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Archive for the ‘IRS/Tax Articles’ Category

Tax Tips from the IRS for Students that Worked a Summer Job

7 October 2011 | Hertsel Shadian

When school lets out each summer, many students start new summer jobs. The Internal Revenue Service recently sent out a helpful reminder for students that not all the money they earn might make it into their pockets. That is because their employer must withhold taxes. Following are some things students should know if they worked a summer job.

1. When you first start a new job you must fill out a Form W-4, Employee’s Withholding Allowance Certificate. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. If you have multiple jobs, make sure all your employers are withholding an adequate amount of taxes to cover your total income tax liability. To make sure your withholding is correct, use the IRS Withholding Calculator (see link below), also available on the official IRS website at www.IRS.gov.

2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tips you receive are taxable income and are therefore subject to federal income tax.

3. Many students do odd jobs over the summer to make extra cash. Earnings you receive from self-employment – including jobs like baby-sitting and lawn mowing – are subject to income tax.

4. If you have net earnings of $400 or more from self-employment, you also will have to pay self-employment tax. This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.

5. Food and lodging allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.

6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:

  • You are in the business of delivering newspapers.
  • All your pay for these services directly relates to sales rather than to the number of hours worked.
  • You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.

For more information, students should contact a tax advisor or professional tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Additional information also is available on the official IRS website at www.IRS.gov. Please also feel free to share this article with others that might benefit from this information.


Tax Information About Employee Business Expenses

5 October 2011 | Hertsel Shadian

If you itemize deductions and are an employee, you may be able to deduct certain work-related expenses. The IRS has put together the following facts to help you determine which expenses may be deducted as an employee business expense.

Expenses that qualify for an itemized deduction include:

  • Business travel away from home
  • Business use of car
  • Business meals and entertainment
  • Travel
  • Use of your home
  • Education
  • Supplies
  • Tools
  • Miscellaneous expenses

You must keep records to prove the business expenses you deduct. For general information on recordkeeping, see IRS Publication 552, Recordkeeping for Individuals (link below), also available on the IRS website at www.IRS.gov, or by calling 800-829-3676.

If your employer reimburses you under an accountable plan, you do not include the payments in your gross income, but you may not deduct any of the reimbursed amounts. An accountable plan must meet three requirements:

  1. You must have paid or incurred expenses that are deductible while performing services as an employee.
  2. You must adequately account to your employer for these expenses within a reasonable time period, and
  3. You must return any excess reimbursement or allowance within a reasonable time period.

If the plan under which you are reimbursed by your employer is non-accountable, the payments you receive should be included in the wages shown on your Form W-2. You must report the income and itemize your deductions to deduct these expenses. Generally, report expenses on IRS Form 2106 or IRS Form 2106-EZ to figure the deduction for employee business expenses and attach the respective Form 2106 to your Form 1040. Deductible expenses are then reported on Form 1040, Schedule A, as a miscellaneous itemized deduction subject to the “2% of your adjusted gross income” rules. Under those rules, generally only employee business expenses that are in excess of 2% of your adjusted gross income can be deducted.

For more information, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Also see IRS Publication 529, Miscellaneous Deductions (link below), also available on the IRS website, www.IRS.gov, or by calling 800-829-3676. Please also feel free to share this article with others that might benefit from this information.


  • Publication 552, Recordkeeping for Individuals  (PDF)
  • Publication 529, Miscellaneous Deductions  (PDF)

Rules and 2011-2012 Per Diem Rates for Employee Reimbursements

3 October 2011 | Hertsel Shadian

Released on September 30, 2011, Revenue Procedure 2011-47 provides rules for employees, volunteers, and partners who are reimbursed for lodging, meals, and incidental expenses, or meals and incidental expenses only, while traveling away from home, to substantiate the expenses by per diem allowance rather than actual expenses. Also, Notice 2011-81 provides the 2011-2012 special per diem rates for taxpayers to use in substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home.

For more information, call your professional tax advisor or tax preparer, or contact Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Additional information also is available on the official IRS website at www.IRS.gov.

