Archives for IRS

It’s Not Too Early to Organize for Your Tax Returns

We are entering the holiday season – Thanksgiving, Christmas, and New Year’s.  Homes will be busy with holiday shopping, entertaining family and friends, and lots of holiday decorations.  Before you know it, it will be time to file your 2017 taxes.

Take a few moments now to collect the tax-related paperwork that reflect the special events that happened in your life this year, and put it safely away for January.

Here are some events to consider, and some items to collect now:

  • Did you buy or sell a home? A copy of your mortgage and closing documents
  • Did you have any casualty, theft or loss? A copy of all paperwork relating to the event
  • Did you get married? Social security cards
  • Did you get divorced or separated? A copy of the divorce decree or separation agreement, showing child support, alimony, and property settlement arrangements
  • Did you have any medical expenses? A copy of ALL unreimbursed receipts from any medical provider, pharmacy, and insurance provider
  • Did you move? Old and new address, and receipts for ALL expenses related to the move
  • Did you have a baby? Date of Birth, and Social Security Number (if you have one)
  • Did you start a new job? Receipts related to a new job search, or anything related to you getting the new job.
  • Did you or someone in your family attend school (beyond high school)? Receipts for all school related expenses including tuition, room and board, books, and other items
  • Did you start a new business? This list is VERY long.  I recommend you visit our website and review the July 2017 Client Newsletter, which lists much of the paperwork needed to record new business expenses.
  • Did you donate to a charity/non-profit/religious organization? A copy of your receipt is needed.
  • Did you pay for daycare? You will need either the name and SSN of the person (if an individual), or the name, address, and EIN or the business or organization
  • Did you pay Personal Property Tax? A copy of the receipt
  • A copy of your 2016 Federal and State tax returns should be kept with your 2017 paperwork.
  • A copy of ANY other paperwork you feel is important, or you have questions about (“I wonder if this is deductible?”). It is far better to have a copy of an item you have a question about, than to later learn you need it but can’t find it.

A simple filing system to keep everything organized is to file:

  • Family (birth/marriage/divorce/daycare)
  • Home (sale/purchase/casualty/theft/loss)
  • Moving or job related
  • Medical
  • Business
  • Other/Miscellaneous

My BEST recommendation is – keep ALL of your receipts.  As you can see from the brief list above, many normal events in your life have a tax implication.  If you have a question about an expense, keep a receipt, and ask us when we prepare your tax returns.rns.

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Education Credits

Are you or your dependents attending a college or university?  If so, you may be able to claim an education credit on your return.

An education credit helps with the cost of higher education by reducing the amount of tax owed on your tax return. If the credit reduces your tax to less than zero, you may get a refund. There are two education credits available: The American Opportunity Tax Credit and The Lifetime Learning Credit.

Who can claim an education credit?

  • There are additional rules for each credit, but you must meet all three of the following for both:
  • You, your dependent or a third party pays qualified education expenses for higher education.
  • An eligible student must be enrolled at an eligible educational institution.
  • The eligible student is yourself, your spouse or a dependent you list on your tax return.

Who cannot claim an education credit?

  • Someone else, such as your parents, list you as a dependent on their tax return
  • Your filing status is married filing separately
  • You already claimed or deducted another higher education benefit using the same student or same expenses.
  • You (or your spouse) were a non-resident alien for any part of the year and did not choose to be treated as a resident alien for tax purposes.

American Opportunity Tax Credit

The American opportunity tax credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student.

The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student. But, if the credit pays your tax down to zero, you can have 40 percent of the remaining amount of the credit (up to $1,000) refunded to you.

To be eligible for AOTC, the student must:

  • Be pursuing a degree or other recognized education credential
  • Be enrolled at least half time for at least one academic period beginning in the tax year
  • Not have finished the first four years of higher education at the beginning of the tax year
  • Not have claimed the AOTC or the former Hope credit for more than four tax years
  • Not have a felony drug conviction at the end of the tax year

Lifetime Learning Credit

The Lifetime Learning Credit (LLC) is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. This credit can help pay for undergraduate, graduate and professional degree courses–including courses to acquire or improve job skills. There is no limit on the number of years you can claim the credit. It is worth up to $2,000 per tax return.

To claim a LLC, you must meet all three of the following:

  • You, your dependent or a third party pay qualified education expenses for higher education
  • You, your dependent or a third party pay the education expenses for an eligible student enrolled at an eligible educational institution
  • The eligible student is yourself, your spouse or a dependent you listed on your tax return

There are a few more rules and limitations on these credits.  If you believe you will be eligible for either of these credits, please let us know when we start your return.

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Pet Deductions

Most people treat their pets a lot like children.  You feed them, provide them a safe place to live, teach them skills (sit, stay), bring them to the doctor when they are sick or for a checkup, play with them, and show them love.  They are part of your family.

