All You Need to Know About IPOs, Going Public and Stock Options (Forbes)

-   Admit it. For weeks now, you've been dropping the terms “IPO” and “going public” and “stock options” in water cooler conversation and at cocktail parties and you don’t really know what they mean. Or how they make people rich. Or why it matters to you.

And it’s totally Facebook’s fault. As you know, Facebook is “going public” any day now and those “stock options” are going to make folks like Mark Zuckerberg and Eduardo Saverin ever more rich. As much as the whole world wants to pretend that we really don’t like those guys and we really hate Facebook (remarkable since 900 million of us are actually on Facebook), you can’t get away from the news.

- Article originally published on Forbes.com by Kelly Phillips Erb - 05/14//2012 -

So here’s what you need to know to feel smart.

An IPO is shorthand for initial public offering. It is exactly what it sounds like: the first sale of stock by a company to the general public, hence the clever shorthand “going public.” In most instances, an IPO is used to raise capital so that the company can get bigger. I’m not sure how much bigger Facebook can get but the offering is expected to raise as much as $14 billion, valuing the total compant (depending on final offering price) at anywhere from “$77 billion to $96 billion.”

If you buy a share of a public company, the tax consequences are pretty straightforward. The price that you pay for a share of stock is generally your basis in the stock. Adjustments to basis happen when stocks split, merge or spin off – or through dividend reimbursements. When stocks are sold, there is a gain or loss between the selling price and the basis. The gain is considered capital gain and is taxed at rates between 0% and 35% for 2012, depending on your federal income tax bracket and the length of time that you held the stock (the rates are scheduled to change to between 8% and 39.6% in 2013). Capital losses reduce your capital gains.

But what if you don’t buy that stock on the market? What if you are given the right to buy the stock as a form of compensation? That right is called a stock option. Often, the right is to buy a share of stock at an agreed upon price that is less than fair market value of the stock.

There are usually two main reasons why a company would issue stock options:

1. It’s cheap. It’s not the same as paying out cash so the company is able to give you the right to future growth in the company (assuming all goes well) without cleaning out their own accounts; and/or
2. Stock options can be controlled. Companies can impose restrictions on transfers or schedule when the options “vest” (meaning when the shares are eligible to be purchased) based on length of time or other behaviors. This allows companies to lock in loyalty (sort of) to the company.

These reasons – lack of cash and urge to control – are why many employee stock options are initially offered to management, as part of an executive compensation package. As the company grows, options may also be offered to all employees who have worked at the company for a certain period of time.

There are two types of stock options: statutory stock options and nonstatutory stock options. Statutory stock options are the kind that you and I are most familiar with and are those granted as part of an incentive stock option (ISO) plan or as part of an employee stock purchase (ESP) plan. Nonstatutory stock options are the rest – or statutory stock options that are granted to non-employees (you can’t do that and retain the favorable tax treatment).

If you receive a statutory stock option, you generally don’t have any immediate tax consequences upon the grant or the exercise of the option (you exercise the option by buying a share of stock). You may, however, be subject to Alternative Minimum Tax (AMT) upon the exercise of an ISO – it can be one of those dreaded AMT triggers. The real tax consequences for most taxpayers, however, occurs when you sell the stock. At that point, you report the gain or loss just like you would by selling a share of Coca-Cola or General Electric.

If you receive a nonstatutory stock option, you might have tax consequences when you receive the option: it depends on whether the fair market value of the option can be readily determined. For some options (those that are traded on a market), that’s easy. But for newly established companies – or those that are just taking off – it can be nearly impossible to determine the fair market value of the option which is exactly what makes it so appealing. When that’s the case, there is no taxable event upon the grant of the option. There is, however, the realization of income when the option is exercised and again when the stock is eventually sold; it’s treated just like regular old stock at that time.

