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Freelance income tax reporting

Those who have taken the plunge into being their own boss may feel a strong sense of independence. Self-employment means choosing your own tasks, clients, hours and other options that can make work more fulfilling. However, there are also a few challenges posed by working solo, especially when it comes to figuring out taxes.

Everyone has a unique tax situation, but self-employed taxpayers may face special complications from the nature of their job. Whether you freelance full-time or simply help out with a special project on the side, you are responsible for reporting all income and deductibles to the IRS. How do you avoid audits with so many possible factors to account for?

The top concern of foreign banking

Whenever the phrase “offshore accounts” pops up in newspaper headlines, it often refers to a scandal linked to a public figure. Yet, by itself, holding an offshore account is perfectly fine. In fact, you don’t need to be rich or famous to store money overseas. So what goes wrong when some people hold accounts with foreign banks?

The charge occasionally filed against offshore account holders is tax evasion. This happens when the account owner does not accurately report it to the government. Hiding money in other countries is an illegal form of reducing taxes by claiming to own less in assets than one actually does. Taxpayers need to be wary of the unintended consequences from false reporting.

Discharge of tax debt through bankruptcy

Chapter 7 and Chapter 13 bankruptcy allow Michigan residents a number of options when it comes to discharge of debt. Obviously, many bankruptcy filers will also have concerns regarding discharge of tax debt.

There are some steps to take before such discharge can occur, however. For example, you will have to demonstrate that you filed your four prior returns with the IRS. This includes providing copies of your most recent income tax return to the bankruptcy court and to creditors who requests this information. And such filing must also take place before the first creditors' meeting in your bankruptcy matter.

Gifting And Estate Taxes

The federal estate tax exemption has hovered near $5.5 million (almost $11 million per couple) for years. If an estate that cross this threshold, the federal tax rate is 40 percent. This does mean that all states follow the same approach. Currently, there are 15 states and the District of Columbia that assess an estate tax and six have an inheritance tax.

Do you own a family business or a vacation home on one the great lakes or in the mountains? You need to consider the tax consequences that will come with any transfer to the next generation. And it is not simply federal taxes.

IRS website contains tips for small businesses

There are a number of challenges that small business owners from Michigan must face when it comes to paying taxes. This includes writing off business expenses, calculating self-employment taxes, and organizing receipts and paperwork for inclusion with tax returns.

The deadlines for filing taxes for business owners may also be different. Plus small business owners may have to file estimated tax returns and payments on a quarterly basis or find themselves in hot water with the IRS.

Many IRS rehires have prior misconduct issues

Taxpayers face criminal penalties for tax code infractions. However, IRS employees also have been guilty of misconduct. Some have a history of performance issues. And many may still be working for the agency.

Treasury Inspector General for Tax Administration (TIGTA) looked into rehirings of past employees at the IRS. In its report, the TIGTA found:

What’s included in the new tax reform proposals?

Every presidential administration promises some sort of significant tax reform. While the promise is almost always that the impact will be beneficial to the ordinary taxpayer, issues and unintended consequences usually arise.

Michigan residents will nevertheless wish to pay attention to new changes in the law. The new proposals promise reform regarding a wide variety of things including:

Will you have to abide by FATCA requirements?

If you as a Michigan resident have foreign assets in excess of $10,000, please make certain you are in compliance with federal tax laws. The rules are complex, and noncompliance comes with penalties including seizure of assets and criminal charges.

Under the Foreign Account Tax Compliance Act (FATCA), you likely need to report these assets to the IRS. You may also need to file a Report of Foreign Bank and Financial Accounts (FBAR) form.

Severance pay and taxation

Not anticipating federal tax consequences often leads to problems for Michigan taxpayers. To the IRS, even severance pay is subject to taxation. It matters little to the agency whether such severance pay is due to a firing, layoff, or settlement of a lawsuit.

As it concerns payment after an employee rendered services, some may refer to severance pay as gap pay. The amount of severance pay could be a result of federal or state law, company policy, or some sort of agreement.

Use of credit card data to trigger tax audits

There are already lots of reasons why the IRS audits returns of taxpayers. This can include irregularities in accounting, willful and even non-willful mistakes, failure to submit proper forms, and questionable deductions.

There is also another reason for tax audits. In 2008, Congress passed legislation requiring reportage of payment card transactions. Such transactions involve credit cards, debit cards and stored-value cards.

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