Tips, Help & Advice
Financial Guidance Services is available to help you resolve your tax problems. Please read on below for some of the more popular questions and answers.
Q. How much would you charge to do my taxes?
A. Generally, the answer to the question is "IT DEPENDS". However, you may click here to see our schedule of fees for a list of different tax return packages.
Q. How Long should I keep my tax returns?
A. Financial Guidance Services recommends you keep your individual or business tax returns for 7 years. The reason for this is the IRS assesses tax returns within a 3-year period from the date the return was due, with extensions, whichever come later. If there was an understatement of more than 25% of the Adjusted Gross Income, IRS gets to extend their assessment period out 3 more years resulting in the 6-year Statute of Limitations (SOL) to apply. If your personal tax return contains flow-through items from an S-Corporation or partnership, we recommend you hold on to your return for the full 7 years. However, if you did not file or your return was deemed fraudulent by the IRS, the tax associated with that particular return can be assessed at any time without regard to the Statute of Limitations.
Q. I cannot make it to your office, how can I get my tax information to you
A. First of all, your tax information is confidential information. You must be sure that you are confident to provide this information by other means. I can assure you that Financial Guidance Services will protect your information with the utmost security. If you cannot make it to the office, send me a scanned copy of your tax documents and you can be sure they will be safe.
Q. My babysitter refused to give me her social security number. Can I still claim the expenses paid to her for childcare while I worked?
A. Yes, if you meet all the other requirements to claim the dependent care credit but not the babysitter's social security or TIN number, you must show due diligence in your attempt to obtain this information. Thus, even if she refused to give her number, you can provide her name and street address on Form 2441, Child and Dependent Care Expenses, or Form 1040A, Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers. Write "see page 2" in the columns requesting the missing information. Also write on the bottom of page 2 that the babysitter refused to provide you her social security number.
Q. My 6-year old son goes to private kindergarten school while my husband and I work. Can I include the tuition cost as qualified dependent care expenses?
A. The cost of tuition is not dependent care expenses because they are primarily educational in nature. If you can separate the tuition cost from all other costs such as an after-school care program or cost incurred prior to the tuition, these may qualify as dependent care expenses.
Q. Will I receive my refund even if I am currently in a payment plan for prior year's federal taxes?
A. Any refund due you in a future year will be applied against the amount you owe. Your refund is not a substitute for your regular payment due therefore if you owe past due federal or state taxes, student loan or child support, IRS will automatically apply your refund to those payments owed. You should continue making your installment payments as scheduled.
Q. Can I go to jail for not paying taxes?
A. NO, there is no debtors' prison. If you properly report all income and file all tax returns but just don't pay your taxes, criminal prosecution is almost not possible. However, if tax evasion is discovered ( not properly reporting significant income (more than 25%) or claiming significant unreasonable and unsubstantiated deductions, then criminal prosecution is possible.
Q. My wife and I filed separated at first but found out that by filing joint our tax bill will be reduced. Can we amend our separate returns to show married filing joint?
A. Yes, but this must be done within the 3 year period from the due date including extensions before IRS assesses both separate returns. You may amend the returns and change your filing status from MFS to MFJ.
Q. My wife and I have separated since June. She has one grandchild living with her. Can we both file single?
A. No, you must either file a joint return or file separate returns. If you both file separate returns, your filing status would be married filing separately, however, your wife may qualify for head of household.
Q. Do I have to claim a child as my dependent in order to qualify for head of household filing status?
A. In some cases, you are not required to claim a child as a dependent to qualifiy for head of household filing status as in the case where the qualifying child is unmarried and is your child, grandchild, stepchild, or adopted child.
Q. I am divorced with one dependent child. This year my ex will claim the child as an exemption. Does this mean I cannot qualify as head of household?
A. Believe it or not, you can still file head of household even if you do not claim your unmarried dependent child as an exemption if all of the following requirements are met:
- You are unmarried or considered unmarried on the last day of the year
- You paid more than half the cost to keep up your home for the year
- A qualifying person must have lived for more than half of the year with you
Q. I owe the IRS back taxes, can you help me?
A. You need to start repairing your tax problem immediately. You cannot beat the IRS. If you need help with your tax problem, we can put together an aggressive strategy to defend you against liens, levies and other collection actions. Your best response is to ACT IMMEDIATELY!