The exercise of an option generally involves paying cash for the shares of stock that you’re buying. But, realistically, those of us who aren’t Zuckerberg don’t always have that kind of cash. That’s why many employees take advantage of a so-called “cashless stock option purchase.” In a cashless purchase, a third party broker actually loans the money to buy the stock. You won’t realize this because it all happens in a flash – on the same day – and to you, it looks like one transaction. But what actually happens is that the third party broker loans you the money to exercise the options and then they sells some or all of the stock immediately using part of the proceeds to repay the loan. When this happens, the income triggered from the exercise of the option will be reported to you on your federal form W-2. If you had a capital gain or loss, this would be reported to you on a form 1099-B. Realistically, unless the stock is extremely volatile, you don’t have to worry about the form 1099-B: there won’t be a gain or loss because you’re buying and selling within a matter of hours or, quite possibly, minutes.

So there you go. All that you need to know about IPOs, going public and stock options to sound smart at the water cooler or cocktail party. If you need to know more or if you have special circumstances, contact us anytime. We are your tax professionals and financial partners, and we are always here to help. Give us a call today.

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.SecurityTaxServices.com

- Article originally published on Forbes.com by Kelly Phillips Erb - 05/14//2012 -

IRS Announces More Flexible Offer-in-Compromise Terms to Help a Greater Number of Struggling Taxpayers Make a Fresh Start

-   The Internal Revenue Service today announced another expansion of its "Fresh Start" initiative by offering more flexible terms to its Offer in Compromise (OIC) program that will enable some of the most financially distressed taxpayers to clear up their tax problems and in many cases more quickly than in the past.

"This phase of Fresh Start will assist some taxpayers who have faced the most financial hardship in recent years," said IRS Commissioner Doug Shulman. "It is part of our multiyear effort to help taxpayers who are struggling to make ends meet."

Today’s announcement focuses on the financial analysis used to determine which taxpayers qualify for an OIC. This announcement also enables some taxpayers to resolve their tax problems in as little as two years compared to four or five years in the past.

In certain circumstances, the changes announced today include:

• Revising the calculation for the taxpayer’s future income.
• Allowing taxpayers to repay their student loans.
• Allowing taxpayers to pay state and local delinquent taxes.
• Expanding the Allowable Living Expense allowance category and amount.

In general, an OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. An OIC is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or a through payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential. OICs are subject to acceptance on legal requirements.

The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place common-sense changes to the OIC program to more closely reflect real-world situations.

When the IRS calculates a taxpayer’s reasonable collection potential, it will now look at only one year of future income for offers paid in five or fewer months, down from four years, and two years of future income for offers paid in six to 24 months, down from five years. All offers must be fully paid within 24 months of the date the offer is accepted. The Form 656-B,  Offer in Compromise Booklet, and Form 656, Offer in Compromise, has been revised to reflect the changes.

Other changes to the program include narrowed parameters and clarification of when a dissipated asset will be included in the calculation of reasonable collection potential. In addition, equity in income producing assets generally will not be included in the calculation of reasonable collection potential for on-going businesses.



Allowable Living Expenses
The Allowable Living Expense standards are used in cases requiring financial analysis to determine a taxpayer’s ability to pay. The standard allowances provide consistency and fairness in collection determinations by incorporating average expenditures for basic necessities for citizens in similar geographic areas. These standards are used when evaluating installment agreement and offer in compromise requests.

The National Standard miscellaneous allowance has been expanded to include additional items. Taxpayers can use the miscellaneous allowance for expenses such as credit card payments and bank fees and charges.

Guidance has also been clarified to allow payments for loans guaranteed by the federal government for the taxpayer's post-high school education. In addition, payments for delinquent state and local taxes may be allowed based on percentage basis of tax owed to the state and IRS.

This is another in a series of steps to help struggling taxpayers under the Fresh Start initiative.

In 2008, IRS announced lien relief for taxpayers trying to refinance or sell a home. The IRS added new flexibility for taxpayers facing payment or collection problems in 2009. The IRS made changes to lien policies in 2011 and expanded the threshold for small businesses to resolve tax issues through installment agreements. And, earlier this year, the IRS increased the threshold for a streamlined installment agreement allowing individual taxpayers to set up an installment agreement without providing a significant amount of financial information.

IR-2012-53, May 21, 2012

As always we are here to help with any questions, stress, or confusion the IRS might be causing you. We speak tax so you don't have to. We are your financial partners, and we are always here to help.

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.SecurityTaxServices.com

Congress Attempts To Sneak Tax Increase Into Student Loan Bill (Forbes)

-   Whew, S corporation shareholders… You dodged a bullet last week when the bill to raise your taxes was voted down.

