If you’re like most people, the word “Audit” sends chills down you spine. In this episode, I discuss audits. Specifically, seven items to understand about tax audits.

1. You will receive a letter informing you of an audit?

The IRS and the states will send you a letter informing you that your tax return(s) have been selected for an audit. You will not receive a phone call from the IRS or the states informing you of tax collection or audit as the initial contact.

2. What is the reason for the audit?

The letter from the agent will inform you as to why you are being audited?

3. What information do you have to provide for the audit?

What part of the tax return are the IRS and/or States auditing? What supporting documentation do you need to provide?

4. Do you need a tax professional to assist you with the audit?

It depends on whether you need representation during the audit. Sometimes, it better to have a CPA or tax attorney to represent you doing an audit especially if the CPA or tax attorney prepared the tax returns being audited.

5. Where is the audit taking place?

Is it a desk audit where the tax authority is requesting the information be mailed to them? Do you need to the tax authority’s office for the audit. Is the audit being held at the CPA or tax attorney’s office?

6. What year(s) are being audited?

Sometimes the audit covers one year. Other tines, the audit covers a range of years, I have also had clients that where the auditor finishes with one tax year, they then move on the next tax year,

7. What are the deadlines for the requested information?

When is the audit expected to be completed?

These seven items are important considerations when it comes to tax audits. The only thing to mention is that hopefully you will get a clean audit.

In this episode, I discuss “Tax Notices - Don’t Sweat It”

There are nine items to consider when you receive a tax notice.

1. What is the date of the notice.
2. When is the due date?
3. What is the notice for or why did you receive the notice?
4. Is the notice valid?
5. Are there penalties and interest
6. What type of response (payment or letter) do you need to send back?
7. Mail the payment and letters?
8. Do you need to amend the return?
9. The clock begins ticking once you receive your notice (whether you receive the notice or not).

It’s after April 15 (or April 18th), now what should you do?

1. Filed Extension

File your return

2. Amend your tax return

3. Adjust your withholding (Form W-4)

4. Career Changes

5. Martial Changes

6. Dependent Changes

In this episode, I discuss last minute filing dos and don’ts.

1. Review the return
Is there anything you missed when it comes to income and deductions?

2. Don’t forget to sign the tax return.

3. Don’t forget to date the tax return.

4. Don’t forget to mail the tax return if you’re paper filing a tax return or don’t forget to efile the tax return if you’re e-filing the return. Paper return filing take up 4-6 weeks to process.

5. If you’re getting a refund and want your refund direct deposit into your bank account, verify the bank routing and account numbers. Otherwise, you will receive a check.

In this week’s episode, the topic is Farm Income

There are nine items to know about farm income on the Schedule F.

Schedule F (Farm Income)

1. Farm Income Classification
What is your main income from your farm

2. Inventory Types
Farm Inventory may be cattle, plans, trees, other animals, etc.

3. Government Payments
USDA payments for not growing a crop on part of your land or other payments from the government is considered income.

4. Fuel Credits
Did you receive fuel credits (Diesel, Propane, etc)? If so, the credits are considered income.

5. Standard Mileage vs Actual Mileage
2016 Mileage rate is .54
2015 Mileage rate is .575

Actual expenses is fuel, repairs, maintenance, tolls, insurance, license tags, etc.

6. Cost basis (live stock)
What is the cost of your live stock?

7. Expenses
Other expenses

8. Rent / Leases
Are you leasing land from someone else? Are you leasing equipment? Are you leasing other livestock?

9. Risk vs Not at risk
Is your investment in your farm at risk?

Mileage deduction is an important deduction especially if you’re self-employed or have mileage expense that your employer doesn’t fully reimburse you for.

The three types of mileage are:

1. Medical / Moving Mileage
2. Charitable Mileage
3. Business Expense

For Medical and Moving Mileage, the IRS allows you to deduct .24 per mile in 2015 and .19 per mile in 2016.

For Charitable Mileage, the statue allows a deduction of .14 per mile.

For Business Mileage, the IRS allows a deduction of .575 per mile in 2015 and .54 per mile in 2016.

The Medical / Moving, Charitable mileage is reporting on Schedule A. Medical mileage is limited to the AGI limitation of 10% (under the age of 65) and 7.5% (over the age of 65).

The unreimbursed business expense for mileage from your employer is reported on the Form 2106 which flows to the Schedule A. The unreimbursed business mileage deduction is subject to a 2% AGI limitation.

