Author Archive for Jeffrey B. Kahn, Esq. - Principal Attorney

Five Payroll Tax Mistakes to Avoid

If you have at least one employee, you are responsible for payroll taxes. These include withholding federal (and, where appropriate, state) income taxes and FICA tax from employees’ wages as well as paying the employer share of FICA tax and federal and state unemployment taxes. The responsibility is great and the penalties for missteps make it essential that you do things right.

1.    Misclassifying workers

Perhaps the hottest audit issue today is misclassifying workers. There’s incentive to treat workers as independent contractors rather than employees because payroll taxes and employee benefit costs are high; a company’s only tax responsibility for an independent is issuing a Form 1099-MISC if payments in the year are $600 or more.

You don’t have the freedom to select the label for the worker; classification depends on whether you have sufficient control over the worker. This essentially means having the right to say when, where, and how the work gets done. Having an independent contractor agreement is helpful in showing that you and the worker do not intend any employer-employee relationships, but it doesn’t bind the IRS, who is not a party to the agreement.

2.    Not using an accountable plan for employee reimbursements

If you normally pay for travel, entertainment, tools or other business costs for employees, you’re wasting employment tax dollars if you don’t use an accountable plan. With this arrangement, you deduct the expenses but avoid all payroll taxes on reimbursements; employees do not have any income from reimbursements.

To be an accountable plan, the employer must formalize the arrangement and set reasonable times for action (the following times are reasonable to the IRS but you can adopt shorter time limits for action):

  • The reimbursable expense must be business related.
  • Advances cannot be made before 30 days of the expense.
  • Employees must account for the expenses within 60 days of the expense.
  • Employees must return excess reimbursements to the employer within 120 days of the expense.

3.    Failing to keep payroll records

You are required to maintain payroll records and have them available for IRS inspection. These include time sheets, expense accounts, copies of W-2s and other payroll records. Usually, you should keep information for at least four years. You should also retain copies of Forms I-9, which shows an employee’s eligibility to work in the U.S. States may also have certain hiring forms that should be retained (e.g., E-verify forms).

4.    Choosing to pay creditors before the IRS

When a business gets into a cash crush, it may be tempting to pay the landlord, vendor, or utility company before the IRS; don’t! As a business owner, you are a “responsible person” who remains 100% personally liable for “trust fund” taxes (amounts withheld from employees’ wages). This is so even if your business is incorporated or is a limited liability company.

Best strategy: Set aside cash to cover payroll taxes so you won’t use these funds for any other purpose.

5.    Failing to monitor payroll company activities

Many small businesses use outside payroll companies to handle the job of figuring withholding as well as transferring funds to the U.S. Treasury to cover payroll taxes. However, some of these companies may not do their job, by error or intentionally. As an employer, even if you use an outside payroll company you remain responsible for payroll taxes.

Best protection: Monitor your tax account to see that funds are being deposited on time and in the correct amount. If deposits are made electronically using EFTPS.gov, you can easily see activities in your account.

What payroll tax liabilities of my business could I be personally liable for?

It would be for those liabilities we callTrust Fund Liability”. This constitutes those amounts an employer is required to withhold federal income and payroll taxes from its employees’ wages and pay them to the IRS. Withheld payroll taxes are called trust fund taxes because the employer holds the employees’ money (federal income taxes and the employee portion of Federal Insurance Contributions Act (FICA) taxes) in trust until a federal tax deposit of that amount is made.

If you have any responsibility for a business you will want to make sure you do not have this personal exposure.

Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems to allow you to have a fresh start.

When Payroll Taxes Pyramid It Means Penalties, Even Jail

The IRS does pursue all taxes equally. The IRS is especially vigorous in going after payroll taxes withheld from wages that somehow don’t get paid to the government.  The IRS calls it trust fund money that belongs to the government.

That makes any failure to pay—or even late payment—much worse. 

In fact, that’s so regardless of how the employer or its principals use the money and regardless of how good a reason they have for not handing the money over to the IRS. When a tax shortfall occurs in this setting, the IRS will usually make personal assessments against all responsible persons who have an ownership interest in the company or signature authority over the company accounts.

How Does The IRS Expand Business Payroll Tax Liability To Individuals?

The IRS can assess a Trust Fund Recovery Assessment, also known as a 100-percent penalty, against every “responsible person.” The penalty is assessed under Section 6672(a) of the tax code, and the IRS uses it liberally. You can be responsible and therefore liable even if have no knowledge that the IRS is not being paid. If there are multiple owners, multiple officers, multiple check signers, they all may draw a 100% penalty assessment.

When multiple owners and signatories all face tax bills they generally squabble and do their best to sic the IRS on someone else. Factual nuances matter in this kind of mud-wrestling, but so do legal maneuvering and just plain savvy. One responsible person may get stuck paying while another who is even guiltier may get off scot-free.

If the IRS is going after individuals, the IRS will still try to collect from the company that withheld on the wages. The IRS also wants to make sure this kind of bad tax situation doesn’t occur again and the IRS wants to collect as much money as quick as possible from as many parties as it can get to.

Can The IRS Seek Criminal Penalties?

Sure they can and the government will typically seeks to enjoin this behavior. The following examples of recent criminal employment tax investigations show the trouble taxpayers can get into if they fail to properly withhold and pay over employment taxes

Maryland Business Owner: 24 Months in Prison

In January 2013, Alphonso Tillman was sentenced to 24 months in prison and three years of supervised release for failing to account for and pay over employment taxes. Tillman was also ordered to pay restitution of $2,205,991. According to his plea agreement, Tillman was the president and sole owner of two companies that provided security guards to protect commercial and residential properties. Both companies withheld taxes from their employees’ paychecks, but Tillman failed to file the required forms or pay the payroll taxes due, with the exception of payments from IRS collection efforts. The total amount of taxes lost from Tillman’s failure to pay these taxes was $2,205,991. Tillman spent hundreds of thousands of dollars from the business bank accounts to cover his personal expenses between 2005 and 2008. “Using money withheld from your employees’ compensation for personal gain is reckless,” said Sheila Olander, acting special agent in charge, IRS Criminal Investigation, Washington Field Office. “Business owners are responsible to withhold and pay over income taxes from their employees’ compensation to the IRS. [This sentence] shows failing to do so is a serious offense to which Mr. Tillman is being held accountable” (U.S. Attorney’s Office, District of Maryland, Press Release, March 26, 2013).

Colorado Business Co-Owner: 28 Months in Prison

In September, Beth Ann Pettyjohn, of Englewood, Colo., was sentenced to 28 months in prison and three years of supervised release, and was ordered to pay $4,669,532 in restitution to the IRS, as well as a $25,000 fine. According to court documents, Pettyjohn, the co-owner and vice president of Overhead Door Co. of Denver, stopped paying over the payroll taxes withheld from employee wages, as well as the employer’s matching portion of FICA, totaling almost $4.7 million. Pettyjohn managed the accounting department, determined which bills would be paid, and issued and signed checks. She used the money to buy a number of houses, including paying $285,000 cash to purchase a condominium for her son. “Employers who fail to remit employment taxes are victimizing legitimate businesses by creating an unfair competitive advantage over those businesses that lawfully pay their share of employment taxes,” said Stephen Boyd, special agent in charge, IRS Criminal Investigation, Denver Field Office. “As this sentence demonstrates, there are real consequences for committing employment tax fraud” (U.S. Attorney’s Office, District of Colorado, Press Release, Sept. 12, 2013).

