Wednesday, May 29, 2013

Refunds in Limbo? Help in Tracking it Down!

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I had a couple of clients call me when their refunds for tax returns filed in March 2013 where still not sent to them. Not many are lucky enough to get tax refunds, so for those who do, they eagerly await their checks! Typically the IRS says that it takes 21 days for them to issue a refund check once they have received your return, but if it's taking longer than this, don't panic-understanding why the hold up may occur can alleviate some of your concerns. 

Snailmail And Reviews 

The method used to file your taxes is important. If you e-filed, you are likely to get your refund faster. When mailed in, your taxes get reviewed by an actual person and this can take several days to be completed. The taxes are subject to an editing program. This will add to the time taken to process your tax return.  

Incorrect Information And Software Problems

If the information provided by you does not match up with what has been received by
the IRS, the process is delayed. Filings in 2013 were delayed by software glitches, especially with Education Credits Form 8863. Several "Do-It-Yourself" software were effected by this, especially H & R Block's Tax Cut. With "Turbo Tax", there were issues regarding some state returns. Many credit forms were held up due to pending approvals from the government.

Tax Refund Method Chosen

Add another week when you ask your refund check to be mailed to you. Provided your tax return did not have any of the above delays, and you had asked for your refund to be direct deposited, you get it the next day. If not, the you have to wait for the check to be mailed, to reach you & then to be cleared by the bank once you deposit it into your bank account. 

You Got Less Than What You Had Expected

If you did get your refund but it was less than expected, it could be due to various reasons or offsets due to your/ your spouse's tax issues:
  • You owe IRS money for a previous year
  • You owe a state money
  • You owe back child support or spousal support & the court has filed a lien
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    against you refunds
  • You owe the Social Security Administration
  • You owe on Student Loans
  • You need to repay Unemployment Compensation
You may have claimed credits that are being investigated by the IRS OR there are other debts & credit collection agencies have filed liens against your refunds. 

Where's My Refund? 

You can check the status of your refund on the IRS Tool: "Where's My Refund?" The site is updated every 24 hours. If you cannot get information from there, you can call 1-800-829-1040. If that does not help you either, contact your closet Taxpayer Advocate Service. 

You can also request a free transcript of your tax return, a Form 4506-T. If you think that some of the taxes being held back are due to back taxes/ debts owed by your spouse, you can file an Innocent Spouse or Injured Spouse Form to at least get your share of the refund. 

Please be sure to contact a tax professional if you need help with the above. 

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website, 

Tuesday, May 28, 2013

Bank Accounts, Savings for Kids & Tax Consequences

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When my 13 year old got her first baby sitting check, a range of emotions ran through me. I was happy, proud as a mother hen could be and also a little worried as I thought of how my "baby" was so grown up that she could take care of other "babies"! As she made plans to deposit that money in her UGMA Bank Account, I realized I had an idea for my next blog post! 

Like I said, my kids like any self-respecting accountant's children, were equipped with UGMA Accounts at a tender age. It's never too early to start saving, I find that it's also never too early to start teaching about the importance of being financially responsible! It can however be a little overwhelming when trying to decide what account to open for your child. Here are some pointers which will hopefully help you decide: 

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Joint Accounts These are the simplest to start with. One can open a bank account jointly with your child. Both the parent and the child will have access to the money and the account statements. This account remains in joint custody till either party indicates otherwise to the bank. 

Custodial Accounts Most commonly known as UGMA Accounts or Uniform Gift to Minors Account are custodial accounts. These are very popular. Under federal law, minors-in most states those under age 18-cannot open bank accounts in their name alone, unless it is a custodial account. This means a "custodian" or an adult is in charge of or manages the account for the minor until he/she reaches majority. The money in this account is considered the minor's property & cannot be withdrawn for the adult's benefit. And it can be converted into a regular savings account once the child stops being a minor. 

