Posts Tagged basis
Allowable and Disallowable Expenses for Tax Deductions
Posted on September 12, 2011 | Tax Studies.
For people filing tax deductions, medical expenses should feature on their list of tax reductions. The Internal Revenue Service allows taxpayers to make deductions of annual medical expenses that are over 7.5% of one’s annual gross income. Medical expenses incurred from regular checkups, eye and dental checkups, and visits to the doctors qualify under this section. Mileage incurred in the medical trips should also be logged in as part of the deductions. Taxpayers who make monthly health insurance payments should make their January payments in December and sum them up with the medical expenses that qualify for deductions.
In some States, taxes on real estates are made once per year, but in other states like New Jersey, municipal taxes, county taxes, and school taxes are combined and payments done on quarterly basis. In such states, taxpayers can settle the payments due in early 2012, in December 2011.
Taxpayers who make quarterly payments of tax estimates deducting state income tax and local income tax but not state/local sales tax should consider making the payment of the quarter, which is usually due in mid January, in December. Those who expect due balances on their state income tax returns of the year can consider requesting their employer to increase their income tax withholding.
For those hoping to buy a car in the beginning of 2012 and are in a state with no income tax or decide to make state/local sales tax deductions instead of state/local income tax deductions, they should consider acquiring the vehicle in December and save the receipts for sales tax purposes.
Being charitable can also add value to one’s account. Donations made by a taxpayer, to churches, charities, or any other places, should be included in the deductions, as long as one has receipts for every donation made.
Taxpayers with monthly mortgage payments should make their January loan payments in December and ensure that the mortgage company receives those payments in December so that they can be reflected in the taxpayer’s Form 1098 for 2011.
There are work-related expenses that the IRS recognizes for tax deduction purposes. Some of these expenses include costs of new uniforms, subscriptions to work, or career related publications that expire in early 2012, purchase of work clothing and small tools. College fee for a dependant person, whether a child or spouse, also qualifies for tax deduction. However, such costs qualify only for the year they were incurred and paid for.
Enrolled Agent Method for Settling Taxpayer Liabilities
Posted on July 12, 2011 | Tax Studies.
An enrolled agent negotiating an IRS settlement for a taxpayer will sometimes reach an impasse. Such occasions are opportunities to break the stalemate with supplemental terms to the negotiation. An important mechanism for attaining IRS settlement is to add additional consideration with a collateral agreement.
Occasionally, a collateral agreement is combined with an Offer-in-Compromise. This occurs when the IRS anticipates a taxpayer’s income will substantially increase in the future. An example is a self-employed individual who has attained high income in prior years but recently experienced financial setback. A collateral agreement allows a tax debt to have an additional settlement comprising a fixed percentage of annual taxpayer income over a base-level amount. This is an addition to a cash settlement an enrolled agent learns to negotiate in tax CPE.
A collateral agreement therefore may alleviate IRS concern about accepting an Offer-in-Compromise and subsequently seeing the taxpayer attain a financial windfall. These agreements are also applicable to other factors in IRS negotiations. Such cases involve taxpayers with advantageous tax attributes such as a net operating loss (NOL) or capital loss carryover.
A tax practitioner who has passed the enrolled agent exam understands the tax consequences of these circumstances. Therefore, a collateral agreement can finalize a tax debt relief agreement by having the taxpayer waive use of NOL or capital loss in future years. This structure motivates the IRS to accept a settlement of tax liability.
Sometimes enrolled agents structure the agreements to offer a downward basis adjustment to specific assets. This also makes the IRS more agreeable to accepting a tax settlement.
A collateral agreement is applicable to an Offer-in-Compromise as well as other types of IRS negotiations. The agreements apply to installment payment arrangements covered in enrolled agent CPE as well as simple agreement by the IRS to withhold filing a notice of levy or a federal tax lien. These types of collateral agreements offer security, such as pledges of marketable securities or letters of credit.
Enrolled agents thus have a range of possibilities in utilizing the collateral agreement method to procure agreements with the IRS. The IRS provides different forms for each potential negotiation avenue. Form 2261 is used for collateral agreements involving future income; Form 2261-B applies to affecting adjustments to basis in specific assets; and Form 2261-C requests an agreement that waives NOL, capital losses, or unused investment credits.