Category Archives: Tax Basics

“Ghost” Preparers in the Tax Fraud Spotlight in 2019

Say the words “tax fraud” and most Americans may think about that $10 deduction they made that they weren’t sure about including. However, with a multi-billion dollar illegal industry at work, the Internal Revenue Service sees tax fraud in a different light and on a scale far beyond the cost of a box of ballpoints. Every year, there are a wide range of scams run by those seeking to redirect refunds or otherwise make money off the returns of everyday … Read more

IRS Tax Glossary

With the new year comes a new tax season, and for those who are new to filing taxes, there may be some terms and abbreviations that, while commonly used, aren’t yet in your lexicon. For example, AGI comes up frequently in tax calculations, and while knowing that it stands for Adjusted Gross Income is one thing, understanding what AGI actually is and how it’s calculated is quite another. I’ve assembled here a few of some of the more important terms … Read more

Changes and Improvements to Free Tax Filing

If you make $66,000 annually or less, you can take advantage of a unique partnership between the Internal Revenue Service and the tax preparation industry that, each year, provides about a dozen tax preparation software options at no charge for filing your tax return. In the 16 years the Free File system has been in place, over 53 million returns have been filed for free. In November 2018, the IRS announced updates to the Free File program that make the … Read more

IRS Tax Assessment Process Defined – Paul Gaulkin CPA

Keys spelling taxes

Area Directors have the authority to immediately assess tax due on a properly filed tax return without issuing a Notice of Deficiency. However, the mere act of the taxpayer filing or the IRS receiving the tax return does not constitute an assessment of tax. The IRS must follow the appropriate assessment procedures before the tax will be considered to be assessed against the taxpayer. Common Assessment Procedure For most taxpayer, the assessment process begins when a tax return is filed … Read more

Health Savings Account Rules & Benefits – Paul Gaulkin CPA

couple looking at healthcare plans

The health savings account was created in 2003 and shares many characteristics of the Archer MSA program. Like MSAs, HSAs are trusts created solely to pay the qualified medical expenses of an account beneficiary and call for an individual to: 1. Buy a high deductible health insurance policy, and 2. Make tax deductible contributions to the trust Contributions made to the trust and any earnings are tax deferred for as long as they remain in the trust. HSA account holders … Read more

Dependent Care Credit Rules & Guidelines – Paul Gaulkin CPA

picture of coins and cash

A tax credit is available for taxpayers who have incurred employment related expenses for the care of a qualifying individual. The amount of credit available is equal to an applicable percentage of the expenses paid by the taxpayer during the taxable year. Credit Filing Requirements In order to qualify for the dependent care credit, a taxpayer must have incurred employment related expenses for the care of a qualifying individual who resides in the taxpayer’s household for more than one half … Read more

Statutory Requirements Regarding Alimony – Paul Gaulkin CPA

alimony judgment money

There are basically five statutory requirements for a taxpayer to claim money transferred to them as alimony payments. If divorce or separate instrument characterizes a payment as “alimony” but fails to satisfy the five requirements under Code Section 71, the payment will not be treated as alimony for federal income tax purposes, regardless of what it is considered under state law. These fix requirements include: 1. Payment must be made in cash 2. Paid to or on behalf of spouse … Read more

Separately Reportable Items on Partnership Return – Paul Gaulkin CPA

two people shaking hands

Any item that may have to be treated differently by each partner must be separately stated. For example, some partners may be able to deduct charitable contributions that flow through from the partnership, but those that have already met the 50 percent AGI limit for contributions will have to carry over those contributions. Each partner’s share of these items is identified on the partner’s separate Schedule K-1 tax return. The following items should be separately stated: 1. Short term capital … Read more

Assignment of Income Doctrine Definition & Guide – Paul Gaulkin CPA

Income drawn on chalkboard

The assignment of income doctrine basically is defined as income that is taxed to the individual who earned it, even if the right to the income has been transferred to another individual prior to recognition. This means that compensation, interest, rents, dividends, and other forms of income usually must be included in the gross income of the recipient even if the income was transferred to another individual. Assignment of Income Doctrine A tax problem arises when an individual attempts to … Read more

Amount Realized for Gain or Loss Determination – Paul Gaulkin CPA

person holding for sale sign

The amount realized from the sale or disposition of property is the sum of any money received plus the fair market value of other property received in the transaction. This does not include any amount received from the purchaser as reimbursement for real property taxes which are treated as imposed on the purchaser. However, it does include amounts representing real property taxes which are treated as imposed on the seller, if they are paid by the purchaser. The amount realized … Read more