What Employers Need to Know About Claiming the Small Business Health Care Tax Credit

30 September 2011 | Hertsel Shadian

Many small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for the small business health care tax credit. This credit can enable small businesses and small tax-exempt organizations to offer health insurance coverage for the first time. It also helps those already offering health insurance coverage to maintain the coverage they already have. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ 25 or fewer workers with average income of $50,000 or less. For tax years 2010 to 2013, the maximum credit for eligible small business employers is 35 percent of premiums paid and for eligible tax-exempt employers the maximum credit is 25 percent of premiums paid. Beginning in 2014, the maximum tax credit will go up to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible tax-exempt organizations.

Here is what small employers need to know so they don’t miss out on the credit for tax year 2010:

  • Hurricane Irene, Tropical Storm Lee and other recent disaster-related tax relief postponed certain tax filing and payment deadlines to Oct. 31, 2011. Qualifying businesses affected by these natural disasters still have time to file and claim the small employer health care credit on Form 8941 and claim it as part of the general business credit on Form 3800, which they would include with their tax return. For more information on the disaster relief visit IRS.gov.
  • Sole proprietors who file Form 1040, Partners and S-corporation shareholders who report their income on Form 1040 and had requested an extension have until Oct. 17 to complete their returns. They would also use Form 8941 to calculate the small employer health care credit and claim it as a general business credit on Form 3800, reflected on line 53 of Form 1040.
  • Tax-exempt organizations that file on a calendar year basis and requested an extension to file to Nov. 15 can use Form 8941 and then claim the credit on Form 990-T, Line 44f.
  • Businesses who have already filed can still claim the credit. For small businesses that have already filed and later determine they are eligible for the credit, they can always file an amended 2010 tax return. Corporations use Form 1120X and individual sole proprietors use Form 1040X.
  • Businesses that couldn’t use the credit in 2010 may be eligible to claim it in future years. Some businesses that already locked into health insurance plan structures and contributions for 2010 may not have had the opportunity to make any needed adjustments to qualify for the credit for 2010. So these businesses may be eligible to claim the credit on 2011 returns or in years beyond. Small employers can claim the credit for 2010 through 2013 and for two additional years beginning in 2014.

For more information, please contact Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Additional information about eligibility requirements and calculating the credit also can be found on the Small Business Health Care Tax Credit for Small Employers page (see link below) of www.IRS.gov. Please also share this article with others that might benefit from this information.


Tips to Put Military Personnel More at Ease Come Tax Time

20 July 2011 | Hertsel Shadian

Military personnel have some unique duties, expenses and transitions. Some special tax benefits may apply when moving to a new base, traveling to a duty station, returning from active duty and more. The following tips might put military members a bit more “at ease” when it comes to their taxes.

  1. Moving Expenses. If you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you can deduct the reasonable unreimbursed expenses of moving yourself and the members of your household.
  2. Combat Pay. If you serve in a combat zone as an enlisted person or as a warrant officer for any part of a month, all your military pay received for military service that month is not taxable. For officers, the monthly exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received.
  3. Extension of Deadlines. The time for taking care of certain tax matters can be postponed. The deadline for filing tax returns, paying taxes, filing claims for refund, and taking other actions with the IRS automatically is extended for qualifying members of the military.
  4. Uniform Cost and Upkeep. If military regulations prohibit you from wearing certain uniforms when off duty, you can deduct the cost and upkeep of those uniforms, but you must reduce your expenses by any allowance or reimbursement you receive.
  5. Joint Returns. Generally, joint returns must be signed by both spouses. However, when one spouse may not be available due to military duty, a power of attorney may be used to file a joint return.
  6. Travel to Reserve Duty. If you are a member of the U.S. Armed Forces Reserves, you can deduct unreimbursed travel expenses for traveling more than 100 miles away from home to perform your reserve duties.
  7. ROTC Students. Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.
  8. Transitioning Back to Civilian Life. You may be able to deduct some costs you incur while looking for a new job. Expenses may include travel, resume preparation fees, and outplacement agency fees. Moving expenses may be deductible if your move is closely related to the start of work at a new job location, and you meet certain tests.
  9. Tax Help. Most military installations offer free tax filing and preparation assistance during the filing season.

