Open the letter and read it carefully. Typically, there is a list of codes and dates that appear in the top right corner of the letter. If you don’t understand these codes, find someone who does. If you don’t have a CPA, this would be a great time to make contact with a CPA that has experience in these matters. Ask them to interpret the letter and ask for their advice.

If you want to try and resolve the matter on your own, call the phone number on the notice. Be prepared to sit on hold for a period of time, but eventually an agent will pick up. Try to be courteous; you’ll have a much better experience if they want to help you.

Once you understand the problem check it and then recheck it. If you are in the wrong, than pay the bill. If the IRS is wrong, write a clear but brief explanation of the error. Provide proof. Then ask the agency to cancel the proposed assessment. Then follow up. Get proof that all has been resolved.

If you receive a “notice of intent to levy your account,” get help! You’ve waited too long and ignored the government’s notices. Now, you have 30 days to take action and prevent the government from taking your assets to satisfy your tax debt. If you cannot pay your taxes in full, you may be able to set up an Installment Agreement or an Offer in Compromise.

The bottom line: pay attention to any notices from a tax agency and seek advice from someone who understands what you should do and how to respond to an assessment.

Georgia has tried to lure different industries. A recent bill in the Georgia assembly would eliminate taxes on energy consumed by manufacturing facilities. The movie industry has blossomed in the state thanks to tax incentives. Corporations willing to move their headquarters often get special tax deals.

The real test is how is Georgia for businesses overall. The Tax Foundation, a non-profit research organization, recently ranked the states in their 2012 State Business Tax Climate report. They looked at corporate, individual, sales, unemployment insurance and property taxes and then calculated the overall rate.

Georgia ranked at #34.

For the southeast, Florida was the highest at number 5, then Tennessee at 14, Alabama at #20, South Carolina at #26 and then North Carolina at 44.

The top ten were, first Wyoming, then South Dekota, Nevada, Alaska, Florida, New Hampshire, Washington, Montana, Texas and Utah.

The dominant factor in the ranking was the ability to fund the state government while eliminating one of the major classes of taxation. Property tax and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the other taxes. For instance, Wyoming, Nevada and South Dekota all have no corporate or individual income tax.

Georgia ranked 39th in property tax, 22nd in unemployment insurance tax, 12th in sales tax, 40th in individual income tax but ranked 9th in corporate tax. These were based on the ranking as of July 1, 2011, the first day of the standard 2012 state fiscal year.

The reason for the increase is two-fold.
1. The IRS has created a Global High Wealth Industry Group staffed with special tax investigators to go after wealthy tax evaders. The group is staffed with new hires from outside the agency, skilled at high-net-worth tax structures. They look at trusts, real-estate investments, royalty and licensing agreements, private foundations and privately held companies and partnerships to make sure these arrangements are legitimate and correctly created.

2. The reason the percentage of audits for million-plus earners has doubles is that there are less million-plus earners. According to the IRS, 291,831 filers reported making seven figures in 2011 compared to 441,715 filers in 2009.

What does this mean to you? Whether your income is $50,000 or $1,000,000, it’s more important than ever to make sure your tax returns are correctly and that you have the proper documentation to support your deductions, especially for travel, automobile costs, entertainment and donations. Inform your tax advisers of all pertinent facts that might affect your tax return for the best outcome. Follow these simple rules to save taxes, and should the IRS come knocking on your door, you’ll have the information necessary to make them go away empty handed.

Generosity should always be applauded but it should also be well thought out. Here are just a few ways to think tax smart while giving from the heart.

Remember your receipts. Whether you’re giving to the American Heart Association or your local house of worship, ask for a receipt. Charitable contributions of $250 or more in any one day to any one organization must have written substantiation from the organization. A canceled check is not sufficient to support the deduction.

Timing is everything. If your business has had a down year or you’ve sold investments at a loss, it may benefit you to wait until January to give a significant gift. Conversely, if you’ve had an unusually profitable year, you may be better off giving even more before New Years Day. Why? In the down year your tax bracket may be low. Therefore the tax savings from giving the donation would not be maximized. In the more profitable year your tax bracket may be higher which would generate a higher tax benefit from the donation. It’s all about tax planning.

