Prescott Tax & Paralegal explains what tax services they provide in Prescott.

Prescott Tax & Paralegal loves to assist clients with their tax preparation needs.  It is never too early to start receiving counseling on your particular tax situation.  They offer options that can help you minimize tax liabilities and boost your cash flow.  Prescott Tax & Paralegal explain the different tax services they can provide you:
   

•    Personal Tax Preparation

•    Additional Schedules

•    Business Tax Preparation

•    IRS Representation

•    File prior returns

•    Help you avoid Health Insurance penalties.


Arlene Rheinfelder, with Prescott Tax & Paralegal is an “Enrolled Agent.” (EA) This is the highest credential the IRS awards.  An EA is more advanced than a Registered Tax Return Preparer.  She can represent taxpayers before the Internal Revenue Service.  Enrolled Agents are often considered America’s “Tax Experts!”

We would love to discuss your tax situation with you further.  Have a question?  Prescott Tax & Paralegal is ready to help.  Call us at 928-778-3313 or visit us online at http://www.PrescottTax.com. 

This article is for informational purposes and not intended as legal advice.  If you need legal advice, you should contact an attorney.

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The Hidden Gambling Tax on Retirees brought to you by Prescott Tax and Paralegal.

By Arlene Rheinfelder, Prescott Tax & Paralegal
Enrolled Agent and Certified Legal Document Preparer


You’ve reached your golden years, retired from your job, and now it’s time to relax and enjoy life. Many retirees living in the Prescott area enjoy visiting the casinos and taking their chances with Lady Luck.  Sometimes Lady Luck beams her elusive smile, the slot machine lights start flashing, and the machine makes noises like coins are pouring out.  Prescott Tax and Paralegal brings you the following to think about:

These days, coins don’t actually pour out of the machine, darn it. Casinos must report jackpots to the IRS as gambling winnings on form W2-G, and mail the winner a copy by January 31 of the following year. 

If you have registered with one of the casino clubs, they will often provide you with a Cash In - Cash Out Statement.  Usually these statements show an overall loss for the year, despite the jackpot winnings.  No problem, you can deduct the losses up to the amount of your winnings on your Schedule A as an itemized deduction, but only if you have enough expenses to itemize.

So, where is the hidden tax? Gambling winnings increase income, which then increases the amount of social security which is taxable. Here’s an example for a married couple filing together. Albert & Betty, who are retired, have $28,000 in social security income and an IRA distribution of $20,000. They do not have enough expenses to itemize deductions. Currently, $1000 of their social security benefits are taxable and their combined federal and state tax is $180.

They decide to play the slots, and win a $6000 jackpot.  Now, $4000 of their social security benefits are taxable.  This means their income increased by $10,000: the jackpot plus the increase in taxable social security. Their combined federal and state tax owed increases to $1367. Yikes!  Their overall gambling loss for the year is $3,000 which they cannot deduct because they don’t have enough expenses to itemize deductions.

Compare this to Albert & Betty “gambling” in the stock market.  They buy Snake Oil stock and sell it at a $6000 profit. They also buy Gump Shrimp Co. stock and sell it at a $6000 loss.  The two sales offset each other and there is $0 income to report.  There is no increase to taxable social security, and no increase in the tax owed.

Why doesn’t it work this way with gambling income?  Under the current IRS laws, even though you have a net gambling loss, or $0 total gambling income when you total all your wins and losses, you must report the winnings as income.  You may only deduct losses up to the total amount of winnings, and only if you have enough deductions to itemize.  The net result is a hidden tax increase caused by gambling winnings, particularly for retirees because of the increase in taxable social security.

For those of you who gamble, you can’t win if you don’t play.  But, if you win, you might pay more taxes even if you have a net loss for the year because of this hidden tax.

Have a question? Prescott Tax & Paralegal is ready to help.  Call us at 928-778-3113 or visit us at http://www.PrescottTax.com.

Prescott Tax & Paralegal, the office of Arlene Rheinfelder, AZCLDP is at 141 South McCormick, Suite 206, Prescott, AZ.