- Article originally published on Forbes.com by Kelly Phillips Erb - 05/16//2012 -

You mean you didn’t know there was such a bill? Of course you didn’t. That’s because Congress did what it does best: it snuck a controversial provision to boost taxes on certain S corporation shareholders into the Stop the Student Loan Interest Rate Hike Act of 2012 (S.B. 2343).

Despite the fact that the text of the bill noted “This Act may be cited as the ‘Stop the Student Loan Interest Rate Hike Act of 2012′ and that the purpose of the bill is stated as “A BILL [t]o amend the Higher Education Act of 1965 to extend the reduced interest rate for Federal Direct Stafford Loans, and for other purposes,” the student loan portion of the bill is exactly three lines.

The rest of the bill focuses on S corporations. And by rest, I mean 1,361 words in the 1,571 word bill (or roughly 87%) addressed the taxation of S corporations.

The thrust of the bill – and stop me if you’ve heard this before – is to tax small service-based businesses by imposing a payroll tax on certain shareholders. Specifically, the tax is targeted at certain shareholders in the fields of “health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services.” So, professional services.

And only small businesses. Really small businesses. The tax is targeted at those businesses “if 75 percent or more of the gross income of such business is attributable to service of 3 or fewer shareholders of such corporation.” It hits shareholders whose modified adjusted gross income (MAGI) is $250,000 or more for married taxpayers and $200,000 or more for individual taxpayers (keep in mind that S corporations are pass through so that the paper “profit” of the business is passed through to the taxpayers whether or not they actually receive the money).

To be clear, the limit would mean that bigger businesses – those with lots and lots of professionals who are shareholders – would be exempt from the increase. So if KPMG were an S corp? Exempt. Your local CPA? Not exempt. JPMorgan? Exempt. Your neighborhood broker? Not exempt.

Yes, it’s the same “let’s kill small businesses” language that was snuck into the American Jobs and Closing Tax Loopholes Act of 2010. It was eventually pulled from that bill but we figured we’d see it again. And we did. Surreptitiously snuck into a feel good bill – because voting against caps for student loan interest is bad for votes, right?

Thankfully, some in Congress were able to sort through the muck. The roll call for the vote (you can see it here) was mostly along party lines with a 52-45 vote (the two abstentions were Sen. Mark Kirk (R-IL) and Sen. Richard Lugar (R-IN)) with no Republican voting in favor and just one Democrat voting no (Sen. Harry Reid (D-NV)); the latter is even more perplexing since Reid apparently introduced the S corporation provision into the bill. The two Independents in the Senate, Sen. Joseph Lieberman (I-CT) and Sen. Bernard Sanders (I-VT), sided with the Democrats in voting yes.

Senate Minority Leader Mitch McConnell (R-KY) defended the vote, noting that the Republican party was not in favor of a student loan interest rate increase but did not support a boost in taxes for small businesses. That bit didn’t get much play before – even from folks like me (with apologies to Sen. McConnell).

Expect to see this S corporation vote again, likely hidden in some other vote-getting measure. Like the “We Don’t Like People Who Kick Puppies” bill. It sounds so much better than the real title, the “Death to Small S Corporations and Your Neighborhood Businesses” bill.

Article originally published on Forbes.com by Kelly Phillips Erb - 05/16//2012

Employee or Independent Contractor - Which Is It?

-   If you hire someone for a long-term, full-time project or a series of projects that are likely to last for an extended period, you must pay special attention to the difference between independent contractors and employees.


Why It Matters

The Internal Revenue Service and state regulators scrutinize the distinction between employees and independent contractors because many business owners try to categorize as many of their workers as possible as independent contractors rather than as employees. They do this because independent contractors are not covered by unemployment and workers' compensation, or by federal and state wage, hour, anti-discrimination, and labor laws. In addition, businesses do not have to pay federal payroll taxes on amounts paid to independent contractors.

Caution: If you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker, plus a penalty.

The Difference Between Employees and Independent Contractors

Independent Contractors are individuals who contract with a business to perform a specific project or set of projects. You, the payer, have the right to control or direct only the result of the work done by an independent contractor, andnot the means and methods of accomplishing the result.

