Forgot To Include A Deduction? Did Not Pick Up All Your Income?

Considerations On Filing An Amended Return

If you filed a tax return only to later realize that it was not complete or you did something incorrect, you can correct this by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

But before you proceed, consider these essential facts:

1. Manner Of Filing. Regardless of whether you e-filed your Form 1040, U.S. Individual Income Tax Return or filed a paper form, an amended return can only be filed in paper form.

2. Explanation For Filing. Form 1040X includes an explanation section where you explain why the tax return is being amended. This could be due to a change in your filing status, income, deductions or credits.

3. Timing For Filing. Form 1040X must be filed within three years from the date you filed your original tax return or within two years of the date you paid the tax, whichever is later. If the IRS received funds though a levy or applied an overpayment from another tax year that is considered to be a date you paid the tax and the two-year period will start from that date.

4. Separate Submissions For Each Tax Year. If you are amending more than one tax return, prepare Form 1040X for each year and mail them to the IRS in separate envelopes. Be sure to enter the year of the return you are amending at the top of Form 1040X.

You normally do not need to file an amended return to correct math errors. Instead the IRS computers will automatically make those changes for you and send you a notice by mail of the result of the change. If you now owe a balance to the IRS, that notice will include a payment voucher to send in payment. If you now have a refund due to you, the IRS will send out separately from the notice a refund check.

If you are filing an amended tax return to claim an additional refund, wait until you have received your original tax refund before filing Form 1040X. However, you need not delay cashing your original refund. If you are due a refund, the IRS will pay you interest on the amount of the refund. Of course, next year the IRS will send you a Form 1099-INT reflecting the interest paid, so you will have to report this income on your tax return.

In case you forgot to attach your W-2’s or other required tax reporting documents, no need to worry as the IRS computers will match up the amounts reported on your tax return to this third party tax reporting information. If the IRS computers find a discrepancy, the IRS will send a notice by mail which will require you to respond with the requested documents or an explanation.

Keep in mind that amended returns take up to 12 weeks to process. You can track the status of your amended tax return three weeks after you file with the IRS’s tool called, “Where’s My Amended Return?”. The automated tool is available on ww.IRS.gov. You can track the status of your amended return for the current year and up to three prior years.

Possible Adverse Considerations:

1. Audit Risk. The IRS requires paper submissions of Form 1040X because unlike original tax returns processed by a computer, amended tax returns are examined by a person. Although you only changed one item on the return, the examiner can, and frequently

does, examine all the items on the return. If there is anything questionable, the examiner could send a notice requesting more information or refer this return for an audit.

2. Imposition Of Penalties. If you file an amended return and you owe additional tax, you will be assessed penalties and interest on the amount due. You may want to just pay the additional tax due and wait for a tax bill that includes interest and penalties. You will then have an accurate amount to pay off the liability. Another of paying only the tax due is that if you have a valid reason for the late payment penalty, you may appeal to the IRS for an abatement of the penalty. Just keep in mind that interest is not abatable and a direct function on how much is owed. If you are not successful in getting the penalty abated, not only do you have the penalty to pay but also the underlying interest on the account.

What Should You Do?

When you did not include all deductions and credits in your original tax return, it usually makes sense to proceed with the submission of an amended tax return. But where you failed to include all of your income and/or overstated your deductions, you should consider meeting with tax counsel first as your filing of the amended tax returns could be used as an admission of guilt that the IRS could base criminal charges or a 75% civil fraud penalty. Let our tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. in Orange County, San Jose and other California locations evaluate your situation and come up with a Tax Resolution Development Plan to get the best possible outcome.

The kids should be ready for Halloween but are you ready to take advantage of making this holiday to be tax deductible?

Yes your Halloween Candy could be a tax deduction….

You can in fact deduct Halloween candy if you figure out a way to make it business related. The IRS doesn’t say a lot about this topic because they don’t want to give you “permission” to deduct these items, but they also have not specifically stated that you cannot deduct Halloween candy.

