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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

Defer Income, Defer Taxes, Defer Capital Gains

What other ways can I defer this year’s income?
If you own your business you may want to postpone sending certain invoices to ensure that you will receive payment in the following tax year. This can help greatly if some of this income would push you into a higher tax bracket. You may want to accelerate paying for expenses to cover your taxes in the current year.
If I have a large capital gain this year, what can I do?
If you have a large capital gain this year from an investment, it may be advisable to hold onto the investment until next year to put the gain into next year’s taxes. You may also want to sell off any investments that you have that are losing value at the moment to claim your losses.
What investments can I make to help defer taxes?
The interest gained from state and local bonds is usually exempt from federal income taxes. These investments generally pay back at a lower interest rate than commercial bonds of similar quality.
Since Treasury Bonds are similarly exempt from state and local income tax, they can be a particularly good investment for those who are in high tax brackets and live in high-income-tax states.

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

Seniors Age 70 1/2 Take Your Required Retirement Distribution

Broken Piggybank Shows Financial Deposit Or Fortune

Broken Piggybank Shows Financial Deposit Or Fortune

The tax laws generally require individuals with retirement accounts to take annual withdrawals based on the size of their account and their age beginning with the year they reach age 70½.
Failure to take a required withdrawal can result in a penalty of 50% of the amount not withdrawn.
If you turned age 70½ in 2014, you can delay your 2014 required distribution to 2015. Think twice before doing so, though, as this will result in two distributions in 2015 — the amount required for 2014 plus the amount required for 2015, which might throw you into a higher tax bracket or trigger the 3.8% net investment income tax.
On the other hand, it could be beneficial to take both distributions in 2015 if you expect to be in a substantially lower tax bracket in 2015.

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

SUPERSIZE Your Charitable Contribution Deductions

Ellem_Tax_ManYou might want to consider three charitable giving strategies that can help boost your 2014 charitable contribution deduction.
1. Use your credit card.
Donations charged to a credit card are deductible in the year charged, not when payment is made on the card. Thus, charging donations to your credit card before year end enables you to increase your 2014 charitable donation deduction even if you’re temporarily short on cash or just want to put off payment until later.
2. Donate a life insurance policy.
A number of charities are asking 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.
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 the donation of a life insurance policy. We can help ensure that you receive the expected income or transfer tax deduction and that the contribution works as planned.
3. Take advantage of a donor-advised fund.
Another charitable giving approach you might want to consider is the donor-advised fund. These funds essentially allow you to obtain an immediate tax deduction for setting aside funds that will be used for future charitable donations.
With donor-advised funds, which are available through a number of major mutual fund companies, as well as universities and community foundations, you contribute money or securities to an account established in your name. You then choose among investment options and, on your own timetable, recommend grants to charities of your choice.
The minimum for establishing a donor-advised fund is often $10,000 or more, but these funds can make sense if you want to obtain a tax deduction now but take your time in determining or making payments to the recipient charity or charities. These funds can also be a way to establish a family philanthropic legacy without incurring the administrative costs and headaches of establishing a private foundation.

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

2015 HSA Amounts (Health Savings Account)

Health Savings Accounts (HSAs) were created as a tax-favored framework to provide health care benefits mainly for small business owners, the self-employed, and employees of small to medium-size companies who do not have access to health insurance.
The tax benefits of HSAs are quite substantial. Eligible individuals can make tax-deductible (as an adjustment to AGI) contributions into HSA accounts. The funds in the account may be invested (somewhat like an IRA), so there is an opportunity for growth.
The earnings inside the HSA are free from federal income tax, and funds withdrawn to pay eligible health care costs are tax-free.
An HSA is a tax-exempt trust or custodial account established exclusively for the purpose of paying qualified medical expenses of the participant who, for the months for which contributions are made to an HSA, is covered under a high-deductible health plan.
Consequently, an HSA is not insurance; it is an account, which must be opened with a bank, brokerage firm, or other provider (i.e., insurance company). It is therefore different from a Flexible Spending Account in that it involves an outside provider serving as a custodian or trustee.
The recently released 2015 inflation-adjusted contribution limit for individual self-only coverage under a high-deductible plan is $3,350, while the comparable amount for family coverage is $6,650.
For 2015, a high-deductible health plan is defined as a health plan with an annual deductible that is not less than $1,300 for self-only coverage and $2,600 for family coverage, and the annual out-of-pocket expenses (including deductibles and co-payments, but not premiums) must not exceed $6,450 for self-only coverage or $12,900 for family coverage.