Can you or someone you know deduct these and other pet-related expenses?  Like most tax deductions, it depends.  Let’s look at some situations:

Service Animals / Guide Dogs

If you require the assistance of a service animal (these include assistance animals for the blind, hearing impaired, mobility impaired, and therapy animals), expenses related to the animal could be considered medical expenses.

You will need a prescription from a doctor showing your medical necessity before you obtain the animal, and keep all documentation that shows the animal was trained and certified as a treatment for your specific medical illness or condition.  Then, keep records of all expenses that relate to the animal.  These could include training, veterinary care, grooming, food, and other reasonable expenses.

Guard Dogs

If your dog is used to guard and protect your business location, it might be a legitimate business expense.   It would have to make sense (to the IRS) for a dog to be used in this fashion.  For example, a dog guarding a junkyard, a warehouse, or a small retail store after hours would make sense.  A dog guarding your home office – probably not.

Also, the size and breed of dog is important to help prove the dog being a legitimate guard dog.  German Shepherds, Rottweilers, Bull Mastiffs, and Dobermans could all normally considered ‘guard dogs’.   Your Teacup Poodle, Yorkie, or Chihuahua won’t be very convincing to the IRS inspector.

Think of the dog like any other business asset – you must keep track of all expenses and hours worked.  Food, training, and veterinary bills can all be deductible.

Barn Cats / Pest Control Cats / Feral Cats

Instead of keeping out criminals, maybe your goal is to keep your barn / warehouse / lot / junkyard free of mice and rats.  This could be either cats you own or feral cats you attract by leaving out food.   You may be able to deduct food and veterinary bills for these pest control professionals.

Like the guard dog example, you have to show a reasonable business use, and document your expenses.

Show Animals / Hobby Income

Do you have a ‘show dog’ or ‘show cat’?  Do you enter your dog or cat in shows to earn money?  If so, the prizes and other income you earn from these shows could be considered hobby income.  You may be able to deduct food, training, veterinary, show fees, travel, and even lodging expenses up to the amount of your winnings.   Detailed records are the key for any hobby income and deduction, and show animals are no exception.

Foster Parents

If you provide a foster home for animals from a qualified nonprofit organization, your expenses related to the foster care may be deductible.   You can’t deduct expenses that are provided or reimbursed by the organization (most organizations provide food, litter, and medical care for the animals).  However, any other expense that is not reimbursed (like mileage to/from the organization) may be considered a tax-deductible charitable contribution.

Moving Expenses

If you have to move due to work, you may be able to deduct some of the moving expenses.  Moving your personal belongings, vehicle, boat, lodging on the way to the new home are all valid expenses.  So are expenses related to moving your pets.  This could include a pet carrier for the trip, or the cost of shipping your pets separately from the rest of the family.

If you think one of these deductions may apply to you, contact us to discuss your pets and what documentation you might need.  This will save valuable time when we prepare your tax return.

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Nationwide Tax Preparation Rates

How Much Should You Expect To Pay For Tax Return Preparation?

(Note: Fees charged by Hampton Roads Accounting are about HALF the national average!)

Taxpayers looking to hire a professional to complete their tax return can expect to pay an average of $273 for an itemized Form 1040 with Schedule A and a state tax return, according to the National Society of Accountants (NSA). This is a 4.6 percent increase over the average fee last year, which was $261. It is an 11 percent increase from two years ago – the last time the survey was conducted.

The average cost to prepare a Form 1040 and state return without itemized deductions is $159, also a 4.6 percent increase over the average fee last year, which was $152. It is an 11.2 percent increase from two years ago.

“When you consider the time it takes to complete tax returns, this is a very strong value,” says NSA Executive Vice President John Ams. “The tax code continues to become more complex each year, including some new Affordable Care Act reporting requirements. Professional tax preparers may also be able to find tax deductions and credits that may taxpayers might not notice.”

The survey also reported the average fees for preparing additional Internal Revenue Service (IRS) tax forms, including:

  • $174 for a Form 1040 Schedule C (business)
  • $634 for a Form 1065 (partnership)
  • $817 for a Form 1120 (corporation)
  • $778 for a Form 1120S (S corporation)
  • $457 for a Form 1041 (fiduciary)
  • $688 for a Form 990 (tax exempt)
  • $68 for a Form 940 (Federal unemployment)
  • $115 for Schedule D (gains and losses)
  • $126 for Schedule E (rental)
  • $158 for Schedule F (farm)

Save some money, visit our Tax Preparation page today and get started!


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Avoiding Penalties When Filing Your Federal Income Tax Return

Hampton Roads Accounting always recommends using a tax return professional when filing your income tax return. Aside from the convenience to you, a tax professional is trained to help you legally pay as little tax as possible.