For more information, call Hertsel Shadian, Attorney at Law, LLC, at (503) 532-6985, or see IRS Publication 3, Armed Forces’ Tax Guide, which summarizes many important military-related tax topics. Publication 3 also can be downloaded from the official IRS website at www.IRS.gov or may be ordered by calling 1-800-TAX-FORM (800-829-3676). Other useful information for military personnel also can be found at the following IRS link, Tax Information for Members of the U.S. Armed Forces, which provides further tax information and helpful links. Please also feel free to forward this article to others you know that might benefit from this information.

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Summer Day Camp Expenses May Qualify for a Tax Credit

11 July 2011 | Hertsel Shadian

For parents with school-aged children, summertime probably also comes with some extra expenses, including summer day camp. However, there might be some good news for parents: those added expenses can help you qualify for a tax credit. Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation. The Child and Dependent Care Credit is available for expenses incurred during the summer and throughout the rest of the year. Following are some facts to know about the tax credit available for child care expenses:

  1. The cost of day camp may count as an expense towards the child and dependent care credit.
  2. Expenses for overnight camps do not qualify.
  3. Whether your childcare provider is a sitter at your home or a daycare facility outside the home, you’ll get some tax benefit if you qualify for the credit.
  4. The credit can be up to 35 percent of your qualifying expenses, depending on your income.
  5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

For more information about this credit, consult your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. You also can check out IRS Publication 503, Child and Dependent Care Expenses, available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). See also the previously posted articles on these related topics, Important Tax Facts About the Child and Dependent Care Credit and Ten Important Facts about the Child Tax Credit. [Note that the applicable amounts set out in those articles might have changed since the time those articles first were posted.] Please also feel free to forward this article to others you know who might benefit from this information.


Working From Home? Consider the Home Office Deduction

5 July 2011 | Hertsel Shadian

Whether you are self-employed or an employee, if you use a portion of your home for business, you may be able to take a home office deduction.  Here are some things to know about the Home Office deduction so you can account for these related expenses properly during the year to take the deduction on your next year’s return:

1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:

  • as your principal place of business, or
  • as a place to meet or deal with patients, clients or customers in the normal course of your business, or
  • in any connection with your trade or business where the business portion of your home is a separate structure not attached to your home.

2. For certain storage use, rental use, or daycare-facility use, you are required to use the property regularly but not exclusively.

3. Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

4. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

5. If you are self-employed, use IRS Form 8829, Expenses for Business Use of Your Home, to figure your home office deduction and report those deductions on line 30 of Form 1040 Schedule C, Profit or Loss From Business. Use the Instructions to IRS Form 8829 to help you complete the form.

6. If you are an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be for the convenience of your employer.

For more information, contact Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985, or see IRS Publication 587, Business Use of Your Home, available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). Please also share this article with others you know that might benefit from this information.

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Don’t be Scammed by Fake IRS Communications

20 June 2011 | Hertsel Shadian

According to the IRS, it receives thousands of reports each year from taxpayers who receive suspicious emails, phone calls, faxes or notices claiming to be from the Internal Revenue Service. Many of these scams fraudulently use the Internal Revenue Service name or logo as a lure to make the communication more authentic and enticing. The goal of these scams––known as phishing––is to trick you into revealing personal and financial information. The scammers can then use that information––like your Social Security number, bank account or credit card numbers––to commit identity theft or steal your money.  Here are five things to know about phishing scams which involve supposed communications from the IRS:

1. The IRS does not ask for detailed personal and financial information like PIN numbers, passwords or similar secret access information for credit card, bank or other financial accounts.

2. The IRS does not initiate taxpayer communications through e-mail and won’t send a message about your tax account. If you receive an e-mail from someone claiming to be the IRS or directing you to an IRS site:

  • Do not reply to the message.
  • Do not open any attachments. Attachments may contain malicious code that will infect your computer.
  • Do not click on any links. If you clicked on links in a suspicious e-mail or phishing website and entered confidential information, visit the IRS website and enter the search term “identity theft” for more information and resources to help.

3. The address of the official IRS website is http://www.IRS.gov. Do not be confused or misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on the suspicious site and report it to the IRS.

4. If you receive a phone call, fax or letter in the mail from an individual claiming to be from the IRS but you suspect they are not an IRS employee, you should contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Report any bogus correspondence.

