Divorce and Taxes

Tax E Man — Tax Consultation, Preparation, Representation

Divorce and Taxes

Divorce and Taxes

Filing status. Filing status is based on your status as of December 31. If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year and you cannot choose Married Filing Jointly as your filing status. If you are still married at the end of the year (your divorce is not yet finalized), then you must file as Married Filing Jointly or Married Filing Separately, or Head of Household, if qualified.
You cannot file as Single if you are married.

Joint responsibility. You may be held jointly and individually responsible for any tax, interest, and penalties due on a joint return filed before your divorce. This responsibility may apply even if your divorce decree states that your former spouse will be responsible for any amounts due on previously filed joint returns. Name change. If you changed your names because of divorce, be sure to report the change to your local Social Security Administration office before filing your tax return. The name you enter on your tax return must be the same as what is on your Social Security card.

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Exemptions. If you obtained a final decree of divorce or separate maintenance during the year, you cannot take your former spouse’s exemption. This rule applies even if you provided all of your former spouse’s support.

Dependents. In most cases, a child of divorced or separated parents is the qualifying child of the custodial parent (the parent with whom the child resides for the greater number of nights during the year). If the parents divorced or separated during the year and a child lived with both parents before the separation, the custodial parent is the one with whom the child lived for the greater number of nights during the rest of the year.

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Any accounting, business or tax advice contained in the Tax E Man Blog or www.PatTax.net, including attachments, links and enclosures, are not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax related penalties.

If desired, Pat Tax, Inc. would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired.

The Tax E Man Blog, along with our website www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Pat Tax, Inc. . Please feel free to contact us with any questions or concerns.

“Empowering clients through education, a stress free transaction and an excellent service experience.”

IRS Audits

Audit picture

Representation

Individual taxpayers who are under audit by the IRS may attend the audit in person without any assistance from a tax professional. However, this can be a dangerous
mistake. Although not officially stated, it is the job of an IRS Revenue Agent to conduct an audit with an eye toward finding additional tax owed.

With so many gray areas in tax law, and considering the tax code’s complexity, an individual who chooses to go it alone is a sitting duck. Without extensive tax education and experience, the examiner can (and sometimes will) say anything to find additional tax due on the return. Without the necessary knowledge, the taxpayer is powerless to refute the agent’s rationale.

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Selection of Returns for Examination

Search for Unreported Income
The IRS performs matching functions to reconcile information reported on Forms 1099 and W-2 with information reported on the taxpayer’s return. If income reported by the taxpayer does not meet or exceed amounts reported to the IRS, the taxpayer will receive either a bill for tax on the difference or an audit notice.

Worker Reclassification Efforts
The IRS conducts joint employment audits with state tax agencies to determine whether workers classified as independent contractors are in fact employees. One initiative
looks at employers who issue both Forms 1099 and W-2 to the same employee in the same year, while a second examines employers issuing more than five 1099-MISC forms exceeding $25,000 each to contractors with no other source of income.

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Employee or Independent Contractor ?

Employee or Independent Contractor

Employee or Independent Contractor?

In order for a business owner to know how to treat payments made to workers for services, he or she must first know the business relationship that exists between the business and the person performing the services. A worker’s status determines what taxes are paid and who is responsible for reporting and paying those taxes. A worker performing services for a business is generally an employee or an independent contractor. If a worker is classified incorrectly, the IRS may assess penalties on the employer for nonpayment of certain taxes.

Penalties and Interest
When the IRS determines that a worker is actually an employee rather than an independent contractor, the employer is subject to penalties for failure to withhold
and remit income, FICA (Social Security and Medicare) and FUTA (federal unemployment tax) taxes, interest on the underpaid amounts, and penalties for failure to file information returns. The state will also seek to collect workers’ compensation and unemployment compensation premiums for unreported wages.

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Independent Contractor
An independent contractor is self-employed and is generally responsible for paying his or her own taxes through estimated tax payments. A business issues Form 1099-MISC, Miscellaneous Income, to any one independent contractor, subcontractor, freelancer, etc.,
to whom the business made $600 or more in payments over the course of the tax year. The business is not generally responsible for withholding income tax or FICA.