Example: Sam Smith, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. He is to receive $1,280 every 2 weeks for the next 10 weeks. This is not considered payment by the hour. Even if he works more or less than 400 hours to complete the work, Sam will receive $6,400. He also performs additional electrical installations under contracts with other companies that he obtained through advertisements. Sam Smith is an independent contractor.

Employees provide work in an ongoing, structured basis. In general, anyone who performs services for you is your employee if you can control what will be done and how it will be done. A worker is still considered an employee even when you give them freedom of action. What matters is that you have the right to control the details of how the services are performed.

Example: Sally Jones is a salesperson employed on a full-time basis by Rob Robinson, an auto dealer. She works 6 days a week, and is on duty in Rob's showroom on certain assigned days and times. She appraises trade-ins, but her appraisals are subject to the sales manager's approval. Lists of prospective customers belong to the dealer. She has to develop leads and report results to the sales manager. Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. She is paid a commission and is eligible for prizes and bonuses offered by Rob. Rob also pays the cost of health insurance and group term life insurance for Sally. Sally Jones is an employee of Rob Robinson.

Independent Contractor Qualification Checklist

The IRS, workers' compensation boards, unemployment compensation boards, federal agencies, and even courts all have slightly different definitions of what an independent contractor is, though their means of categorizing workers as independent contractors are similar.

One of the most prevalent approaches used to categorize a worker as either an employee or independent contractor is the analysis created by the IRS. The IRS considers the following:

1. What instructions the employer gives the worker about when, where, and how to work. The more specific the instructions and the more control exercised, the more likely the worker will be considered an employee.
   
   
2. What training the employer gives the worker. Independent contractors generally do not receive training from an employer.
   
   
3. The extent to which the worker has business expenses that are not reimbursed. Independent contractors are more likely to have unreimbursed expenses.
   
   
4. The extent of the worker's investment in the worker's own business. Independent contractors typically invest their own money in equipment or facilities.
   
   
5. The extent to which the worker makes services available to other employers. Independent contractors are more likely to make their services available to other employers.
   
   
6. How the business pays the worker. An employee is generally paid by the hour, week, or month. An independent contractor is usually paid by the job.
   
   
7. The extent to which the worker can make a profit or incur a loss. An independent contractor can make a profit or loss, but an employee does not.
   
   
8. Whether there are written contracts describing the relationship the parties intended to create. Independent contractors generally sign written contracts stating that they are independent contractors and setting forth the terms of their employment.
   
   
9. Whether the business provides the worker with employee benefits, such as insurance, a pension plan, vacation pay, or sick pay. Independent contractors generally do not get benefits.
   
   
10. The terms of the working relationship. An employee generally is employed at will (meaning the relationship can be terminated by either party at any time). An independent contractor is usually hired for a set period.
    
    
11. Whether the worker's services are a key aspect of the company's regular business. If the services are necessary for regular business activity, it is more likely that the employer has the right to direct and control the worker's activities. The more control an employer exerts over a worker, the more likely it is that the worker will be considered an employee.

Minimize the Risk of Misclassification

If you misclassify an employee as an independent contractor, you may end up before a state taxing authority or the IRS.

Sometimes the issue comes up when a terminated worker files for unemployment benefits and it's unclear whether the worker was an independent contractor or employee. The filing can trigger state or federal investigations that can cost many thousands of dollars to defend, even if you successfully fight the challenge.

There are ways to reduce the risk of an investigation or challenge by a state or federal authority. At a minimum, you should:

• Familiarize yourself with the rules. Ignorance of the rules is not a legitimate defense. Knowledge of the rules will allow you to structure and carefully manage your relationships with your workers to minimize risk.
  
  
• Document relationships with your workers and vendors. Although it won't always save you, it helps to have a written contract stating the terms of employment.

If you have any questions about how to classify your employees, please give us a call. We can help guide you in the right direction in the eyes of the IRS. We are your financial partners, and we are always here to help.

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.securitytaxservices.com

Turn Your Vacation Into a Tax Deduction

-   Tim, who owns his own business, decided he wanted to take a two-week trip around the US. So he did -- and was able to legally deduct every dime that he spent on his "vacation". Here's how he did it.