Donate those non-cash items you’re no longer using. You may deduct clothing and other household items as charitable donations. The reporting for this type of donation can be a little tricky. This is because there are several dollar thresholds that have different reporting requirements. Make sure you read the rules or ask your CPA what to do. Helping out a friend who just lost his job, or the homeless man on the corner of your street is a great thing to do, but you can’t deduct it.

Start your own foundation. You don’t have to be a millionaire to act like a foundation. Many brokerage houses such as Merrill Lynch, Fidelity, Vanguard and Schwab allow you to set up a Charitable Gift Fund account. By doing this you can help out a charity while avoiding taxes on stock gains.  

Team up. Many companies will match a gift given to different types of non-profits. Contact the charity of your choice and see if they are able to provide names of companies that support their organization with a matching program. You can’t take a deduction on your tax return for the amount given by the matching company, but it will be a great feeling knowing that your donation generated another donation to the charity or your choice.

We are proud of our company’s giving. For every person who “likes” Rosenberg & Company’s Facebook fan page, we will be giving a donation to the American Heart Association. We hope you have a happy holiday season.

State taxes play a big part in corporate strategy and often are the deciding factor in many big moves. Earlier this year, Northrup Grumman moved from Maryland to Virginia to avoid higher state taxes. According to the foundation more jobs are moved from one state to another than are moved oversees.

Of course, this is more a blanket look at state taxes. Georgia has specific tax breaks for different industries, such as the film industry, tech companies and others. There are also incentives that affect individual businesses differently. The rankings, however, are a good benchmark to compare different states.

Neighboring states ranked as follows: Tennessee (27th), Alabama (28th), Florida (5th), South Carolina (24th) and North Carolina (41st). And the top states for a favorable tax climate were South Dekota, Alaska and Wyoming.

We hope you never have to go through a divorce. It is often an emotionally, spiritually and financially taxing experience, both figuratively and literally. If you are going through one, however, here are four common concerns.

1. There is a major tax difference between “child support” and “alimony.” Child support isn’t taxable income and therefore shouldn’t be reported as income by the recipient. The payment of child support isn’t a deductible expense by the payer. Alimony payments, however, are support for an ex-spouse and should be included as income by the person receiving the alimony and deducted as an expense by the person paying the alimony.

2. When splitting up assets, taxes can play a huge part. Say the wife receives the family home worth $250,000 and the husband receives the stock portfolio worth $250,000. The wife is probably walking away with an asset without any tax consequences. This is because the first $250,000 of profit on the sale of a personal residence by a single individual is excluded from taxation. The husband however, may have to pay taxes on the sale of the portfolio. Why? If the purchase price of the stock portfolio is lower than the $250,000 current market value the husband will have to pay taxes on the profit when it’s sold. That could mean at least a 15% federal tax burden plus state taxes on the profit. In this example the husband received less value in the property settlement than the wife did because of the tax consequences.

3. Who claims the children is also a point to consider. Whoever claims the children will get “head of household” status, can deduct $3650 per child and maybe able to claim a variety of tax credits. The divorce agreement should specify who claims the children.

4. If assets are to be sold (rental properties, stocks, IRAs) there will be tax implications. You should not only decide how to split up the proceeds of the sale, but how the tax burden will be divided as well.

These and many other issues can have implications affecting your income for years. IRS publication 504 provides guidance on the many tax rules that may have an impact if you’re going through a divorce. To protect yourself be sure to include your tax professional as a member of your divorce council team.

Accelerating and Deferring

One of the most basic concepts of the tax planning process is to consider accelerating and/or deferring income and deductions.

1. If you expect your income to be higher in 2012, you may benefit from trying to accelerate some of that income into 2011 and deferring deductions into 2012.
2. If you think your income will be lower next year or will be unchanged, consider deferring income to 2012 and accelerating deductions into 2011.

The goal is to keep your top tax rate as low as possible. If you are in the 33% tax bracket and you can defer a $100,000 commission check until next year when you’ll be in the 28% tax bracket you will have saved $5000. The same theory applies to deductions.

You can move income between years in several ways depending on your individual situation. For example, you could ask your employer to pay your bonus in the current year or defer it to the next. If you’re on a cash basis you could bill your clients or customers later in the year so payments aren’t received until the following year. You could also ask a client to prepay. These are just a few examples.