5. You can help shut down these schemes and prevent others from being victimized. Details on how to report specific types of scams and what to do if you’ve been victimized are available at http://www.IRS.gov, keyword “phishing.”

The IRS also has additional information at the following link:  Protect your personal information! The IRS does not initiate taxpayer communications through e-mailSuspicious e-Mails and Identity Theft.

For more information, call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985.  Please also forward this article to others to help prevent such phishing scams.

IRS Announces New Effort to Help Struggling Taxpayers Get a Fresh Start

19 May 2011 | Hertsel Shadian

IRS also Announces Major Changes Made to Lien Process

In its latest effort to help struggling taxpayers, the Internal Revenue Service in February 2011 announced a series of new steps to help people get a fresh start with their tax liabilities. The stated goal of these steps is to help individuals and small businesses meet their tax obligations, without adding an unnecessary burden to taxpayers. Specifically, the IRS announced new policies and programs to help taxpayers pay back taxes and avoid tax liens.

The IRS’s announcement centers on the IRS making important changes to its lien filing practices that hopefully will lessen the negative impact on taxpayers. The changes include:

  • Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens.
  • Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill.
  • Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement.
  • Creating easier access to Installment Agreements for more struggling small businesses.
  • Expanding a streamlined Offer in Compromise program to cover more taxpayers.

This is another in a series of steps by the IRS intended to help struggling taxpayers. In 2008, the IRS announced lien relief for people trying to refinance or sell a home. [See IRS article, “IRS Speeds Lien Relief for Homeowners Trying to Refinance, Sell” (IR-2008-141)] In 2009, the IRS added new flexibility for taxpayers facing payment or collection problems. [See IRS article, “IRS Begins Tax Season 2009 with Steps to Help Financially Distressed Taxpayers; Promotes Credits, e-File Options” (IR-2009-2)] Also, in 2010, the IRS held about 1,000 special open houses to help small businesses and individuals resolve tax issues with the Agency. The February 2011 announcement came after a review of collection operations which the IRS Commissioner launched in 2010, as well as input from the Internal Revenue Service Advisory Council and the National Taxpayer Advocate.

Tax Lien Thresholds

Under the newly stated policy, the IRS significantly will increase the dollar thresholds when liens generally are filed. The new dollar amount is intended to be in keeping with inflationary changes that have arisen since the number last was revised. Previously, liens were automatically filed at certain dollar levels for people with past-due balances (usually $5,000 or more). That amount now generally has been increased to people with past-due balances of $10,000 or more, which should result in significantly fewer lien filings (tens of thousands in the IRS’s own estimation). In its announcement, the IRS also stated that it plans to review the results and impact of the lien threshold change in about a year.

A federal tax lien gives the IRS a legal claim to a taxpayer’s property for the amount of an unpaid tax debt. From the government’s standpoint, filing a Notice of Federal Tax Lien is necessary to establish priority rights against certain other creditors. Usually the government is not the only creditor to whom the taxpayer owes money. A lien informs the public that the U.S. government has a claim against all property, and any rights to property, of the taxpayer. This includes property owned at the time the notice of lien is filed and property acquired by the taxpayer thereafter. A lien can affect a taxpayer’s credit rating, so it is critical to arrange the payment of taxes as quickly as possible.

Tax Lien Withdrawals

The IRS further stated in the February 2011 announcement that it also will modify procedures that will make it easier for taxpayers to obtain lien withdrawals once taxes have been paid. According to the announcement, liens now will be withdrawn once full payment of taxes is made if the taxpayer requests such withdrawal. The IRS stated that it determined that this approach is in the best interest of the government. Previously, liens could remain on record for years after the tax was paid or the balance was negotiated to a reduced amount, and also could stay on a taxpayer’s credit report for years after the tax was paid or negotiated. In order to speed the withdrawal process, the IRS stated that it also will streamline its internal procedures to allow collection personnel to withdraw the liens.

