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Minnesota lawmakers take extraordinary measures in special session to advance tardy budget

Minnesota’s path to a new state budget took another abrupt turn Friday when Democratic senators reworked a funding bill for agricultural and environmental programs instead of passing a plan negotiated between Gov. Mark Dayton and House Republicans….

2016 LITC Grant Period Now Open

Grant applications for Low Income Taxpayer Clinics (LITC) are being accepted from today through June 15, 2015. The program awards matching grants of up to $100,000 per year to qualifying organizations to develop, expand, or maintain a low income taxpayer clinic.
LITC employees and volunteers operate independently from the IRS. The clinics must provide services for free or for no more than a nom…

Donating a life insurance policy to charity

A number of charities now ask their donors to consider donating life insurance policies rather than (or in addition to) cash in order to make substantially larger gifts than would otherwise be possible. The advantage to donors is that they can make a sizable gift with relatively little up-front cash (or even no cash, if an existing policy is donated). The fact that a charity may have to wait many years before receiving a payoff from the gift is typically not a problem, because charities normally earmark such gifts for their endowment or long-term building funds.
Of course, good reasons may exist for keeping the policy in force (such as to provide liquidity for a taxable estate or to meet the continuing needs of a surviving spouse or disabled child). Still, for individuals with both excess life insurance and a charitable intent, the donation of a life insurance policy may make sense.
If handled correctly, a life insurance policy donation can net the donor a charitable deduction for the value of the policy. A charitable deduction is also available for any cash contributed in future years to continue paying the premiums on a policy that was not fully paid up at the time it was donated. However, if handled incorrectly, no deduction is allowed. For this reason, we encourage you to contact us if you are considering donating a life insurance policy. We can help ensure that you receive the expected income tax deduction and that the contribution works as planned.

Minnesota lawmakers take extraordinary measures in special session to advance tardy budget

Fri Jun 12 19:49:35 PDT 2015
Minnesota’s path to a new state budget took another abrupt turn Friday when Democratic senators reworked a funding bill for agricultural and environmental programs instead of passing a plan negotiated between Gov. Mark Dayton and House Republicans….

In Recognition of Public Service – Some Success Stories

This week is Public Service Recognition week, and in that spirit, we wanted to share some stories that highlight how Taxpayer Advocate Service employees work for you and all taxpayers. The Taxpayer Advocate Service has Advocates in every state, and they are your voice at the IRS, taking your side and working one-on-one until the issue is resolved. Here are just a few examples of how TAS employe…

What you should do with an identity verification letter from the IRS

In its efforts to combat identity theft, the IRS is stopping suspicious tax returns that have indications of being identity theft, but contain a real taxpayer’s name and/or Social Security number, and sending out Letter 5071C to request that the taxpayer verify his or her identity.
Letter 5071C is mailed through the U.S. Postal Service to the address on the return. It asks taxpayers to verify their identities in order for the IRS to complete processing of the returns if the taxpayers did file it or reject the returns if the taxpayers did not file it.
It is important to understand that the IRS does not request such information via e-mail; nor will the IRS call you directly to ask this information without first sending you a Letter 5071C. The letter number can be found in the upper corner of the page.
Letter 5071C gives you two options to contact the IRS and confirm whether or not you filed the return: You can (1) use the site or (2) call a toll-free number on the letter. However, the IRS says that, because of the high volume on its toll-free numbers, the IRS-sponsored website,, is the safest, fastest option for taxpayers with Web access.

Choosing a Tax Professional

A tax return preparer is trusted with your most personal information. They know about your marriage, your divorce, your income, your children and your social security numbers – all he details of your financial life.Most tax return preparers provide outstanding service. However, each year, some taxpayers are hurt financially because they choose the wrong tax return preparer.
Anyone can be a paid tax return preparer as long as they have an IRS Preparer Tax Identification Number (PTIN) and they sign and enter it on all returns they prepare. However, tax return preparers have differing levels of skills, education, and expertise.
Enrolled Agents, certified public accountants, and tax attorneys have unlimited representation rights before the IRS. Tax professionals with these credentials may represent their clients on any matters including audits, payment/collection issues, and appeals.
Leslie Weaver of The Ellem Group holds the distinction of Enrolled Agent, and is licensed by the IRS. Enrolled agents are subject to numerous security checks, and must pass a difficult comprehensive exam requiring them to demonstrate proficiency in federal tax planning, individual and business tax return preparation, and representation. An Enrolled Agent must complete 72 hours of continuing education every 3 years.
Choose wisely when selecting a paid tax return preparer. Remember, your preparer is going to know everything about your personal information . Who would you rather trust: a tax professional licensed by the IRS, or a seasonal worker, hired after completing a two week night class in Basic Tax 101?
Choose wisely. Your financial health depends on it.