Nebraska Couple: Husband and Wife Both Get Prison Time

Michael and Laurie Russell, of Hickman, Neb., were sentenced to prison terms (16 months and six months, respectively) for failing to pay over employment taxes. The Russells were also jointly ordered to pay the IRS $311,486 in restitution. According to court documents, the Russells jointly owned and operated a window installation business, for which they withheld employee income and FICA taxes, but paid none of it to the IRS. The couple lived a comfortable lifestyle and could afford to pay the taxes, but apparently chose not to. “Business owners have a responsibility to withhold income taxes for employees and remit those taxes to the Internal Revenue Service,” said Sybil Smith, special agent in charge of IRS Criminal Investigation. “We are committed to pursuing those who violate the employment tax laws” (U.S. Attorney’s Office, District of Nebraska, Press Release, July 30, 2013).

Pyramiding Of Payroll Taxes.

The practice the government was going after is sometimes called “pyramiding.” The DOJ noted that the company had made minimal payments of its tax debts, and that attempts to induce voluntary compliance failed. To stop the bleeding in a case like this, the Justice Department can seek an injunction to require a company and its principals to make timely tax deposits, to pay all withheld employment taxes, and to timely file all employment tax returns.

Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems to allow you to have a fresh start.

IRS Attacks On Businesses Classifying Workers As Independent Contractors – A Settlement Alternative

So where a business has been treating its workers as independent contractors and there is a concern that the IRS in an audit would not respect this arrangement, what can the business do?

The business should consider entering into the IRS’ Voluntary Classification Settlement Program (VCSP). The VCSP is a voluntary program that provides an opportunity for taxpayers to reclassify their workers as employees for employment tax purposes for future tax periods with partial relief from federal employment taxes. To participate in this voluntary program, the taxpayer must meet certain eligibility requirements and apply to participate in the VCSP by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS.

What is the eligibility for this program?

The VCSP is available for taxpayers who want to voluntarily change the prospective classification of their workers. The program applies to taxpayers who are currently treating their workers (or a class or group of workers) as independent contractors or other nonemployees and want to prospectively treat the workers as employees.

A taxpayer must have consistently treated the workers to be reclassified as independent contractors or other nonemployees, including having filed all required Forms 1099 for the workers to be reclassified under the VCSP for the previous three years to participate.

Additionally, the taxpayer cannot currently be under employment tax audit by the IRS [income tax audit is OK] and the taxpayer cannot be currently under audit concerning the classification of the workers by the Department of Labor or by a state government agency.

If the IRS or the Department of Labor has previously audited a taxpayer concerning the classification of the workers, the taxpayer will be eligible only if the taxpayer has complied with the results of that audit and is not currently contesting the classification in court.

So for a business that qualifies for VCSP what are they looking at for penalties?

A taxpayer participating in the VCSP will agree to prospectively treat the class or classes of workers as employees for future tax periods. In exchange, the taxpayer will:

  • Pay 10% of the employment tax liability that would have been due on compensation paid to the workers for the most recent tax year, determined under the reduced rates of section 3509(a) of the Internal Revenue Code;
  • Not be liable for any interest and penalties on the amount; and
  • Not be subject to an employment tax audit with respect to the worker classification of the workers being reclassified under the VCSP for prior years.

The VCSP is a valuable program that a business owner should consider.

Protect yourself. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems to allow you to have a fresh start.

Would Your Beauty Salon Business Survive an IRS Worker Classification Audit?

I do not know of any business owner who wants to be audited by the IRS or their state tax authority.  Audits can be simply random as “decided” by the IRS computer, or they can be triggered by certain characteristics of your business operation, for example how you’ve classified independent contractors or employees (especially if they apply for unemployment insurance, worker’s compensation benefits, or even welfare).

Do you operate a beauty salon? Here are three key items the IRS and state tax authorities look for if you are an independent contractor or if you use them in your business.

1. Is there a lease between the independent contractor and the owner? 

There must be a lease signed by the salon owner/landlord and each booth renter for every year of the audit. The IRS and your state can audit your records for the past three years (or as far back as they want if they determine your returns were fraudulent). The lease must clearly define the day-to-day operations of the booth rental operation and clearly define the separation between the salon owner/landlord and the booth renter. It should be clear how and when rent is paid: how service receipts are collected: hours of operation (hint: the independent contractor sets her own); receptionist services; who provides the equipment; who pays for supplies. Every aspect of the relationship must be spelled out.  A true independent contractor can incur financial loss (which means she invests in the business as well as earns a living from it).The salon owner must not have any control over when, where, or how the independent contractor works.

2. How is rent paid?

Independent contractors must pay a flat rate – not a percentage of their service income – based on the space used. Tax agencies take a dim view on charging rent as a percentage of services because it makes it difficult for the independent contractor to incur a loss (0% of 0 income is not a loss). Paying a commission also ties the economic well-being of the salon owner to the independent contractor, making it harder to argue that the independent contractor’s services are not integral to the success of the salon.

3. Who collects payment for services rendered?

The booth renter is responsible for collecting payment for all services rendered.  That doesn’t just mean taking the money from them at the front desk; it means the independent contractor must have her own cash box and have checks in her name.  They should be able to make change for cash paying customers and handle bad checks. A good rule of thumb is that a salon owner should never give an independent contractor money, and she should never issue an independent contractor a 1099 form.

I only discussed three factors but the IRS and State tax agencies have other factors they can consider in determining whether the relationship is truly that of salon owner/landlord and independent contractor.

Our Expertise And Guidance Can Make A Difference.

Protect yourself. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems to allow you to have a fresh start.

Jade’s Story Of Her IRS Audit.

If the IRS asked to examine your business’ Federal Tax returns, would you survive the audit? For Jade Phuong who operates a nail salon, it was a nightmare that came very close to ending her business.

Before the IRS turned her world upside down, Jade already had beaten the odds as a small-business owner. Her nail salon had been operating more than eight years, a considerable accomplishment considering that most small businesses fail in less than three years. Living at home with her mother, Jade saved enough money to open her nail salon fresh out of nail school at age 25.

Despite a rocky start, Jade was able to build up her business and after a couple of years was able to enjoy a good living from her nail salon. In fact things were going so well that when a space almost twice the size of her current location opened just two doors down, she decided to move to the bigger space and expand into the tanning business by installing six tanning beds in the new space. Jade was feeling good, everything was going great. She bought her first house and moved into it. Jade finally attained the American dream.

Then two weeks later she got the letter from the IRS.

The Longest Year

The letter from the Internal Revenue Service was innocuous enough – mixed in with the salon’s mail, it looked just like any other piece of business correspondence.