Employee
A worker treated as an employee will be issued Form W-2 for wages paid. The business hiring the worker is responsible for withholding income tax and FICA. The employer is also liable for FUTA and various state employment taxes. Also, the employee may be eligible for certain fringe benefits offered by the employer, such as health care.

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Education Tax Benefits

Educational Benefits

Education Tax Benefits

If you pay tuition, fees, and other costs for attendance at an eligible educational institution for yourself, your spouse, or your dependent, you may be able to take advantage of one or more of the education tax benefits.

You can claim more than one education benefit in a tax year as long as you do not use the same expenses for more than one benefit.

Exception: Qualified expenses used to claim education benefits can also be used to eliminate the 10% penalty on premature IRA distributions.

You may claim only one of the following education tax benefits for the same student per year: tuition and fees deduction, American Opportunity Credit, or Lifetime Learning Credit.

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Education Deductions.
Deductions reduce the amount of income subject to income tax. Deductions for education expenses include:

Tuition and fees deduction up to $4,000 from gross income. Income limitations apply.
The provision for deducting tuition and fees expires for tax years after 2016.
Student loan interest deduction up to $2,500 from gross income. Income limitations apply.
Business deduction on Schedule C or F. You can deduct the cost of education related to the business or farm activity.
Miscellaneous itemized deduction on Schedule A, subject to the 2% AGI limitation. You can deduct the unreimbursed cost of education required to keep your current job or maintain and improve skills needed for your job. You cannot deduct the cost of education that qualifies you for a new trade or business.

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Education Tax Credits
Tax credits reduce the amount of income tax you may have to pay. Income limitations apply. The education credits are claimed on Form 8863, Education Credits
(American Opportunity and Lifetime Learning Credits).

American Opportunity Credit, $2,500 maximum per student per year.
Lifetime Learning Credit, $2,000 maximum per tax return per year.

Note: The Hope Credit applied to 2008 and earlier years. It was replaced by the more generous American Opportunity Credit for the 2009 – 2017 tax years.

Penalty-Free IRA Distributions
If you withdraw money from your IRA before you are age 59½, you are generally subject to a penalty of 10% of the distribution, in addition to any tax that may be due on the distribution.

The 10% penalty does not apply to traditional IRA or Roth IRA withdrawals, if you use the money to pay qualified education expenses for yourself, spouse, or for any child or grandchild of yourself or your spouse.
Qualified education expenses include tuition, fees, books, supplies, equipment, and special needs services required for enrollment or attendance at an eligible
educational institution. Room and board for students enrolled at least half-time in a degree or certificate program may also qualify.
Reduce qualified expenses by scholarships and other tax-free assistance the student receives, but not by gifts or inheritances.

Click and Read Education Tax Benefits Here

“Empowering clients through education, a stress free transaction and an excellent service experience.”

Your Rights as a Taxpayer-The Taxpayer Bill of Rights

As stated by the Internal Revenue Service (IRS), their Mission is to

Provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all

It was toward this end that the Taxpayer Bill of Rights were created by the IRS and incorporated into IRS Publication 1. The Taxpayer Bill of Rights contain 10 provisions compiled by the Internal Revenue Service that “take the multiple existing rights embedded in the tax code and groups them into 10 broad categories making them more visible and easier for taxpayers to find.”.

Read Taxpayer Bill of Rights Here

The 10 Taxpayer Rights are:

The Right to Be Informed
The Right to Quality Service
The Right to Pay No More than the Correct Amount of Tax
The Right to Challenge the IRS’s Position and Be Heard
The Right to Appeal an IRS Decision in an Independent Forum
The Right to Finality
The Right to Privacy
The Right to Confidentiality
The Right to Retain Representation
The Right to a Fair and Just Tax System

As stated in Right 9, tax payers have “The Right to Retain Representation”. Patrick White, the president of Pat Tax Inc. is Enrolled to Practice to Practice Before the Internal Revenue Service and as such is authorized to represent taxpayers.

Pat can be contacted at 917 533-8475 or email: PatTaxHelp@gmail.com with any questions or concerns on tax preparation, consultation or representation.

Read Taxpayer Bill of Rights Here

“Empowering clients through education, a stress free transaction and an excellent service experience.”

