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Florida victims of Hurricane Irma get tax filing relief

The IRS is providing a variety of breaks for those affected by the storm

Taxpayers in Florida who were hit by Hurricane Irma have more time to file certain individual and business tax returns and make certain tax payments.

The Internal Revenue Service (IRS) says this includes an additional filing extension for taxpayers with valid extensions that run out on Oct. 16, as well as businesses with extensions that ran out on Sept. 15.

Any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for either individual assistance or public assistance in Florida is covered by the extension.

What it means

The tax relief postpones various tax filing and payment deadlines that occurred starting on September 4, 2017 in Florida. Affected taxpayers will now have until January 31, 2018 to file returns and pay any taxes that were originally due during this period.

This includes the September 15, 2017 and January 16, 2018 deadlines for making quarterly estimated tax payments. It also includes 2016 income tax returns for individual tax filers who received a tax-filing extension until October 16, 2017.

However, because tax payments related to these 2016 returns were originally due on April 18, 2017, the IRS says those payments are not eligible for this relief.

A break for businesses

A variety of business tax deadlines are also affected by the decision, including the October 31 deadline for making quarterly payroll and excise tax returns.

Several other groups will also benefit from the extended deadlines, including calendar-year partnerships whose 2016 extensions run out on September 15, 2017 and calendar-year tax-exempt organizations whose 2016 extensions run out on November 15, 2017. The disaster relief page has details on other returns, payments, and tax-related actions qualifying for the additional time.

The IRS is also waiving late-deposit penalties for federal payroll and excise tax deposits normally due during the first 15 days of the disaster period. Check out the disaster relief page for the time periods that apply to each jurisdiction.

What to do

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief.

However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment, or deposit due date falling within the postponement period, they should call the number on the notice to have the penalty abated.

The IRS says it will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area.

Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Those who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2017 return normally filed next year), or the return for the prior year (2016). See Publication 547 for details.

Taxpayers in Florida who were hit by Hurricane Irma have more time to file certain individual and business tax returns and make certain tax payments.Th...

IRS extends filing deadline for some Harvey victims

Taxpayers who filed for an extension will have until Jan. 31 to file their return

The Internal Revenue Service is extending the filing deadline for Hurricane Harvey victims who had earlier filed for an extension. 

This includes an additional filing extension for taxpayers with valid extensions that run out on Oct. 16, and businesses with extensions that run out on Sept. 15.

"This has been a devastating storm, and the IRS will move quickly to provide tax relief to hurricane victims," said IRS Commissioner John Koskinen. "The IRS will continue to closely monitor the storm's aftermath, and we anticipate providing additional relief for other affected areas in the near future."

The IRS is now offering this expanded relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance. Currently, 18 counties are eligible, but taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief.

The tax relief postpones various tax filing and payment deadlines that occurred starting on Aug. 23, 2017. As a result, affected individuals and businesses will have until Jan. 31, 2018 to file returns and pay any taxes that were originally due during this period. This includes the Sept. 15, 2017 and Jan. 16, 2018 deadlines for making quarterly estimated tax payments.

For individual tax filers, it also includes 2016 income tax returns that received a tax-filing extension until Oct. 16, 2017. The IRS noted, however, that because tax payments related to these 2016 returns were originally due on April 18, 2017, those payments are not eligible for this relief.

The Internal Revenue Service is extending the filing deadline for Hurricane Harvey victims who had earlier filed for an extension. This includes an add...

The income tax filing deadline is approaching and I'm not ready!

We have some tips to help you get through it

For some folks, it's that most terrifying time of the year. The federal income tax filing deadline (April 18 this year because of a DC holiday) is just around the corner and they aren't ready.

No need for despair -- there are some things you can do. First and foremost, if you really need more time, you can get it.

You can avoid a late-filing penalty by requesting a tax-filing extension. There are several ways to do so, including through the Free File link on IRS.gov or by designating a payment as an extension payment and making it via one of the IRS electronic payment methods, including IRS Direct Pay.

On the other hand, you can file Form 4868, Application for Extension of Time To File U.S. Income Tax Return. While an extension grants additional time to file, it does not extend the time to pay any tax due. As mentioned, April 18 is the deadline for most to pay taxes owed and avoid penalty and interest charges.

If you know you're going to owe tax, you can use the aforementioned IRS Direct Pay or any of several other electronic payment options. They are secure and easy and taxpayers receive immediate confirmation of their payment. Or, mail a check or money order payable to the “United States Treasury” along with a Form 1040-V payment voucher.

Taxpayers who can’t pay by April 18 often qualify to set up a monthly payment agreement with the IRS using the Online Payment Agreement option on IRS.gov.

The scramble

If you're moving heaven and earth to finish your taxes so you can file on time, bear in mind that math errors and other mistakes are common on paper returns -- especially those prepared or filed in haste at the last minute. The IRS provides the following tips to help you out:

Fill in all requested Taxpayer Identification Numbers, usually Social Security numbers, including all dependents claimed. Check only one filing status and the appropriate exemption boxes.

When using the tax tables, be sure to use the correct row and column for the filing status claimed and taxable income amount shown.

Sign and date the return. If filing a joint return, both spouses must sign.

Attach all required forms and schedules, such as Schedule A for people who itemize their deductions. In addition, attach to the front of the return all Forms W-2 and other forms reflecting withholding.

Mail the return to the right address. Check Where to File on IRS.gov or the last page of the tax instructions. If mailing on Tuesday, April 18, be sure to do so early enough to meet the scheduled pick-up time and ensure a postmark before the midnight deadline.

Refunds

If you are among those who overpaid and are expecting a refund, the best and fastest way to get it is to have it electronically deposited into your bank or other financial account. Taxpayers can use direct deposit to deposit their refund into one, two, or even three accounts. See Form 8888, Allocation of Refund, for details.

Make sure the financial institution routing and account numbers entered on the return are accurate. Incorrect numbers can cause a refund to be delayed or deposited into the wrong account. After filing, whether or not direct deposit was chosen, use “Where’s My Refund?” on IRS.gov or download the IRS2Go Mobile App to track the status of a refund.

The IRS issues nine out of 10 refunds in less than 21 days. “Where’s My Refund?” provides the most up-to-date information. The tool is updated once per day, usually overnight, so checking more often will not generate new information. Calling the IRS will not yield different results from those available online, nor will ordering a tax transcript.

More help is available from the IRS Services Guide. Also check the ConsumerAffairs Tax Software section for consumer and expert reviews of popular tax preparation software.

For some folks, it's that most terrifying time of the year. The federal income tax filing deadline (April 18 this year because of a DC holiday) is just aro...

Many taxpayers can still get free tax preparation help

Volunteers will also help you take full advantage of tax breaks

With the federal income tax filing deadline now almost a month away, taxpayers who haven't started preparing a return might be getting a little nervous.

There are a number of tax preparation software programs available, but for consumers who prefer to interact with a human being, the Internal Revenue Service (IRS) offers some free assistance -- as long as you meet certain requirements.

The assistance is available at nearly 12,000 locations nationwide, usually at community or neighborhood centers. The assistance is available to taxpayers generally earning less than $54,000 a year, persons with disabilities, the elderly, and people with limited English language skills.

The assistance is provided through the IRS Volunteer Income Tax Assistance (VITA) program. A second tax preparation assistance program -- the Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, especially those who are 60 years old or older.

Can help take advantage of tax credits

Even if you think you could muddle through the process of filling out and filing your Form 1040, the IRS volunteers might help you take advantage of often-overlooked tax breaks, such as the Earned Income Tax Credit and the Child and Dependent Care Credit.

The Earned Income Tax Credit (EITC) is a biggie, since it's not a deduction but an actual credit, with the amount subtracted from the tax you owe. In 2016, taxpayers who earned $53,505 or less will qualify for it.

In the 2015 tax year, more than 27 million individuals and families were able to claim the credit, resulting in an average benefit of $2,455. The maximum for the 2016 tax years is $6,269 for qualifying families with three or more children, so it's definitely worth checking into.

Tax break for daycare

The Child and Dependent Care Credit can be a big help to families who pay for daycare for their children. According to the IRS, the care must have been provided for a dependent child age 12 or younger, or for a spouse of other qualifying individuals who are physically or mentally unable to care for themselves.

You'll find more information about the child care tax credit here.

Again, both the Earned Income Tax Credit and the Child and Dependent Care Credit are tax credits, not deductions, and the amount is subtracted from your total tax. In the case of the EITC, you could receive a payment even if you do not owe any tax.

Before taking advantage of this free help, the IRS suggests reviewing Publication 3676-B to fully understand the services that are provided.

With the federal income tax filing deadline now almost a month away, taxpayers who haven't started preparing a return might be getting a little nervous....

Buy a house last year? It'll change the way you file your taxes

You now have a lot more expenses that are tax deductible

The National Association of Realtors (NAR) wants to help you with your taxes. Why would the trade group representing real estate brokers want to do that?

Well, there is a connection. Homeownership carries with it some tax breaks, in particular the deduction for mortgage interest. The group probably reasons that if you know about all the tax advantages of homeownership, you'll be more likely to want to purchase a home.

NAR's website HouseLogic.com provides information to homeowners on how to maximize tax savings from their homes. One article informs homeowners of the various ways in which owning a home will change the way they do taxes.

Probably the biggest change is the tax form you use to file your taxes. If you have used the "short form," 1040EZ in the past, you'll have to switch to the standard Form 1040, because you will need to itemize deductions on Schedule A.

Itemized deductions

Before buying a home, you probably just claimed the Standard Deduction. But now after owning a house for a year, you probably have mortgage interest and property taxes. When you combine them with the state and local taxes you've always paid but never deducted, your itemized deductions may well exceed the amount of the Standard Deduction.

The biggest home-related deduction, by far, is the mortgage interest deduction. At the end of the year your lender sent you a form showing how much interest you paid during the year. Chances are, it's several thousand dollars.

To be deductible, the loan must be secured by your home, but the IRS takes a very broad view of what that can be. Yes, it's a single family home or condo, but it can also be a boat or trailer. The IRS just requires you to be able to sleep and cook in it and for it to have a toilet.

HELOC interest also deductible

If you have a home equity line of credit -- a second loan that is secured by the equity in your home, that interest too is tax deductible. Many people use a HELOC to make a major purchase or to consolidate credit card debt since they can write off the interest.

If you happen to purchase a vacation home, the mortgage interest and taxes on that property are also tax deductible.

When they purchase a home for the first time, many consumers decide to have a professional prepare their taxes so they don't overlook any deductions. That's not a bad idea, but NAR says most homeowners are perfectly capable of preparing their tax returns themselves.

NAR suggests using a tax preparation software to make sure you get all the deductions to which you are entitled. If your adjusted gross income is below a certain level -- usually $62,000 a year -- you may qualify for the free use of tax preparation software at IRS.gov.

The National Association of Realtors (NAR) wants to help you with your taxes. Why would the trade group representing real estate brokers want to do that?...

2017 tax filing season is now open

You have a couple of extra days this year to pony up

It's NOT that most wonderful time of the year.

Tax season is officially under way, with the Internal Revenue Service (IRS) now accepting and processing 2016 federal individual income tax returns. More than 153 million returns are expected to be filed this year.

"Following months of hard work, we successfully opened our processing systems today to start this year’s tax season,” said IRS Commissioner John Koskinen. “Getting to this point is a year-round effort for the IRS and the nation’s tax community.”

You have until Tuesday, April 18, to file your 2016 return and pay any taxes you may owe. The deadline is later this year for a couple of reasons:

  • The usual April 15 deadline falls on Saturday this year, which would normally give taxpayers until at least the following Monday.
  • Emancipation Day -- a Washington, D.C., holiday, is observed on Monday, April 17, giving taxpayers nationwide an additional day to file. By law, D.C. holidays affect tax deadlines for everyone in the same way federal holidays do.

