Currently Not Collectible Status

There are times where you agree with the IRS that you owe taxes, but you can’t pay due to your current financial situation. If the IRS agrees that you can’t both pay your taxes and your reasonable living expenses, it may place your account in Currently Not Collectible (CNC) (hardship) status.

While your account is in CNC status, the IRS will not generally engage in collection activity.  For example: It won’t levy on your assets and income. However, the IRS will still charge interest and penalties to your account, and may keep your refunds and apply them to your debt. 

Before the IRS will place your account in CNC status, it may ask you to file any delinquent tax returns.

If you request CNC status, the IRS may ask you to provide financial information, including your income and expenses, and whether you can sell any assets or get a loan.

If your account is placed in CNC status, during the time it can collect the debt the IRS may review your income annually to see if your situation has improved . Generally, the IRS can attempt to collect your taxes up to 10 years from the date they were assessed, though the 10-year period is suspended in certain cases. The time the suspension is in effect will extend the time the IRS has to collect the tax.

Because the IRS won’t suspend interest and penalty charges, even if it stops trying to collect the balance due, you may want to consider other possible payment options within your means before asking the IRS to place your account in CNC status.

Source: IRS Taxpayer Advocate Services

Basic Tax Tips for the Sharing Economy

If taxpayers use one of the many online platforms to rent a spare bedroom, provide car rides or a number of other goods or services, they may be involved in the sharing economy. The IRS now offers a Sharing Economy Tax Center. This site helps taxpayers find the resources they need to help them meet their tax obligations.

Here are a few key points on the sharing economy:

Taxes. Sharing economy activity is generally taxable. It does not matter whether it is only part time or a sideline business, if payments are in cash or if an information return like a Form 1099 or Form W2 is issued. The activity is taxable.
Deductions. There are some simplified options available for deducting many business expenses for those who qualify. For example, a taxpayer who uses his or her car for business often qualifies to claim the standard mileage rate, which was 54 cents per mile for 2016.
Rentals. If a taxpayer rents out his home, apartment or other dwelling but also lives in it during the year, special rules generally apply. For more about these rules, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Taxpayers can use the Interactive Tax Assistant Tool, Is My Residential Rental Income Taxable and/or Are My Expenses Deductible? to determine if their residential rental income is taxable.
Estimated Payments. The U.S. tax system is pay-as-you-go. This means that taxpayers involved in the sharing economy often need to make estimated tax payments during the year to cover their tax obligation. These payments are due on April 15, June 15, Sept. 15 and Jan. 15. Use Form 1040-ES to figure these payments.
Payment Options. The fastest and easiest way to make estimated tax payments is through IRS Direct Pay. Or use the Treasury Department’s Electronic Federal Tax Payment System (EFTPS). 98005
Withholding. Taxpayers involved in the sharing economy who are employees at another job can often avoid making estimated tax payments by having more tax withheld from their paychecks. File Form W-4 with the employer to request additional withholding. Use the Withholding Calculator on IRS.gov.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-896-2999.

Unemployment Benefit Tips

Taxpayers who received unemployment benefits need to remember that it may be taxable. Here are five key facts about unemployment:

Unemployment is Taxable. Include all unemployment compensation as income for the year. Taxpayers should receive a Form 1099-G, Certain Government Payments, by Jan. 31. This form shows the amount received and the amount of any federal income tax withheld.
There are Different Types. Unemployment compensation includes amounts paid under federal law or state law as well as railroad, trade readjustment and airline deregulation laws. Even some forms of disability payments can count. For more information, see IRS Publication 525.
Union Benefits May be Taxable. Benefits received from regular union dues as income might be taxable. Other rules may apply if a taxpayer contributed to a special union fund and those contributions to the fund are not deductible. In this case, report only income exceeding the amount of contributions made.
Tax May be Withheld. Those who receive unemployment can choose to have federal income tax withheld by using Form W-4V, Voluntary Withholding Request. Those choosing not to have tax withheld may need to make estimated tax payments during the year.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

Boost your Tax Refund

Rethink filing status to boost your refund
One of the first decisions you make when completing your tax return, your filing status, can affect your refund's size, especially if you're married. While most married couples file jointly -- 96 percent did in 2009 -- a joint return is not always the most beneficial way to boost your refund. Married-filing-separately status requires more effort, but the time you invest offers tax savings under the right circumstances. Calculating your taxes both ways will point you in the higher refund direction.

