Atlanta Tax Law Blog

Why hairstylists should report their tips

On behalf of Cal Bomar of Bomar Law Firm, LLC posted in IRS on Friday, November 16, 2018.

People engaged in freelance, creative or self-directed businesses in Georgia often have to pay special attention to their taxes. These cautions can also apply to tipped workers of various kinds. While restaurant workers may often receive tax documents that reflect estimated tipped income, other tipped workers like hairstylists, estheticians and personal care service providers may be tempted to avoid reporting their tips on their annual tax returns. Many stylists are not wealthy and may worry that they can ill-afford to pay extra taxes.

However, reporting tips isn't just the right thing to do; it's required under the law. Even a hairstylist who does not report his or her tips could be accused of tax fraud and held accountable if the lack of reporting is discovered. The IRS audit guide for tax returns from people in the beauty industry even lays out an expectation that people should be reporting tipped income from 8 to 15 percent of sales of services. Even so, many tips continue to go unreported. According to IRS estimates, up to $23 billion in tips may go unmentioned on tax returns every year.

Retirement contribution limits to increase

On behalf of Cal Bomar of Bomar Law Firm, LLC posted in Income Taxes on Tuesday, November 6, 2018.

In 2019, individuals saving for retirement in Georgia and throughout the country will be able to contribute more to their accounts. The IRS announced that the maximum annual contribution to an IRA will increase to $6,000 from $5,500. Those who have a 401k or similar plan will be able to contribute up to $19,000 annually starting in 2019. A person who is 50 and older will be able to make additional catch-up contributions of $1,000 into an IRA and $6,000 into a 401k.

Phaseout ranges for both traditional and Roth IRAs were also increased for the 2019 tax year. Those who contribute to an IRA, 401k or similar retirement accounts may glean a couple of benefits from doing so. First, an individual may receive a tax break in the year that the contribution is made or withdraw the money tax-free later in life. Second, it is not uncommon for employers to match contributions made to employee 401k accounts.

Election workers must generally pay income taxes

On behalf of Cal Bomar of Bomar Law Firm, LLC posted in Income Taxes on Friday, November 2, 2018.

Georgia residents who perform services for the government during an election must pay taxes on the income they earned. However, this income will not be subject to income tax withholding unless a worker specifically asks for that to occur. This is done by submitting a W-4 form to the agency employing the election worker.

In some cases, money paid to such workers could be subject to FICA tax withholding. This is true if there is a Section 218 agreement that doesn't have an election worker exclusion. It is also true if a worker meets the payment threshold to be subject to FICA tax withholding. This amount may be determined by the state or the entity that has hired the employee.

Is my tax debt eligible for a bankruptcy discharge?

On behalf of Cal Bomar of Bomar Law Firm, LLC on Tuesday, October 30, 2018.

You may have heard that a personal bankruptcy will not cover any federal taxes that you owe. Like many Georgia residents, you may also have financial difficulties that only become worse because of tax debt. Your challenges may be significant enough to make you think about filing for bankruptcy, but you are unsure whether it could help. It can certainly be discouraging to think you have no relief when it comes to your overdue taxes. It may surprise you to learn that you may have some recourse, after all, depending on several factors.

According to FindLaw, some tax debts may be eligible for a discharge through Chapter 7 bankruptcy. You would need to meet the following conditions:

You filed a tax return two years or earlier before filing for bankruptcy.
The debt was assessed 240 days or more before you filed for bankruptcy (the 240-day rule).
You had this tax liability for at least three years.
The debt is for income taxes.
The IRS did not find you guilty of tax evasion or committing tax fraud.

The tax implications of lottery winnings

On behalf of Cal Bomar of Bomar Law Firm, LLC posted in Income Taxes on Wednesday, October 24, 2018.

Georgia residents and others who win a lottery game such as Mega Millions will need to pay taxes on their winnings. Both the IRS and state tax authorities will be looking to collect a portion of any amount received. Those who receive a cash prize will have 24 percent of it withheld to cover federal taxes. Additional taxes may apply depending on the amount of the award and the tax bracket it puts a person in.

Then, the state could take as much as 6 percent of any award. It is possible for an individual to have opportunities to reduce the amount of tax that he or she owes. For instance, if a person has other gambling losses throughout the year, that could negate any amount won in a given drawing. It may also be possible to create a foundation or otherwise give money to charity to achieve tax savings.