Taxpayers requesting an extension will have until Monday, Oct. 16, 2017 to file.

Refunds abound

The IRS expects more than 70% of taxpayers to get tax refunds this year. Last year, 111 million refunds were issued, with an average refund of $2,860.

A law change now requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until Feb. 15. Under this change required by the Protecting Americans from Tax Hikes (PATH) Act, the IRS must hold the entire refund -- even the portion not associated with the EITC and ACTC.

Even though the IRS will begin releasing EITC and ACTC refunds on Feb. 15, many early filers will still not have actual access to their refunds until the week of Feb. 27. The additional delay is due to several factors, including weekends, the Presidents Day holiday and the time banks often need to process direct deposits.

Use e-File and Free File

The IRS expects more than 80% of returns will be filed electronically. Choosing e-file and direct deposit remains the fastest and safest way to file an accurate income tax return and receive a refund.

The IRS Free File program, available at IRS.gov, gives eligible taxpayers a dozen options for brand-name products. Free File is a partnership with commercial partners offering free brand-name software to about 100 million individuals and families with incomes of $64,000 or less.

Seventy percent of the nation’s taxpayers are eligible for IRS Free File. People who earned more than $64,000 may use Free File Fillable Forms, the electronic version of IRS paper forms.

It's NOT that most wonderful time of the year.Tax season is officially under way, with the Internal Revenue Service (IRS) now accepting and processing...

Are you ready to file your tax return?

We have a checklist of things you need to do

While the deadline for filing your 2016 federal income return is still several months off, there are some things you should be doing now in preparation.

The Internal Revenue Service (IRS) notes that for most of us, December 31 is the last day to take actions that will affect our tax returns.

What to do

  • Charitable contributions are deductible in the year made. Donations charged to a credit card before the end of 2016 count for the 2016 tax year, even if the bill isn’t paid until 2017. Checks to a charity count for 2016 as long as they are mailed by the last day of the year.
  • If you're over age 70 ½ you are generally required to receive payments from your IRAs and workplace retirement plans by the end of the year. However, a special rule allows those who reached 70 ½ in 2016 to wait until April 1, 2017 to receive them.
  • Most workplace retirement account contributions should be made by the end of the year, but taxpayers can make 2016 IRA contributions until April 18, 2017. For 2016, the limit for a 401(k) is $18,000. For traditional and Roth IRAs, the limit is $6,500 if age 50 or older and up to $15,500 for a Simple IRA for age 50 or older.
  • Taxpayers who have moved should tell the U.S. Postal Service, their employers, and the IRS. To notify the IRS, mail IRS Form 8822, Change of Address, to the address listed on the form’s instructions. Taxpayers who buy health insurance through the Health Insurance Marketplace should also notify the Marketplace when they move out of the area covered by their current Marketplace plan.
  • If you changed your name due to marriage or divorce, notify the Social Security Administration (SSA) so the new name will match IRS and SSA records. Also notify the SSA if a dependent’s name changed. A mismatch between the name shown on your tax return and the SSA records can cause problems in the processing of your return and may even delay your refund.
  • Starting January 1, 2017, any Individual Taxpayer Identification Number (ITIN) not used at least once on a tax return in the past three years will no longer be valid for use on a return. In addition, an ITIN with middle digits 78 or 79 will also expire on Jan. 1. Those with expiring ITINs who need to file a return in 2017 must renew their ITIN. Affected ITIN holders can avoid delays by starting the renewal process now.
  • Be sure to allow seven weeks from January 1, 2017, or the mailing date of the Form W-7, whichever is later, for the IRS to notify you of your ITIN application status -- nine to 11 weeks if you wait to submit Form W-7 during the peak filing season, or send it from overseas. Those who fail to renew before filing a return could face a delayed refund and may be ineligible for some important tax credits. For more information, including answers to frequently-asked questions, visit the ITIN information page on IRS.gov.
  • Keeping copies of tax returns is important as the IRS makes changes to protect taxpayers and authenticate their identity. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income amount from a prior tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign their tax return at Validating Your Electronically Filed Tax Return.
While the deadline for filing your 2016 federal income return is still several months off, there are some things you should be doing now in preparation. ...

7-Eleven now accepting income tax payments

It's intended for people who don't have credit cards or checking accounts

It's not quite as simple as ordering a Slurpee and slamming down a few bucks, but you can now pay your income taxes at more than 7,000 7-Eleven stores nationwide.

The thank-heaven-for-7-Eleven payment plan is intended for people who need to pay their taxes with cash rather than a check or credit card. Never mind that people who deal only in cash may not exactly be in the habit of making large payments to the taxman.

The Internal Revenue Service says it's trying to make life simpler for those who lack traditional means of making payments. 

“We continue to look for new ways to provide services for our taxpayers. Taxpayers have many options to pay their tax bills by direct debit, a check or a credit card, but this provides a new way for people who can only pay their taxes in cash without having to travel to an IRS Taxpayer Assistance Center," said IRS Commissioner John Koskinen.

Don't delay

Using this option isn't something you can put off til the last minute, though. You'll first have to go to the IRS.gov payments page, select the cash option, and follow the instructions.

Here are the steps listed by the IRS:

  • Taxpayers will receive an email from OfficialPayments.com confirming their information.
  • Once the IRS has verified the information, a company called PayNearMe sends the taxpayer an email with a link to the payment code and instructions.
  • Individuals may print the payment code provided or send it to their smartphone, along with a list of the closest 7-Eleven stores.
  • The retail store provides a receipt after accepting the cash and the payment usually posts to the taxpayer’s account within two business days.
  • There is a $1,000 payment limit per day and a $3.99 fee per payment.

Taxpayers with a traditional checking account can pay through IRS Direct Pay, which will conveniently whisk the money out of your checking account without you having to waste a stamp.

It's not quite as simple as ordering a Slurpee and slamming down a few bucks, but you can now pay your income taxes at more than 7,000 7-Eleven stores nati...

Study finds 'stunning lack of knowledge' among tax preparers

Many states require no licensing or certification of tax preparers; anyone can do it

How qualified is that tax preparer you've entrusted with your financial life and liberty? A study by the non-profit group Georgia Watch may cause you some uneasiness.

“The study results cause us great concern around the lack of regulation of paid tax preparers and the absence of protections for consumers,” observed Elise Blasingame, Georgia Watch’s Director of Community Education and Financial Protection, primary investigator for the study, which found widespread lack of training and oversight.

Like many states, Georgia does not license or certify tax preparers, so there is no way to know whether your preparer knows any more about your tax situation than you do. Anyone can hang out a shingle and start preparing tax returns for a fee, and apparently just about anyone does, at least in Georgia.

"Stunning lack of knowledge"

“Overall, our researchers encountered a stunning lack of knowledge and professionalism from preparers, vast inconsistencies in preparation fees, and a wide range of outcomes given the exact inputs at each site,” Blasingame noted.

Not only were many of the tax preparers cloaked in ignorance, so were their clients. The preliminary survey of southwest Atlanta residents found that only 5.6% of total respondents who used a tax preparation firm knew their most recent tax preparer was not licensed.

In one case, mystery shoppers looked into a tax prep firm that claimed its preparers underwent "two weeks of training." But when the mystery shoppers called, they found that the training actually was one day per week over a two-week time period -- two days, in other words.

Commenting on the Georgia study, the Consumer Federation of America noted that there is "broad public support for consumer protections in the paid tax preparer industry.”

“Our recent national poll found that four out of five respondents believe paid tax preparers should have to pass a competency test, be licensed and provide a list of fees before completing a tax return,” said CFA's Michael Best. 

Georgia is not alone. Studies in North Carolina, Florida, and Ohio found similar results. 

“These high error rates and questionable preparer tactics are disturbing, but not surprising, given similar test results from other states,” said Chi Chi Wu, staff attorney at the National Consumer Law Center. “Georgia Watch’s study reinforces the dire need for minimum competency and education requirements for paid preparers.”

How qualified is that tax preparer you've entrusted with your financial life and liberty? A study by the non-profit group Georgia Watch may cause you some ...

Trouble choosing a qualified tax preparer?

We have some tips to help you through the maze

Well, here we are less than a month before your 2016 federal tax return is due at the Internal Revenue Service (IRS) office, and you still haven't decided who will prepare your taxes for you.

It doesn't have to be that hard. One way of deciding is to use the www.irs.gov/chooseataxpro website. It contains a list of tips for making that decision. There's even a gateway page with links to national nonprofit tax professional groups, which can help provide additional information for taxpayers seeking the right type of qualified help.

“The filing of a federal income tax return represents one of the biggest financial transactions of the year for many Americans, whether they are getting a refund or paying tax due,” IRS Commissioner John Koskinen said. “Choose your tax return preparer carefully because you entrust them with your private financial information that needs to be protected.”

What to do

Here are some basic tips taxpayers can keep in mind when selecting a tax professional, courtesy of the IRS:

  • Select an ethical preparer. Taxpayers entrust some of their most vital personal data with the person preparing their tax return, including income, investments, and Social Security numbers.
  • Make sure the preparer signs the return and includes his Preparer Tax Identification Number (PTIN). All paid preparers are required to have a valid PTIN.
  • Review the tax return and ask questions before signing. You're legally responsible for what’s on your tax return, regardless of whether someone else prepared it.
  • Never sign a blank tax return. It’s a clear red flag when a taxpayer is asked to sign a blank tax return. The preparer can put anything she wants on the return -- even her own bank account number for the tax refund.

The IRS has a Directory of Federal Tax Return Preparers with Credentials and Select Qualifications on its website to help you verify credentials and qualifications of tax professionals.

The Directory is a searchable, sortable database with the name, city, state, and zip code of credentialed return preparers as well as those who have completed the requirements for the IRS Annual Filing Season Program.

Well, here we are less than a month before your 2016 federal tax return is due at the Internal Revenue Service (IRS) office, and you still haven't decided ...

Tax deadline a month away

The IRS offers a number of tools that might help last minute filers

Because the traditional tax deadline of April 15 is a holiday this year, the deadline for filing your 2015 federal income tax return has been extended to April 18.

That's all well and good to have an extra weekend, but you shouldn't procrastinate any longer. Waiting until the last minute to fill out your return could lead to more mistakes and missed deductions. It also gives scammers more time to steal your identity and your return.

The Internal Revenue Service (IRS) reminds taxpayers that it can help with last minute assistance, even though its budget for customer support has been slashed in recent years. It says there are a number of interactive tools at IRS.gov that can help.

Interactive Tax Assistant

Among them is Interactive Tax Assistant, which the IRS says can answer most taxpayer questions and point taxpayers in the right direction for help. Tax preparation software has taken a lot of the guesswork out of filing, as well as reducing the number of errors.

If you earned $62,000 or less in 2015 you can use the IRS Free File program, choosing from one of the 13 commercial tax-prepartion software packages that participate. You just have to answer a few general questions and the software does the calculations. It's the same software others pay to use.

Self-employed taxpayers have a bit more at stake, since there are many business deductions available that, if not claimed, can leave money on the table. Dara Luber, Senior Manager of Retirement at TD Ameritrade, emailed us a list of five business deductions she says are often overlooked.

Overlooked deductions

  • Retirement plan expenses: Individual/Solo 401k, SEP IPA, SIMPLE IRA, and profit-sharing plans may provide tax benefits.
  • Travel expenses: Mileage, hotel, meals, and baggage fees can all be deducted for associated business travel.
  • Medical insurance: A small business owner can write off medical insurance costs.
  • Home office expenses: It must be space solely dedicated to business, but you can deduct a portion of your utilities and mortgage.
  • Subscriptions, supplies, or membership expenses: Expenses associated with a professional organization, a trade publication aimed at helping you grow your business, can be deducted.