Don't shy away from tax deductions
Keeping a trip log for your volunteer work, job-hunting and doctor's appointments may seem like a waste of time, but those miles add up and represent deductions. Parking, toll and bus or taxi receipts support your claim, while a record of the miles you drove lets you write off the cost of using your car through the standard mileage rate. Good travel records could help you reach the needed minimum percentage of adjusted gross income for miscellaneous deductions.

Moving for a new job 50 miles or more away can boost your tax refund because you can deduct moving, storage and travel expenses related to your relocation. You have to work full time at the new job for at least 39 weeks the first year; however, you can take the deduction in the year you move if you expect to meet this time test within the following tax year.

Maximize your IRA contributions
You have until April 15th to open a traditional IRA for the previous tax year. That gives you the flexibility of claiming the credit on your return, filing early and using your refund to open the account. Traditional IRA contributions reduce your taxable income. You can take advantage of the maximum contribution and, if you're at least 50 years old, the catch-up provision, to add to your IRA.

Timing can boost your tax refund

Taxpayers who watch the calendar improve their chances of getting a larger refund. If you can, pay January's mortgage payment before December 31st and get the added interest for your mortgage interest deduction.

Schedule health-related treatments and exams in the last quarter of the year to boost your medical expense deduction potential.

Become credit savvy and refund happy
Credits work better than deductions as refund boosters. For each credit dollar, your taxes go down a dollar. Yet, 20% of eligible Americans don't claim the earned income tax credit. If you're working and meet the guidelines, you may be eligible for EITC even if you're single with no children. If you have kids, the child-care credit may help you.

For those with children in college, credits related to higher education expenses, such as the American Opportunity Tax Credit, could provide tax relief. “The American Opportunity Credit is great because up to $1,000 is refundable.

Courtesy of TruboTax

For more information contact Neikirk, Mahoney and Smith at 502-896-999

Six Tax Tips For Independent Contractors

The fact that you are getting a 1099-MISC to report your earnings to the IRS means you are in business for yourself. You need to take full responsibility and treat your business as a business—and do the normal things a business does when filing taxes.

Here are a few ways you can start acting like a business and mitigate issues with the IRS.

1. Stop giving out your Social Security number and get an Employer ID (EIN) number. This accomplishes two things: It protects you from identity theft, and it shows the IRS that you are a business.

2. Open a business bank account, using your new EIN, to separate your personal finances from your business finances.

3. Keep books. If you don’t know how to keep your books, it’s time to either learn or hire a competent bookkeeper.

4. Select accounting software that’s appropriate for your business—don’t just use something that doesn’t really meet your needs just because it’s free. These days, there are sophisticated choices that can not only track your bookkeeping needs but also help you create a business website.

5. Do some tax planning. Read a book on small business taxes to learn how about tax benefits available to business owners of all kinds.

6. Pay your estimated taxes. After you have the numbers and know what they mean, and once you have reduced your profits by taking advantage of tax planning, you can determine your quarterly profits

 Even if your overall taxable income is a loss, you may owe taxes because your Schedule C had a profit. You’ll be paying 15.3 percent as self-employment taxes (Social Security and Medicare) on those profits.

Courtesy of Equifax

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

12 Tax tips for Small Business

Small-business tax rule No. 1: Don't mess with the IRS.

1. Home office
The deduction, however, isn't limited to a full room. Your home office can be part of a room. Just how much of the space is deductible? Measure your work area and divide by the square footage of your home. That percentage is the fraction of your home-related business expenses -- rent, mortgage, insurance, electricity, etc. -- that you can claim.

2. Office supplies
Even if you don't take the home office deduction, you can deduct the business supplies you buy.

3. Furniture
When your office supplies are more than just pens and paper, you have another tax-cutting opportunity.

Office-furniture acquisitions provide a couple of choices. Deduct 100% of the cost in the year of the purchase or deduct a portion of the expense over 7 years, also known as depreciation.

4. Other equipment
Items such as computers, copiers, fax machines and scanners also are tax-deductible.

5. Software and subscriptions
The increased Section 179 provides another tax break in this area of business expenses. Previously, a company had to depreciate the cost of computer software over 3 years. Now, off-the-shelf software a business buys can be fully expensed in the year purchased.

6. Mileage
If you drive for business, the IRS wants to give you some of your money back. But Uncle Sam loves documentation, so keep a notebook in your vehicle to record the date, mileage, tolls, parking costs and the purpose of your trip.

7. Travel, meals, entertainment and gifts
Good news, small-business travelers. You might as well stay in a nice hotel, because the entire cost is tax-deductible. Likewise, the cost of travel -- air, rail or auto -- is 100% deductible, as are costs associated with life on the road (dry cleaning, rental cars and tipping the bellboy).