Audits continue to decline at IRS

On behalf of Cal Bomar of Bomar Law Firm, LLC posted in Audits on Friday, October 19, 2018.

When Georgia residents file their taxes, they may be concerned about the threat of an audit by the Internal Revenue Service. The thought of an auditor going through receipts, paperwork and pay stubs can be enough to make any taxpayer nervous. However, statistics show that tax audits are less likely than they have been in years. The budget of the IRS has been cut repeatedly since 2011; at that time, it had a budget of $12.1 billion annually. In 2017, that figure was down to $11.2 billion. During the intervening years, the agency lost one-third of its personnel dedicated to enforcement.

In 2017, the IRS processed 245 million tax returns, selecting 0.6 percent, or 934,000 returns, for audits. This is the sixth year in a row that audits have declined. Furthermore, they have reached their lowest level since 2003. In addition, wealthy Americans are also less likely to be audited. In 2015, 9.5 percent of returns citing household income of over $1 million each year were audited. That rate fell to 4.3 percent last year. The 2017 rate of millionaire audits was the lowest reported since the agency began tracking the figure in 2004.

The rules relating to tax fraud

On behalf of Cal Bomar of Bomar Law Firm, LLC posted in IRS on Friday, October 12, 2018.

In most cases, the IRS has three years to audit a tax return. This is true when a taxpayer in Georgia or anywhere else doesn't understate their income by 25 percent or more. If that does occur, the government now has six years from when a return is filed to examine that return. In the event that a taxpayer fails to file a return, there is no limit to the amount of time the government can pursue taxes owed.

This is because it will be treated as a civil matter as opposed to a criminal one. There is also no limit to the amount of time that the IRS has to pursue penalties and interest in addition to that balance. The same is true if a taxpayer files a false return or does so with the intent to evade paying income tax.

Report criticizes IRS handling of bank currency reports

On behalf of Cal Bomar of Bomar Law Firm, LLC posted in IRS on Friday, October 5, 2018.

Georgia residents may be aware that banks file what are known as Currency Transaction Reports with the Financial Crimes Enforcement Network when they receive deposits of more than $10,000. This requirement was put into place by the 1970 Currency and Foreign Transactions Reporting Act, which is also known as the Bank Secrecy Act, but a report from the Treasury Inspector General for Tax Administration suggests that the Internal Revenue Service is not making much use of CTRs in their efforts to identify taxpayers who are hiding or underreporting their income.

The TIGTA report, which was published on Sept. 21, criticizes the IRS's Criminal Investigation Division for not making better use of CTRs in its civil and criminal enforcement efforts. CTRs can be crucial pieces of evidence in an audit or provide evidence that a crime has been committed. According to TIGTA, the IRS could collect as much as $1.3 billion in unpaid taxes if CTRs were used more aggressively.

Voluntary tax program to end soon

On behalf of Cal Bomar of Bomar Law Firm, LLC posted in IRS on Thursday, September 27, 2018.

There may be as many as 9 million Americans who are living abroad. Those who have overseas bank accounts of $10,000 or more need to declare them to the IRS. This could also be the case for those living in Georgia or elsewhere in America who have money in overseas accounts. Those who believe that they have run afoul of reporting guidelines may participate in a voluntary disclosure program.

The Offshore Voluntary Disclosure Program (OVDP) is accepting applications until Sept. 28. However, it may be possible to apply for the program past this date as the IRS has indicated that it will remain open for a period of time. Those who choose not to take part in a voluntary program may choose to amend their past returns and risk paying significant penalties. How the IRS treats those who come forward depends on their individual tax situations.

How to handle IRS ID theft

On behalf of Cal Bomar of Bomar Law Firm, LLC on Tuesday, September 25, 2018.

The threat of identity theft has never been higher. Due to the increasing prevalence of technology in people's everyday lives, hackers can easily access Social Security numbers and credit card information. In fact, 2017 saw roughly 158 people's Social Security numbers become exposed while over 14 million credit card numbers got out onto the web. Both of these are vast increases to the previous year.

There are numerous warning signs that indicate you have fallen victim to IRS ID theft. You will receive multiple tax returns filed for you, or there will be an unexplained change in your employment benefits due to the agency receiving a notification of an income change when one does not exist. The IRS may also receive reports that you owe more in taxes because you earned more than you actually did. In any of these cases, it is important to take swift action to avoid falling victim to ID theft.