Health Savings Accounts (HSAs)

Health Savings Account

Health Savings Accounts (HSAs)

A health savings account (HSA) is a tax-exempt or custodial account set up with a qualified HSA trustee to pay or reimburse certain medical expenses incurred by an individual, his or her spouse, and qualified dependents. The medical expenses must not be reimbursable by insurance or other sources, and distributions from HSA funds will not give rise to a medical expense deduction on the individual’s tax return.

Click 2016 Health Savings Accounts (HSAs) Here

Qualifying for an HSA
To be eligible, a participant must meet the following requirements.

Must be covered under a high deductible health plan (HDHP).
Cannot have any other health coverage. Exception:
Coverage for specific things, such as disability, dental care, vision care, and long-term care, can be purchased in addition to the HDHP without disqualifying
the HSA.
Cannot be enrolled in Medicare.
Cannot be eligible to be claimed as a dependent on someone else’s tax return

Last-Month Rule
If an individual is an eligible individual on the first day of the last month of his or her tax year (December 1 for most taxpayers), that individual is considered an eligible
individual for the entire year. Special rules apply if the individual does not remain an eligible individual during a full 12-month period. Exceptions apply in case of death or disability.

Click 2016 Health Savings Accounts (HSAs) Here

Spousals HSAs
The HSAs cannot be joint accounts. Each spouse must open a separate account. However, if only one has an account, the funds in that account can be used to pay for expenses incurred by the other spouse, as well as the participant’s other family members.
High Deductible Health Plan (HDHP)
An HDHP can provide for preventive care benefits without a deductible or with a deductible below the minimum limit ($1,300 for 2015 self-only coverage). Family
HDHP coverage covers an eligible individual and at least one other person.

Click 2016 Health Savings Accounts (HSAs) Here

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Dependent Support Worksheet

Dependent Support Worksheet

Support and the Dependency Exemption
The support test is one of the factors used to determine whether you may claim the dependency exemption for another person. The person may be a qualifying child or
a qualifying relative. You must consider the support test each tax year for which you wish to claim a dependency exemption.

Support Test
Qualifying Child	The child cannot have provided more than half of his or her own support during the tax year.
Qualifying Relative	You must have provided more than half of the relative’s support during the tax year.

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What is Support?
Total support includes amounts spent to provide food, lodging, clothing, education, medical and dental care, health insurance, recreation, transportation, and similar
necessities.

In general, the amount of an item of support is the expense incurred in providing that item.
The amount of support for lodging is the fair rental value of the lodging, including a reasonable allowance for the use of furniture and appliances and for utilities provided.
Expenses not directly allocable to any one member of
the household, such as the cost of food for the household,
must be divided among the household members.
Property provided as support is measured by its fair market value.

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Families With Children

The Tax E Man Blog, along with our website www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Baldwin NY Tax Preparation service Pat Tax Inc. and Patrick White, Enrolled Agent . Please feel free to contact us with any questions or concerns.

Family Picture

Child Tax Credit

Maximum credit: $1,000 per qualifying child.
Adjusted Gross Income (AGI) Phaseout
The credit is reduced by $50 for each $1,000 of modified AGI above:

$110,000 Married Filing Jointly.
$75,000 Single, Head of Household, or Qualifying Widow(er).
$55,000 Married Filing Separately.

The regular child tax credit is nonrefundable, but if any part of the credit is disallowed because tax is reduced to zero, the taxpayer may qualify for the additional child tax credit, which is refundable.

Click Families With Children 2016 Here

Additional Child Tax Credit

Taxpayers may be able to claim the additional credit if any portion of the regular child tax credit was disallowed because tax was reduced to zero before the entire credit was used. The portion of the child tax credit phased out because of AGI cannot be used to claim the
additional credit. The additional credit is refundable.

Child and Dependent Care Credit

Credit
The credit is 20% – 35% of the smallest of:

$3,000 ($6,000 for two or more qualifying persons).
Qualified expenses incurred and paid during the year.
Include expenses for care in 2015 that were paid before
2015. Reduce expenses by dependent care benefits excluded
from income.
Taxpayer’s earned income.
Spouse’s earned income.