When Jade realized that it was indeed from the IRS, she felt a twinge of concern, but not panic. As a business, Jade would periodically get notifications and letters from the IRS or the State but this letter was different. Jade opened the letter and read the words, “Your Federal tax returns for the selected tax years have been assigned to me for examination.” The vague sense of unease Jade originally felt was now panic in full bloom.

Jade immediately got on the telephone with her accountant and told him of the letter she received. She even faxed him a copy so he could see it for himself. Sure enough Jade’s last three years of business income tax returns were selected for examination.

Her accountant said don’t worry as he felt confident that this was just a random audit and that Jade’s recordkeeping and reporting to the IRS was done by the book. So the accountant told Jade to contact the IRS agent and arrange for him to come to the business and meet her and look at the business’ books and records.

And so Jade contacted the IRS agent and scheduled a meeting at the salon.

The IRS agent came to the salon and he was business-like, but very pleasant – the agent seemed like someone you could talk to. Apparently the IRS agent very much wanted Jade to think this audit wasn’t a big deal so Jade would open up to the agent.

The meeting lasted two and a half hours and the agent asked a lot of questions:  When did we open? How are we set up? Who set up the business organization? Do we write off our car? What kinds of benefits do we give workers? Where do we buy our boutique items?

After leaving the salon that day, the IRS agent went to the office of Jade’s accountant, where the agent spent six hours reviewing the business’ corporate records, check registers, bank deposit slips, car mileage logs, and other papers. The agent returned to the accountant’s office for three additional days.

The examination of Jade’s records was exhaustive and comprehensive but the accountant was confident that the agent would be able to agree with just about everything as reported on the tax returns. The accountant even told this to Jade and further added that he would be very surprised if the proposed liability was more than $1,000.

You’re joking … Right?”

And a few weeks thereafter, the IRS agent issued a letter. What the agent concluded in that letter about Jade’s business was a shocker. Jade had been classifying her workers as independent contractors. The IRS agent felt they should be classified as employees and under this classification Jade would now owe the IRS $85,000.

Jade was confident that her setup was legal and legitimate because before she even opened the nail salon’s doors, she had consulted and paid a CPA to help her write the business plan and set up the business, including how to classify her workers. The CPA set up Jade’s nail technicians as independent contractors. The CPA said he represented a lot of beauty salons, and he said that’s how all the salons were classifying their workers.

But the IRS agent did not agree.

In a nutshell, the IRS agent based his determination on five factors:

1. Realization of Profit or Loss…There was no element of risk for the nail technicians because they did not bear any of the financial burdens of the nail salon, such as rent, utilities, and insurance.

2. Significant Investment … None of the nail technicians had any significant financial investment in the shop. All the investment was by Jade.

3. Integration … The services of the nail technicians were fully integrated into the business operations – meaning that without the services of the nail technicians, Jade could not have continued business operations as a successful nail salon.

4. Payment by Hour, Week, and Month … Upon completion of each customer serviced, the nail technicians then turned over the total received to the Jade. The nail technicians could not retain these payments from customers.

5. Set Hours of Work … The business did not require the nail technicians to work set hours, but Jade allocated the hours the nail technicians would be available.

Well this was not acceptable to Jade so she hired a tax attorney to appeal this determination and fight the IRS.

Despite the IRS agent’s assertion that the workers should be treated as employees, Jade had some good facts favorable to her entitling her to treat the workers as independent contractors.

For one thing, a few years earlier she received a form letter from the State requesting that she complete a questionnaire about her workers and return it to the State. She completed the questionnaire and soon after received a letter from the State confirming that her workers were independent contractors.

In the questionnaire Jade noted that the nail technicians set their own hours. They didn’t get any benefits from the business. Everyone paid their own taxes and they knew they were responsible to pay for their own taxes.

Despite building a case to support classification of the workers as independent contractors, the position of the Appeals Officer at the IRS Office Of Appeals was that Jade still maintained enough control over the workers that they should be treated as employees.

Now this determination could be appealed to the U.S. Tax Court but to fight the IRS in court meant as much as $25,000 in legal fees, plus the $85,000 for the three years if Jade lost. But there was another option for Jade.

If Jade were to agree to convert her workers to employees and now start taking out taxes, provide worker’s compensation and liability insurances, and pay the employer’s share of their future earnings in Social Security taxes, and supply them completely, the IRS would substantially lower the liability for the prior years. In Jade’s case the liability would now drop below $20,000.

Jade said at this point I have got to go with this option. So she made the changeover and paid the $20,000 to IRS. Turns out only two nail technicians left due to the changeover in worker status.

Older and Wiser

Things are looking good again to Jade who says the nail business is stronger than it’s ever been. She has increased her business, which has increased her income. She also recently upgraded her tanning salon with all new stand-up beds. Just like when she first opened, it’s the tanning beds that are pulling the salon through in the slow times.

She also has eliminated some things, like entertainment expenses and she started buying product in bulk to cut down costs. After the switch in worker status to employees, Jade raised service prices by about 5% to help cover the now higher costs of doing business. To her surprise, it didn’t hurt business at all. It was Jade’s first price increase in nine years anyway, so it was time. Jade does not know of one client who left as a result of these changes.

Jade’s story serves as a good lesson to anyone operating a business or looking to start a business which is that you need to know the rules and follow them. Don’t think that you are immune from the IRS questioning your business.

Starting in 2015, businesses with at least 50 full-time employees must offer affordable health insurance to all employees or substantial penalties will be imposed. If independent contractors are converted to employee status, this may result in a company having more than 50 full-time employees. Also, the IRS is starting a project to conduct 6,000 random audits over a period of three years with worker classification/misclassification as a key focus. The IRS anticipates that when the project is completed, it will pursue employment tax referrals from state agencies that deal with the classification of workers for both workman’s compensation and unemployment purposes.

Don’t Take The Chance And Lose Everything You Have Worked For.

Protect yourself. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems to allow you to have a fresh start.

Ten Year-end Tax Moves To Make Now!

Tax planning: What’s the good news? It’s never a waste of time… there still are some tax breaks on the books that you can use to your advantage before the end of 2014. Some types of time or monetary investments have risks, but not tax-planning. This is why EVERYONE should do it.

The bad news is that there is no guarantee that all the extenders (there is more than 50 business and individual tax breaks) — including popular things such as the higher education tuition and fees deduction, and itemized claims for state and local sales taxes and private mortgage insurance payments — will be renewed after December 31, 2014. Lawmakers are expected to consider, or extend (hence the laws’ collective name) after the November 4th election.

Some tax moves will take a little planning. Others are very easy to accomplish. But all are worth checking out to see if they can reduce your tax bill.

Following are ten year-end tax moves to make before New Year’s Day.

1. Defer your income

The top tax rate is 39.6% on taxable income of more than $406,750 for single taxpayers; $457,600 for married couples filing joint returns ($228,800 if filing separately); and $432,200 for head-of-household taxpayers. If your remaining pay will push you into the top tax bracket, defer receipt of money where you can.