Meanwhile, if you've already filed your return and are wondering when you will get your refund, the IRS has a tool for that. Where's My Refund tracks the progress of your payment, much like you would track the progress of a package you're having shipped.

Because the traditional tax deadline of April 15 is a holiday this year, the deadline for filing your 2015 federal income tax return has been extended to A...

Uncle Sam may owe you money -- really

Folks who haven't filed a 2012 federal income tax return may be due a refund

If you didn't filed a federal income tax return for 2012, you may be poorer for it.

The Internal Revenue Service (IRS) has refunds totaling $950 million for an estimated one million taxpayers. All you have to do to collect is file a 2012 tax return no later than this year's April tax deadline.

"A surprising number of people across the country overlook claiming tax refunds each year. But the clock is ticking for taxpayers who didn’t file a 2012 federal income tax return, leaving nearly $1 billion in refunds unclaimed," said IRS Commissioner John Koskinen. "We especially encourage students and others who didn't earn much money to look into this situation because they may still be entitled to a refund. Don't forget, there’s no penalty for filing a late return if you’re due a refund.”

The median for potential refunds for 2012 is estimated at $718, with half being worth more and half less.

Act fast

The law provides most taxpayers with a three-year window of opportunity for claiming a refund if they haven't filed. If no return is filed to claim a refund within that period, the money goes to the U.S. Treasury.

There is a catch of sorts. Your 2012 refund may be withheld if you haven't filed tax returns for 2013 and 2014. And, it will be applied to any amounts you owed the feds or your state tax agency, and may be used to offset unpaid child support or past due federal debts, such as student loans.

Here's a breakdown, by state, of available refunds:

State or District

Estimated

Number of

Individuals

Median

Potential

Refund

Total

Potential

Refunds*

Alabama

18,700

$713

$16,684,000

Alaska

4,700

$834

$5,019,000

Arizona

26,000

$631

$22,078,000

Arkansas

10,100

$692

$8,987,000

California

94,900

$656

$82,782,000

Colorado

19,300

$667

$16,961,000

Connecticut

11,800

$803

$11,511,000

Delaware

4,200

$771

$4,012,000

District of Columbia

3,600

$741

$3,343,000

Florida

64,700

$721

$58,598,000

Georgia

34,300

$642

$29,395,000

Hawaii

6,500

$740

$6,091,000

Idaho

4,400

$607

$3,652,000

Illinois

40,300

$782

$38,893,000

Indiana

22,000

$751

$20,448,000

Iowa

10,800

$764

$9,917,000

Kansas

11,000

$699

$9,811,000

Kentucky

13,500

$746

$12,122,000

Louisiana

20,600

$726

$19,767,000

Maine

4,100

$651

$3,432,000

Maryland

22,600

$722

$21,108,000

Massachusetts

20,600

$767

$19,714,000

Michigan

34,600

$733

$32,118,000

Minnesota

15,200

$657

$12,981,000

Mississippi

10,800

$646

$9,325,000

Missouri

22,800

$675

$19,886,000

Montana

3,500

$669

$3,083,000

Nebraska

5,400

$695

$4,720,000

Nevada

12,500

$704

$11,280,000

New Hampshire

4,400

$804

$4,284,000

New Jersey

30,600

$803

$30,016,000

New Mexico

7,700

$715

$7,181,000

New York

57,600

$796

$56,310,000

North Carolina

29,700

$619

$24,469,000

North Dakota

2,600

$831

$2,682,000

Ohio

37,300

$717

$33,321,000

Oklahoma

18,500

$744

$17,411,000

Oregon

15,700

$620

$12,820,000

Pennsylvania

40,200

$796

$38,243,000

Rhode Island

3,200

$777

$3,014,000

South Carolina

12,500

$633

$10,648,000

South Dakota

2,800

$785

$2,707,000

Tennessee

19,700

$702

$17,318,000

Texas

96,400

$771

$93,998,000

Utah

7,400

$640

$6,316,000

Vermont

2,000

$698

$1,689,000

Virginia

29,000

$698

$26,297,000

Washington

26,100

$764

$25,292,000

West Virginia

5,100

$800

$4,870,000

Wisconsin

12,900

$647

$10,837,000

Wyoming

2,700

$851

$2,908,000

Totals

1,037,600

$718

$950,349,000

* Excluding the Earned Income Tax Credit and other credits.

If you didn't filed a federal income tax return for 2012, you may be poorer for it.The Internal Revenue Service (IRS) has refunds totaling $950 million...

Free help preparing tax returns is available

You may be eligible for one of several assistance programs

Would you like help preparing your tax returns? How about some FREE help?

You may be eligible to receive free tax help at more than 12,000 preparation sites nationwide that are generally located at community and neighborhood centers.

The IRS Volunteer Income Tax Assistance (VITA) program offers free tax help to individuals who generally make $54,000 or less, people with disabilities, the elderly, and those with limited English proficiency who need assistance in preparing their taxes.

A variety of tax help programs

The Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly those who are 60 and older. VITA and TCE volunteers are trained and certified by the IRS to help with many tax questions, including credits such as the Earned Income Tax Credit (EITC) and the Child and Dependent Care Credit.

The Earned Income Tax Credit (EITC) is a significant tax credit for workers who earned $53,267 or less in 2015. Last year, more than 27.5 million eligible workers and families received almost $66.7 billion in EITC, with an average EITC amount of more than $2,400. The maximum EITC amount for 2015 is $6,242 for qualifying families.

In order to receive the credit, eligible taxpayers must file a tax return, even if they do not have a filing requirement. The VITA and TCE programs can help answer many EITC questions and help taxpayers claim the credit if they qualify. Taxpayers may also use the IRS.gov EITC Assistant to help them determine their eligibility.

Before visiting a VITA or TCE site, taxpayers should review Publication 3676-B to be aware of the services provided. To find the nearest VITA or TCE site, taxpayers can use the VITA and TCE locator tool, download the IRS smartphone app IRS2GO or call 800-906-9887.

What to do

For assistance preparing a tax return at a VITA or TCE site, bring all required documents and information including:

  • Proof of identification (photo ID)
  • Social Security cards for the taxpayer, spouse and dependents
  • An Individual Taxpayer Identification Number (ITIN) assignment letter may be substituted for those who do not have a Social Security number
  • Proof of foreign status, if applying for an ITIN
  • Birth dates for the taxpayer, spouse and dependents
  • Wage and earning statements (Form W-2, W-2G, 1099-R,1099-Misc) from all employers and other payers
  • Interest and dividend statements from banks (Forms 1099)
  • All Forms 1095, Health Insurance Statements
  • Health Insurance Exemption Certificate, if received
  • A copy of last year’s federal and state returns, if available
  • Proof of bank account routing and account numbers for direct deposit such as a blank check
  • To file taxes electronically on a married-filing-joint tax return, both spouses must be present to sign the required forms
  • Total amount paid for daycare services and the daycare provider's tax identifying number such as their Social Security number or business Employer Identification Number
  • Form 1095-A, Form 1095-B or Form 1095-C, Affordable Health Care Statements
  • Copies of income transcripts from IRS and state, if applicable

Help for the military

The military also partners with the IRS to provide free tax assistance to military personnel and their families. The Armed Forces Tax Council (AFTC) consists of the tax program coordinators for the Army, Air Force, Navy, Marine Corps, and Coast Guard.

The AFTC oversees the operation of the military tax programs worldwide, and serves as the main conduit for outreach by the IRS to military personnel and their families. Volunteers are trained and equipped to address military specific tax issues, such as combat zone tax benefits and the effect of the EITC guidelines.

In addition to free tax return preparation assistance, most sites will file returns electronically for free. Combining e-file with direct deposit is the fastest and most accurate way to file. The IRS issues nine out of 10 refunds in 21 days or less. Paper returns take longer to process.

Taxpayers who chose to file electronically and owe can make a payment by the April 18, 2016, deadline using Direct Pay. This IRS free service allows taxpayers to make secure payments from a checking or savings account.

Those who prefer to file their own tax returns electronically have the option of using IRS Free File, which offers brand-name tax software to taxpayers who earned $62,000 or less in 2015 to file their returns for free.

Anyone who earned more can use Free Fillable Forms, the electronic version of IRS paper forms. IRS Free File is available only through the IRS website.

Would you like help preparing your tax returns? How about some FREE help?You may be eligible to receive free tax help at more than 12,000 preparation s...

How to keep from being taken by your tax guy

We have tips from the IRS on how to avoid preparer fraud

One of the top questions on taxpayers' minds this time of year has to be, “Should I do my own taxes, or hire someone to do it?”

If you opt for the latter, keep in mind that while the vast majority of tax professionals provide honest, high-quality service, there are scoundrels out there who set up shop each filing season to perpetrate refund fraud, identity theft, and other scams that hurt taxpayers.

"Choose your tax return preparer carefully because you entrust them with your private financial information that needs to be protected," said IRS Commissioner John Koskinen. "Most preparers provide high-quality service but we run across cases each year where unscrupulous preparers steal from their clients and misfile their taxes."

Return preparers are a vital part of the U.S. tax system. Some 60% of taxpayers use them to prepare their returns.

It is important to choose carefully when hiring an individual or firm to prepare your return. Well-intentioned taxpayers can be misled by preparers who don’t understand taxes or who mislead people into taking credits or deductions they aren’t entitled to in order to increase their fee. Every year, these types of tax preparers face everything from penalties to even jail time for defrauding their clients.

What to do

Here are a few tips from the IRS on choosing a tax preparer:

  • Ask if the preparer has an IRS Preparer Tax Identification Number (PTIN). Paid tax return preparers are required to register with the IRS, have a PTIN and include it on your filed tax return.
  • Inquire whether the tax return preparer has a professional credential (enrolled agent, certified public accountant, or attorney), belongs to a professional organization or attends continuing education classes. A number of tax law changes, including the Affordable Care Act provisions, can be complex. A competent tax professional needs to be up-to-date in these matters. Tax return preparers aren’t required to have a professional credential, but make sure you understand the qualifications of the preparer you select. IRS.gov has more information regarding the national tax professional organizations.
  • Check the preparer’s qualifications. Use the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. This tool can help you find a tax return preparer with the qualifications that you prefer. The Directory is a searchable and sortable listing of certain preparers registered with the IRS. It includes the name, city, state and zip code of:

        -- Attorneys

        -- CPAs

        -- Enrolled Agents

        -- Enrolled Retirement Plan Agents

        -- Enrolled Actuaries

        -- Annual Filing Season Program participants

  • Check the preparer’s history. Ask the Better Business Bureau about the preparer. Check for disciplinary actions and the license status for credentialed preparers. For CPAs, check with the State Board of Accountancy. For attorneys, check with the State Bar Association. For Enrolled Agents, go to IRS.gov and search for “verify enrolled agent status” or check the Directory.
  • Ask about service fees. Preparers are not allowed to base fees on a percentage of their client’s refund. Also avoid those who boast bigger refunds than their competition. Make sure that your refund goes directly to you -- not into your preparer’s bank account.
  • Ask to e-file your return. Make sure your preparer offers IRS e-file. Paid preparers who do taxes for more than 10 clients generally must offer electronic filing. The IRS has processed more than 1.5 billion e-filed tax returns. It’s the safest and most accurate way to file a return.
  • Provide records and receipts. Good preparers will ask to see your records and receipts. They’ll ask questions to determine your total income, deductions, tax credits and other items. Do not rely on a preparer who is willing to e-file your return using your last pay stub instead of your Form W-2. This is against IRS e-file rules.
  • Make sure the preparer is available. In the event questions come up about your tax return, you may need to contact your preparer after the return is filed. Avoid fly-by-night preparers.
  • Understand who can represent you. Attorneys, CPAs, and enrolled agents can represent any client before the IRS in any situation. Non-credentialed tax return preparers can represent clients before the IRS in only limited situations, depending upon when the tax return was prepared and signed. For all returns prepared and signed after Dec. 31, 2015, a non-credentialed tax return preparer can represent clients before the IRS in limited situations only if the preparer is a participant in the IRS Annual Filing Season Program
  • Never sign a blank return. Don’t use a tax preparer who asks you to sign an incomplete or blank tax form.
  • Review your return before signing. Before you sign your tax return, review it and ask questions if something is not clear. Make sure you’re comfortable with the accuracy of the return before you sign it.
  • Report tax preparer misconduct to the IRS. You can report improper activities by tax return preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or changed the return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. You can get these forms on IRS.gov.
One of the top questions on taxpayers' minds this time of year has to be, “Should I do my own taxes, or hire someone to do it?”If you opt for the latte...