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

New Tax Rules for Legally Married Same-sex Couples

The U.S. Supreme Court’s decision in the Edith Windsor Case, invalidating a key provision of the Defense of Marriage Act, raised many questions regarding the federal income tax rights and responsibilities of same-sex couples.
The U.S. Department of the Treasury and the IRS recently ruled that same-sex couples, legally married in a jurisdiction that recognizes their marriages, will be treated as married for federal tax purposes. This ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not. However, the ruling does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law.
Same-sex couples will now be treated as married for all federal tax purposes (income, gift, and estate taxes) where marriage is a factor. The ruling applies to filing status, personal and dependency exemptions, the standard deduction, employee benefits, IRA contributions, and the earned income and child tax credits.
For 2014, legally married same-sex couples must file their tax return using either the married filing jointly or married filing separately filing status. For years prior to 2013, these couples may, but are not required to, file amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations.

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

Individual Year-End Tax Planning Ideas

As we approach year end, it’s time again to focus on last-minute moves you can make to save taxes — both on your 2014 return and in future years. Here are a few ideas.
Maximize the benefit of the standard deduction. For 2014, the standard deduction is $12,400 for married taxpayers filing joint returns. For single taxpayers, the amount is $6,200. Currently, it looks like these amounts will be about the same for 2015. If your total itemized deductions each year are normally close to these amounts, you may be able to leverage the benefit of your deductions by bunching deductions in every other year. This allows you to time your itemized deductions so they are high in one year and low in the next. For instance, you might consider moving charitable donations you normally would make in early 2015 to the end of 2014. If you’re temporarily short on cash, charge the contribution to a credit card — it is deductible in the year charged, not when payment is made on the card. You can also accelerate payments of your real estate taxes or state income taxes otherwise due in early 2015. But, watch out for the alternative minimum tax (AMT), as these taxes are not deductible for AMT purposes.
Consider deferring income. It may be beneficial to defer some taxable income from this year into next year, especially if you expect to be in a lower tax bracket in 2015 or affected by unfavorable phase out rules that reduce or eliminate various tax breaks (child tax credit, education tax credits, and so forth) in 2014. By deferring income every other year, you may be able to take more advantage of these breaks every other year. For example, if you’re in business for yourself and a cash-method taxpayer, you can postpone taxable income by waiting until late in the year to send out some client invoices. That way, you won’t receive payment for them until early 2015. You can also postpone taxable income by accelerating some deductible business expenditures into this year. Both moves will defer taxable income from this year until next year.
Secure a deduction for nearly worthless securities. If you own any securities that are all but worthless with little hope of recovery, you might consider selling them before the end of the year so you can capitalize on the loss this year. You can deduct a loss on worthless securities only if you can prove the investment is completely worthless. Thus, a deduction is not available, as long as you own the security and it has any value at all. Total worthlessness can be very difficult to establish with any certainty. To avoid the issue, it may be easier just to sell the security if it has any marketable value. As long as the sale is not to a family member, this allows you to claim a loss for the difference between your tax basis and the proceeds (subject to the normal rules for capital losses and the wash sale rules restricting the recognition of loss if the security is repurchased within 30 days before or after the sale).
Invest in tax-free securities. The most obvious source of tax-free income is tax-exempt securities, either owned outright or through a mutual fund. Whether these provide a better return than the after-tax return on taxable investments depends on your tax bracket and the market interest rates for tax-exempt investments. With the additional layer of net investment income taxes on higher income taxpayers, this year might be a good time to compare the return on taxable and tax-exempt investments. In some cases, it may be as simple as transferring assets from a taxable to a tax-exempt fund.
Again, these are just a few suggestions to get you thinking. Please call us if you’d like to know more about them or want to discuss other ideas.

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