Ask your boss to hold your bonus until January. Put more money into your tax-deferred workplace retirement plan. Hold off on selling assets that will produce a capital gain. If you’re self-employed, don’t send out invoices for year-end jobs until early 2014.

This strategy works even if you are not in the top tax bracket, but just about to cross into the next higher one.

2. Add to your 401(k)

Even if you are nowhere near the top tax bracket, putting as much money as you can into your company’s 401(k) or similar workplace retirement savings plan is a good idea. Since most plan contributions are made before taxes are taken out, you will have a bit less income that the IRS can touch. Exceptions are contributions to Roth 401(k) plans, where you put away after-tax money and get tax-free growth. Plus, the sooner you put the money into the account, the longer the earnings will grow tax-deferred.

Few of us will reach the maximum $17,500 that employees can stash in a 401(k), but any amount you can contribute is good. If you are age 50 or older, you can put in an extra $5,500.

In most cases, you can modify your 401(k) contributions at any time, but double-check with your benefits office to be sure of your plan’s rules.

3. Review your FSA amounts

Another workplace benefit, the medical flexible spending account, or FSA, also requires year-end attention so you do not waste it. You can contribute up to $2,500 to an FSA via paycheck withdrawals. If that limit seems lower, you’re right. As part of the Affordable Care Act the maximum contribution amount was set at $2,500; before the health care law change there was no statutory limit.

As with 401(k) plans, money goes into an FSA before your taxes are calculated, saving you some tax dollars. But if you leave any money in your FSA, you lose it. Some companies allow a grace period into the next year to use the untouched FSA funds, but not all. And though the U.S. Treasury recently announced a change in the use-it-or-lose-it rule, allowing account holders to carry over up to $500 in excess money into the next benefit year, your company has to take steps to adopt it.

Be sure to check with your employer, and if you must use your FSA money by December 31st, make sure you do.

4. Harvest tax losses

If you have assets in your portfolio that have lost value, they could be a valuable tax tool. Capital losses can be used to offset any capital gains. If you have more losses than gains, you can use up to $3,000 to reduce your ordinary income amount. More than $3,000 can be carried forward to future tax years.

Capital losses could be especially helpful to higher income taxpayers facing the 3.8% Net Investment Income Tax. This surtax, part of the Affordable Care Act, applies to the unearned income of taxpayers with modified adjusted gross incomes of more than $200,000 if they are single or head of the household; $250,000 if married and filing jointly; and $125,000 if married and filing separately. High earners with investment income can reduce this new tax burden by using capital losses to reduce their taxable amount.

If you do face the 3.8% surtax, consult with your financial adviser and tax professional. In addition to figuring your modified adjusted gross income, you must take into account the different types of investment earnings that are subject to the tax and how to appropriately calculate losses within each category.

5. Make the most of your home

Homeownership provides a variety of tax breaks, some of which you can use by year-end to reduce your current year’s tax bill. Make your January mortgage payment by December 31st and deduct the mortgage interest on your coming tax return. The same is true for early property tax payments.

6. Bunch your deductible expenses

Taxpayers who itemize know there are many ways on Schedule A to reduce adjusted gross income, or AGI, to a lower taxable income level. But in several instances, deductions must be more than a certain threshold amount.

Medical and dental expenses, for example, cannot be deducted unless they exceed 10% of AGI. Miscellaneous expenses, which include business expense claims, must be more than 2% of AGI.

To get over these deduction hurdles, start consolidating eligible expenses now. This strategy, known as bunching deductions, will push them into one tax year where you can make maximum tax use of them. The sooner you start this process, the better. It’s much easier to plan your costs now than scramble to come up with eligible expenditures as December days fade.

7. Add to or open an IRA

Remember that added money you put in your 401(k) to lower your taxable income? Bulk up your retirement planning even more by contributing to an individual retirement account.

If you have an IRA account or open a traditional IRA, you might be able to deduct at least some of your contributions on your tax return. If you don’t make a lot of money, your contribution also could be used to claim the retirement savings contributions credit.

Even if you won’t get a deduction, you’ll be adding to your nest egg so that you can retire on your terms. And while it’s true you can wait until the April 15 filing deadline to contribute for the previous tax year, the sooner you put money into an IRA, traditional or Roth, the sooner it can start earning more for your golden years.

Self-employed workers also get an added retirement saving benefit. There are a variety of plans — SEP-IRAs, Keoghs, solo 401(k) plans — into which you can put some of your self-employment earnings. If you are a sole proprietor, your contribution to a self-employed retirement plan also is deductible on your tax return.

8. Be generous to charities

As you are putting together your holiday shopping list, be sure to include charitable gifts that could help reduce your tax bill. In addition to the usual dollar donations or household goods and clothing, consider some less traditional ways to give to charities.

Many groups will accept vehicles, with some even making arrangements to pick up the jalopies.

Donate stock or mutual funds that you’ve held for more than a year but that no longer fit your investment goals. The charity gets the asset to hold or sell, and your portfolio rebalancing nets you a deduction for the asset’s value at the time of gifting. Even better, you do not have to worry about capital gains taxes on the appreciation of your gift.

9. Pay college costs early

The spring semester’s bill isn’t due until January, but it might be worthwhile to pay it before year’s end. By doing so, you can claim the American Opportunity Tax Credit on this year’s tax return.

The American Opportunity credit replaced the Hope tax credit in 2009 and is in effect through the 2017 tax year. It’s worth up to $2,500 with up to 40% of the new credit refundable. That means you could get as much as $1,000 back as a tax refund even if you don’t owe any taxes.

Tuition, fees and course materials for four years of undergraduate studies are eligible expenses under the American Opportunity credit. This includes education expenses made during the current tax year, as well as expenses paid toward classes that begin in the first three months of the next year.

10. Adjust your withholding

Did you write the U.S. Treasury a big check in April? Or did you get a large refund from Uncle Sam instead? Neither is a particularly good financial or tax plan.

Most of us cover our eventual tax bills through payroll withholding. Ideally, you want the amount coming out of your paychecks throughout the year to be as close as possible to your final tax bill. If you have too much withheld, you’ll get a refund; too little withheld will mean you’ll owe taxes when you file.

You can correct the imbalance by adjusting your payroll withholding now. The correct amount taken out of your final 2014 paychecks will help ensure that you don’t over- or underpay the tax collector too much next filing season

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems to allow you to have a fresh start.

Have undisclosed foreign bank accounts? – What you should expect your tax preparer to ask you when you come in to get your taxes prepared next year.

CPA’s and other professional tax return preparers are bound to the IRS Code Of Professional Responsibility commonly called Circular 230 which if a tax preparer violates could lead to big penalties and sanctions for that tax preparer.

What penalties could tax preparers face?

A tax preparer who is in violation of these rules could be subject to the following:

Internal Revenue Code § 6694(a) provides that if any part of an understatement of a taxpayer’s liability is due to an “unrealistic position” taken on his return, any income tax return preparer who knew (or reasonably should have known) of this position is subject to a penalty of $250. If the understatement is due to a reckless or intentional disregard of rules or regulations the penalty is $1,000 per occurrence.