IRS hacked using stolen Social Security numbers

Thieves were trying to generate E-file PINS, the agency said

Crooks have been using stolen Social Security numbers to try to get information that could be used to steal tax refunds, the Internal Revenue Service said.

Most of the automated attacks were aimed at generating E-file PINs, the IRS said. The PINs would then be used to generate phony returns or to waylay refunds.

The Social Security numbers were used in abot 464,000 automated attacks, of which about 101,000 successfully generated a PIN, the IRS said.

The agency, which is no stranger to hacking, said that no personal taxpayer information was disclosed in this incident and said that affected taxpayers would be notified by mail.

You may have mail

Consumers should note that the official notification will come via the U.S. Postal Service. Scam artists will soon be out in force, sending emails and calling taxpayers claiming to be the IRS. 

Last May, the IRS admitted that hackers had stolen the personal data of as many as 334,000 taxpayers after initially saying only 100,000 had been affected.

Senate Finance Committee Chairman Orrin Hatch (R-Utah) says he will question IRS Commissioner John Koskinen about the attack at a hearing today, the Wall Street Journal reported.

“While it appears that the IRS was able to successfully block this attempted breach this time around, it’s past time we fundamentally rethink our approach in authenticating taxpayers and processing tax returns,” Mr. Hatch said, according to the Journal.

Crooks have been using stolen Social Security numbers to try to get information that could be used to steal tax refunds, the Internal Revenue Service said....

IRS hit with major computer system outage

Agency says the problem should not delay tax refunds

The Internal Revenue Service (IRS) suffered a computer system outage Wednesday and, as a result, has been unable to process tax returns.

“Several of our systems are not currently operating, including our modernized e-file system and a number of other related systems,” the agency said in a bulletin on its website. “The IRS is currently in the process of making repairs and working to restore normal operations as soon as possible.”

The IRS said some of the systems might be available late today. It said it remains in close contact with e-file software transmitters and the tax community while the problem is worked on.

If you are trying to use some of the taxpayer and preparer tools on IRS.gov, you may find they are not available. For example, the Where's My Refund feature, which allows taxpayers to track the progress of their refunds, was knocked out in the system failure.

The agency said taxpayers can still prepare and file their tax returns as they normally would. Taxpayers can also continue to send their tax returns to their e-file provider. These companies will hold the tax returns until the problem is fixed and the IRS resumes accepting electronic tax returns.

The system failure has not affected returns already in the system for processing. The IRS says taxpayers who have already filed their tax returns don't have to do anything else but wait for the problem to be repaired.

At this point the problem appears to be temporary, though its scope is still being determined. But the IRS said it does not expect there to be major delays in getting tax refunds to taxpayers. It says nine out of 10 taxpayers should get refunds within 21 days.

The Internal Revenue Service (IRS) suffered a computer system outage Wednesday and, as a result, has been unable to process tax returns.“Several of our...

Tax filing season begins with emphasis on security

IRS hopes to get a better handle on tax identity fraud

The Internal Revenue Service (IRS) is now accepting 2015 tax returns for processing, but it is giving all taxpayers a heads up: security, more than ever, is really important.

The agency said it is working with state tax authorities and the tax industry to address tax-related identity theft and refund fraud, which has been a huge problem in recent years.

Scammers who obtain someone's name and Social Security number can file a bogus tax return, claiming a large but fictitious refund. By the time the real taxpayer gets around the filing, the scammer has received the money and moved on.

This year, the IRS says there are new measures to attack tax-related identity theft from multiple sides.

New security measures

For example, this year there are new password standards for tax software. The IRS has also expanded protocols for sharing information with other agencies.

In recent years, the IRS says its Criminal Investigation division has helped convict nearly 2,000 identity thieves. Currently, it says there are 1,700 open investigations.

The agency says taxpayers can help. It has launched an awareness campaign in an effort to better inform the public about the need to protect personal, tax, and financial data online and at home. When people fall prey to clever cybercriminals who trick them into giving up Social Security numbers, account numbers, or password information, the criminals have the tools they need to keep going.

“Many changes will be invisible to taxpayers but help the IRS, states and the tax industry provide new protections,” the agency said in a release. “There will be new security requirements when you’re preparing your taxes online, especially when you sign in to your tax software account, to better protect your tax software account and personal information.”

Security tips

The IRS advises taxpayers to follow these steps:

  • Always use security software with firewall and anti-virus protections. Make sure the security software is always turned on and can automatically update. Encrypt sensitive files such as tax records you store on your computer. Use strong passwords.
  • Learn to recognize and avoid phishing emails, threatening calls, and texts from thieves posing as legitimate organizations such as your bank, credit card company, and even the IRS. Do not click on links or download attachments from unknown or suspicious emails.
  • Protect your personal data. Don’t routinely carry your Social Security card, and make sure your tax records are secure. Treat your personal information like you do your cash; don’t leave it lying around.

The agency says tax preparers can help by spreading the security awareness message to clients and reviewing their own system security features.

Meanwhile the IRS points out there was an error in the year listed on Identity Protection PIN letters sent to taxpayers. The notice incorrectly indicates the IP PIN issued is to be used for filing the 2014 tax return when the number is actually to be used for the 2015 tax return

The agency says taxpayers and tax professionals should be advised the IP PIN listed on the CP 01A Notice dated Jan. 4, 2016, is valid for use on all individual tax returns filed in 2016.

The Internal Revenue Service (IRS) is now accepting 2015 tax returns for processing, but it is giving all taxpayers a heads up: security, more than ever, i...

IRS Free File up and running

More free federal and state tax software options are available

Free File, which this year contains many changes and updates -- including more free state tax return options and easier Form W-2 imports -- is now available for you to use.

According to the Internal Revenue Service (IRS) and Free File Alliance, 13 brand-name tax software providers are making their federal tax return products available for free. If your adjusted gross income was $62,000 or less during 2015, you are eligible for at least one, if not more, of these tax software products. The income limitation is $2,000 higher than last year.

For taxpayers who earned more than $62,000, Free File Fillable Forms -- the electronic version of IRS paper forms -- is now available. “You don’t have to be an expert on taxes. Free File software can help walk you through the steps and help you get it right,” said John A. Koskinen, IRS Commissioner. “For 13 years, this partnership between the IRS and the Free File Alliance has helped taxpayers. The real winner in this partnership has been the nation’s taxpayers.”

Free File is available only at IRS.gov/FreeFile. Since 2003, more than 46 million people have used Free File, saving nearly $1.4 billion based on a conservative $30-fee estimate.

Taxpayer protection

The Free File Alliance and its members also are active participants in the Security Summit Initiative to provide additional identity theft safeguards for tax filing and for the Security Awareness campaign -- Taxes. Security. Together. -- that encourages taxpayers to take steps to better protect their data.

For 2016, more Free File software providers are offering both free federal and free state tax return preparation for states with income tax requirements. Some providers also are offering state tax return preparation for a fee. State tax return offers are at the discretion of the providers.

Additionally, new for this year, several software providers also are offering easy importing of Form W-2 information which can help reduce errors.

More than 70% of all taxpayers -- 100 million people -- are eligible for the software products. Each of the 13 companies has its own special offers, generally based on age, income, or state residency. Taxpayers can review each company offer or they can use a “Help Me” tool that will find the software for which they are eligible, including which companies offer a free state return.

Health care requirements

Free File also can help taxpayers with the new health care requirements. Just like last filing season, almost everyone will need to do something when filing a tax return this year. For each month in 2015, taxpayers and everyone on their return must:

  • Report health care coverage, or
  • Claim an exemption from coverage or
  • Make a shared responsibility payment with their tax return.

Most people will simply have to check a box to report health care coverage for the entire year.

A taxpayer or anyone on his/her return who purchased coverage from the Health Insurance Marketplace may be eligible for the premium tax credit. If the purchaser opted for any advance payments of the premium tax credit to help with their monthly insurance premium payments, they must file a tax return, even if they were not required to file. Taxpayers must reconcile their advance payments with the amount that was due. More information is available at IRS.gov/aca.

Taxpayers have the option to prepare their return at any time and schedule a tax payment as late as the tax deadline, which, for 2016, is April 18. Taxpayers who cannot meet the April 18 tax filing deadline can also use Free File to file a six-month extension.

Free File can also help taxpayers with myRA, a new, free, retirement savings account from the Treasury Department. Taxpayers who have a myRA account may use Free File to deposit their tax refund or a portion of their refund into their myRA account. Just use Form 8888 or follow your software product’s instructions.

Free File, which this year contains many changes and updates -- including more free state tax return options and easier Form W-2 imports -- is now availabl...

Free and paid help to file your tax return

IRS offers the most help if you file electronically

When you're ready to fill your federal income tax return for 2015, you have plenty of options – some of them you pay for, but some are free.

The Internal Revenue Service (IRS) encourages electronic filing and offers several resources to help.

You may be eligible for free help preparing your tax return from Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs listed here.

Volunteer assistance available

The VITA program offers free tax help to people who meet income requirements – generally $54,000 or less, persons with disabilities, the elderly, and limited English speaking taxpayers who need assistance in preparing their own tax returns. The volunteers are certified by the IRS and provide free basic income tax return preparation with electronic filing.

The TCE program provides free tax help for all taxpayers, focusing on those who are 60 years of age and older. It specializes in dealing with questions about pensions and retirement-related issues unique to seniors. The volunteers are IRS-certified and are often retired people associated with non-profit organizations that receive grants from the IRS.

The IRS also provides help for low-income taxpayers who have tax issues with the agency and can't afford representation. This program is called the Low Income Taxpayer Clinic (LITC) and you can find details about it here.

Hiring a tax professional

If you are hiring a tax professional to help you with your return, the IRS reminds you that people offering these services have different levels of skills, education, and expertise. Something else to remember – not all tax professionals have the standing to represent taxpayers before the IRS, like in the event of an audit. Check out credentials, qualifications, and services before selecting someone to do your taxes.

The IRS provides a searchable feature on its website to help you find a tax professional in your area.

If you are preparing your own return and earned less than $62,000, the IRS offers Free File software. If you make above $62,000, you can use Free File fillable forms. The forms will do the math for you, but the IRS says you need to pretty much know how to fill out a tax form, since the program provides only basic assistance.

However you plan to do your taxes, the IRS says filing electronically and having your refund direct-deposited will make the process go much faster than filing a paper form and requesting a check.

When you're ready to fill your federal income tax return for 2015, you have plenty of options – some of them you pay for, but some are free.The Interna...

Taxpayer Advocate concerned about planned IRS policies

Tax agency reportedly plans to significantly cut telephone and face-to-face service

The Internal Revenue Service (IRS) has a problem. Congress keeps asking it to do more with existing, or even fewer, resources.