The only exception is dining out. You can deduct only 50% of your meals while traveling.

8. Insurance premiums
Self-employed and paying your own health insurance premiums? These costs are 100% deductible.

This break primarily benefits proprietorships, but there are limits. The deduction can't be more than your business' net profit. And it's not allowed if you were eligible for other health care coverage, including that offered by your employed spouse's medical plan.

9. Retirement contributions
Are you self-employed and saving for your own retirement with a SEP IRA or Keogh? Don't forget to deduct your contribution on your personal income tax return.

10. Social Security
The bad news: If you're self-employed or starting a small business, you have to pay double the Social Security contributions you would as an employee. That's because federal law requires the employer pay half and the employee pay half. Self-employed workers are both, meaning the total will equal 15.3% of your net profits.

11. Telephone charges
You can deduct the cost of the business calls that you make for business from home. When your bill comes in, circle the business-related calls, total them up and keep a copy. At the end of the year, tally your 12 bills and deduct 100%.

12. Child labor
Depending upon how much you paid them, they might be able to avoid income taxes. Plus, there is no Social Security tax when you hire your child who is 17 or younger and you can deduct the salary as a business expense. This break is available, however, only if you operate as a sole proprietor or as a partnership in which you and your spouse are the only partners. If your business runs as a corporation, then it, not you, is considered the employer and the corporation is not relieved of the tax liabilities.
Courtesy of BankRite

5 Easy Tax Tips

Don’t Forget the Basics
When preparing your taxes, nothing is more important than keeping good records. Without accurate records of profit and loss, business expenses and eligible tax deductions, you can’t estimate your tax liability, your accountant can’t give precise and professional advice and in the event of an audit, you can’t prove your expenses.

Don’t Mix Business With Pleasure; At Least Not On Your Tax Return
One aspect of keeping good records for your business is to be sure to keep business expenses separate from your personal expenses.

Ask for Help
Between the tax code, tax regulations and IRS rulings, the federal tax rules span 73,954 pages. America’s tax system is way too complicated for most people to understand, especially if they are small business owners who have to deal with all of the extra complexities and regulatory obligations. So get an accountant to help do your taxes.

 Take Advantage of Recent Legislation
Every year there are a variety of changes to federal legislation that might affect your business and your tax return.

Avoid Common Audit Traps
Going through an IRS audit is never fun for anyone, so it’s best to avoid putting yourself in that position in the first place. With careful planning and attention to detail, you can avoid some of the most common IRS audit traps.

So, in sum: keep your files in order, stay up-to-date, and consult a professional tax adviser to avoid playing fast and loose with the federal government’s rules and regulations.

Courtesy of Kabbage

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

Tips for Charity Travel

Do you plan to donate your time to charity this summer? If you travel for it, you may be able to lower your taxes. Here are some tax tips that you should know about deducting charity-related travel expenses:
Qualified Charities.  To deduct your costs, you must volunteer for a qualified charity. Most groups must apply to the IRS to become qualified
Out-of-Pocket Expenses.  You may be able to deduct some of your costs including travel. They must be necessary while you are away from home.
Genuine and Substantial Duty.  Your charity work has to be real and substantial throughout the trip.
Value of Time or Service.  You can’t deduct the value of your time or services that you give to charity.
Travel You Can Deduct.  The types of expenses that you may be able to deduct include: Air, rail and bus transportation,  Car expenses, Lodging costs, Cost of meals, and Taxi or other transportation costs between the airport or station and your hotel.
Travel You Can’t Deduct.  Some types of travel do not qualify for a tax deduction. For example, you can’t deduct your costs if a significant part of the trip involves recreation or  vacation.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

Miscellaneous Deductions Can Trim Taxes

Miscellaneous deductions may reduce your tax bill. These may include certain expenses you paid for in your work if you are an employee. You must itemize deductions when you file to claim these costs. Many taxpayers claim the standard deduction, but you might pay less tax if you itemize. Here are some IRS tax tips you should know about these deductions:

The Two Percent Limit. You can deduct most miscellaneous costs only if their sum is more than two percent of your adjusted gross income. These include expenses such as:

Unreimbursed employee expenses.
Job search costs for a new job in the same line of work.
Tools for your job.
Union dues.
Work-related travel and transportation.
The cost you paid to prepare your tax return. These fees include the cost you paid for tax preparation software. They also include any fee you paid for e-filing of your return.
Deductions Not Subject to the Limit. Some deductions are not subject to the two percent limit. They include:

Certain casualty and theft losses. In most cases, this rule is for damaged or stolen property you held for investment. This may include property such as stocks, bonds and works of art.
Gambling losses up to the total of your gambling winnings.
Losses from Ponzi-type investment schemes.
You can’t deduct some expenses. For example, you can’t deduct personal living or family expenses.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

Miscellaneous Deductions Can Trim Taxes

Miscellaneous deductions may reduce your tax bill. These may include certain expenses you paid for in your work if you are an employee. You must itemize deductions when you file to claim these costs. Many taxpayers claim the standard deduction, but you might pay less tax if you itemize. Here are some IRS tax tips you should know about these deductions:

The Two Percent Limit. You can deduct most miscellaneous costs only if their sum is more than two percent of your adjusted gross income. These include expenses such as:

Unreimbursed employee expenses.
Job search costs for a new job in the same line of work.
Tools for your job.
Union dues.
Work-related travel and transportation.
The cost you paid to prepare your tax return. These fees include the cost you paid for tax preparation software. They also include any fee you paid for e-filing of your return.
Deductions Not Subject to the Limit. Some deductions are not subject to the two percent limit. They include:

Certain casualty and theft losses. In most cases, this rule is for damaged or stolen property you held for investment. This may include property such as stocks, bonds and works of art.
Gambling losses up to the total of your gambling winnings.
Losses from Ponzi-type investment schemes.
You can’t deduct some expenses. For example, you can’t deduct personal living or family expenses.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

Sign Up for IRS Summertime Tax Tips

The Internal Revenue Service today encouraged taxpayers interested in receiving helpful consumer tips this summer to get a jump-start on this year’s taxes by subscribing to the IRS Tax Tips email service.

Beginning July 1, the IRS will begin offering its Summertime Tax Tip series, which includes useful information in English and Spanish. Tax Tip subscribers will receive a new Tip via email three times a week during July and August. They will also get a Tax Tip each weekday during the tax filing season. The IRS also issues Special Edition Tax Tips on important tax topics throughout the year.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

Tips for Clients Moving Overseas

U.S. citizens living overseas must still file federal tax returns if they meet IRS filing requirements, according to the Huffington Post.

1. File your return on time.

2. Learn to save on your taxes.

3. File the FBAR if you have $10,000 or more in foreign financial accounts.

4. Have a foreign pension plan, foreign investment account, foreign trust etc? You need to file this.

5. Know the rules of your state.

6. Keep your health insurance.

7. Report your rental income.

8. Keep your social security income.

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

IRS: Five Common Questions from Taxpayers

From Neikirk, Mahoney & Smith, the IRS has released five common questions that they receive from taxpayers, along with the answers.

1. What is included in household income?
"For purposes of the PTC, household income is the modified adjusted gross income of you and your spouse if filing a joint return, plus the modified AGI of each individual in your tax family whom you claim as a dependent and who is required to file a tax return because their income meets the income tax return filing threshold. Household income does not include the modified AGI of those individuals you claim as dependents and who are filing a return only to claim a refund of withheld income tax or estimated tax."

2. The IRS is asking to see my 1095-A. What should I do?
"You should follow the instructions on the correspondence that you received from the IRS.  You may be asked for a copy of Form 1095-A in order to verify information that has been entered on your tax return."

3. If I got advance payments of the PTC, do I have to file even if I never had a filing requirement before?
"Yes. If you received the benefit of advance payments of the premium tax credit, you must file a tax return to reconcile the amount of advance credit payments made on your behalf with the amount of your actual premium tax credit.  You must file a return and submit a Form 8962 for this purpose even if you are otherwise not required to file a return."

4. Marketplace says I did not file, but I did file before the extended due date.  What should I do?
"In advance of the open enrollment period that runs through January 31, 2016, the Marketplace sent Marketplace Open Enrollment and Annual Redetermination letters to individuals who might not have filed a tax return. Follow the instructions in the letter you received."

5. What are my options to receive help with filing a return and reconciling?
"Filing electronically is the easiest way to file a complete and accurate tax return as the software guides you through the filing process. Electronic filing options include free Volunteer Assistance, IRS Free File, commercial software, and professional assistance."

For more information from the IRS, check out their website at irs.gov
You can also contact Neikirk, Mahoney & Smith PLLC at 502-896-2999, or through our website contact form.