The tax preparer’s employer, firm or entity also is subject to the penalty if it knew, or reasonably should have known, of the conduct giving rise to the penalty.

While these may not seem like large amounts, if this penalty is assessed IRS employees are instructed to report the income tax return preparer to the IRS Office of Professional Responsibility (“OPR”). A tax preparer who is referred to the OPR, may be subject to suspension, disbarment, or censure. In addition, if the preparer has violated Circular No. 230, the IRS may impose a monetary penalty in an amount up to the gross income derived or to be derived from the conduct giving rise to the penalty.

Additionally, the IRS can go criminal on the tax preparer. Unscrupulous tax return preparers are generally prosecuted for violation of the Internal Revenue Code §7201, Attempt to Evade or Defeat Tax. This is a felony offense and carries a maximum potential penalty of up to five years in prison and a fine of up to $250,000. Internal Revenue Code §7206(1) and (2), Fraud and False Statements, also carries a maximum potential penalty of up to three years in prison and a fine up to $250,000.

What is one of the main obligations that a tax preparer must follow?

Circular No. 230 §10.22 Diligence as to accuracy which states that:

Each tax return preparer shall exercise due diligence:
a. In preparing or assisting in the preparation of, approving, and filing tax returns, documents, affidavits, and other papers relating to Internal Revenue Service matters;
b. In determining the correctness of oral or written representations made by the practitioner to the Department of the Treasury; and
c. In determining the correctness of oral or written representations made by the practitioner to clients with reference to any matter administered by the Internal Revenue Service.

This does not mean that you as a tax preparer have to actually audit or examine the records of your client. Under Circular No 230 §10.34(d), a tax preparer may generally rely, in good faith and without verification, on information furnished by a client. However, good faith reliance contemplates that a practitioner will make reasonable inquiries when a client provides information that implies possible participation in overseas transactions/accounts subject to FBAR requirements.

But what if the client makes certain statements that sound suspicious?

A tax preparer may not ignore the implications of any information provided to or actually known him or her. If the information furnished by the client appears to be incorrect, inconsistent with other known facts, or incomplete, the tax preparer is required to make further inquiry. The practitioner is also required by Circular No 230 §10.34(c), to advise a client of any potential penalties likely to apply to a position taken on a return the tax preparer is preparing or on which she or he is advising.

So if it is determined that the client has foreign income that must be reported on his U.S. income tax return and the client refuses to report this income, a tax preparer to avoid penalties and sanctions by the IRS cannot assist a client in filing a false return or filing a tax return taking a position that cannot be reasonable is not supported by the tax law.

Questions for tax preparers to ask.

With the IRS having more resources and information to detect taxpayers with undisclosed foreign accounts, what changes should taxpayers expect when they next meet with their tax preparer?

1. Does the client have a foreign account?
2. If yes, is it the type of account that is covered by 31 U.S.C. Section 5314?
3. If applicable, has the client properly completed Form 1040, Schedule B, Interest and Ordinary Dividends, Part III, Line 7a?
4. Has the client annually reported the income from the account?
5. Has the client filed FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (FBAR)?
6. Has the client filed Form 8938, Statement of Specified Foreign Financial Assets, with his or her federal income tax return?
7. Has the IRS already contacted the client about the foreign account?

What should you do?

We encourage taxpayers who are concerned about their undisclosed offshore accounts to come in voluntarily before learning that the U.S. is investigating the bank or banks where they hold accounts. By then, it will be too late to avoid the new higher penalties under the OVDP of 50% percent – nearly double the regular maximum rate of 27.5%.

Don’t let another deadline slip by. If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed or in 2012 OVDI, you should seriously consider participating in the IRS’s 2014 Offshore Voluntary Disclosure Program (“OVDP”). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco, San Diego and elsewhere in California qualify you for OVDP.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.

Jeffrey B. Kahn, Esq. Discusses Taxes On ESPN Radio – October 24, 2014 Show

Jeffrey B. Kahn, Esq. Discusses Taxes On ESPN Radio – October 24, 2014 Show

Topics Covered:

1. Horror stories of people pretending to be the IRS and stealing your identity or scamming you for your money.

2. What to look out for and how to protect yourself from the IRS scam artists.

3. How to make Halloween candy and costumes deductible.

4. Questions from our listeners:

a. I live in San Diego County and work in Irvine. I need to see you but cannot get to your downtown San Diego office during my work day. How can I see you?

b. You always tell us that you are a “Board Certified Tax Attorney”. What does that entail?

c. I always hear on the radio or see on T.V. those commercials for tax relief companies. How are you different from them?

d. Is engaging the Law Offices Of Jeffrey B. Kahn, P.C. expensive and beyond my means?

Listen to the podcast:

Read the show’s transcript:

Yes we are all working for the tax man!

Good afternoon! Welcome to the KahnTaxLaw Radio Show
This is your host Board Certified Tax Attorney, Jeffrey B. Kahn, the principal attorney of the Law Offices Of Jeffrey B. Kahn, P.C. and head of the KahnTaxLaw team.

You are listening to my weekly radio show where we talk everything about taxes from the ESPN 1700 AM Studio in San Diego, California.

When it comes to knowing tax laws and paying taxes, let’s face it — everyone in the U.S. is either in tax trouble, on their way to tax trouble, or trying to avoid tax trouble!

It is my objective to make you smarter so that you legally pay the least tax as possible, avoid tax problems and be aware of the strategies and solutions if you are being targeted by the IRS or any State tax agency.

Our show is broadcasted each Friday at 2:00PM Pacific Time and replays are available on demand by logging into our website at www.kahntaxlaw.com.

I have a lot to cover today in the world of taxes and helping me out today will be my associate attorney Amy Spivey who will be calling in later in today’s show.

With Halloween coming up, it is just not the neighbor kids looking forward to trick or treat but also people pretending that they are the Internal Revenue Service looking to steal your identity and scam you for your money. That’s right people are pretending to be the IRS and extorting money from innocent law-abiding taxpayers.

Listen to the story of Debra who lives in Memphis. Debra was at work when she got the call. She was very shaken up at the first call when she was told by the caller that there’s a warrant for her arrest. The caller was a man with a foreign accent and called her by name.

He told her that this call concerns a tax liability because you fraudulently filed some taxes for $11,000 and now there’s a warrant for you. He then proceeded to tell her that she needed to hang up and call him back from her cell phone and ask for a person named “David Chambers”. Debra knew better than to call back from her cell, so instead she got a co-worker, and called back from a conference room on speaker phone. The person who answered the call said “This is David Chambers”. It was the same voice of the caller that had told Debra to call back! Debra knew she didn’t owe the government and, as an accountant, she was also skeptical that such a call would come first. Knowing it was likely a scam, she decided to press the caller for more information. So Debra asked this Mr. Chambers “‘Can you please read me the complaint or can I go home with my husband and call you back”? When he told her no, she ended the call.