The tax agency has reportedly responded with a plan that streamlines operations and emphasizes technology. And while that might work just fine for people who can afford to hire tax assistance, those who can't might face a problem. At least that's a concern expressed in a new report by the IRS's Taxpayer Advocate.

“During the past year and a half, the IRS has developed a 'future state' plan that is likely to bring about a fundamental transformation in the way it treats taxpayers,” the report says.

Two significant concerns

While noting that the plan has “many positive components,” the report says it also raises at least two significant concerns.

First, the plan makes it clear that the IRS intends to substantially reduce telephone and face-to-face service. That could make it harder for some parts of the population to get information or assistance.

Second, when taxpayers require help, the IRS is developing procedures to enable third parties like tax return preparers and tax software companies to provide it. In other words, getting help will cost you.

Leaves taxpayer needs unmet

The Advocate notes the IRS receives more than 100 million taxpayer calls and five million taxpayer visits each year. It stands to reason, then, that a significant reduction in these services will leave taxpayer needs unmet and force millions of taxpayers to pay for help.

The Advocate's report sees a number of unintended consequences on the horizon. Taxpayer frustration with the IRS is likely to grow. Confidence in the fairness of the tax system may erode.

Worse still, taxpayer frustration and alienation may lead over time to a lower rate of voluntary compliance – at a time when the IRS has fewer enforcement resources.

The Advocate concludes her report by urging the tax agency to immediately publish its plan and solicit public comments. She further recommends that Congress hold hearings during the next few months on the future state of IRS operations.

The Internal Revenue Service (IRS) has a problem. Congress keeps asking it to do more with existing, or even fewer, resources.The tax agency has report...

Tax season opens Jan. 19

Many filing options are available

Here's today's day-brightener: You'll be able to file your 2015 tax return in two weeks.

The Internal Revenue Service (IRS) has announced it will begin accepting individual electronic returns on Tuesday, Jan. 19, and that it expects to receive more than 150 million individual returns this year with more than four out of five being prepared using tax return preparation software and e-filed.

The agency also will begin processing paper tax returns at the same time, so there is no advantage to filing tax returns on paper in early January instead of waiting for e-file to begin.

The filing deadline to submit 2015 tax returns is Monday, April 18, 2016, rather than the traditional April 15 date. Washington, D.C., will celebrate Emancipation Day on that Friday, which pushes the deadline to the following Monday for most of the nation. (Due to Patriots Day, the deadline will be Tuesday, April 19, in Maine and Massachusetts.)

IRS Commissioner John Koskinen noted that new legislation makes permanent many provisions and extends many others for several years. "This provides certainty for planning purposes, which will help taxpayers and the tax community as well as the IRS," he said.

Although the IRS begins accepting returns on Jan. 19, many tax software companies will begin accepting tax returns earlier in January and submitting them to the IRS when processing systems open.

Filing options

Choosing e-file and direct deposit for refunds remains the fastest and safest way to file an accurate income tax return and receive a refund. The IRS anticipates issuing more than nine out of 10 refunds in less than 21 days.

Seventy percent of the nation’s taxpayers are eligible for IRS Free File. Commercial partners of the IRS offer free brand-name software to about 100 million individuals and families with incomes of $62,000 or less.

Online fillable forms provides electronic versions of IRS paper forms to all taxpayers regardless of income that can be prepared and filed by people comfortable with completing their own returns.

Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) offer free tax help to people who qualify. Go to irs.gov and enter “free tax prep” in the search box to learn more and find a VITA or TCE site near you, or download the IRS2Go app on your smart phone and find a free tax prep provider.

The IRS also reminds taxpayers that a trusted tax professional can provide helpful information and advice about the ever-changing tax code. Tips for choosing a return preparer and details about national tax professional groups are available on IRS.gov.

Here's today's day-brightener: You'll be able to file your 2015 tax return in two weeks.The Internal Revenue Service (IRS) has announced it will begin ...

The do's and dont's of choosing a tax preparer

You have to be careful; after all, it's YOUR money

It's almost the holiday season, and that means you'll soon be receiving your federal tax forms for the 2015 tax year.

Is this the year you finally decide to hire a pro to do your taxes? If so, here are some tips from the Internal Revenue Service (IRS) for choosing that person wisely:

Select an ethical preparer

  • Taxpayers entrust some of their most vital personal data with the person preparing their tax return, including income, investments, and Social Security numbers.

Ask about service fees

  • Avoid preparers who base their fee on a percentage of the refund or those who say they can get larger refunds than others. Taxpayers need to ensure that any refund due is sent to them or deposited into their bank account, not into a preparer’s account.

Be sure to use a preparer with a preparer tax identification number

  • Paid tax return preparers must have a current PTIN to prepare a tax return. It is also a good idea to ask the preparer if she belongs to a professional organization and attends continuing education classes.

Research the preparer’s history

  • Check with the Better Business Bureau to see if the preparer has a questionable history. For the status of an enrolled agent’s license, check with the IRS Office of Enrollment (enrolled agents are licensed by the IRS and are specifically trained in federal tax planning, preparation, and representation). For certified public accountants, verify with the state board of accountancy; for attorneys, check with the state bar association.

Ask for e-file

  • Any paid preparer who prepares and files more than 10 returns for clients generally must file the returns electronically.

Provide tax records

  • A good preparer will ask to see records and receipts. Do not use a preparer who is willing to e-file a return using the latest pay stub instead of the Form W-2. This is against IRS e-file rules.

Make sure the preparer is available after the filing due date

  • This may be helpful if questions come up about the tax return. Taxpayers can designate their paid tax return preparer or another third party to speak to the IRS concerning the preparation of their return, payment/refund issues, and mathematical errors. The third party authorization checkbox on Form 1040, Form 1040A and Form 1040EZ gives the designated party the authority to receive and inspect returns and return information for one year from the original due date of the return (without regard to extensions).

Review the tax return and ask questions before signing

  • Taxpayers are legally responsible for what’s on their return, regardless of whether someone else prepared it. Make sure it’s accurate before signing it.

Never sign a blank tax return

  • If a taxpayer signs a blank return, the preparer could then put anything he wants on the return -- even his own bank account number for the tax refund.
  • Preparers must sign the return and include their PTIN as required by law.
  • The preparer must also give the taxpayer a copy of the return.

Most tax return preparers are professional, honest, and provide excellent service to their clients. However, dishonest and unscrupulous tax return preparers who file false income tax returns do exist. Always check any return for errors to avoid potential financial and legal problems. See information about Abusive Return Preparers, and learn How to Make a Complaint About a Tax Return Preparer.

It's almost the holiday season, and that means you'll soon be receiving your federal tax forms for the 2015 tax year.Is this the year you finally decid...

Survey: Many taxpayers plan to sit on their refunds

Financial security trumps splurging

The days of running out and spending that “newfound money” that comes in the form of a tax refund may be coming to an end.

Playing it safe and planning ahead, consumers plan to stash their tax refunds into savings this year. The National Retail Federation’s annual Tax Returns Survey, conducted by Prosper Insights and Analytics, find nearly half (47%) of those expecting money back plan to put it into savings. That's the highest percentage in the survey’s history.

“Americans are thinking of the future, and remaining financially secure is a big part of that,” NRF President and CEO Matthew Shay said. “A check from Uncle Sam gives consumers the ability to pay down debt, add a cushion to their savings or splurge on a vacation or big-ticket item.”

Plans for their money

Consumers have a plan for how they will use their refunds: 39.1% will pay down debt and 25.1% plan to use it for daily expenses. While 13% say they will splurge on a vacation, 10.5% plan to spend on a major purchase like a television or car.

More than half of young adults (54.9%) say they plan to put refunds into savings. But not all of them are headed to the bank. About a-third (32.2%) will spend on everyday expenses and 15.4% will make a major purchase. More than half of people ages 25-34 (53.2%) plan to tuck away their refunds in savings or use their refunds to pay down debt (47.6%).

“Perhaps having learned a few financial lessons from their parents during the economic downturn, it appears that Millennials are looking for ways to get ahead,” Prosper Consumer Insights Director Pam Goodfellow said. “Less likely to be saddled with mortgages and accumulated debt, tax refunds represent the perfect opportunity for younger consumers to invest in their future.”

According to the survey, 64% plan to file their taxes online. Additionally, 37.4% will use computer software to prepare their taxes on their own, while 12.5% will do so manually. Others plan to have a spouse, friend or relative help (9.5%) and 22.2% will use an accountant.

With most consumers planning to file in February (35.8%), 23.8% have already filed or plan to file in March (24.9%), with 15.5% waiting until the last minute in April.

The survey is designed to gauge consumer behavior and shopping trends related to tax returns. The poll of consumers was conducted from February 3-10 and has a margin of error of plus-or-minus 1.3 percentage points.

The days of running out and spending that “new-found money” that comes in the form of a tax refund may be coming to an end. Playing it safe and planning a...

Your dog can fetch you a refund

Under certain circumstances, some pet expenses may be deductible

It is the season -- tax season, that is. You are probably looking around your house thinking, "Hmmm what else can I deduct?"

Well, that furry friend of yours might be worth more than you think. Many people ask if they can deduct their pet. The short answer is no, but there are some exceptions. Don't just take our word for it, though. Talk to an accountant before trying to claim any of the deductions mentioned below.

Did you move?

Moving always gives you something to deduct. Typically, though. the move must be for work. The new job has to be at least 50 miles from the old one and you might be able to deduct the cost of moving your pets. A special form is needed.

Do you have a service dog?

If your dog is sick the medical expenses aren't deductible. But if you need a dog because of an illness or disability of your own, the expenses of keeping that animal can become legitimate medical expenses.

All of the costs of vet care, grooming and any other expense that animal needs to help you assistance could qualify.

Therapy animals also fall under this category, as long as you have a medical diagnosis. There are some exceptions though. There is a special threshold for deducting medical expenses -- 10 percent of adjusted gross income for those under age 65 -- before you can deduct guide-animal costs.

Is your dog a guard dog?

A guard dog is not one that just watches for the mailman. It has to be one that is protecting a business property. There are certain breeds that qualify. Although Chihuahuas bark a lot, I doubt the IRS would be too receptive.

Pet rescues or an animal shelter.

Most animal shelters are nonprofits, so if you decide to be a foster parent, you might be able to write off some expenses as a charitable donation. This includes food, supplies and any vet bills. You may also be able to get some mileage expenses.

The key is to keep good records of going back and forth to do work at the shelter or the IRS may challenge your claim. They may challenge your claim regardless so record-keeping is just a good habit to develop.

Is your pet your profession?

Do you show horses or dogs for a living? Are you an animal trainer? Do you breed cats? All of these are legitimate occupations. You might be able to count some or all of your pet expenses against the income they generate.

Be careful because there is a difference between a hobby and a business. Hobby losses are deductible only if you have gains and the hobby has to be a miscellaneous deduction, which can limit the amount you can actually claim. But you may be able to deduct all of your expenses for a business, even if it results in a net loss.

Every situation is different and you definitely want to talk to an accountant before you do this to avoid problems down the road.

It is the season -- tax season, that is. You are probably looking around your house thinking, "Hmmm what else can I deduct?"...

More taxpayers using direct deposit for refunds

Most taxpayers are opting to have their refunds direct-deposited

The refund check is no longer in the mail -- it’s already in the bank. That's the way it is for some 57 million taxpayers so far this year.

According to the Internal Revenue Service (IRS), more than $170 billion in income tax refunds have bee, deposited directly into taxpayers' bank accounts as a growing number of people choose speed and convenience over receiving a paper check. So far this year, almost 85% of all refunds have been directly deposited.

And it doesn't matter if you e-file or snail-mail a paper tax return. If you choose the latter, just make sure you include your account information.