Investments

The maximum tax rate on long-term capital gains is 15% compared to 35% on ordinary income. If you can hold an investment longer than one year the difference in taxes can be huge. A loss on one investment can offset a gain on another. The rules are complicated so seek advice before making any final decisions.

Timing Your Purchases

Making tax deductible purchases this year instead of next can also keep you in a lower tax bracket. But it’s possible the purchase will provide a larger tax saving by deferring it to the next year. By planning ahead to spend, you’re also planning ahead to save.

The Future

As the super congressional committee meets on how to lower the national debt and as the economy continues to struggle, there is a great deal of uncertainty about how we will be able to close the gap between the country’s expenditures and revenues. This certainly could mean higher taxes. Work with your tax professional to find the strategies that will help you keep more of your earnings this year and in 2012. For more year end tax planning ideas read the article in the Eye On Money newsletter in the resources area of our website, www.rosenbergcpa.com.

On July 5th, the United States Tax Court provided some help in the form of a little tax relief. The court ruled that expenses you incur for providing an unlicensed caregiver for long term care is deductible. The Internal Revenue Code defines “long term care” as “services required by a chronically ill individual and provided pursuant to a plan of care prescribed by a licensed health care provider.”

That means as long as a licensed healthcare professional, such as a physician, registered nurse, licensed social worker or other credentialed provider prescribes long term care for someone who is chronically ill, that care may be 100% tax deductible. Previously, that care had to be given by another licensed professional, but the court now will allow deductions for lay care givers.

What does this mean for you? The ruling may not ease the frustration or emotional turmoil of helping someone with a chronic illness but it can ease some of the financial burden. Check with your tax advisor to learn more.

Special thanks to George Fox JD at Fox+Mattson, P.C. (GALaw.com) for bringing this subject to our attention.

1. The Tax-Free Business
If a franchise salesman, financial advisor or tax planner recommends starting a business by drawing money from your IRA, run. It’s nice to think there’s a tax-free way to open a new business, but the IRS doesn’t agree. They call it “ROBS” or Rollovers as Business Start-Ups. Generally, these are disqualified, leaving the taxpayer with assessed taxes, penalties, and interest. The pomoters of the scheme also can earn themselves jail time.

2. The Church of Me
Giving to most charities and religious organizations is noble. Yet, there have been some who have used a sham religious organization as a way to wash money of taxes. Several name-only organizations are set up to accept donations only to provide medical expenses, travel expenses or even living expenses for its members. This is risky, and if caught, could end up in court and land you in jail. Not smart as you can see on the IRS site.

3. The Double Irish
According to Slate magazine, Google used this scheme to legally cut their taxes by $3.1 Billion over the last 3 years. Basically, a company leases its assets to a company in another country with a low tax burden, like Ireland. Then, that company sets up another company somewhere with an even lower tax base like Bermuda and leases the assets to that country. Why all this hullabaloo? Tax treaties! There is a treaty that says when funds are transferred between countries in the EU or even between the EU and the US, the funds are taxed at the rate of the first country. Even if Google does it, watch out, it’s easy to become an IRS target.

What does this mean to you? There are too many scam artists out there that will say they can save you money with schemes such as these. A financial arrangement is either legal or not, depending on the taxation law, and there is no grey area. Unless you know the advice you’re getting is from a reputable certified public accountant, get another opinion or check your information with the IRS.

Basically, more taxpayers tried to boost their deductions to excessive levels. In a separate announcement the Treasury Inspector’s office said they “identified over $151 Million in Excessive Motor Vehicle Deductions.”  Other areas where the Inspector General found major fraud was the Earned Income Tax Credit, Child Tax Credits, and the first-time home buyer credit.

Another reason for the huge increase is the enhanced efforts the IRS has put toward enforcement. Thanks to electronic filing, the IRS has become more efficient in reviewing tax returns and identifying errors or false information. The number of e-filed returns topped 100 million.

Also, the word fraudulent might seem a little harsh. Many “fraudulent” returns are just people who are filing for themselves and don’t know the rules.
What this means to you is to not take chances. Know the tax laws and if you don’t retain the services of someone competent who does. This can save you money, time and the IRS coming after you.