check back each Wednesday. You need to input your Social Security number, filing status (single, married filing jointly, etc.), and amount you’re owed to access the information.

More tax questions? Browse answers or ask tax questions online. You can also find an accountant online here.