Saturday, August 5, 2017

On This Day...Lincoln Imposes First Federal Income Tax

On this day in 1861, Lincoln imposes the first federal income tax by signing the Revenue Act. Strapped for cash with which to pursue the Civil War, Lincoln and Congress agreed to impose a 3 percent tax on annual incomes over $800.

As early as March 1861, Lincoln had begun to take stock of the federal government’s ability to wage war against the South. He sent letters to cabinet members Edward Bates, Gideon Welles and Salmon Chase requesting their opinions as to whether or not the president had the constitutional authority to “collect [such] duties.” According to documents housed and interpreted by the Library of Congress, Lincoln was particularly concerned about maintaining federal authority over collecting revenue from ports along the southeastern seaboard, which he worried, might fall under the control of the Confederacy.

The Revenue Act’s language was broadly written to define income as gain “derived from any kind of property, or from any professional trade, employment, or vocation carried on in the United States or elsewhere or from any source whatever.” According to the U.S. Treasury Department, the comparable minimum taxable income in 2003, after adjustments for inflation, would have been approximately $16,000.

Congress repealed Lincoln’s tax law in 1871, but in 1909 passed the 16th Amendment, which set in place the federal income-tax system used today. Congress ratified the 16th Amendment in 1913.

Monday, July 24, 2017

Check Withholding Now to Avoid Surprises at Tax Time

The federal income tax is a pay-as-you-go system. Employers generally withhold tax from workers’ wages. Taxpayers also often have taxes withheld from certain other income including pensions, bonuses, commissions and gambling winnings.

People who do not pay tax through withholding, like the self-employed, generally pay estimated tax. In addition, those who earn income such as dividends, interest, capital gains, rent and royalties are usually required to make estimated tax payments.

Each year, because of life events like changes to household income or family size, some people get a larger refund than they expect while others find they owe more tax.

To prevent a tax-time surprise, the IRS offers these tips:

  • New Job. When starting a new job, an employee must fill out a Form W-4, Employee's Withholding Allowance Certificate. Employers use this form to calculate how much federal income tax to withhold from regular pay, bonuses, commissions and vacation allowances. The IRS Withholding Calculator tool on IRS.gov is easy for taxpayers to use to figure how much tax to withhold to avoid surprises.
  • Estimated Tax. People who have income not subject to withholding may need to pay estimated tax. Those expecting to owe $1,000 or more than taxes withheld from their wages may also need to make estimated tax payments to avoid penalties. The worksheet in Form 1040-ES, Estimated Tax for Individuals, helps to figure the tax.

Wednesday, July 19, 2017

Before Your Kids Go Off To College, Get These Legal Documents In Place

For college-bound freshmen and their parents, this is an exciting summer, full of anticipation. The kids are becoming adults, and are ready and eager to take responsibility for their own lives.

Amid all this excitement, it is easy for parents to forget that they are no longer the natural legal guardians of their college-age children, and so they are no longer authorized to make personal, medical or financial decisions for them.   At age eighteen, your children become adults in the eyes of the law.

Consider every parent’s nightmare.  You get a long-distance phone call from your child’s college saying your son or daughter has a critical illness or has been in a serious accident.  Then your nightmare gets even worse.  You phone the hospital, only to be told that federal law prohibits disclosure of any confidential information about your son or daughter’s medical condition, even though you are their parent.

You hop on a plane, perhaps assuming that you can take control of the situation when you arrive.  Instead, the hospital still won’t talk to you, and you are told that you cannot make important personal or medical decisions for your unconscious child.  Instead, you will have to go to court to begin the long and expensive process of being named your child’s guardian and conservator.

Tuesday, July 4, 2017

Happy 4th of July from NFS

We remain the land of the free because we are the home of the brave.

As we celebrate Independence Day, take a moment to remember those who fought for our freedoms and gave their all for you and me.

We truly appreciate your business.


Monday, March 20, 2017

What is FICA?




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Tuesday, February 28, 2017

How Do I? Establish a profit motive for business activities

The IRS has rules that limit the deductibility of expenses and losses from a hobby or activity not engaged in for profit. If the IRS determines that an activity is not profit-driven, deductions from the activity are limited to the amount of income the activity generates. Losses from such activities cannot be used to offset other income, such as salary or investments.

In being able to deduct a net loss from a business --whether it is a business that normally has ups and downs or one in which the unexpected might occur-- you must be prepared to show that an activity that generates deductions is a business from which you intend to profit. It is not necessary that the activity actually earns a profit, so long as a profit is one of the motives for participating in the activity.

The IRS assumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year, or at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses. Otherwise, the IRS applies non-exclusive tests and factors to the surrounding facts to judge whether activities are more like a business with a profit motive, or are for personal satisfaction. Under IRS rules and judicial precedent, the following nine factors are considered in determining whether an activity is engaged in for profit:

Tuesday, February 21, 2017

IRS Tax Scams 2017: FAQs

During tax season, taxpayers are reminded to be on the lookout for an array of evolving tax scams related to identity theft and refund fraud. Every year scam artists look for new ways to trick taxpayers out of their hard-earned money, sensitive financial information or even access to their computers. It seems that no matter how careful you are there's always a possibility that identity thieves could steal your personal information and try to cash in by filing fraudulent tax returns in your name.

Here's what you need to know this year:

Which tax scams should I be on the lookout for this tax season?

This tax season some of the most prevalent IRS-impersonation scams include:

Requesting fake tax payments: The IRS has seen automated calls where scammers leave urgent callback requests telling taxpayers to call back to settle their "tax bill." These fake calls generally claim to be the last warning before legal action is taken. Taxpayers may also receive live calls from IRS impersonators. They may demand payments on prepaid debit cards, iTunes and other gift cards or wire transfer. The IRS reminds taxpayers that any request to settle a tax bill using any of these payment methods is a clear indication of a scam.

Targeting students and parents and demanding payment for a fake "Federal Student Tax": Telephone scammers are targeting students and parents demanding payments for fictitious taxes, such as the "Federal Student Tax." If the person does not comply, the scammer becomes aggressive and threatens to report the student to the police to be arrested.

Sending a fraudulent IRS bill for tax year 2015 related to the Affordable Care Act: The IRS has received numerous reports around the country of scammers sending a fraudulent version of CP2000 notices for tax year 2015. Generally, the scam involves an email or letter that includes the fake CP2000. The fraudulent notice includes a payment request that taxpayers mail a check made out to "I.R.S." to the "Austin Processing Center" at a Post Office Box address.