1. Make all your business appointments before you leave for your trip.
Most people believe that they can go on vacation and simply hand out their business cards in order to make the trip deductible.

Wrong.

You must have at least one business appointment before you leave in order to establish the "prior set business purpose" required by the IRS. Keeping this in mind, before he left for his trip, Tim set up appointments with business colleagues in the various cities that he planned to visit.

Let's say Tim is a manufacturer of green office products looking to expand his business and distribute more product. One possible way to establish business contacts--if he doesn't already have them--is to place advertisements looking for distributors in newspapers in each location he plans to visit. He could then interview those who respond when he gets to the business destination.

Example: Tim wants to vacation in Hawaii. If he places several advertisements for distributors, or contacts some of his downline distributors to perform a presentation, then the IRS would accept his trip for business.

Tip: It would be vital for Tim to document this business purpose by keeping a copy of the advertisement and all correspondence along with noting what appointments he will have in his diary.

2. Make Sure your Trip is All "Business Travel."
In order to deduct all of your on-the-road business expenses, you must be traveling on business. The IRS states that travel expenses are 100% deductible as long as your trip is business related and you are traveling away from your regular place of business longer than an ordinary day's work and you need to sleep or rest to meet the demands of your work while away from home.

Example: Tim wanted to go to a regional meeting in Boston, which is only a one-hour drive from his home. If he were to sleep in the hotel where the meeting will be held (in order to avoid possible automobile and traffic problems), his overnight stay qualifies as business travel in the eyes of the IRS.

Tip: Remember: You don't need to live far away to be on business travel. If you have a good reason for sleeping at your destination, you could live a couple of miles away and still be on travel status.

3. Make sure that you deduct all of your on-the-road -expenses for each day you're away.
For every day you are on business travel, you can deduct 100% of lodging, tips, car rentals, and 50% of your food. Tim spends three days meeting with potential distributors. If he spends $50 a day for food, he can deduct 50% of this amount, or $25.

Tip:The IRS doesn't require receipts for travel expense under $75 per expense--except for lodging.

Example: If Tim pays $6 for drinks an the plane, $6.95 for breakfast, $12.00 for lunch, $50 for dinner, he does not need receipts for anything since each item was under $75.

Tip: He would, however, need to document these items in your diary. A good tax diary is essential in order to audit-proof your records. Adequate documentation shall consist of amount, date, place and business reason for the expense.

Example: If, however, Tim stays in the Bates Motel and spends $22 on lodging, will he need a receipt? The answer is yes. You need receipts for all paid lodging.

Tip: Not only are your on-the-road expenses deductible from your trip, but also all laundry, shoe shines, manicures, and dry-cleaning costs for clothes worn on the trip. Thus, your first dry cleaning bill that you incur when you get home will be fully deductible. Make sure that you keep the dry cleaning receipt and have your clothing dry cleaned within a day or two of getting home.

4. Sandwich weekends between business days.
If you have a business day on Friday and another one on Monday, you can deduct all on-the-road expenses during the weekend.

Example: Tim makes business appointments in Florida on Friday and one on the following Monday. Even though he has no business on Saturday and Sunday, he may deduct on-the-road business expenses incurred during the weekend.

5. Make the majority of your trip days business days.
The IRS says that you can deduct transportation expenses if business is the primary purpose of the trip. A majority of days in the trip must be for business activities, otherwise, you cannot make any transportation deductions.

Example: Tim spends six days in San Diego. He leaves early on Thursday morning. He had a seminar on Friday and meets with distributors on Monday and flies home on Tuesday, taking the last flight of the day home after playing a complete round of golf. How many days are considered business days?

All of them. Thursday is a business day, since it includes traveling - even if the rest of the day is spent at the beach. Friday is a business day because he had a seminar. Monday is a business day because he met with prospects and distributors in pre-arranged appointments. Saturday and Sunday are sandwiched between business days, so they count, and Tuesday is a travel day.

Since Tim accrued six business days, he could spend another five days having fun and still deduct all his transportation to San Diego. The reason is that the majority of the days were business days (six out of eleven). However, he can only deduct six days worth of lodging, dry cleaning, shoe shines, and tips. The important point is that Tim would be spending money on lodging, airfare, and food, but now most of his expenses will become deductible.