If you choose to prepare your own taxes, the information in this article will help you avoid penalties when filing your tax return.

The Internal Revenue Code imposes many different kinds of penalties, ranging from civil fines to imprisonment for criminal tax evasion.

If you do not file your return and pay your tax by the due date, you may have to pay a penalty. You may also have to pay a penalty if you substantially understate your tax, understate a reportable transaction, file an erroneous claim for refund or credit, or file a frivolous tax submission. If you provide fraudulent information on your return, you may have to pay a civil fraud penalty.

Penalties are generally payable upon notice and demand. Penalties are generally assessed, collected and paid in the same manner as taxes. The IRS notice you receive will contain the name of the penalty, the applicable code section, and how the penalty was computed (or information on how to obtain the computation if not included).

Estimated Tax-Related Penalties

Employees have taxes withheld from their paychecks by their employer. When you have income that is not subject to withholding you may have to make estimated tax payments during the year.

This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. You also may have to pay estimated tax if the amount being withheld from your salary, pension, or other income is not enough to pay your tax liability.

Estimated tax payments are used to pay income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. If you do not pay enough through withholding or estimated tax payments, you may have to pay a penalty. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.

Penalties for filing or paying taxes late

The most common penalties are for filing late or paying taxes late.

Filing late: If you do not file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. The penalty is usually 5 percent for each month or part of a month that a return is late, but not more than 25 percent. The penalty is based on the tax not paid by the due date (without regard to extensions).
If you file your return more than 60 days after the due date, the minimum penalty is $100 or, if less, 100 percent of the tax on your return.

Paying tax late: You will have to pay a failure-to-pay penalty of ½ of 1 percent (0.5 percent) of your unpaid taxes for each month, or part of a month, after the due date that the tax is not paid. This penalty does not apply during the automatic six-month extension of time to file period if you paid at least 90 percent of your actual tax liability on or before the original due date of your return and pay the balance when you file the return.

The failure-to-pay penalty rate increases to a full 1 percent per month for any tax that remains unpaid the day after a demand for immediate payment is issued, or 10 days after notice of intent to levy certain assets is issued.

For taxpayers who filed on time, the failure-to-pay penalty rate is reduced to ¼ of 1 percent (0.25 percent) per month during any month in which the taxpayer has a valid installment agreement in force.

Combined penalties: For any month both the penalty for filing late and the penalty for paying late apply, the penalty for filing late is reduced by the penalty for paying late for that month, unless the minimum penalty for filing late is charged.

Accuracy Related Penalties

The two most common accuracy related penalties are the “substantial understatement” penalty and the “negligence or disregard of the rules or regulations” penalty. These penalties are calculated as a flat 20 percent of the net understatement of tax.

Penalty for Substantial Understatement

You understate your tax if the tax shown on your return is less than the correct tax. The understatement is substantial if it is more than the larger of 10 percent of the correct tax or $5,000 for individuals. For corporations, the understatement is considered substantial if the tax shown on your return exceeds the lesser of 10 percent (or if greater, $10,000) or $10,000,000.

You may avoid the substantial understatement penalty if you have substantial authority for your tax treatment of the item or through adequate disclosure. To avoid the substantial understatement penalty by adequate disclosure, you must properly disclose the position on the tax return and there must at least be a reasonable basis for the position.

To properly disclose the position, complete and attach IRS Form 8275 to your tax return and disclose all relevant facts. A reasonable basis is a relatively high standard of tax reporting, that is, significantly higher than not frivolous or not patently improper. The position must be more than just merely arguable or merely a colorable claim. The position must be reasonably based on authority supporting the position.

Penalty for negligence and disregard of the rules and regulations

“Negligence” includes (but is not limited to) any failure to:

  • make a reasonable attempt to comply with the internal revenue laws
  • exercise ordinary and reasonable care in preparation of a tax return or
  • keep adequate books and records or to substantiate items properly

This penalty may be asserted if you carelessly, recklessly or intentionally disregard IRS rules and regulations – by taking a position on your return with little or no effort to determine whether the position is correct or knowingly taking a position that is incorrect. You will not have to pay a negligence penalty if there was a reasonable cause for a position you took and you acted in good faith.

Civil Fraud Penalty

If there is any underpayment of tax on your return due to fraud, a penalty of 75 percent of the underpayment due to fraud will be added to your tax. The fraud penalty on a joint return does not apply to a spouse unless some part of the underpayment is due to the fraud of that spouse.

Negligence or ignorance of the law does not constitute fraud.

Typically, IRS examiners who find strong evidence of fraud will refer the case to the Internal Revenue Service Criminal Investigation Division for possible criminal prosecution. Keep in mind that both civil sanctions and criminal prosecution may be imposed.