Serving Houston & Beaumont professional tax audit defense. IRS Enrolled Agent on staff.
Trained experts in the tax audit field. The Ellem Group 409-347-7997

Is your worker classified as an independent contractor or an employee?

The question of whether a worker is an independent contractor or employee for federal income and employment tax purposes is a complex one. The stakes can be very high when you, the employer, classify the worker incorrectly.TheEllemGroup_blog_workers_pix
If the worker is an “employee” by federal standards, the company must withhold federal income and payroll taxes, pay the employer’s share of FICA taxes (Social Security and Medicare Matching) on the wages, plus FUTA taxes (Federal Unemployment Tax). There may be a state tax obligation as well since most states are more stringent on classification than the IRS is.
The obligations do not apply for a worker who is classified as an “independent contractor”. If the worker is indeed an “independent contractor” they will need to provide you with a W9 and in turn the company who contracted with this individual would send the independent contractor a Form 1099- MISC indicating the amounts for the year showing he/she was paid.
Who is an ‘employee”? Unfortunately, there is no uniform definition of the classification. That being said, most states would disagree with the IRS definition of an “employee”. There are several guidelines you should follow which we have indicated below.
Under the common-law rules (called common-law because they originate from court cases rather than from a statute), an individual generally is an employee if:
the enterprise he/she works for has the right to control and direct them regarding the job they are performing and how they are to do it. This, again, can depend on the type of work the “employee” is performing. There are some instances (based on court cases) where the work has to be performed a certain way due to security or scrutiny of the particular job.
For example, if you “employ” in individual to complete tax work for your particular clients on a seasonal basis, would that person be considered an “employee” or an “independent contractor”? Based on the nature of the business, the individual you “employed” has to use your office, your programs during specified times of business hours. Is this person an “employee” or an “independent contractor”? In these type of instances, you can ask the IRS, using Form SS-8, to rule on whether a worker is an independent contractor or an employee. Please be very specific on the type of work and the nature of the business they will be working in. This can make all of the difference in classification, especially in regards to the stiff penalties imposed.
Some employers that have misclassified workers as independent contractors are relieved from employment tax liabilities under Section 530 of the 1978 Revenue Act (not Internal Revenue Code). In brief, Sec. 530 protection applies only if the employer: filed all federal returns consistent with its treatment of a worker as an independent contractor; treated all similarly situated workers as independent contractors; and had a “reasonable basis” for not treating the worker and an employee.
For example, a “reasonable basis exists if a significant segment of the employer’s industry has traditionally treated similar workers as independent contractors.” Due note, though, Sec. 530 does not apply to certain types of technical workers.
Individuals who are “statutory employees,” (that is, specifically identified by the Internal Revenue Code as being employees) are treated as employees for social security purposes even if they are not subject to an employer’s direction or control (even if the individuals would not be treated as employees under the common-law rules). These individuals are classified as a type of agent driver, commissioned driver, life insurance sales-people, home workers, and full-time traveling sales people who meet a number of other tests. Statutory employees may or may not be employees for non-FICA purposes. Also note, corporate officers are statutory employees for all purposes.
Some categories of individuals are subject to special rules because of their occupation or identities. For example, corporate directors are not employees of a corporation in their capacity as directors, and partners of an enterprise organized as a partnership are treated as self-employed persons.
If you would like to discuss with me how these complex rules apply to your business, or to make sure none of your workers are misclassified, please feel free to contact me or my office to arrange an appointment time.
Tax it Easy,
The Ellem Group

Serving Houston & Beaumont professional tax audit defense. IRS Enrolled Agent on staff.
Trained experts in the tax audit field. The Ellem Group 409-347-7997

What is an IRS audit?