Listen to the story of Arati who works in New York City and immigrated to the U.S. from India. Arati received a call from a Brian Cruz who called her house early in the morning before Arati left for work. He left his telephone number, name and noted he was calling from the IRS. Arati put the number in her cell phone without searching for it online first. After all it had a 202 area code which is Washington D.C. so she figured it had to be official. Once she got into her car she called, and the man who picked up the call answered that this was the investigations bureau for the IRS. Arati asked for Cruz, but he wasn’t available. The man who picked up the call told Arati to give him the telephone number where Cruz left the message. She did, and then it began.

After the man confirmed Arati’s home telephone number, he stated that she attempted to defraud the IRS, and that the government was now taking legal action against her including issuing a warrant for her arrest within the next hour. When Arati asked what this was all about, he asked if she aware of an investigation against her. Arati replied “I have no clue about an investigation. This is the first time I’m hearing about any of this”. Arati started to panic. The man asked if Arati had a lawyer, and then told her about the investigation ordering her not to interrupt him while he speaks. He then recited the last four digits of Arati’s social security number and recited where she worked. He seemed to know all of Arati’s personal information. He told Arati that she failed to declare all of her income and engaged in tax fraud. He then told Arati that the government was seizing all property and all assets in her name that it had already froze her bank and credit card accounts, suspended her driver’s license as well as her passport. Furthermore, there would be a massive penalty, plus possible jail-time and that her social security number was now blacklisted.

Arati listened with fear to this man who went on to tell me someone would be waiting at her office to arrest her. Arati asked why this was the first time she was hearing about it. His reply: “This isn’t our first attempt to make you aware. We came to your house but you were not home.” Arati then asked what she owed the government. He replied approximately $4,900. Arati then asked why she couldn’t just pay him the amount owed. He told her that the investigation was beyond the point of payment–it was too late.

The man then asked Arati questions like: Have you been part of any previous tax fraud cases? Are there currently any judgments against you? Are there any lawsuits pending against you? The man then stated she could wirie the amount owed or delivering a check to him.

Now at this point Arati was starting to think that something was wrong. Being an IRS agent, wouldn’t he already have records showing that she has a clean record? Wouldn’t she have been audited if the IRS believed she owed taxes? Why would the IRS look to take such drastic action for only a $4,900 liability? Arati started to doubt the man and when she pressed him to independently confirm that he works for the IRS, he replied: “How would you even find me using the IRS 1-800 number? This is my direct line. Do you want to find out if I’m a real IRS agent? You’ll see in an hour when the arrest warrant is issued.” Then, he hung up. Arati then showed up at work and no agents were waiting for her.

I tell you these true stories so you can get an idea on how far these scam artists are willing to go.

Scam artists are now concentrating on Indian Americans and other South Asian Americans which are predominately located in California as part of our state’s huge and lucrative technology industry. Scam artists pretending to be Internal Revenue Service officials threaten to send out an arrest warrant if money is not paid to them immediately over the phone. It happened to Sumeet.

Sumeet who lives in Fremont, California received a call from such a scam artist. The caller said that she owed the IRS $1,648, which had to be paid immediately; otherwise a warrant would be issued for her arrest. Sumeet asked if she could pay $100 a month towards her debt. The caller replied “Are you crazy?” and demanded that at least $500 must immediately be paid to keep the police at bay. When Sumeet replied she could not immediately obtain $500, the caller abruptly stated: “You are refusing to cooperate. An officer will be at your door in a couple of hours.” The caller then hung up.

Sumeet was shaken up by the call and then she called the Fremont, California police department who said that no warrant had been issued for her arrest. The City of Fremont police have received many similar calls in recent months and that they have an investigation team in place that is following up with local victims of the scheme.

These three people were lucky not to fall for this scam but for many not so.

This has been a big problem for the IRS and despite issuing multiple consumer alerts, the bogus emails, the bogus IRS letters and the bogus telephone calls continue and unfortunately taxpayers are still falling for this. The government estimates that taxpayers have lost roughly $5 million to scammers.

Well I do not want you to become the next victim of any such scam nor do we want to ignore true IRS inquiries so stay tuned because after the break we are going to break down each type of fraudulent communication for you and give you the warning signs and tips that you should be aware of.

You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team.

Calling into the studio from our San Francisco Office is my associate attorney, Amy Spivey.

Chit chat with Amy

Well before we continue I want to remind our listeners of our special offer.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

The scam artists exploiting innocent law-abiding taxpayers has been a big problem for the IRS and despite issuing multiple consumer alerts, the bogus emails, the bogus IRS letters and the bogus telephone calls continue and unfortunately taxpayers are still falling for this.

Every week our office receives about a half-dozen inquiries from taxpayers asking whether the communication they just received is really from the IRS. I do not want you to become the next victim of any such scam so listen carefully to what we have to say.

The communication methods used by the scammers are email, letters and telephone calls. The scammers are still going strong doing this to people who are unsuspecting and don’t know how systems work and could very easily frighten them to turn over money. So I am going to break down each type of fraudulent communication for you and give you the warning signs and tips that you should be aware of.

Amy please tell us what people should be aware about emails.

Amy states: When identity theft takes place over the Internet, it is called phishing. Phishing (as in “fishing for information” and “hooking” victims) is a scam where Internet fraudsters send e-mail messages to trick unsuspecting victims into revealing personal and financial information that can be used to steal the victims’ identity. Current scams include phony e-mails which claim to come from the IRS and which lure the victims into the scam by telling them that they are due a tax refund.

Remember, too, the IRS does not use unsolicited email, text messages or any social media to discuss your personal tax issue so if this is the form of communication used – avoid it like you would avoid the plague.

Amy please tell us what people should be aware about letters.

Amy states: If you receive a notice regarding your taxes which does not bear the official seal of the Internal Revenue Service and an official verifiable address of an IRS office or Service Center, that is a sign that it really isn’t the IRS sending you a notice.

The most recent scam that the public has told our office involves a sophisticated fraudulent tax collection notice scam targeting taxpayers for which the IRS has filed a Federal Tax Lien.

Here is how it works: The scammers will search public records for the filing of a Federal Tax Lien by IRS and with the information gathered from that filing will generate a form letter and mail it to the targeted taxpayer. The letter is designed to mimic an IRS notice but it is really coming from a third party having nothing to do with the IRS. If the recipient of the notice contacts the number listed, the person answering your call will purport to be working for the IRS. The intended victim is told he or she owes money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, he or she is then threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the person who answered your call becomes hostile and insulting.

Amy please tell us what people should be aware about the telephone.

Amy states: These callers may demand money or may say you have a refund due and try to trick you into sharing private information. These con artists can sound convincing when they call. Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves. They may know a lot about you and may be able to recite the last four digits of a victim’s Social Security Number and your place of business. They usually alter the caller ID to make it look like the IRS is calling – many times they will use a Washington, D.C. area code. The area codes for the Washington D.C. area are 202, 301 and 703. They will also background noise of other calls being conducted to mimic a call site. If you don’t answer, they often leave an “urgent” callback request and if they have your email address, will send bogus IRS emails to some victims to support their bogus calls. After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

Jeff asks How do you recognize that this call is fake?