So here are five different ways for you to consider deducting those over-priced bags of snack size chocolates:

1. Make a promotion out of it by attaching your business card or a promotional flyer to the candies that are being passed out.
2. There are many companies who will print candy wrappers with your logo on it which is an even better and more advanced way to promote your business and still have something for trick-or-treaters.
3. Send a box of candy to potential or existing clients during October. This promotes your business and would likely not be questioned as a business deduction.
4. Donate any leftover candy to the U.S. military. Charitable organizations with 501(3)(c) status like Operation Gratitude (EIN 20-0103575) and Soldiers’ Angels (EIN 20-0583415) collect leftover Halloween candy to include in care packages for soldiers. They are two of many 501(c)(3) organizations on the IRS-approved list to donate tax deductible charitable goods. Always be sure to check the IRS list before claiming your donations are tax deductible, as status can change.
5. Make it a party. You can deduct a portion of a Halloween party if the party is to conduct or promote business. Typically this looks like an open house of some sort where you mingle with current and potential clients, play a few Halloween games, give out candy and treats, and discuss business. The IRS does not specify how much time you must spend discussing the business to claim a deduction but you must invite people that you do business with or are looking to do business with.

Like with any expense you are looking to deduct it is important to make sure that the tax law would support a deduction and that you have the required backup documentation in case you are audited by the IRS.

Yes your Halloween Costumes could be a tax deduction….

Now when I think of Halloween, I also look forward to seeing all of the different costumes that people wear. Some are very extravagant and I am sure pricey. And for some they would like to know how that can be deductible. Since costumes fall under the category of clothing or uniforms, be mindful that the tax law requires three elements for clothing useful only in the business environment to be deductible.

The required elements for deductibility are:

1. The clothing is required or essential in the taxpayer’s employment;
2. The clothing is not suitable for general or personal wear; and
3. The clothing is not so worn for general or personal wear.

If these three requirements are satisfied, not only is the cost of the closing deductible but also its upkeep.

Examples of workers who may be able to deduct the cost and upkeep of work clothes are: delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes, and transportation workers (air, rail, bus, etc.). Musicians and entertainers can deduct the cost of theatrical clothing and accessories that are not suitable for everyday wear.

In contrast, a white cap, white shirt or white jacket, white bib overalls, and standard work shoes that a painter is required by his union to wear on the job and there is nothing on any of the clothes that indicate the company this person works for would not be deductible because it is not distinctive. Similarly, blue work clothes worn by a welder are not deductible even if the foreman requires them. However, required protective clothing like safety boots, safety glasses, hard hats, and work gloves are deductible.

But consider this – by adding the company’s logo on the clothing will make it deductible even if it can be worn outside the scope of employment because you are advertising your company. In that case you are a walking billboard.

Given the large military presence here in California, military personnel on full-time active duty cannot deduct uniforms. However, reservists can deduct the unreimbursed cost of uniforms if military regulations restrict wearing it except on duty. Still, you must reduce your deduction by any nontaxable allowance you receive. If local military rules don’t allow wearing fatigues off duty, you can deduct the amount by which your uniform cost exceeds your uniform allowance.

Given today’s dot.com and casual era environment, people are not coming to work as dressed up as they used to. Nevertheless, where business clothes are suitable for general wear, there’s no deduction even if these particular clothes would not have been purchased but for the employment.

While these tax rules are pretty circumscribed, they are also intensively factual. Such was the case with an Ohio TV news anchor, Anietra Y. Hamper. She was claiming approximately $20,000 a year in 2005, 2006, 2007 and 2008 in clothing expense that included not only what she wore for each broadcast but also lounge wear, a robe, sportswear, lingerie, thong underwear, an Ohio State jersey, jewelry, running shoes, dry cleaning, business gifts, cable TV, contact lenses, cosmetics, gym memberships, haircuts, Internet access, self-defense classes, and her subscriptions to Cosmo, Glamour, Newsweek, and Nickelodeon. Her argument was that as a TV anchor she was required to maintain a specified appearance described in the Women’s Wardrobe Guidelines.

These guidelines say the “ideal in selecting an outfit for on-air use should be the selection of ‘standard business wear’, typical of that which one might wear on any business day in a normal office setting anywhere in the USA.” But where business clothes are suitable for general wear, there’s no deduction even if these particular clothes would not have been purchased but for the employment. For this TV anchor, that was no help. She claimed the requirement to dress conservatively made the clothing unsuitable for everyday use, and that’s how she treated it. She wore the business clothing only at work and even kept it separate from her personal clothing. But the IRS and Tax Court denied her wardrobe deductions and they added penalties.

What else can you do to save taxes?

Now while you will find no one at the Law Offices Of Jeffrey B. Kahn, P.C. wearing outlandish costumes and eating bowls of chocolates each day, we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, San Diego, San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

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