The business mileage other then the unreimbursed business expense from your employer is reported on the Schedule C, Schedule E, and Schedule F.

In order to take the Mileage Deduction as a business expense, the IRS will need to know your vehicle information, when it placed in service, the type of miles that were driven during the year (commuting, personal, business mileage), whether the vehicle was available during off hours, and whether you have written documentation to support the mileage deduction.

Energy Tax Credits is discussed in this week's episode.  

The two types of energy tax credits are:

1.  Renewable Energy Tax Credits

2.  Non-business residential property cost tax credit

The credit is 30% purchase costs plus installation costs for

   a.  Solar Panels

   b.  Wind Turbines

   c.  Photovoltaics 

   d.  Solar Water Heaters

   e.  Fuel Cells 

The wind turbine must produce 1,000 kilowatts of power. Fuel Cells must produce a least 1/2 kilowatt or 1 kilowatt.  The fuel cell credit is $500 per 1/2 kilowatt or $1,000 per kilowatt.

The non-business residential property cost tax credit is

  a. Home Insulation

  b.  Exterior Doors

  c.  Exterior Windows / skylights

  d.  Certain Roofing Materials

  e.  Electric Heat Pumps

  f.  Central A/C systems

  g.  Natural gas, propane, or oil water heaters

  h.  Biomass stoves

  i.  Natural gas, propane, or oil furnaces

  j. Natural gas, propane, or oil water boilers

  k. Advance circulating fans for natural gas, propane, or oil furnaces.

The maximum credit is $500 of which $200 can be for exterior windows.  The maximum credit for the natural gas, propane, or oil water boilers is $50.  The maximum credit for the advance circulating fan is $50.

$300 is the maximum credit for other single energy property costs.

There are several things to consider when earning U.S. income as a non-resident U.S. Taxpayer.   As a non-resident U.S. taxpayer, you may be consider a resident U.S. taxpayer if you qualify under the "Green Card" rules or the substantial test rules which can be found here.

The tax return to file as a non-resident is Form 1040NR.

Before filing a Form 1040NR as a non-resident,

The filing instructions for the Form 1040NR can be found here.

With seller financing there are several things to consider when you the taxpayer are financing the loan.

1. Sales Amount
The price you sold the property to the buyer.

2. Cost / Basis
The cost that you purchased the property for and any improvements to the property.

3. Date of sale / Date of Acquisition
When you purchased and sold the property.

4. Interest Rate / Term of Loan
The interest rate and term of the loan

5. Who you sold the property to?

Buyer’s Name
Buyer’s Address
Buyer’s Social Security Number
(To report on Schedule B)

6. Amortization Schedule
The link to create an amortization schedule is:
http://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx?ec_id=m1024918&s_kwcid=AL!1325!3!68167584608!e!!g!!amortization+schedule+calculator&ef_id=U0ybkAAAARNlAzuv%3a20160310041602%3as

7. IRS AFR Rates
The implied interest amount when there is no interest rate stated.


8. Form 6252 Installment Sale, Schedule B, Form 4797

9. Personal residence exclusion where you lived in the residence for that you sold for two of the last five years.

In this week's episode, I revisit :"Nexus".In previous episodes, I have discussed the "Physical Nexus" and "Economic Nexus" for sales taxes.

Physical nexus encompasses fixed assets, payroll, and sales. More and more states are turning to sales as the only factor for economic nexus. Under Quill vs. North Dakota court ruling, companies had to have payroll, sales, and fixed assets within the state in order to qualify for nexus. States turned to "Use tax" in attempt to get consumers to pay the tax when companies don't collect and remit sales taxes on the purchases.

With the internet, more states are turning to economic sales nexus under proposals like the "Amazon Tax", "Marketplace Fairness Tax", and "Click Through Nexus".

The State of Ohio has taken Nexus one step further on defining and taxing internet sales from out-of-state companies. Their tax proposal is that a tracking "cookie" gives companies nexus within the State of Ohio. Their thought process is that the internet company owns the tracking cookie that is left on your computer when the you the customer visits the company’s website giving the company nexus within the state.

With internet sales states are updating their laws to account for On February 26, 2016, President Abomey signed the bill that bans the state and local taxes internet access. Seven states were collecting sales taxes on internet access. Texas, Wisconsin, Ohio, New Mexico, Hawaii, North Dakota, and South Dakota have until 2020 to phase out the tax. These states have been collecting an estimated $563 million from the sales tax on internet access.

The “2015 Year in Review” podcast episode is episode 136.