Amy states: Here are five things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam. The IRS will never:

1. Call you about taxes you owe without first mailing you an official notice.
2. Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
3. Require you to use a specific payment method for your taxes, such as a prepaid debit card.
4. Ask for credit or debit card numbers over the phone.
5. Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

Jeff states So what should you do?

Amy states: If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:

If you know you don’t owe taxes or have no reason to believe that you do, report the incident to the Treasury Inspector General for Tax Administration at 1.800.366.4484. So far for this year, the government has received more than 90,000 calls.

Jeff states: And if you do owe taxes and you have not already resolved this with the IRS, then that is where we come in.

PLUG: The Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Stay tuned because after the break we are going to tell you some tax saving ideas including how you can make Halloween candy tax deductible.

You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team.

And on the phone from our San Francisco office I have my associate attorney, Amy Spivey.

So Amy, with Halloween coming up, I understand that you have some ideas on how to make Halloween candy tax deductible.
Amy replies: It is true. You can in fact deduct Halloween candy if you figure out a way to make it business related. The IRS doesn’t say a lot about this topic because they don’t want to give you “permission” to deduct these items, but they also have not specifically stated that you cannot deduct Halloween candy.
Jeff asks, so how can you deduct those over-priced bags of snack size chocolates?
Amy replies – will I have five different ways!
1. Make a promotion out of it. Attach your business card or a promotional flyer to packets of M&M’s and voila! Deductible.

2. There are many companies who will print candy wrappers with your logo on it. An even better and more advanced way to promote your business and still have something for trick-or-treaters.

3. Send a box of candy to potential or existing clients during October. This promotes your business and would likely not be questioned as a business deduction.

4. Donate any leftover candy to the US troops. “Charitable organizations with 501(3)(c) status like Operation Gratitude (EIN 20-0103575) and Soldiers’ Angels (EIN 20-0583415) collect leftover Halloween candy to include in care packages for soldiers. They are two of many 501(c)(3) organizations on the IRS-approved list to donate tax deductible charitable goods. Always be sure to check the IRS list before claiming your donations are tax deductible, as status can change.”

5. Make it a party. You can deduct a portion of a Halloween party if the party is to conduct or promote business. Typically this looks like an open house of some sort where you mingle with current and potential clients, play a few Halloween games, give out candy and treats, and discuss business. The IRS does not specify how much time you must spend discussing the business to claim a deduction but you must invite people that you do business with or are looking to do business with.
Jeff says: Amy those are some great ideas.

PLUG: You know that at the Law Offices Of Jeffrey B. Kahn we are always thinking of ways that our clients can save on taxes. We will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Jeff says: Now when I think of Halloween, I look forward to seeing all of the different costumes that people wear. Some are very extravagant and I am sure pricey. And for some they would like to know how that can be deductible. Since costumes fall under the category of clothing or uniforms, Amy please explain what the tax law requires.
Amy says: The tax law requires three elements for clothing useful only in the business environment to be deductible. They are:
1. The clothing is required or essential in the taxpayer’s employment;
2. The clothing is not suitable for general or personal wear; and
3. The clothing is not so worn for general or personal wear.
If these three requirements are satisfied, not only is the cost of the closing deductible but also its upkeep.
Examples of workers who may be able to deduct the cost and upkeep of work clothes are: delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes, and transportation workers (air, rail, bus, etc.). Musicians and entertainers can deduct the cost of theatrical clothing and accessories that are not suitable for everyday wear.
Jeff asks: How about a white cap, white shirt or white jacket, white bib overalls, and standard work shoes a painter is required by his union to wear on the job and there is nothing on any of the clothes that indicate the company this person works for?
Amy replies: No that would not be deductible because it is not distinctive. Similarly, blue work clothes worn by a welder are not deductible even if the foreman requires them. However, required protective clothing like safety boots, safety glasses, hard hats, and work gloves are deductible.
Likewise, just by adding the company’s logo on the clothing will make it deductible even if it can be worn outside the scope of employment because you are advertising your company. In that case you are a walking billboard.
Jeff says: Given today’s dot.com and casual era environment, people are not coming to work as dressed up as they used to. So could lawyers and others argue their suits are just like uniforms and therefore ought to be tax deductible?
Amy replies: No. Where business clothes are suitable for general wear, there’s no deduction even if these particular clothes would not have been purchased but for the employment.
Jeff asks: Is being on TV any different?
Amy replies: While these tax rules are pretty circumscribed, they are also intensively factual. Someone is always pushing the tax envelope. Such was the case with an Ohio TV news anchor, Anietra Y. Hamper. She was claiming approximately $20,000 a year in 2005, 2006, 2007 and 2008 in clothing expense that included not only what she wore for each broadcast but also lounge wear, a robe, sportswear, lingerie, thong underwear, an Ohio State jersey, jewelry, running shoes, dry cleaning, business gifts, cable TV, contact lenses, cosmetics, gym memberships, haircuts, Internet access, self-defense classes, and her subscriptions to Cosmo, Glamour, Newsweek, and Nickelodeon. Her argument was that as a TV anchor she was required to maintain a specified appearance described in the Women’s Wardrobe Guidelines. These guidelines say the “ideal in selecting an outfit for on-air use should be the selection of ‘standard business wear’, typical of that which one might wear on any business day in a normal office setting anywhere in the USA.”
Jeff asks: Was that enough?

Amy replies: No. Where business clothes are suitable for general wear, there’s no deduction even if these particular clothes would not have been purchased but for the employment. For this TV anchor, that was no help. She claimed the requirement to dress conservatively made the clothing unsuitable for everyday, and that’s how she treated it. She wore the business clothing only at work and even kept it separate from her personal clothing. But the IRS and Tax Court denied her wardrobe deductions. And they added penalties.

Jeff asks: Well in the history of tax law is there anyone who prevailed in getting their costumes deducted?
Amy replies: Well Jeff you remember the Swedish disco group ABBA?
Jeff replies, I sure do – I know there songs well. Maybe we can get our engineer to play one for our break.
Amy continues: Well according to ABBA: The Official Photo Book, released to commemorate the 40th anniversary of the group career-making Eurovision victory for Waterloo, the Swedish foursome adopted their outlandish dressing style in order to ensure they could deduct the cost of their costumes under Swedish tax code. Like U.S. tax law, Swedish laws allowed work wear to be tax deductible so long as it was demonstrably apparel that couldn’t be worn on the street – which, with its garish coloring and liberal use of sparkle, ABBA’s certainly was.
PLUG: Now while you will find no one on the kahntaxlaw team wearing outrageous costumes, we will provide you with a rock solid Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Stay tuned as we will be taking some of your questions. You are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team on the KahnTaxLaw Radio Show on ESPN.

BREAK

Welcome back. This is KahnTaxLaw Radio Show on ESPN and you are listening to Jeffrey Kahn the principal tax attorney of the kahntaxlaw team along with my associate attorney, Amy Spivey.

If you would like to post a question for us to answer, you can go to our website at www.kahntaxlaw.com and click on “Radio Show”. You can then enter your question and maybe it will be selected for our show.