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A 529 Plan/ Education Savings Plan This plan gets it's name from section 529 of the Internal Revenue Code, it allows you to save for your child's education. The major advantage of this account is tax savings. The earnings grow tax deferred in this type of account. The earnings, withdrawals & distributions  are never taxed for any federal tax purposes as long as they are used towards eligible college expenses. However, be wary that if the money is withdrawn & used for purposes other than education/ college expenses, you will be subject to federal income tax & an additional 10% federal tax penalty on the earnings.


A POD Trust or a Totten Trust This is a very simple trust that can be formed without recourse to expensive lawyers or drawing up a formal trust document. An adult can draw up this trust & name a child as a beneficiary. This is an easy way to avoid probate costs at death. The child however does not have access to funds till the death of the owner. 

Tax Consequences 

The amount of tax payable for a child's account depends on these events for federal tax purposes: (A) Incidence of Ownership; (B) Type of Income; (C) Amount of Income.

(A) Incidence of Ownership To the extent the child owns the account, he/she is responsible for reporting the income if required. If the child was only a beneficiary of a trust, then he/she is not responsible for reporting income, it is to be reported by the owner of the trust. 

(B) Type of Income There are 2 types of income; Earned- which includes wages, tips & salary AND Unearned-which includes dividends and interest from bank & brokerage accounts. The rules for reporting earned/ unearned income alone are straightforward  however if there is a mix of the 2 then it may get complicated. (See Pub 929 for more information.)

(C) Amount of Income For the tax year 2012, if your child is below 19 years of age or is below 23 & is a full time student, the first $950 is tax-free; the next $950 is taxed at the child's rate; any unearned income above the combined amount, $1900 (950+950) is taxed at the parents' rate, also known as "Kiddie Tax".  

No matter what the tax consequences are, consider what you want to achieve when making decisions to save for your kids. Do you want to teach financial responsibility? Do you want to save for a rainy day? Or do you want to put money away for college? Make the best decision in consultation with your tax advisor who has knowledge of your unique situation. 

Please read my disclaimer here. Please contact me at for more tax questions. 

Thursday, May 9, 2013

Gifts From Non-Citizens to US Citizens

Here's a happy scenario, you hear from an aunt from the old country & she wants to send you a check. You are elated to come into some chunk of change but you also wonder if that is a gift & if it is taxable. Yes, it did happen to a client of ours and here's what we told him! 

A gift is any transfer between individuals either directly or indirectly where full consideration- in money's worth- is not received in return. 

A "foreign" gift is money or other property that a U. S. person receives from a foreign person & treats it as a gift & excludes it from income. 

A "foreign" person is a non-resident individual, foreign corporation, partnership or estate. 

These gifts do not include amounts paid on behalf of U.S. individuals for qualified tuition or medical payments. 

Generally for the donor or donee, the following are not taxable gifts: 

  • Gifts less than the annual exclusion for the calender year.
  • Tuition or medical expenses paid on behalf of another person.
  • Gifts to your spouse.
  • Gifts to a political organization for it's use.
One cannot deduct the value of gifts made on a tax return (unless made to certain charities), however an annual exclusion applies to gifts made by an individual in a calender year. This annual exclusion was $13,000 from 2009-2012 & is $14,000 for gifts made after January 1st, 2013. This exclusion is per donee. If you want to give gifts of property/ money jointly with your spouse, this exclusion is $28,000 on or after January 1st, 2013.

So when should one start getting worried? One needs to worry about Reporting Requirements & file a Form 3520, if the following apply:

  1.  More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that you treated as gifts or bequests; or
  2. More than $15,102 (for 2014) from foreign corporations or foreign partnerships (including foreign persons related to such foreign corporations or foreign partnerships) that you treated as gifts.

The due date for this tax return is the same as your tax filing date (April 15th) including extensions (October 15th). Among other items, you need to include copies of appraisals; copies of documents showing transfer; documentation of unusual items. 

If you are the donor and your gifts are more than the annual exclusions as stated above, you need to file Form 709

Consult with a tax professional for your unique needs and make sure your questions are answered. Always remember to read my disclaimer here. If you have any more questions regarding this or other tax matters, contact me at