Q. How can I resolve my back taxes problem?
A. There are several strategies available. You can request a short-term 30 to 90 day extension. File an Offer in Compromise (OIC), which is a compromise settlement for much less than what you owe, or an Installment Agreement. With Statute Expiration, IRS has 10 years to collect the tax from the assessment date. However, if you sign a waiver, file bankruptcy, submit an OIC or are out of the country for more than 6 months, the 10 years period can be extended to 16 years. Of course, the last resort is bankruptcy.
Q. How do I prevent the IRS from levying my paychecks, bank accounts etc?
A. First, read all IRS notices and respond to all requests. Second, DON'T call the IRS until you are prepared to answer questions about you assets, liabilities, income and expenses. Prepare a plan to resolve the tax liabilities before calling the IRS i.e. can the tax be paid in 12, 24, 36 or 60 months.
Q. I filed and paid all my taxes, but the IRS issued a letter CP2000 indicating additional taxes owed. What should I do?
A. Many CP2000 notices are incorrect, but you must respond to them expeditiously. In most cases, the notices are to correct errors on filed returns such as math or income errors inadvertently omitted. If so, verify the correction is valid and respond to the notice in a timely manner.
Q. I received a letter from the IRS stating they wish to come to my home-based business to conduct an audit. Should I let them in?
A. NO. Not unless the IRS has a court order to enter your home. If they are not in possession of such a document, tell them to "get lost." If the agent is questioning the validity of the home office, expect the deductions taken on your tax return to be denied.
Q. My business has not made a profit in the past 3 years, will IRS disallow my current year deductions?
A. Activities carried on by the business ultimately determines whether the business has a "profit motive" if out of the last 5 years there was at least 3 years of profit. Activities not engaged in for a profit are classified as "Hobby losses" and are only deductible to the extent of the income produced by the activity. Any remaining hobby losses can be deducted as an itemized deduction subject to the 2% limitation. Thus, the presumption that the activities engaged in are hobby activities, the taxpayer should ensure that good books and records are maintained showing the time and financial investment put into the activity and any corrective actions made to stem losses were an attempt to make money.
Q. I lost my prior year tax return, where can I get a copy of it?
A. If you need a copy of your old tax return, you need to file Form 4506 to request a copy. Be prepared to pay a fee for this service and the turn-around time to receive the copy can be as long as 60 days. If you need the copy sooner, you may request a transcript of the return. There is no fee for this service and you will have the transcript within 10 days.
Q. I was married all of last year up until December 23, can we still file a joint return?
A. Yes. Your marital status for tax purposes is determined as of the last day of the tax year, that is December 31. Therefore you are considered married until the FINAL decree of divorce or legal separation is entered and legally filed. Even if both of you are not living together on the last day of the tax year you are allowed to file jointly even if the divorce is still pending. Obviously, divorcing couples, for such reasons, would want to file married filing separately.
Q. My brother was out of work all of last year and was unable to pay his mortgage. I decided to pay the mortgage for him. Can I take a deduction for the mortgage interest and real estate taxes I paid?
A. Unfortunately, you can't take the deduction. You must have ownership interest in the property to take the deduction.
Q. Do I take a deduction for the points I paid when I refinanced my home?
A. The points paid on a mortgage refinancing are not currently deductible in the year paid. Points must be capitalized and amortized over the life of the new loan.
Q. I started a new job and a new 401(k) plan but I still have my old 401(k) with my old job. Do I have to pay taxes and penalties if I withdraw the money from my old plan?
A. It depends. Generally, you are exempt from penalties if you withdraw the money and within a 60-day period, roll the proceeds into a traditional or ROTH IRA or another eligible retirement plan. There is a mandatory 20% withholding of tax even if you roll the funds over later. You may defer the 20% tax by adding the same amount from a different source. The best alternative is to do a trustee-to-trustee transfer. This way you are not involved in the transfer and avoid the 20% withholding and future letters from the IRS. If you are under 59 1/2, any taxable funds not rolled over will be subject to the 10% additional tax on early distributions.
Q. I lost my job and decided to withdraw all the money in my 401(k). Since I am experiencing financial hardship, do I still have to pay tax on the proceeds?
A. It depends. In most cases, IRS would want you to prove that you are experiencing financial hardship by meeting their eligibility criteria. Even if you declare you are indeed in financial hardship, you will still have to prove the value of all your assets are not more that the liabilities you've incurred and are unable to meet them. Some plans provide a financial hardship option. Your best bet is to keep good records of all your assets and expenses so if contacted by IRS to show them, you won't be scrambling around.