Click Families With Children 2016 Here

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Why We Appreciate Referrals

Why We Appreciate Referrals

We acquire many of our customers through referrals from satisfied clients. Beyond the benefit of being able to expand our business, there are other reasons why we appreciate referrals. When a client thinks enough of us to recommend our services to a family member, friend, or co-worker, we attain a higher quality clientele than those we acquire from more random marketing efforts.A personal recommendation can help jump start the
business relationship, resulting in a more efficient, effective tax engagement. Please consider sharing this brochure with any individual who you believe might find our services useful.

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Benefits of Using a Paid Preparer

With so many do-it-yourself tax programs available for sale, it’s a legitimate question to ask why you should hire a paid preparer when you can create and file a tax return on a home computer.

Keep in mind that entering tax information into a computer program and making adjustments necessary to clear the program’s diagnostic error messages is no
substitute for understanding tax law. The Internal Revenue Code and related Treasury Regulations contain over 10,000 pages of complicated provisions. Working with a tax professional who understands how the provisions affect your specific situation and how the rules interact can provide you with the best result on your tax return. Obtaining tax benefits is often a complex process involving properly executed and timely-filed elections.
Simply entering amounts into an input program often leads to lost benefits. We find that in many cases we save new clients more than the cost of our services compared to returns they have prepared themselves. Proper reporting and filing can also help keep you off
the IRS radar.

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Estate Planning, Wills, Probate, and Transfer of Assets

Pictures for Estate, Trusts

Wills and Intestacy

A will allows the testator (the person creating the will) to specify:
• Who receives property at the testator’s death.
• Whether beneficiaries receive gifts outright or in trust.
• Who will act as personal representative.
• Who will be the guardian of minor children.

In the absence of a will, these matters are settled by state law.

Read Estate Planning, Wills, Probate, Transfer of Assets 2016 Here

Who Needs a Will?

Include persons who are not heirs. Wills are needed to provide for a person who is not an heir under state law—unmarried partners, stepchildren, friends, charities, in-laws, etc.
Exclude an heir. Heirs are the persons who inherit an estate under state law in the absence of a will. A will is needed to prevent an heir from inheriting probate assets.
Minors and disabled adults. Trust provisions can be included in a will to delay receipt of an inheritance or to allow assets to be used on behalf of an adult who is disabled.
Estate tax planning. Married couples can include trust provisions to reduce estate tax.

Read Estate Planning, Wills, Probate, Transfer of Assets 2016 Here

Dying Intestate—Without a Will

State law determines who receives probate property if a decedent dies without a will.

Most states provide first for the surviving spouse and children. Children of the decedent always inherit a share in some states while in others they inherit only if they are not also children of the surviving spouse. Children also receive a share in some states if the surviving spouse has any children who are not also children of the decedent.
Intestacy laws generally provide for distribution by representation, also known as per stirpes distribution. The share of any heir who dies before the decedent passes in equal shares to that heir’s children.
When there are no descendants, the surviving spouse receives the entire estate in some states but more commonly shares the estate with the decedent’s parents.
When there is no spouse and no descendants, parents and siblings share the estate in some states. In others, parents inherit the entire estate, and siblings inherit only if there is no surviving parent.
If there are no parents or descendants of parents, grandparents generally inherit next, followed by their descendants.
The final beneficiary under intestacy law is the state. Only relations up to a certain degree inherit under each state’s laws. After that point, the decedent’s property “escheats” to the state. State laws vary—a third cousin thrice removed may inherit in one state but a second cousin may be too remotely related to inherit in another.

Example: Nola died at age 103 without a will. Under state law, her property passes to her descendants per stirpes. Nola’s three children, Brian, Kyle, and Lloyd, all died before Nola.
Nola’s six grandchildren inherit her $900,000 estate. Brian’s only child receives $300,000. Kyle’s two children each receive $150,000. Lloyd’s three children each receive $100,000.

Read Estate Planning, Wills, Probate, Transfer of Assets 2016 Here

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Click and Read Divorce and Taxes Here

Click and Read Divorce and Taxes Here

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Click and Read Audits Here

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Your Rights as a Taxpayer-The Taxpayer Bill of Rights

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Click Dependent Support Worksheet Here

Click Dependent Support Worksheet Here

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Click Families With Children 2016 Here

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Read Referrals Appreciated Here

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Read Estate Planning, Wills, Probate, Transfer of Assets 2016 Here

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