OK Amy, what questions have you pulled from the kahntaxlaw inbox for me to answer?

Question from Doug: I live in San Diego County and work in Irvine. I need to see you but cannot get to your downtown San Diego office during my work day. How can I see you?

Jeff replies: Well Doug you should know that I have multiple offices so that people can see me at the location that is most convenient to them whether it be close to their residence or place of work. My office in Orange County is in Newport Beach near the airport so you can see me sometime during your workday or perhaps at the beginning or end of your work day. Just give us a call and we will make it happen.

Question from Cheryl: You always tell us that you are a “Board Certified Tax Attorney”. What does that entail?

Jeff replies: Just like doctors, attorneys can get a special designation for their area of practice. The State Bar governs this process. This requires having at least 5 years of experience, satisfying a peer review, taking extra continuing education in the tax field and passing a comprehensive tax exam. While the tax exam is taken once, all the other requirements must continue to be maintained in order for an attorney to hold out this special designation. It really is the highest designation that an attorney can attain in tax law.

Question from Todd: I always hear on the radio or see on T.V. those commercials for tax relief companies. How are you different from them?

Jeff replies: I have been practicing tax law for over 26 years and I personally meet with every client. I let them know that I am accountable to them to resolve their tax problems. I take this commitment so seriously that my name is in the name of my firm, the Law Offices Of Jeffrey B. Kahn, P.C., and our clients know where and how to reach me and my staff with any questions or the status on their case.

Question from Barbara: Is engaging the Law Offices Of Jeffrey B. Kahn, P.C. expensive and beyond my means?

Jeff replies: Our purpose at the Law Offices Of Jeffrey B. Kahn, P.C. is to help people resolve their tax problems. We are very efficient and effective in doing this because this is what we know and do everyday. With our expertise in solving tax problems we personally meet your needs and do it for the same price if not less than those tax relief companies you always seem to hear about on radio or see on TV.

PLUG: Remember only the Law Offices Of Jeffrey B. Kahn will provide you with a Tax Resolution Plan which is a $500.00 value for free as long as you mention the KahnTaxLaw Radio Show when you call to make an appointment. Call our office to make an appointment to meet with me, Jeffrey Kahn, right here in downtown San Diego or at one of my other offices close to you. The number to call is 866.494.6829. That is 866.494.6829.

Thanks Amy for calling into the show. Amy says Thanks for having me.

Well we are reaching the end of our show.

You can reach out to me on Twitter at hashtag kahntaxlaw. You can also send us your questions by visiting the kahntaxlaw website at www.kahntaxlaw.com. That’s k-a-h-n tax law.com.

Have a great day everyone!

How To Make Your Clothing, Uniforms and Costumes Tax Deductible?

Now when I think of Halloween, I look forward to seeing all of the different costumes that people wear. Some are very extravagant and I am sure pricey. And for some they would like to know how that can be deductible. Since costumes fall under the category of clothing or uniforms, you need to be aware of what the tax law requires.

The tax law requires the following three elements for clothing useful only in the business environment to be deductible:

  1. The clothing is required or essential in the taxpayer’s employment;
  2. The clothing is not suitable for general or personal wear; and
  3. The clothing is not so worn for general or personal wear.

If these three requirements are satisfied, not only is the cost of the closing deductible but also its upkeep.

Examples of workers who may be able to deduct the cost and upkeep of work clothes are: delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes, and transportation workers (air, rail, bus, etc.).  Musicians and entertainers can deduct the cost of theatrical clothing and accessories that are not suitable for everyday wear.

Work Clothes Of Painters And Welders.

But let’s say that you are a painter and you are required by your union to wear on the job a white cap, white shirt or white jacket, white bib overalls, and standard work shoes and there is nothing on any of the clothes that indicate the company this you work for. You would think this to be deductible but the IRS would say no because the clothes are not distinctive.  Similarly, blue work clothes worn by a welder are not deductible even if the foreman requires them.  However, required protective clothing like safety boots, safety glasses, hard hats, and work gloves are deductible. Likewise, just by adding the company’s logo on the clothing will make it deductible even if it can be worn outside the scope of employment because you are advertising your company. In that case you are a walking billboard.

Military Uniforms.

We have a large military presence here in San Diego County so we are asked many times what rules apply for military uniforms?  You generally cannot deduct uniforms if you are on full-time active duty in the armed forces.  However, reservists can deduct the unreimbursed cost of uniforms if military regulations restrict wearing it except on duty.  Still, you must reduce your deduction by any nontaxable allowance you receive.  If local military rules don’t allow wearing fatigues off duty, you can deduct the amount by which your uniform cost exceeds your uniform allowance. 

Business Attire”.

Given today’s dot.com and casual era environment, people are not coming to work as dressed up as they used to. So could lawyers and others argue their suits are just like uniforms and therefore ought to be tax deductible?  No. Where business clothes are suitable for general wear, there’s no deduction even if these particular clothes would not have been purchased but for the employment. 

Is Being On TV Any Different?  

While these tax rules are pretty circumscribed, they are also intensively factual.  Someone is always pushing the tax envelope.  Such was the case with an Ohio TV news anchor, Anietra Y. Hamper. She was claiming approximately $20,000 a year in 2005, 2006, 2007 and 2008 in clothing expense that included not only what she wore for each broadcast but also lounge wear, a robe, sportswear, lingerie, thong underwear, an Ohio State jersey, jewelry, running shoes, dry cleaning, business gifts, cable TV, contact lenses, cosmetics, gym memberships, haircuts, Internet access, self-defense classes, and her subscriptions to Cosmo, Glamour, Newsweek, and Nickelodeon.  Her argument was that as a TV anchor she was required to maintain a specified appearance described in the Women’s Wardrobe Guidelines.  These guidelines say the “ideal in selecting an outfit for on-air use should be the selection of ‘standard business wear’, typical of that which one might wear on any business day in a normal office setting anywhere in the USA”. The IRS and U.S. Tax Court did not agree stating that where business clothes are suitable for general wear, there’s no deduction even if these particular clothes would not have been purchased but for the employment.  For this TV anchor, that was no help.  She claimed the requirement to dress conservatively made the clothing unsuitable for everyday, and that’s how she treated it.  She wore the business clothing only at work and even kept it separate from her personal clothing.  Not only did the IRS and Tax Court denied her wardrobe deductions, they added penalties.

And Finally A Winner!

There is one group that in the history of tax law prevailed in getting their costumes deducted – that was the Swedish disco group ABBA! According to ABBA: The Official Photo Book, released to commemorate the 40th anniversary of the group career-making Eurovision victory for Waterloo, the Swedish foursome adopted their outlandish dressing style in order to ensure they could deduct the cost of their costumes under Swedish tax code. Like U.S. tax law, Swedish laws allowed work wear to be tax deductible so long as it was demonstrably apparel that couldn’t be worn on the street – which, with its garish coloring and liberal use of sparkle, ABBA’s certainly was.

What Should You Do?

Now while you will find no one at the Law Offices Of Jeffrey B. Kahn, P.C. wearing outlandish costumes, we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems to allow you to have a fresh start.