Direct Debit Installment Agreements and Liens

The IRS stated further in its announcement that it is making other fundamental changes to liens in cases where taxpayers enter into a Direct Debit Installment Agreement (DDIA). For taxpayers with unpaid assessments of $25,000 or less, the IRS now will allow lien withdrawals under several scenarios:

  • Lien withdrawals will be allowed for taxpayers entering into a new Direct Debit Installment Agreement.
  • The IRS will withdraw a lien if a taxpayer on a regular Installment Agreement converts to a Direct Debit Installment Agreement.
  • The IRS also will withdraw liens on existing Direct Debit Installment Agreements upon taxpayer request.

Liens will be withdrawn after a probationary period demonstrating that direct debit payments will be honored. In addition, this approach should lower overall user fees and at the same time will save the government money from having to mail monthly payment notices. Taxpayers can use the Online Payment Agreement application on www.IRS.gov to set-up Direct Debit Installment Agreements. A link to the application also is available under the links on this website (www.shadianlaw.com).

Installment Agreements and Small Businesses

In addition to the above changes applicable to individual taxpayers, the IRS also announced that it is making streamlined Installment Agreements available to more small businesses. The payment program will raise the dollar limit to allow additional small businesses to participate. Small businesses with $25,000 or less in unpaid tax now can participate. Previously, only small businesses with under $10,000 in liabilities could participate. Small businesses will have up to 24 months to pay.

The streamlined Installment Agreements will be available for small businesses that file either as an individual or as a business. Small businesses with an unpaid assessment balance greater than $25,000 still would qualify for the streamlined Installment Agreement if they can pay down the balance to $25,000 or less. Small businesses will need to enroll in a Direct Debit Installment Agreement to participate.

Offers in Compromise

Finally, the IRS announced that it was expanding a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers. This streamlined OIC is being expanded to allow taxpayers with annual incomes up to $100,000 to participate. In addition, participants must have tax liability of less than $50,000, doubling the previous limit of $25,000 or less.

OICs are subject to acceptance based on legal requirements. An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.


To get further information about these new programs to help pay or negotiate tax debts and/or tax liens, contact your professional tax advisor or tax preparer, or contact this office at (503) 352-6985, or visit www.shadianlaw.com. Please also feel free to forward this article to others you know that might benefit from this information (you can use the convenient link below). In addition, if you have received a notice from the IRS and you are not sure what to do, please review this prior article, “Don’t Panic! Some Things to Know If You Receive an IRS Notice.”

Eight Tips for Deducting Charitable Contributions

11 April 2011 | Hertsel Shadian

Charitable contributions made to qualified organizations may help lower your tax bill. Following are eight tips to help ensure your contributions pay off on your tax return.

  1. If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Also, you cannot deduct contributions made to specific individuals, political organizations and candidates. See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization. Also, to determine if an organization is a qualified charity, refer to the following link: Search for Charities or download Publication 78, Cumulative List of Organizations.
  2. To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A.
  3. If you receive a benefit because of your contribution—such as merchandise, tickets to a ball game or other goods and services—then you can deduct only the amount that exceeds the fair market value of the benefit received.
  4. Donations of stock or other non-cash property usually are valued at the fair market value of the property. Clothing and household items generally must be in good used condition or better to be deductible. Special rules apply to vehicle donations.
  5. Fair market value generally is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.
  6. Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution. For text message donations, a telephone bill will meet the record keeping requirement if it shows the name of the receiving organization, the date of the contribution, and the amount given.
  7. To claim a deduction for contributions of cash or property equaling $250 or more, you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more. If your total deduction for all non-cash contributions for the year is over $500, you must complete and attach IRS Form 8283, Non-cash Charitable Contributions, to your return. Refer also to the Instructions for Form 8283, Non-cash Charitable Contributions.
  8. Taxpayers donating an item or a group of similar items valued at more than $5,000 also must complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.

For more information on charitable contributions, consult your professional tax advisor or tax preparer, or refer to IRS Form 8283 and its instructions, as well as IRS Publication 526, Charitable Contributions. For information on determining the value of donated property, refer also to IRS Publication 561, Determining the Value of Donated Property. These forms and publications all are available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).  The IRS also has prepared a brief YouTube video on this topic at the following link: Fair Market Value of Charitable Donations. Please feel free to forward this article to others that might benefit from this information.