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Start by doing what's necessary; then do what's possible; and suddenly you are doing the impossible.
St. Francis of Assisi

Safeguard Records in Case of Disaster 

A little planning can help protect important paperwork in the event of a hurricane, wildfire, tornado or other disaster this summer. The IRS has released some tips for individuals and businesses on preserving financial and tax records.

Stiffer Tax Preparer Penalties:
How You Might Be Affected

    A new law passed in May establishes much stricter penalties on tax return preparers. It was designed to make preparers even more careful than they were in the past about signing tax returns with entries that are problematic or aggressive.
    Under the new law, a preparer can face penalties for problematic estate and gift tax returns, employment and excise tax returns, and exempt organization returns. Prior to the new law, these penalties applied only to the preparers of income tax returns.
     Under the old law, a tax preparer could argue there was a "realistic possibility" of success on items on a return. Now, a preparer must meet a stricter "more likely than not" standard.
     In addition, the basic preparer penalty has been increased from $250 to the greater of: $1,000 or 50 percent of the income derived from the preparation of the return involved. (The penalties are higher for cases of "willful or reckless preparer conduct.") 
    How could these changes affect the filing of your future tax returns?
    The American Institute of Certified Public Accountants (AICPA) stated in a press release:
    1. The new rules "will likely cause an increase in preparer fees for taxpayers." The reason: More research will be required for tax preparers to feel secure that the "more likely than not" standard is satisfied.
    2. Tax advisers could ask clients to disclose more information than necessary. "Preparers, in order to protect themselves from penalties, may feel they must ask their clients to include disclosures for virtually every item on their tax returns for which there is the slightest uncertainty regarding the proper treatment," according to the AICPA.
The professional CPA association is urging Congress to modify the provision so that preparers are not subjected to a more rigorous standard than taxpayers.
    Effective Date: Congress made the law effective in May. But the IRS recently announced that the new standards will generally become effective on returns filed beginning in January 2008.

First, try to keep recordkeeping paperless. Many people now receive bank statements and documents by e-mail or over the Web. Paper records such as W-2s, tax returns and other documents can be scanned into an electronic format.

With documents in electronic form, taxpayers can copy them onto a USB drive as a backup, which can be sent to a relative in another city for safe-keeping in case computer and paper files are destroyed. Other options include copying files onto a CD or DVD. Many retail stores also sell computer software packages to use for recordkeeping.

Another way to prepare for disaster is to photograph or videotape the contents of your home, especially items of greater value. The IRS has a disaster loss workbook, Publication 584, which can help you compile a room-by-room list.

This can help prove the market value of items for insurance and casualty loss claims. Photos should be stored with a friend or family member who lives outside the area.

Employers: Check on Fiduciary Bonds. If your organization uses a payroll service provider, ask if the provider has a fiduciary bond in place. The bond could protect an employer in the event of default by the payroll service provider.

Finally, review your emergency plans annually. Personal and business situations and preparedness needs change over time. Individual taxpayers should make sure they are saving documents such as W-2s, home closing statements and insurance records. When employers hire new employees or when an organization changes functions, plans should be updated accordingly and employees should be informed of the changes.

Tax Break for Summer Camp 

Many working parents must arrange for care of their children under 13 years of age during the school vacation period. One popular solution -- with a tax benefit -- is a day camp program.

The cost of day camp can count as an expense towards the child and dependent care credit. (Overnight camps do not qualify.) If your childcare provider is a sitter at your home, you'll get some tax benefit if you qualify for the credit.

The credit is generally 20 to 35 percent of non-reimbursed expenses, up to $3,000 for one child and up to $6,000 for two or more children. The actual credit is also based on your income.

The 35 percent rate applies if income is under $15,000. The 20 percent rate applies when income is more than $43,000.


When a married taxpayer files a joint tax return, both spouses are jointly and individually responsible for the tax even if they later divorce. This is true regardless of whether a divorce decree states that a former spouse will be responsible for amounts due on previously filed joint returns. One spouse can still be held responsible for all the tax due.  

"Innocent spouse" relief provides an opportunity for one of the parties to be relieved of the joint debt under certain circumstances. Relief can be requested when a taxpayer believes that only his or her spouse (or former spouse) should be responsible for the tax.

In order to qualify, innocent spouses must meet several requirements. For example, they must establish that at the time they signed the joint returns, they did not know, and had no reason to know, that there was an understatement of tax.

The IRS recently announced that it has redesigned the form used to request innocent spouse relief in order to "reduce follow-up questions and reduce the burden on taxpayers," as well as save the government money.

The revamped Form 8857, Request for Innocent Spouse Relief, asks more questions initially, but the IRS states that "collecting critical information early in the process will mean faster processing."

Previously, Form 12510, Questionnaire for the Requesting Spouse, was separate from Form 8857. The redesign combines and streamlines the two forms and eliminates an estimated 30,000 follow-up letters annually. According to the IRS, the redesigned four-page form is easier to understand and helps educate taxpayers about the process.

In addition to asking for basic information such as the taxpayer's name, spouse, tax years involved, marital status and income, the questions include:

  • How were you involved with preparing the returns?
  • When the returns were signed, were you concerned that they were incorrect or missing information?
  • Were you a victim of spousal abuse or domestic violence during any of the tax years you want relief?

Taxability of Gambling Winnings

Does your summer vacation include a trip to the casino or the racetrack? What will you owe Uncle Sam if you win?

Gambling winnings are taxable and must be reported on your tax return. This type of income includes lottery receipts, raffles, horse races, casino winnings, cash jackpots and the fair market value of prizes such as cars and trips.

Anyone who pays you winnings or awards you a prize is required to issue a Form W-2G if the item is subject to Federal income tax withholding or if the amount goes over a certain level.

However, all gambling winnings must be reported regardless of whether any portion is subject to withholding. In addition, you may be required to pay estimated tax on gambling winnings.

If your luck isn't always so good, you may be able to deduct gambling losses. Losses may be deducted only if you itemize deductions and only if you have gambling winnings. The loss deductions cannot be more than the gambling income reported on your return.

If you want to deduct losses when filing your return next spring, keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show both your winnings and losses.

I can help your Business succeed! A substantial portion of my practice is transactional. Typically, I am involved in the structuring, negotiation and documentation of all types of commercial arrangements. This includes the selection of the appropriate structure for the business entity, start-up and financing issues, negotiating leases and business contracts, as well as selecting and working with the other professionals needed to support your business.

Call Ronald J. Cappuccio, J.D., LL.M.(Tax) 
at (856) 665-2121 today!

Click Here for a Summary of the New Tax Law!



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 Disclaimer of Liability
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.