How Your Income Affects Your Premium Tax Credit

shared by Neikirk, Mahoney & Smith, a CPA Firm

The Internal Revenue Service says you are allowed a premium tax credit only for health insurance coverage you purchase through the Marketplace for yourself or other members of your tax family. However, to be eligible for the premium tax credit, your household income must be at least 100, but no more than 400 percent of the federal poverty line for your family size. An individual who meets these income requirements must also meet other eligibility criteria. The amount of the premium tax credit is based on a sliding scale, with greater credit amounts available to those with lower incomes.  Based on the estimate from the Marketplace, you can choose to have all, some, or none of your estimated credit paid in advance directly to your insurance company on your behalf to lower what you pay out-of-pocket for your monthly premiums.  These payments are called advance payments of the premium tax credit.  If you do not get advance credit payments, you will be responsible for paying the full monthly premium. If the advance credit payments are more than the allowed premium tax credit, you will have to repay some or all the excess.  If your projected household income is close to the 400 percent upper limit, be sure to consider the amount of advance credit payments you choose to have paid on your behalf.  You want to consider this carefully because if your household income on your tax return is 400 percent or more of the federal poverty line for your family size, you will have to repay all of the advance credit payments made on behalf of you and your family members.     For purposes of claiming the premium tax credit for 2014 for residents of the 48 contiguous states or Washington, D.C., the following table outlines household income that is at least 100 percent but no more than 400 percent of the federal poverty line: Federal Poverty Line for 2014 Returns                                 100% of FPL                          400% of FPL One Individual           $11,490                               up to $45,960 Family of two            $15,510                               up to $62,040 Family of four           $23,550                                up to $94,200 The Department of Health and Human Services provides guidelines for residents of the 48 contiguous states and Washington D.C., one for Alaska residents and one for Hawaii residents. For purposes of the premium tax credit, eligibility for a certain year is based on the most recently published set of poverty guidelines at the time of the first day of the annual open enrollment period for coverage for that year. As a result, the premium tax credit for 2014 is based on the guidelines published in 2013. The premium tax credit for coverage in 2015 is based on the 2014 guidelines. For more information, you can spend hours digging through irs.gov or you can spend a half hour on the phone with one of the tax professionals at Neikirk, Mahoney & Smith at (502) 896-2999.

IRS's Summertime Tax Tips

Straight from the horse's mouth - assuming the IRS is the horse - on this beautiful Friday in the Bluegrass State! If you owe tax, the IRS offers safe and easy ways to pay. Check with Neikirk, Mahoney & Smith CPAs at 502-896-2999 if you have questions or need any help.

Summertime tax payment tips:

• Pay your tax bill.  If you get a bill, you should pay it as soon as you can. You should always try to pay in full to avoid any additional charges. See if you can use your credit card or to get a loan to pay in full. If you can’t pay in full, you’ll save if you pay as much as you can. The more you can pay, the less interest and penalties you will owe for late payment. The IRS offers several payment options on IRS.gov. 
• Use IRS Direct Pay.  The best way to pay your taxes is with IRS Direct Pay. It’s the safe, easy and free way to pay from your checking or savings account. You can pay your tax in just five simple steps in one online session. Just click on the “Payment” tab on IRS.gov. You can now use Direct Pay with the IRS2Go mobile app.
• Get a short-term payment plan.  If you owe more tax than you can pay, you may qualify for more time, up to 120 days, to pay in full. You do not have to pay a user fee to set up a short-term full payment agreement. However, the IRS will charge interest and penalties until you pay in full. It’s easy to apply online at IRS.gov. If you get a bill from the IRS, you may call the phone number listed on it. If you don’t have a bill, call 800-829-1040 for help.
• Apply for an installment agreement.  Most people who need more time to pay can apply for an Online Payment Agreement on IRS.gov. A direct debit payment plan is the hassle-free way to pay. The set-up fee is much less than other plans and you won’t miss a payment. If you can’t apply online, or prefer to do so in writing, use Form 9465, Installment Agreement Request. Individuals can use Direct Pay to make their installment payments. For more about payment plan options, visit IRS.gov.
• Check out an offer in compromise.  An offer in compromise, or OIC, may let you settle your tax debt for less than the full amount you owe. An OIC may be an option if you can’t pay your tax in full. It may also apply if full payment will cause a financial hardship. Not everyone qualifies, so make sure you explore all other ways to pay your tax before you submit an OIC to the IRS. Use the OIC Pre-Qualifier tool to see if you qualify. It will also tell you what a reasonable offer might be.
• Change your withholding or estimated tax.  If you are an employee, you can avoid a tax bill by having more taxes withheld from your pay. To do this, file a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer. The IRS Withholding Calculator tool on IRS.gov can help you fill out the form. If you are self-employed you may need to make or change your estimated tax payments. See Form 1040-ES, Estimated Tax for Individuals for learn more.