Take your pick

Direct deposit is not limited to banks. Mutual funds, brokerage firms and credit unions are all eligible to receive direct deposits. Before making this choice, however, taxpayers should make sure the financial institution accepts direct deposits for the type of account chosen.

Taxpayers also have ability to split refund deposits among two or three different accounts or financial institutions. For instance, a refund could be split among a savings account, a checking account and an Individual Retirement Arrangement (IRA). Refunds may be split when a taxpayer e-files or by filing Form 8888, Direct Deposit of Refund to More Than One Account.

A refund should be deposited directly only into accounts that are in the taxpayer's own name, the taxpayer's spouse's name or both if it's a joint account.

Those who choose direct deposit get their refunds at least a week sooner, and direct deposit eliminates the chance of a lost, stolen or undeliverable refund.

The tax season to date

Here are the latest 2014 filing season statistics:

Cumulative statistics comparing 3/22/13 and 3/21/14

Individual Income Tax Returns:

2013

2014

% Change

Total Receipts

82,413,000

82,852,000

0.5

Total Processed

77,102,000

81,149,000

5.2

E-filing Receipts:

TOTAL          

74,420,000

75,610,000

1.6

Tax Professionals

44,524,000

43,953,000

-1.3

Self-prepared

29,896,000

31,657,000

5.9

Web Usage:

Visits to IRS.gov

234,237,695

209,074,699

-10.7

Total Refunds:

Number

66,429,000

67,383,000

1.4

Amount

$187.788

Billion

$193.543

Billion

3.1

Average refund

$2,827

$2,872

1.6

Direct Deposit Refunds:

Number

56,985,000

57,101,000

0.2

Amount

$170.127

Billion

$170.187

Billion

0.04

Average refund

$2,985

$2,980

-0.2

The refund check is no longer in the mail -- it’s already in the bank. That's the way it is for some 57 million taxpayers so far this year. According to t...

Fraud increasingly taxing the Internal Revenue Service

Agency devotes more resources to weeding out bogus returns

The Internal Revenue Service (IRS) has its hands full this year. The recent report by the Taxpayer Advocate Service shows the tax collection agency has increasing responsibilities to meet with fewer resources.

The report expressed concern that taxpayers who call the IRS for help, or walk in to IRS offices, are faced with long wait times.

“The requirement to pay taxes is generally the most significant burden a government imposes on its citizens,” the report said. “The National Taxpayer Advocate believes the government has a practical and moral obligation to make compliance as simple and painless as possible.”

Money is part of the problem. Added responsibilities is another. Because government subsidies under the Affordable Care Act are awarded in the form of tax credits, the IRS is deeply involved in the implementation of this very complex law.

Taxpayer identity theft

What hasn't gotten as much attention, however, is the amount of time and effort the tax agency has to devote to dealing with fraud – in particular, identity theft. Last month, when the IRS issued its “Dirty Dozen” tax scams for 2014, identity theft was at the top of the list.

While identity theft is nothing new, criminals are increasingly targeting the IRS because it is so easy. All they have to do is steal someone's name and Social Security number. They file a bogus tax return, showing a large refund. By the time the real taxpayer gets around to filing, the IRS has already sent out a check to the impostor.

Explosive growth

In Fiscal Year 2010 the IRS reported just 147 identity theft prosecutions. By Fiscal Year 2012 the number had grown to 544. In the first half of Fiscal Year 2013 there were 441.

The IRS says its work on identity theft and related refund fraud now touches nearly every part of the agency. To combat the problem the IRS has had to devote more of its resources to identity potential fraud and try to stop it before it occurs.

In some cases this may slow down your direct deposit refund. Banks have also been enlisted to help prevent fraudulent refunds from being sent out. Stephanie, of Queens, N.Y., encountered a delay when she tried to have her tax refund direct deposited to her RushCard.

“I got a message from RushCard asking for my 1040 form and without the form they cannot release my tax refund that is due to me,” she wrote in a ConsumerAffairs post.

Slowing refunds

Banks are sometimes freezing refunds like Stephanie's if the return is even suspected of being bogus. Since pre-paid cards are a favorite tool of tax identity thieves, the verification burden can be even greater. It results in placing a burden on the taxpayer, who understandably wants to get their hands on their refund as soon as possible.

Things are worse, of course, for taxpayers who actually have had their identity stolen. The IRS has had to devote resources to trying to help these people, as well as trying to prevent future identity theft.

All of this not only slows the bureaucracy but costs money. As Taxpayer Advocate Nina Olson noted in her January report, last year's sequestration substantially cut the IRS’s funding. Calling IRS funding “inadequate,” she says cuts designed to reduce the budget deficit can have the opposite effect when applied to the revenue collection agency.

The Internal Revenue Service (IRS) has its hands full this year. The recent report by Taxpayer Advocate Service shows the tax collection agency has increa...

TurboTax users to share $6.55 million settlement

Lawsuits claimed Intuit charged usurious interest rates for processing tax refunds

If you used TurboTax Online over the last five years and had fees deducted from your tax refund, you may be eligible to share in a $6.55 million class action settlement approved by a federal judge this week.

The case began when Tasha and Fredierick Smith, of Arkansas, complained about the fees charged by Intuit, which publishes TurboTax. The Smiths said they used TurboTax in 2009, 2010 and 2011.

Each time they deferred paying the $86.90 fee for using TurboTax, opting to have it deducted from their tax refund. Intuit did so but added a $29.95 "refund processing option" charge, more than 34 percent of the original fee. The couple got their refund in two weeks.

"Plaintiffs paid $29.95 for an approximate 14-day loan of $86.90," their complaint stated. "The APR, properly calculated in accordance with TILA [the Truth in Lending Act], was an exorbitant quadruple-digit interest rate. Such interest rates also violated California's usury laws."

Consumers rate Intuit - TurboTax Online

The couple argued that Intuit's fee should be considered a refund anticipation loan and therefore subject to interest rate and finance charge disclosure rules.

U.S. District Judge Edward Davila initially disagreed and dismissed the action, writing that the RPO did not qualify as a loan because customers never received any money from Intuit. But after allowing the Smiths to amend their complaint twice, Davila ordered the parties into mediation.

Earlier this year, both sides announced they had reached a preliminary $6.55 million agreement. Davila signed off on the settlement Tuesday, Courthouse News Service reported.

What to do

To find out if you qualify for a payment under the settlement, see the official settlement administrator site. The site outlines your rights and options. There is no fee for those covered by the settlement. Be sure to use the official claim form on the site. Do not give personal information to anyone who calls or emails you.  

If you used TurboTax Online over the last five years and had fees deducted from your tax refund, you may be eligible to share in a $6.55 million class acti...

You don't have to be rich to set up a trust fund

More people are using them to control how their assets are distributed

Popular conception of a trust fund beneficiary is the heir to a fortune. Plenty of them do, in fact, have trust funds but you don't have to be rich to set one up.

The main reason to establish a trust is to ensure assets are transferred to someone else in keeping with your wishes. While a will can do the same thing, a trust can actually do the transfer while you are still living, if the conditions you set out are met.

Even if you aren't rich, if you are contemplating a trust fund you most likely have been able to save some money or produce some significant assets. You may want to set up a trust because the beneficiary isn't quite as financially savvy as you are. You may have made the judgment that it would be a mistake to give them a large sum of money all at once.

People also set up trusts for tax reasons. In some cases, the assets in the trust can grow but the growth does not result in higher taxes for you.

Revocable and irrevocable

There are revocable trusts and irrevocable trusts. With a revocable trust, you can change the terms once it has been established. With an irrevocable trust, once it's set up you can't change it. The assets in the trust fall outside your control.

Why would you agree to that? You might because the assets that are in an irrevocable trust are no longer part of your estate. That might be important when you die and your estate is over the now-lower limit for the death tax.

Assets you place in a revocable trust still belong to you and, as such, are part of your estate. If their value nudges you over the limit of a tax-free estate, your heirs will owe death taxes.

But if your estate is well under the limit, you don't have that concern an a revocable trust might be a good option.

Estate tax uncertainty

Attorney John O. McManus, founding principal at McManus & Associates, says there was a rush to create trusts before the end of 2012 because of uncertainly over tax laws. It turned out changes were mostly minor, but McManus says people considering a trust shouldn't delay.

"Less than six months ago, many of our clients put assets into trust and have enjoyed appreciation in the trust assets of 20 percent in cases where they chose the most aggressive portion of their personal portfolio to deposit into trust,” he said. “Now those who funded the trust with $5 million have $6 million, an additional $1 million free of state and federal estate tax."

Naturally, there are costs associated with setting up any kind of trust. The legal assistance required to properly do it is specialized and tends to be expensive. Before heading down that road, it might be wise to first have a conversation with your accountant about whether its needed or not.

Trustees and beneficiaries

As the name implies, a trust is administered by a trustee. A trustee may be an individual or a company. It controls the assets and has a fiduciary responsibility to the beneficiary.

The beneficiary, the person or entity that will eventually receive the assets, may be entitled to income from the trust for a period of time before they receive all the trust's assets.

If estate taxes are not a concern, a revocable trust gives the grantor the most flexibility. With a revocable trust, you can even cancel the entire arrangement if circumstances change. If you aren't among the super rich but think you could benefit from a trust, this could be the way to go.

Popular conception of a trust fund beneficiary is the heir to a fortune. Plenty of them do, in fact, have trust funds but you don't have to be rich to set ...

Taxpayer reminder: Report 2010 Roth conversions this year

You may need to report half of the resulting taxable income on your 2012 return

If you converted amounts to a Roth IRA or designated Roth account in 2010, the Internal Revenue Service (IRS) reminds you that -- in most cases -- you must report half of the resulting taxable income on your 2012 return.

Normally, Roth conversions are taxable in the year the conversion occurs. For example, the taxable amount from a 2012 conversion must be included in full on a 2012 return. But under a special rule that applied only to 2010 conversions, taxpayers generally include half the taxable amount in their income for 2011 and half for 2012, unless they chose to include all of it in income on their 2010 return.

Roth conversions in 2010 from traditional IRAs are shown on 2012 Form 1040, Line 15b, or Form 1040A, Line 11b. Conversions from workplace retirement plans, including in-plan rollovers to designated Roth accounts, are reported on Form 1040, Line 16b, or Form 1040A, Line 12b.

Reporting distributions

Taxpayers who also received Roth distributions in either 2010 or 2011 may be able to report a smaller taxable amount for 2012. For details, see the discussion under 2012 Reporting of 2010 Roth Rollovers and Conversions. In addition, worksheets and examples can be found in Publication 590 for Roth IRA conversions and Publication 575 for conversions to designated Roth accounts.

Taxpayers who made Roth conversions in 2012 or are planning to do so in 2013 or later years must file Form 8606 to report the conversion.

As in 2010 and 2011, income limits no longer apply to Roth IRA conversions.

If you converted amounts to a Roth IRA or designated Roth account in 2010, the Internal Revenue Service (IRS) reminds you that -- in m...

American Tax Relief agrees to pay $15 million

The company bilked consumers with false promises, the feds charged

In its first action against a tax relief company, the Federal Trade Commission has won a settlement order that requires American Tax Relief and its founders to pay $15 million and to get out of the business of selling tax relief services.

Alexander Seung Hahn and his wife, Joo Hyun Park, and their company were charged in 2010 with bilking consumers out of more than $100 million by falsely claiming they could reduce their tax debts.

"I am very angry," said Bettie of Vanceboro, N.C., who wrote to ConsumerAffairs about her experience with the company. "They got $4,800.00 of my money and then would not answer the phone. I just settled with the IRS myself."

"They stole my $6000 and won't return it," said Rick of Fox Point, Wis. 

