Martin Cantu, EA - Tax Consultant - Tax Relief Services Blog

The 2017 tax overhaul presented a new set of challenges and questions for taxpayers to deal with in preparing their returns and making financial plans.   Tara Siegel and Ron Lieber of The New York Times wrote a great article on some of the more difficult questions facing taxpayers as a result of that legislation. You can read the article here . I want to add my input to some of the points they raise in a series of blog entries, in no order. The first issue I want to address is that of Qualified Business Income (QBI). It applies to so many taxpayers and in my opinion is the most confusing section of the new tax law. Reviewing the IRS website addressing QBI, you can tell that this area provides fertile ground for future #IRSAudits and adjustments. The key provision from my viewpoint is what is not QBI: A qualified trade or business is any section 162 trade or business, with three exceptions (Specified Service Trades or Businesses or SSTB): 1.       A trade or busines

In this gig economy, many of us receive 1099s documenting the amount of income earned from that gig. The #IRS uses 1099s as a tracking mechanism. Just as an employer documents wages earned by an employee via a w-2, the #IRS uses 1099s to insure that individuals and companies reported all income earned. Its a compliance tool.  So what to do if the 1099 contains an incorrect amount? A bit of background first. The #IRS compares what income and expenses items that are subject to reporting requirements  against what you report on your tax return. Any difference results in a friendly letter from the #IRS with a bill. Occasionally omission results in an #IRSAudit.  Knowing this, your first attempt should be to contact the payer and attempt to get a substitute 1099. Keep a record of your request, and keep a record of how you calculated the correct amount.  Be sure to ask them to file the correction with #IRS.  If the payer fails to correct the amount you'll have some work to d

Some taxpayers may benefit from the credit for other dependents Taxpayers with dependents who don’t qualify for the child tax credit may be able to claim the credit for other dependents. The maximum credit amount is $500 for each dependent who meets certain conditions. These, include: Dependents who are age 17 or older. Dependents who have individual taxpayer identification numbers. Dependent parents or other qualifying relatives supported by the taxpayer. Dependents living with the taxpayer who aren’t related to the taxpayer. The credit begins to phase out when the taxpayer’s income is more than $200,000. This phaseout begins for married couples filing a joint tax return at $400,000. A taxpayer can claim this credit if : They claim the person as a  dependent  on the taxpayer’s return. They cannot use the dependent to claim the child tax credit or additional child tax credit. The dependent is a U.S. citizen, national or resident alien. Taxpayers can claim the credi

You hopefully read our recent post on the Taxpayer's Bill Rights. Well, the flip side to that coin is the power of the IRS to regulate how taxpayers must report item, or comply with the law. Congress has given the IRS wide latitude in deciding how to enforce reporting and compliance of various items. Like an ambivalent parent, sometimes the IRS says "you (the taxpayers) must report (fill in the blank) in this manner." Just like a parent with a young child, sometimes the requirement is "I mean it", other times its "I really mean it.", and others "I triple mean now!!!".  The lesson here goes back to something we preach over and over - the key to success in an audit is preparation and then more preparation. Don't get into a situation where you are rushed into an audit. Review the document request, speak with the auditor, review the client files. Candidly speak with the auditor about your plans. Consider amending a return if needed b

Sometimes events coincide and you have one of those "Ah ha" moments. Well, I had last week. Let's set the scene. Recently the IRS launched an initiative against small business where the IRS questions if the small business has reported all of their income. The IRS sends out letters with the heading "Notification of Possible Income Under reporting."  It notifies the business owner "your gross receipts may be under reported" and says they must complete a form "to explain why the portion of your gross receipts from non-card payments appears unusually low." The Forbes article goes into more detail about the initiative, and the response from the business community . This on the heels of a report that the IRS is using social media as a way to monitor the spending habits of suspected tax cheats. Now the third leg of the stool - I spoke with a colleague recently who recounted how the Texas Comptroller's Office BART unit instigated a sal

Here are three tips from the IRS Audit front line: 1. Business Owners, reconcile your total bank deposits with reported income. This is request number one on the auditor's list. Help yourself out and have this list ready when you receive your audit notice by making it part of your tax return supporting documents. 2. Travel Logs - use a calendar, excel spreadsheet and a mapping tool such as Google Maps to document regular trips and the distance per Google maps. This is an easy sign off by the auditor. 3. Credit Cards - the best comment I heard from an auditor is to treat credit cards like another bank account. Account for each charge as a separate item. Not all charges may be deductible, just like a business bank account. Hope this give you a heads up on your tax return and audit planning. Have questions on your return or IRS audit? Contact tax attorney Martin Cantu .