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This article is for informational purposes and not intended as legal advice.  If you need legal advice, you should contact an attorney.

Income Tax Refund – Spend or Save?

By Arlene Rheinfelder, Prescott Tax & Paralegal

Certified Legal Document Preparer and Enrolled Agent

In 2015 the IRS issued an estimated $125 BILLION dollars in income tax refunds. The average refund was $3,120 in 2015.  Everywhere I look, I see sales people clamoring to get a piece of your income tax refund.  They will all hate me in just a moment.

I want to paint a picture of something incredibly fabulous that you could do with your refund.  If you take $2500 from your refund, and put it in a CD at Capital One for 5 years, you could earn a whopping 2.3% interest.  At the end of 5 years, you would have $2,801.  If you did that with your refund each year for 5 years, at the end of that 5 years you would have $16,190.

Or you could be really daring, and invest in a mutual fund that gets an 8% annualized return. If you only invested the initial $2500, you would have $3,673 at the end of 5 years---almost 1 and ½ times your initial investment.  If you took $2500 from your refund each year for 5 years and invested it in a mutual fund with an 8% return, you would have $19,513 at the end of 5 years!  Have I captured your “interest” yet?

Of course, there is some risk with investing in a mutual fund because the stock market may go up or down.  Unlike a CD, the 8% return on a mutual fund is not guaranteed.  Another option is to use an indexed annuity with no downside risk. This type of annuity goes up when the market index goes up and you get a fixed percentage of the market gain. In exchange for giving up a piece of the upside gain, your investment will not go down if the market goes down. It is a wise idea to consult with a good financial planner when making investment decisions.  We are happy to provide you with a recommendation for a financial planner.

Another benefit to saving or investing your refund may be that you can get a tax credit if your income is low enough, you are not covered by an employer retirement plan, and you contribute the refund to an IRA. 

This year instead of spending your refund, think about consulting with a financial planner and making an investment in your future. Sure, spend 10% of that refund if you must, but think about what you can accomplish by saving that money.

If you continued to invest $2500 annually at 8% annual return for 20 years, you would have $135,210 from your investment of $50,000.  If you were able to get 15% annually, you would have a whopping $335,442! On the other hand, if you spend your entire income tax refund, quite simply, it is gone.

Have a question? Email it to: arlene@PrescottTax.com

Prescott Tax & Paralegal, the office of Arlene Rheinfelder, AZCLDP is located at 141 S. McCormick, Suite 206, Prescott, AZ 86303.  Contact us at 928-778-3313 or visit online at http://www.PrescottTax.com.

This article is for informational purposes and not intended as legal advice.  If you need legal advice, you should contact an attorney. 

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Prescott Tax and Paralegal discusses what to do if you find you owe the IRS money.

Sometimes people have the unfortunate experience of owing the IRS taxes.  Prescott Tax and Paralegal would like to help inform you of your choices.  If you found out that you owe income taxes, there are two steps that you should take:

1 . Increase the amount withheld by your employer.  For example, if you were withholding at Single and 2 exemptions, change it to Single and 1 exemption if you owed only a little. If you owed a lot, then change it to Single and 0. How do you do this? Fill out a new Form W4 and give it to your employer.

• Self Employed?  You need to make estimated tax payments.  Divide the total amount of tax (Form 1040, Line 63) by 4. The result is the amount that you need to pay each quarter to the IRS. You will mail the check with Form ES.

2. Pay the amount that you owe the IRS. The IRS allows you to set up a payment plan. However, there is a fee for this service ($225 for a standard plan, and $107 for a direct debit plan) The IRS will charge you a .5% penalty for each month the original tax debt is not paid even though you have a payment plan. Additionally, you will be charged about 3% interest on the unpaid debt.

• Sometimes a better option is to pay the tax owed with a 0 percent rate credit card. This eliminates the continually accruing penalties and interest that the IRS charges.

Call us today if you have any further questions. Prescott Tax and Paralegal are ready to assist you with all of your tax filing needs.  Call us at 928-778-3113 or visit http://www.PrescottTax.com for more information.

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