Consumers rate American Tax Relief

It was even worse for Abdul of Rio Rancho, N.M.: "I contacted American Tax Relief in 2004. I had $4,500.00 pulled out of my bank account in less than one hour. Within 24 hours they needed $4,500.00 more to send out the complete contract. Within 72 hours they had taken another $4,500.00 from my account without my knowledge and never heard from them again."

Assets frozen

A court subsequently halted the allegedly illegal practices, froze the defendants’ assets, and appointed a receiver to manage the company pending resolution of the case.

In August 2012, the court entered partial summary judgment in favor of the FTC, finding that the defendants falsely claimed they already had significantly reduced the tax debts of thousands of people and falsely told individual consumers they qualified for tax relief programs that would significantly reduce their tax debts.  The court found Hahn personally liable for the challenged practices.

In its first action against a tax relief company, the Federal Trade Commission has won a settlement order that requires American Tax Relief and its fo...

Tax season is here -- officially

Most individual returns can be filed now

For those of you sitting around worrying -- you can now file your 2012 federal income tax return

The Internal Revenue Service (IRS) has opened the 2013 filing season with the announcement of a variety of enhanced products and services to help taxpayers prepare and file their tax returns by the April 15 deadline.

New and expanded services for taxpayers this year include a redesigned IRS Website that’s easier to navigate and improved service options, including more video-conferencing assistance sites and additional social media tools. In addition, the IRS has stepped up its enforcement efforts to protect taxpayers from refund fraud and identity theft.

Send them in

The IRS is accepting and processing most individual tax returns after updating forms and completing programming and testing of its processing systems to reflect the American Taxpayer Relief Act (ATRA) that Congress enacted on Jan. 2. The vast majority of taxpayers can file now, but the agency is continuing to update its systems for some tax filers.

The IRS will begin accepting tax returns from people claiming education credits in mid-February while taxpayers claiming depreciation deductions, energy credits and many business credits will be able to file in late February or early March. A full list of the affected forms is available here.

This year, taxpayers have until Monday, April 15, to file their 2012 tax returns and pay any tax due. The IRS expects to receive more than 147 million individual tax returns this year, with about 75 percent projected to receive a refund.

Last year for the first time, 80 percent of all individual returns were filed electronically. E-file, when combined with direct deposit, is the fastest way to get a refund. Last year, about three out of four refund filers selected direct deposit.

Assistance options, virtual service availability

The best way for taxpayers to get answers to their questions is by visiting IRS.gov. Last year, the Website received a record 340 million visits, a 17 percent increase over 2011.

This year, the redesigned Website makes it easier than ever for taxpayers to get to key forms and vital information. The front page also has links to redesigned pages to help with everything from refunds to specific tax issues as well as easy access to taxpayer-friendly videos on the IRS YouTube channel.

Taxpayers can access Free File, which provides options for free brand-name tax software or online Fillable Forms plus free electronic filing. Everyone can use Free File to prepare a federal tax return. Taxpayers who make $57,000 or less can choose from about 15 commercial software providers. There’s no income limit for Free File Fillable Forms, the electronic version of IRS paper forms.

People making $51,000 or less usually qualify for the Volunteer Income Tax Assistance program for free tax preparation and electronic filing. Tax Counseling for the Elderly, a similar community-based volunteer program, offers free tax help with priority assistance to people age 60 and older, specializing in questions about pensions and retirement issues. Information on these programs can be found at IRS.gov.

This year, the IRS is doubling the number of sites where taxpayers can get assistance through two-way video conferencing. During 2012, the program’s first year, about 14,000 taxpayers received assistance at 13 locations. Following a strong response to the virtual assistance program, the IRS plans to roll out 14 new sites. A list of the 27 available locations can be found here.

For tax law questions or account inquiries, taxpayers can also call the IRS toll-free number 800-829-1040 (7 a.m. to 7 p.m. local time) or visit a taxpayer assistance center http://www.irs.gov/uac/Contact-Your-Local-IRS-Office-1 . Taxpayers should check IRS.gov for the hours and services offered at the location they intend to visit.

Apps and social media

For the third year, the IRS will offer IRS2Go, its smartphone application, which enables taxpayers to check on the status of their tax refund and obtain helpful tax information. The IRS2Go app, available for Apple and Android users, has been downloaded more than 800,000 times and used by taxpayers millions of times.

More helpful information is available through IRS social media platforms, including:

  • YouTube, where viewers can watch more than 100 short, informative videos. They are available in English, Spanish, American Sign Language and other languages.
  • The IRS also has several twitter feeds available for taxpayers in English and Spanish at @IRSnews or @IRSenEspanol. And @IRStaxpros covers news for tax professionals.
  • For the 2013 filing season, the IRS has added Tumblr to its list of social media platforms. People who want tax information now have another way of accessing and sharing helpful tax tips, videos, podcasts and other information.

The IRS only uses social media tools to share public information, not to answer personal tax or account questions. And the IRS reminds taxpayers to never post confidential information, such as a Social Security Number, on social media sites.

Check for a refund

Even with the late opening of the tax season, the IRS expects to issue refunds within the usual timeframes. Last year, the IRS issued more than nine out of 10 refunds to taxpayers in less than 21 days, and it expects the same results in 2013.

After taxpayers file a return, they can track the status of the refund with the “Where’s My Refund?” tool available here. New this year, instead of an estimated date, “Where’s My Refund?” will give people an actual personalized refund date after the IRS processes the tax return and approves the refund.

Here are some tips for using "Where's My Refund?":

  • Initial information will generally be available within 24 hours after the IRS receives the taxpayer’s e-filed return or four weeks after mailing a paper return.
  • The system updates every 24 hours, usually overnight. There’s no need to check more than once a day.
  • “Where’s My Refund?” provides the most accurate and complete information that the IRS has about the refund, so there is no need to call the IRS unless the web tool says to do so.
  • To use the “Where’s My Refund?” tool, taxpayers need to have a copy of their tax return for reference. Taxpayers will need their Social Security Number, filing status and the exact dollar amount of the refund they are expecting.

Taxpayers should remember that while most tax refunds are issued within 21 days, some tax returns need additional time to be reviewed. As part of that effort, the IRS has put in place stronger security filters this filing season to protect against refund fraud and identity theft.

For those of you sitting around worrying -- you can now file your 2012 federal income tax return The Internal Revenue Service (IRS) has opened the 2013 fi...

Claiming a deduction for your home office is getting easier

Eligible home-based businesses may deduct up to $1,500

If you have a home-based business or work from home, this will likely make you sit up and take notice.

The Internal Revenue Service is implementing a simplified option that you may be able to use to figure the deduction for the business use of your home.

In tax year 2010 -- the most recent year for which figures are available -- nearly 3.4 million taxpayers claimed deductions for business use of a home, commonly referred to as the home office deduction.

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

"This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction," said Acting IRS Commissioner Steven T. Miller. "The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013."

An easier path

The new option gives eligible taxpayers an easier path to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.

Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

Kicks in with next year's filing

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014. Further details on the new option can be found in Revenue Procedure 2013-13, which is effective for taxable years beginning on or after January 1, 2013. The IRS welcomes public comment on this new option to improve it for tax year 2014 and later years. There are three ways to submit comments.

  • E-mail to: Notice.Comments@irscounsel.treas.gov. Include “Rev. Proc. 2013-13” in the subject line.
  • Mail to: Internal Revenue Service, CC:PA:LPD:PR (Rev. Proc. 2013-13), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
  • Hand deliver to: CC:PA:LPD:PR (Rev. Proc. 2013-13), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.

The deadline for comment is April 15, 2013.

If you have a home-based businesses work from home, this will likely make you sit up and take notice. The Internal Revenue Service is implementing a simpl...

Taxpayers will see several changes when they file this year

Higher tax rates and more generous deduction amounts are ahead

The Internal Revenue Service has made a number of changes for tax year 2013 -- including the tax rate schedules – as a result of the recently-passed American Taxpayer Relief Act (ATRA) of 2012.

The tax items for 2013 of greatest interest to most taxpayers include the following changes:

  • Beginning in tax year 2013 (generally for tax returns you will file a year from now), a new tax rate of 39.6 percent has been added for individuals whose income exceeds $400,000 ($450,000 for married taxpayers filing a joint return). The other marginal rates -- 10, 15, 25, 28, 33 and 35 percent -- remain the same as in prior years. The guidance contains the taxable income thresholds for each of the marginal rates.
  • The standard deduction rises to $6,100 ($12,200 for married couples filing jointly), from $5,950 ($11,900 for married couples filing jointly) for tax year 2012.
  • The ATRA of 2012 added a limitation for itemized deductions claimed on 2013 returns of individuals with incomes of $250,000 or more ($300,000 for married couples filing jointly).
  • The personal exemption rises to $3,900, up $100 from the 2012 exemption. However beginning in 2013, the exemption is subject to a phase-out that begins with adjusted gross incomes of $250,000 ($300,000 for married couples filing jointly). It phases out completely at $372,500 ($422,500 for married couples filing jointly.)
  • The Alternative Minimum Tax exemption amount for tax year 2013 is $51,900 ($80,800, for married couples filing jointly), set by the ATRA of 2012, which indexes future amounts for inflation. The 2012 exemption amount was $50,600 ($78,750 for married couples filing jointly).
  • The maximum Earned Income Credit amount is $6,044 for taxpayers filing jointly who have three (3) or more qualifying children; the total is $5,891 for tax year 2012.
  • Estates of those who die during 2013 have a basic exclusion amount of $5,250,000, up $150,000 from the 2012 amount.
  • For tax year 2013, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transit passes and transportation in a commuter highway vehicle is $245, up $5 from tax year 2012 (the legislation provided a retroactive increase from the $125 limit that had been in place).
The Internal Revenue Service has made a number of changes for tax year 2013 -- including the tax rate schedules – as a result of the recently-passed Americ...

Tax reform, identity theft seen as top Internal Revenue Service priorities

The latest report from the national taxpayer advocate also addressed agency funding

The complexity of the tax code was named the “most serious” problem facing taxpayers in the 2012 annual report to Congress by National Taxpayer Advocate Nina E. Olson. And she's recommending that lawmakers take significant steps to simplify it.

In her report, Olson also found that the Internal Revenue Service (IRS) is not doing enough to assist victims of tax-related identity theft and return preparer fraud. She also expressed concern that the IRS is not adequately funded to serve taxpayers and collect tax, and identified ways in which this chronic underfunding harms taxpayers. She also found that the IRS is not doing enough to assist victims of tax-related identity theft and return preparer fraud.

Crushing burden

“The existing tax code makes compliance difficult, requiring taxpayers to devote excessive time to preparing and filing their returns,” Olson wrote. “It obscures comprehension, leaving many taxpayers unaware how their taxes are computed and what rate of tax they pay; it facilitates tax avoidance by enabling sophisticated taxpayers to reduce their tax liabilities and provides criminals with opportunities to commit tax fraud; and it undermines trust in the system by creating an impression that many taxpayers are not compliant, thereby reducing the incentives that honest taxpayers feel to comply.”

The report states that the tax code imposes a “significant, even unconscionable, burden on taxpayers.” Since 2001, Congress has made nearly 5,000 changes to the tax code, an average of more than one a day, and the number of words in the code appears to have reached nearly four million.

An analysis of IRS data by the Taxpayer Advocate Service (TAS) shows that individuals and businesses spend about 6.1 billion hours a year complying with tax-filing requirements. “If tax compliance were an industry, it would be one of the largest in the United States,” the report says. “To consume 6.1 billion hours, the ‘tax industry’ requires the equivalent of more than three million full-time workers.”

Individual taxpayers find return preparation so overwhelming that few do it on their own. Nearly 60 percent of taxpayers hire paid preparers, and another 30 percent rely on commercial software, with leading software packages costing $50 or more. In other words, taxpayers must spend money just to figure out how much money they owe.