An IRS audit is a review/examination of a businesses or individuals account and financial information to verify if income and expenses are being reported correctly and according to tax laws.
It is important to note that in most cases the IRS has up to three years to audit your tax return which is why everyone should keep all of their records, tax forms, and other substantiation for a period of at least three years.
Why would I be picked for an audit?
If you receive a letter from the IRS, that does not always mean you’re getting audited, sometimes they are simply looking for more information or clarification on the income and expenses you have reported on your tax return.
If you do get an audit letter it is important to know which part of your tax return is being audited.
Often the IRS agent will have questions about only a portion of the tax return and not the entire return.
Many times the Internal Revenue Service will audit your return due to fluctuations in your average income and expenses over the past couple of years. Also, the IRS could be auditing you because they do not have enough information about you.
The IRS knows all about it
uncle-sam-304887_640With most taxpayers, the Internal Revenue Service has access to all of their information. For example, total wages and some deductions are reported to the IRS by third parties. However, individuals and small businesses can file deductions and/or credits that are not reported to the Internal Revenue Service by another third-party and verification is needed hence you have the audit process.
Returns filed by the self-employed and the wealthy tend to have a lot more self-reported (items not reported to the Internal Revenue Service by a third party) items that the Internal Revenue Service may question.
Often taxpayers are audited because of related examinations
Returns may be selected for audit when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit. It is important to know, for instance, if your partner is being audited because the chances are high that you will be audited as well.
Audit Methods
An IRS audit can be conducted by mail or through an in person interview with the IRS agent. This interview can either take place at your home or the IRS office. The IRS agent will tell you what records are needed and schedule a date and a time for you to have all substantiation and records at your meeting.
Although you will be provided with a written request for specific documentation, it is important to note the IRS often subpoenas all bank statements, deposit slips, and check copies from each banking account you are listed on.
If you are self-employed, it would be recommended to produce a profit and loss statement for your business earnings and expenses for the tax year in question. Do note the agent will compare your bank records with that of your financials. Be sure you have all of this information on hand and ready to be presented in the case the agent wants to see these items.
How long does an audit take
The length of each audit varies depending on the type the complexity and the availability of the information being requested, the availability of both parties for scheduling of meetings, and your agreement or disagreement with the auditor’s findings.
It is very important to understand the IRS does not accept some electronic records. The IRS may request those in lieu of or in addition to other types of records. Contact your auditor or your tax representative to determine what can be accepted to ensure a software program is compatible with the IRS.
Audit Determinations
An audit can be concluded in three different ways:
No change: this is an audit which of you have in which you have substantiated all of the items being reviewed and it results in a no change. The majority of audits do not result in this conclusion.
Agreed: this is an audit where the IRS proposed changes in the taxpayer understands and agrees with the changes. This agreement cannot be changed or amended in future dates.
Disagree: this is an audit where the IRS has proposed changes and the taxpayer understands, but disagrees with the changes. Most audits are in this conclusion status.
It is important to note that if you do disagree on the proposed changes there are other options. This would be a good time to ask for professional help in an “Audit Re-Determination”. The audit professional will be able to adjust the numbers the Revenue Agent assessed and negotiate different terms. If after the tax professional and the agent determine the amounts due are still too high, there are still other options available to you after the audit has ended.
We work closely with local IRS agents when it comes to the audit process. Due to an in-depth knowledge of the audit process we can often obtain results favorable to our clients. Call us today – you do not want to work on your own with the IRS if you are being audited.

Serving Houston & Beaumont professional tax audit defense. IRS Enrolled Agent on staff.
Trained experts in the tax audit field. The Ellem Group 409-347-7997

Does My Small Business Qualify for the Health Care Credit?

surgery-79584_640How to Qualify for the Health Care Credit
You must have fewer than 25 full-time employees, and
your average employee salary is about, on average, $50,000 or less, and
you pay at least 50% of your full-time employees’ premium costs, and
you offer coverage to your full-time employees through the SHOP (Small Business Health Options Programs) marker place
35-50% Tax Credit Available
The maximum tax credit is worth up to 50% of your contribution toward your employees’ premium costs and up to 35% for tax-exempt employers.
The tax credit is higher for companies with fewer with 10 employees who are paid an average of $25K or less. Basically, the smaller the business, the higher the credit.
You Can Claim the Credit Beginning in 2014
This credit is available to eligible employers for 2 consecutive tax years beginning in 2014. For example, if you, the employer, pay $50,000 per year towards employees’ health care premiums and you qualify for the 15% credit, you save $7,500.
How the Health Care Credit Works
How the credit works on your taxes…….in order to receive the credit, you must have a tax liability reported on your tax form. It is important to note, though, unlike for a tax-exempt employer, this is not a refundable credit…meaning if you have a left over credit after it zeroed out your tax liability, you do not get a check for the rest.
That being said, you can either carry the amount forward to the next year or back to the previous year. You can also in a sense “double-dip” on this credit. Let’s say you paid $15,000 toward your employee’s health care premiums and received a $3,000 tax credit. This leaves $12,000 you can still deduct on your tax return as an expense for health care coverage.
File an Amended Return and Get That Credit
In closing, if you forgot to claim this credit on your previous year’s tax return, there is still time to file an amended return.
Contact your tax professional for the amendment since the forms you will need to attach to the return are a bit overwhelming!

Serving Houston & Beaumont professional tax audit defense. IRS Enrolled Agent on staff.
Trained experts in the tax audit field. The Ellem Group 409-347-7997