Consult us before you plan your next trip. We'll show you the right way to legally deduct your vacation when you combine it with business. We are your financial partners, and we are always here to help.  Bon Voyage! 

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.securitytaxservices.com

STS Financial Tips & Tax Due Dates for May 2012

-   When to Review Your Life Insurance Coverage 

It makes good financial sense to periodically examine your life insurance coverage to make sure the coverage is still sufficient. After all, life insurance is often a family's most important financial and estate planning tool.

With today's frequent changes in financial circumstances and goals, it's a good idea to re-examine your life insurance coverage on the occurrence of any of the following:

• Marriage or divorce;
• Birth or adoption, or acquiring a financial dependent such as a parent;
• Children leaving for college;
• Children "leaving the nest";
• Purchase or sale of a home;
• Serious illness;
• Substantial growth or depletion of assets;
• Retirement; and
• Start-up of a business.

Tip: In addition to the amount of coverage, you may need to make a change relating to beneficiaries, policy ownership, or type of coverage.

Consult with us if you think it might be time to adjust your life insurance coverage.

A Slip of the Lip May Bring on a Tax Audit 

Many taxpayers have learned, to their dismay, that it generally isn't wise to talk carelessly about their taxes - especially about sensitive areas. Why? Because the wrong person overheard their careless talk and "turned informer," either for revenge or in the hope of an "informer's reward."

An informer's "tip" to the IRS will often trigger a tax audit. Even though the taxpayer has done nothing improper, he or she may have to suffer through the audit. Not only is this time-consuming, but it can also result in additional taxes due to the discovery of an innocent error on the return or the disallowance of a marginal deduction.

Tip: Most informers are disgruntled employees and former spouses or lovers.

Check Your Credit Report 

Order a copy of your credit report from AnnualCreditReport.com (do not contact the three nationwide consumer reporting companies individually). Read the report carefully and report any discrepancies to the appropriate agencies. This not only ensures that the records are accurate, but also helps prevent others from obtaining credit in your name.

Review Budget vs. Actuals 

Compare April income and expenditures with your budget. Make adjustments as appropriate to your May expenditures. Make sure you have invested your planned savings amount for April.

Make Withholding Adjustments 

Based on the results of your prior year's tax return, make any necessary adjustments to your tax withholding by completing Form W-4 and giving it to your employer.

Tax Due Dates for May 2012

May 10	Employers - Social Security, Medicare, and withheld income tax. File Form 941 for the first quarter of 2012. This due date applies only if you deposited the tax for the quarter in full and on time. Employees - who work for tips. If you received $20 or more in tips during April, report them to your employer. You can use Form 4070.
May 15	Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in April. Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in April.

Have questions? Confused? Please always feel free to contact us. We are your financial partners, and we are always here to help. Give us a call today.

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.securitytaxservices.com

Filing Amended Returns: The Facts

-   What if you've already filed your return, but realized that you were eligible for a deduction or credit that you didn't take, or worse--discovered an error and need to "fix it" on your return?

Fortunately, there's an easy answer: file an amended return. Here's what you need to know if you're considering filing an amended federal income tax return.

1. When you need to amend an income tax return, use Form 1040X, Amended U.S. Individual Income Tax Return. You can use Form 1040X to correct previously filed Forms 1040, 1040A or 1040EZ.

2. An amended return cannot be e-filed. You must file a paper return.

3. Generally, you do not need to file an amended return to correct math errors. The IRS will automatically make that correction. Also, do not file an amended return because you forgot to attach tax forms such as W-2s or schedules. The IRS normally will send a request asking for those.

4. Be sure to enter the year of the return you are amending at the top of Form 1040X. Generally, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.

5. If you are amending more than one tax return, prepare a 1040X for each return and mail them in separate envelopes to the appropriate IRS campus. The 1040X instructions list the addresses for the campuses.

6. If the changes involve another schedule or form, you must attach that schedule or form to the amended return.

7. If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.

8. If you owe additional 2011 tax, file Form 1040X and pay the tax before the due date to limit interest and penalty charges that could accrue on your account. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.

Give us a call today if you need assistance filing an amended return. We are your financial partners, and we are always here to help.

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.securitytaxservices.com