Frivolous Tax Return Penalty

You may have to pay a penalty of $5,000 if you file a frivolous tax return or other frivolous submissions. If you jointly file a frivolous tax return with your spouse, both you and your spouse each may have to pay a penalty of $5,000. A frivolous tax return is one that does not include enough information to figure the correct tax or that contains information clearly showing that the tax you reported is substantially incorrect.
You will have to pay the penalty if you filed this kind of return or submission based on a frivolous position or a desire to delay or interfere with the administration of federal tax laws. This includes altering or striking out the preprinted language above the space provided for your signature.

This penalty is added to any other penalty provided by law.

Penalty for Bounced Checks

If you write a check to pay your taxes and the check bounces, the IRS may impose a penalty. The penalty is either 2 percent of the amount of the check – unless the check is under $1,250, in which case the penalty is the amount of the check or $25, whichever is less.

The Bottom Line

The bottom line is that you must report all your income, file your return and pay your tax by the due date to avoid interest and penalty charges.

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Starting Business as a Sole Proprietor? Let’s Talk

Getting started in a business is a challenging and exciting time. Many new businesses are set up as a sole proprietorship.  This basic form of business entity is very easy to start, requires almost no paperwork, and has the simplest records requirements.  It is also the form chosen by many people who have been making money at a hobby, and want to turn their hobby into a real business.

If you are thinking about starting a business as a sole proprietor, take a look at some of the advantages and pitfalls of this business type:


  • Start up costs are very low.
  • Income generated by the business is YOUR income.
  • You control all the functions of your business.
  • You don’t file separate tax returns for the business – the business information is part of your personal tax return.
  • You may or may not have employees.
  • You can sell or close your business at any time.  You can even pass it down to your children.


  • Banks are very reluctant to give loans to sole proprietors.  See the list of benefits above.  Since you can close your doors at any time, you are seen as a business risk.
  • YOU are personally liable for any debt incurred by your business.  If your business is sued or someone gets hurt as a result of your business, your home and personal assets are at risk.
  • As your business becomes profitable, your personal tax obligation increases.
  • Health insurance for your employees is not deductible.
  • If you die, your business ceases to exist.  All assets are liquidated and become part of your estate.  Your family could be burdened with large estate or inheritance taxes.
  • Sole proprietors are four times more likely to be audited than other business forms.

For some businesses, being a sole proprietor makes perfect sense.  Bookkeepers, small housekeeping services, tutors and freelance writers come to mind as businesses perfect for the sole proprietor model.  For many businesses, other forms could be a better choice.

For new (and existing) business owners in our area, Hampton Roads Accounting meets with prospective clients to discuss their business plans and needs.  Together, we can take a look at your business idea, discuss which business form would be best for your situation, and plan your next steps to make your business dream a reality.

There is no cost or obligation for this initial consultation, so give us a call, send us an email, or complete the form on our website to get started.  We’ll be in touch right away.

Hampton Roads Accounting focuses on helping small business owners in the following cities: Chesapeake, Virginia Beach, Norfolk, Portsmouth, Suffolk, and the surrounding area.


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Consumer Alert: New Tax Return Scams

Consumer Alert: Tax Return / Identity Theft scammers are changing tactics again.

In a previous post, I talked about how some Virginia tax refunds are being delayed because of extra precautions being taken due to identity theft.  These same criminals have targeted individuals for both federal and state returns.

Both the IRS and state tax departments are taking extra steps to verify information on tax returns to protect your identity and your refund.  Many people have heard about this through the news, but are not sure exactly what that means for them.

Criminals are taking advantage of this confusion by calling individuals, pretending to be IRS agents, and asking to verify information on their return so the return can be processed.

This January, the Treasury Inspector General for Tax Administration (TIGTA) announced they have received reports of roughly 896,000 phone scam contacts since October 2013 and have become aware of over 5,000 victims who have collectively paid over $26.5 million as a result of the scam. Just this year, the IRS has seen a 400 percent increase in phishing schemes.

The IRS will never:

  • Call to demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you several bills.
  • Call or email you to verify your identity by asking for personal and financial information.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Require you to use a specific payment method for your taxes, such as a prepaid debit card.
  • Ask for credit or debit card numbers over the phone or email.
  • Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money or to verify your identity, here’s what you should do:

If you don’t owe taxes, or have no reason to think that you do:

  • Do not give out any information. Hang up immediately.
  • Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page. You can also call 800-366-4484.
  • Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on Please add “IRS Telephone Scam” in the notes.

If you know you owe, or think you may owe tax:

  • Do not give out any information. Hang up immediately.
  • Contact Hampton Roads Accounting.  We can help you get your taxes filed.
    (even if you haven’t filed for years)


Here is a short YouTube video from the IRS that discusses this problem:


As always, if you have any questions about your taxes, please contact Hampton Roads Accounting.  We are here to help you.


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