This is a great question and is usually always asked when I prepare a client's tax return who has some Social Security Income and was taxed on their benefits. There are some important factors I will like to highlight that affects your social security benefits and how IRS tax rules may apply depending on certain factors.
Some factors to consider when you have Social Security Income:
The following quick computation can be done to determine if some of your benefits are taxable:
Step 1. First, add one-half of the total Social Security benefits you received to the total of your other income, including any tax-exempt interest and other exclusions from income.
Step 2. Then, compare this total to the base amount used for your filing status. If the total is more than the base amount, some of your benefits may be taxable.
The base amounts are:
Where taxpayers can defer their "other" income from one year to another, such as by taking Individual Retirement Account (IRA) distributions, they may be able to plan their income so as to eliminate or minimize the tax on their Social Security benefits from one year to another. However, the required minimum distribution rules for IRAs and other retirement plans have to be taken into account.
Individuals who have substantial IRAs—and who either aren't required to make withdrawals or are making their post age 70.5 required minimum distributions without withdrawing enough to reach the Social Security taxable threshold—may be missing an opportunity for some tax-free withdrawals. Everyone's circumstances are different, however, and what works for one may not work for another.
If you have questions about how these issues affect your specific situation, or if you wish to do some tax planning, please give this office a call 540-693-5881.
Hobby versus a for-profit Business: Do you know the factors the IRS uses for determining if an activity is engaged in for profit?
Generally, if the taxpayer earns a profit in at least three of the last five years, a presumption is made that the activity is for profit. This is a safe harbor rule (which is statutory), which if not met the taxpayer must establish a profit motive using the following factors:
The regulations list nine factors that will be taken into account in determining whether an activity is engaged in for profit. No one factor is determinative in making this determination. This list is not exclusive and other factors may be important. Not all of the factors will apply to each case. The factors are:
For more information regarding specific circumstance feel free to contact me.
I am an EA! And I love being America's Tax Expert.
When I set out to be an Accountant, I knew I wanted to specialize in Taxes! It was the most feared word besides the IRS. I always wanted to help people solve their financial problems, whether it was budgeting, restoring their credit, or saving for retirement. When I decided to become an accountant and financial educator, I realize that that there were 3 main reason that kept the American people in financial bondage; the lack of Financial Education, Debt, and Taxes. So when I started preparing people taxes I knew being an EA was the right credentials for me. I wanted to represent taxpayer regardless of their geographical location and level of education. So, I became an Enrolled Agent, America's Tax Expert.
What's an Enrolled Agent?
Enrolled agents (EAs) are federally-authorized tax practitioners who have demonstrated technical competence in tax law and are the only taxpayer representatives licensed to practice by the United States government. Only EAs, attorneys and CPAs may represent taxpayers without limitation before the IRS. EAs advise and represent taxpayers who are being examined by IRS, taxpayers who are unable to pay, and taxpayers who wish to avoid or recover penalties. EAs prepare tax returns for individuals, partnerships, corporations, estates, trusts and any other entities with tax-reporting requirements. Unlike attorneys and CPAs, who may or may not choose to specialize in taxes, all EAs specialize in taxation and are required by the federal government to maintain their professional skills with continuing professional education.
History of Enrolled Agents
After the Civil War, many citizens had problems settling claims with the government for horses and other property confiscated for use in the war effort. After many petitions and much pleading, Congress, in 1884, endowed enrolled agents with the power of advocacy to prepare claims against the government and to seek equitable justice for the citizenry. For many years, the purpose of the enrolled agent was to act in this capacity.
In 1913, when the income tax was passed, the job of the enrolled agent was expanded to include claims for monetary relief for citizens whose taxes had become inequitable. As the income tax, estate, gift and other sources of tax collections became more complex, the role of the enrolled agent increased to include the preparation of the many tax forms that were required. Additionally, as audits became more prevalent, their role evolved into taxpayer advocacy and negotiating with the Internal Revenue Service on behalf of their clients.
In 1972, EAs united to form a national association to represent the needs and interests of EAs and the rights of taxpayers. That association is today called the National Association of Enrolled Agents (NAEA). Through their national association and state affiliates, enrolled agents have successfully defended their rights to practice and furthered the passage of legislation and administrative rules that benefit both tax practitioners and ordinary citizens.
Kolen Services, Virginia base Tax Accounting & Financial Services Firm is looking for more Tax Professionals to work with to become Enrolled Agents, helping with their initiative to Solve Tax Problems and Promote Financial Literacy.
Don't forget to File Your Taxes!
This is a reminder to Taxpayers! Don't forget the Tax Filing deadline has been extended because Emancipation Day falls on Saturday, Apr. 16, and therefore will be observed on Friday, Apr. 15, which pushes the tax filing deadline to the next business day – Monday, Apr. 18, 2016. This is great news for taxpayers, because they have a few more days to file their tax return. Most individual taxpayers will have until Apr. 18, 2016 to file and pay their taxes. However, because Patriot's Day will be observed on Monday, Apr. 18, 2016 in Maine and Massachusetts, residents of those states will have until Apr. 19, 2016 to file and pay their taxes.
References: For due dates on a Saturday, Sunday, or legal holiday, see FTC 2d/FIN ¶ T-10796 ; United States Tax Reporter ¶ 75,034 ; TaxDesk ¶ 807,013 ; TG ¶ 1973 .
Fredericksburg's Tax Expert
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