What to do when you receive an IRS notice in the mail

You come home from work and mixed in with the junk mail and the normal bills you find a notice from the IRS. When you open it and realize it is not an invitation to star in their next video panic sets in–why are they not giving me my refund or even worse, they want to audit me “electronically.”

Well the first thing to do is to calm down.  Most notices simply require that you check your records to verify if you did in fact make that estimated tax payment or that maybe you did forget to report a few dollars of interest income or dividends.  Many taxpayers receive notices asking for proof of a deduction, so yes you may have to send them a copy of your real estate tax bill or even a copy of a check you wrote to make a charitable contribution.

Authored by Gary M Albert CPA MST
New York, NY
Tax and Accounting Firm Servicing Businesses and Individuals

Can I Deduct Losses on my Taxes from Hurricane Sandy

My heart goes out to all the people effected by Hurricane Sandy.  To see the devastation caused by the storm including the damage at the Jersey shore and out in the Rockaways in New York is gut-wrenching.  So many without power for over a week then having to endure a snow storm that just added insult to injury. 

To help with the financial burden of these losses the IRS allows homeowners with property damage to deduct losses. But there are caveats.

Only losses not reimbursed by insurance can be deducted; all deductions must be itemized; and claimed losses must first be reduced by $100 and 10 percent of adjusted gross income.

For large damages and those not covered by insurance — particularly in the cases of homes not covered by flood insurance — the deduction can be valuable. Homeowners in federally declared disaster areas can amend their 2011 returns to take the deduction rather than wait to get a refund in 2013.

Please make sure to keep track of all your losses and insurance reimbursements.  It is very possible the IRS will audit some returns with claimed casualty losses to make sure fraudulant claims are not being filed.

You can find the IRS Disaster Resource Guide at http://www.irs.gov/pub/irs-pdf/p2194.pdf

Please do not hesitate to contact us at Ratafia & Co., CPA’s if you have any questions or concerns.


Six Simple Steps to always knowing where you spent your money!

Many people procrastinate updating and analyzing their expenses for family budgets, preparing their tax returns or even balancing their checkbooks. People avoid this task because they don’t know how to simplify the process and they find this type of task to be boring and a complete drag. So they find themselves with an unbalanced checkbook, no idea where they spent their money and at a loss on how to organize themselves financially.

Fortunately, this process can be made easy with minimum cost and effort. If you follow these few simple steps you will have your finances organized quickly and efficiently.

1. Set up a checking account with a bank that has on-line banking.
2. Your bank should have the ability to download your information to a software program such as QuickBooks or Quicken.
3. QuickBooks or Quicken can be purchased and installed on your home desktop or laptop (even a Tablet PC) or you can use the online version of the same programs.
4. Once a month you can log on to your banks website and download all of your banking transactions for the month directly into the software program.
5. Once you download the banking information all you need to do is tell the program the type of expense it is such as telephone or utilities and you’re done.
6. Once you tell the program that Con Ed checks go to “utilities” the program will remember it so you do not have to do it again from scratch next month.

Voila, you will have a balanced checkbook, reports available for your financial advisors, accountants or a spouse who wants to know where all your money went.

So stop procrastinating, within an hour or two you can have a summary of your monthly expenses at your fingertips!

Making a Deal With the IRS

Good news for taxpayers who can’t afford to pay in full taxes they owe to the IRS.

The Internal Revenue Service is offering more flexible terms in its Offer in Compromise (OIC) program to help financially distressed taxpayers clear up their tax problems more quickly.

In general, an OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed (paying cents on the dollar).  An OIC is generally not accepted if the IRS believes the liability can be paid in full as a lump-sum or a through an installment agreement. The IRS looks at the taxpayer’s income and assets to determine if the taxpayer has the means to pay the balance off, say within a 3-5 year period.  Only if they decide that collection is doubtful will they grant an OIC.

The IRS knows that many taxpayers are still struggling to pay their bills so the agency has been working to put in place common-sense changes to the OIC program to more closely reflect real-world situations.

In simple English the IRS only allows certain amounts for living expenses when they determine a taxpayer’s ability to pay. These “standard allowances” are what the IRS believes the average person in a specific area of the country pays for normal living expenses such as rent, utilities, insurance etc.  The IRS now takes into account expenses such as credit card payments and bank fees and charges which were not taken into account under the old rules. In addition, payments for delinquent state and local taxes may now be allowed in deciding if the OIC will be approved

While the IRS seems more willing to help struggling taxpayers they still require that a lot of paperwork be submitted to get an OIC approved.  Our firm has a great deal of experience in preparing and submitting these forms.  Please contact us if you think you are a good candidate for an OIC.

I Now Pronounce You Husband & Wife–You May Now Pay More Taxes

So you wanna get married?  When most people are newly married the one thing for sure that is not on their minds is how this happy event is going to affect their overall tax bill.

The reality is that in a lot of cases this is going to cause a great deal of newlywed grief and aggravation.  In this county the more money you make the more taxes you pay (unless you are one of the 1%’s and all your income is from investments lol) since we have what is called a progressive tax structure where the tax rates increase along with your income.

So you add Mr. Smith’s income to Mrs. Smith’s income and wow they owe a ton of money when they file their first joint tax return.

How do you prevent this? Well the best thing to do is to adjust your payroll withholdings at work and file new W-4 forms.  In most cases you will need to both file “Married and zero dependents” for payroll purposes to avoid this so called “marriage penalty.”

You also have an option where you do not have to file joint tax returns.  You can file what is called a “married filing separate” return where you each report your own income and split certain deductions, but to determine if that will in fact save you money you need to do some complex tax calculations which may require the services of a tax professional.

Yes, the reality is after the ceremony and the honeymoon the heartbreak of taxes may rear its ugly head.  So after you figure out how to pay your taxes you can contemplate the other joys of married life such as kids, puppies and college costs. Oh I left out remembering to put down the toilet seat.