Archives for December 2015

All too often when a taxpayer has penalties imposed by the IRS and the taxpayer becomes aware that there are exceptions from the penalties for reasonable cause, the taxpayer erroneously assumes that his reasonable cause explanation will satisfy the IRS and the penalty will be forgiven. Unfortunately, there are also tax preparers, including CPAs, attorneys and enrolled agents, who don’t understand that what the taxpayer or professional deems to be reasonable cause does not necessarily satisfy the IRS’s criteria for reasonable cause.

Take the case of [Read more…] about Taxpayer Loses Reasonable Cause Argument – FBAR Penalty Imposed

In earlier posts, we have discussed the benefits of waiting until age 70 to receive the largest monthly benefit check. At what age one decides to collect SSA is a personal choice? For individuals who do not need the money immediately, delaying the receipt of the benefit makes economic sense. Likewise, family medical history plays a major part in deciding when to begin to receive benefits. Individuals who have a poor medical history or family genes, as well as those who have not adequately saved for retirement, are likely to opt to begin to receive benefits early.

By way of background, 75% of Americans claim their social security (SSA) benefits before they reach their “full retirement age.” Among them, 46% of the total did so at the earliest eligibility age of 62, according to the Consumer Financial Protection Bureau (CFPB). “Full retirement age” is defined as those who reach age 66 or 67 (determined by year of birth).

Government studies show that some individuals, by claiming their benefits early, cost themselves significant money. “When to claim Social Security is for many older Americans the most important financial decision they ever make in their lifetime,” says Olivia Mitchell, an economics professor specializing in pension research at the Wharton School of the University of Pennsylvania. “My motto is work longer, save more and expect less.” Well if you have some alternative retirement funds that you can use before claiming SSA benefits, how do you determine at what age you should begin to receive your SSA benefits?

The Social Security Administration has a benefit estimator on its website which can be found [Read more…] about “The Most Important Financial Decision That You Ever Had”

Some employers allow employees to accumulate overtime hours, sick leave, vacation time, etc. and use those hours to take time off from work with full pay. This is often referred to as paid time-off (PTO). What some employers overlook is that the ability to convert unused PTO or sick days to cash constitutes constructive receipt and will subject the employees to taxes even if they do not receive any cash. Constructive receipt of these amounts can also cause payroll complexities for the employer and employee.

The timing of the taxable event is determined by [Read more…] about Paid Time-Off Plans are Taxable Compensation

Did you know that the IRS audits your Form 1040 every year? Or, did you think that only 3% of all Form 1040s are audited as is often published? Which is it . . .  100% or less than 3%? To paraphrase Bill Clinton’s definition of “is”, it all depends what you mean by the word “audit”.

The fact is that every single return filed is audited by the IRS. If that is the case, why were you not notified of the audit? More about that later. [Read more…] about Did You Know That the IRS Audited Your 2014 Tax Return?

A married couple filed their Form 1040 on a timely basis. Or, so they thought. In the Tax Court case of Reifler  (B.C. Reifler, TC Memo. 2015-199, Dec. 60,425(M)), the couple was found to have failed to timely file a valid joint tax return for the year at issue because the return they filed omitted the wife’s signature.

We find this case of interest for two reasons. First, it illustrates why applying logic often does not work when dealing with the IRS. There are some taxpayers who pooh-pooh IRS rules and tell us that if the IRS audits them, they will logically explain to the IRS their situation and why their less than stellar substantiation should be accepted and all will be well. Second, it illustrates that when taxpayers deal directly with the IRS, on even the most simple of issues, they would be better served using an experienced tax professional.

The Reifler case illustrates [Read more…] about When Is a Filed Return Not Accepted by the IRS As a Filed Return?