Simplification urged

To reduce taxpayer burden and enhance public confidence in the integrity of the tax system, the report urges Congress to greatly simplify the tax code. In general, this means Congress should reassess the need for existing income exclusions, exemptions, deductions and credits (generally known as “tax expenditures”).

For fiscal year (FY) 2013, the Joint Committee on Taxation has projected that tax expenditures will come to about $1.09 trillion, while individual income tax revenue is projected to be about $1.36 trillion. To put these numbers in perspective, if Congress were to eliminate all tax expenditures, straight math indicates it could cut individual income tax rates by 44 percent and still generate the same amount of revenue it collects under current rules.

Tax-related identity theft

The number of tax-related identity theft incidents has increased substantially in recent years. Within TAS, identity theft case receipts increased by more than 650 percent from FY 2008 to FY 2012. At the end of FY 2012, the IRS had almost 650,000 identity-theft cases in its inventory service-wide. The problem has grown worse as organized criminal actors have found ways to steal the Social Security numbers (SSNs) of taxpayers, file tax returns using those taxpayers’ names and SSNs, and obtain fraudulent tax refunds.

Then, when the real taxpayer files a return claiming the refund, that return is rejected. The impact on victims is significant. More than 75 percent of taxpayers filing returns are due refunds, which average some $3,000 and are not paid until the IRS fully resolves a case.

The report says the IRS has created numerous task forces and other teams in recent years in an attempt to improve its identity theft processes, yet victims still face the same “labyrinth of procedures and drawn-out time frames for resolution” that they faced five years ago. The IRS is instructing its employees to advise identity theft victims that it will take 180 days -- half a year -- to resolve their cases. Complicated cases inevitably will take longer. Thus, the IRS’s procedural changes are not providing faster relief.

IRS funding

The IRS budget has been reduced in each of the last two fiscal years, and appears likely to face further cuts in coming years. Although these cuts reflect across-the-board reductions in federal discretionary spending, underfunding the IRS makes no sense, Olson said.

“The IRS is materially different from other discretionary programs in that it serves as the de facto Accounts Receivable Department of the federal government. Each dollar appropriated for the IRS generates substantially more than one dollar in additional revenue. It is therefore ironic and counterproductive that concerns about the deficit are leading to cuts in the IRS budget, when those cuts are making the deficit larger.” Olson added: “The plain truth is that the IRS’s mission trumps all other agencies’ missions, because without an effective revenue collector, you can’t fund those other agencies.”

The complexity of the tax code was named the “most serious” problem facing taxpayers in the 2012 annual report to Congress by National Taxpayer Advocate Ni...

You can start filing federal tax returns Jan. 30

But some filers will have to wait until late February or early March

Having digested the changes in the tax law made by Congress's New Year's Day fiscal cliff legislation and sent the form changes to the printer, the Internal Revenue Service (IRS) says it will be ready to receive and process your tax return Jan. 30.

That shortens the tax preparation window by a month, but since most taxpayers don't get started until they receive their w-2 forms, it might not make a lot of difference to most people. Then again, early filers who want to get their hands on their refund as quickly as possible might be frustrated.

Some filers must wait longer

The announcement means the vast majority of tax filers -- more than 120 million households -- should be able to start filing tax returns starting Jan 30. But not everyone.

The IRS estimates that remaining households will be able to start filing in late February or into March because of the need for more extensive form and processing systems changes. This group includes people claiming residential energy credits, depreciation of property or general business credits. Most of those in this group file more complex tax returns and typically file closer to the April 15 deadline or obtain an extension, the IRS said.

Takes time to update and test systems

“We have worked hard to open tax season as soon as possible,” IRS Acting Commissioner Steven T. Miller said. “This date ensures we have the time we need to update and test our processing systems.”

The IRS will not process paper tax returns before the anticipated Jan. 30 opening date. There is no advantage to filing on paper before the opening date, and taxpayers will receive their tax refunds much faster by using e-file with direct deposit.

“The best option for taxpayers is to file electronically,” Miller said.

This is the second straight year the IRS has delayed the opening of tax season. In 2012 the agency said it made extensive changes to its systems in an effort to thwart identity theft, which it said is a growing problem.

If identity thieves get access to your Social Security number, they can file a fake return in your name, receiving a refund they aren't entitled to. Changes to the IRS systems are designed to help the agency identify fraudulent returns more easily.

Because of the threat of identity theft, it's beneficial to file early. If you file early and receive your rightful refund, an identity thief can be easily spotted if he files a fake return, using your Social Security number.

Who Can File Starting Jan. 30?

The IRS anticipates that the vast majority of all taxpayers can file starting Jan. 30, regardless of whether they file electronically or on paper. The IRS will be able to accept tax returns affected by the late Alternative Minimum Tax (AMT) patch as well as the three major “extender” provisions for people claiming the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction.

Who Can’t File Until Later?

There are several forms affected by the late legislation that require more extensive programming and testing of IRS systems. The IRS hopes to begin accepting tax returns including these tax forms between late February and into March; a specific date will be announced in the near future.

The key forms that require more extensive programming changes include Form 5695 (Residential Energy Credits), Form 4562 (Depreciation and Amortization) and Form 3800 (General Business Credit). A full listing of the forms that won’t be accepted until later is available on IRS.gov.

If you use an off-the-shelf tax preparation software, keep in mind these changes will affect it as well. Check with your vendor as to when updates for the 2012 tax year will be available.

Having digested the changes in the tax law made by Congress's New Year's Day fiscal cliff legislation and sent the form changes to the printer, the Interna...

Tax filing season may get a late start again

Last minute tax law makes changes to 2012 too

The statement from the Internal Revenue Service (IRS) last week was short and to the point.

“The IRS is currently reviewing the details of this week's tax legislation and assessing what impact it will have on this year's filing season,” the statement read. “The IRS will soon make available additional information on when taxpayers can start filing 2012 tax returns.”

The last-minute fiscal cliff legislation did more than keep world financial markets on the edge of their seats; it's also held up the IRS as it prepares to start receiving 2012.

But how could tax legislation that affects the future have any bearing on 2012 taxes? Because a few other items were slipped into the fiscal cliff bill. Some of those items have a retroactive start date, meaning they will affect the 2012 tax year.

AMT reform

For example, if you were unfortunate enough in 2011 to pay the alternative minimum tax (AMT) there's a chance you can avoid it in 2012. The tax, which was devised to make sure high income earners paid at least some tax, was never indexed for inflation. Each year more and more people found themselves paying it.

Included in the January 1 tax bill is a fix to the AMT law, raising the threshold. Millions of people who would have paid it now will not. For the IRS, that means reprinting some tax forms.

Another retroactive tax break is a broadening of the tax break for people who ride mass transit. The measure increases the tax break for commuters and makes it retroactive for 2012. That, too, requires some form changes.

Some expired tax deductions have been brought back to life and made retroactive to last year. If you are a teacher and spend some of your own money for school supplies, that deduction is returning, allowing you to write off up to $250. Tuition and fee deductions will also be available to 2012 filers.

Now is the time to prepare

While the IRS gets its duck in a row, tax filers should as well. You probably won't receive W-2 or 1099 forms until the end of January but you can spend the time gathering receipts and putting together an income statement.

If you don't already have someone to do your taxes you can begin looking around for a tax preparer. Ask relatives and friends for a referral and try to find someone who has been working in your community for a while and will probably be around for a few more years. The more familiar your preparer becomes with your situation the better job she can do for you. In this case, consistency can work in your favor.

If you are eager to get your hands on your refunds, bypass the refund anticipation loans (RAL) and instead file early and electronically. Those who do stand a good chance of getting their refunds within two weeks.

The statement from the Internal Revenue Service (IRS) last week was short and to the point.“The IRS is currently reviewing the details of this week...

2013 will see some new taxes

Most are associated with phase-in of new health care law

Regardless of what does, or does not happen with the “fiscal cliff,” some consumers will see some tax increases in 2013, part of the Affordable Care Act.

And while Republicans and Democrats spent the last two months arguing over whether families earning $250,000 or more a year should pay a higher income tax rate, it's already been decided that that group will face a higher tax on investments in 2013.

It's called the Net Investment Income Tax. It imposes an extra 3.8 percent tax on investment income earned by individuals, estates and trusts that have certain investment income above certain threshold amounts. That group will also pay more in Medicare tax.

The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation, and self-employment income that exceeds a threshold amount based on the individual’s filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for all other taxpayers.

An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year.

Medical device tax

An excise tax on medical devices, such as artificial hips, goes into effect in 2013 as a way to help pay the cost of expanding health care coverage. Most consumers won't feel the tax directly but could eventually see higher health care premiums as the costs of these devices go up.

One potential tax increase many consumers could face in 2013 is a change in the way the Internal Revenue Service (IRS) treats employer-paid health benefits. Currently, this benefit is not taxed, providing a huge financial benefit to consumers who have it. It's the biggest middle-class tax break on currently on the books – even bigger than the mortgage interest deduction.

For example, if your employer pays $1000 a month for its share of your health coverage, you would have to report that $12,000 as income on your taxes. Many economists believe Congress will have to consider that change in 2013, although there will be strong bipartisan opposition.

Payroll tax

There's another tax increase, unrelated to health care, that all workers will feel in 2013. The payroll tax, used to finance Social Security and Medicare, will revert to its normal level. For the past two years the government reduced the employee share by two percentage points, as part of an effort to stimulate the economy. Since neither Republicans nor Democrats have suggested extending the tax holiday another year, it seems certain that consumers' paychecks will be a little smaller in 2013.

Regardless of what does, or does not happen with the “fiscal cliff,” some consumers will see some tax increases in 2013, part of the Affordable...

Tips for year-end giving

Some changes in tax law may affect what -- and to whom -- you want to give

Even though we haven't been through the holidays yet, it's not too early to start thinking about the bite the Internal Revenue Service (IRS) will be taking from this year's earnings.

If you have made contributions to charity, you should know some key tax provisions have taken effect in recent year affecting donations of clothing, household items and money.

Rules for clothing and household items

  • To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.

Guidelines for monetary donations

  • To deduct any charitable donation of money -- regardless of amount -- a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date and the amount paid. Credit card statements should show the name of the charity, the date and the transaction posting date.
  • Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
  • These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

Reminders

To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:

  • Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2012 count for 2012. This is true even if the credit card bill isn’t paid until 2013. Also, checks count for 2012 as long as they are mailed in 2012.
  • Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. Exempt Organization Select Check lists most organizations that are qualified to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in the database.
  • For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2012 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
  • For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
  • The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
  • If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
  • And, as always it’s important to keep good records and receipts.

Additional information

Here is some additional information from the IRS on charitable giving including:

Charities & Non-Profits

Publication 526, Charitable Contributions

Even though we haven't been through the holidays yet, it's not too early to start thinking about the bite the Internal Revenue Service (IRS) will be taking...

Standard mileage rates to rise one cent-per-mile in 2013

The new rates will apply for business, medical and moving travel

Another penny from Uncle Sam.

The Internal Revenue Service has announced the 2013 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. It works out to an additional penny-per-mile.

Beginning on Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 56.5 cents per mile for business miles driven
  • 24 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

Fixing the rate

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Exceptions

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.

Notice 2012-72 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

Another penny from Uncle Sam. The Internal Revenue Service has announced the 2013 optional standard mileage rates used to calculate th...

Five Ways to Prepare for the Upcoming Tax Season

You can take steps now to make tax filing a little easier in January

Believe it or not, tax-filing season is right around the corner. While Congress and the president wrestle over the “fiscal cliff” and the future of taxes, consumers need to be focused on the 2012 tax year.

To get a speedier refund it helps to file as early as possible. Filing early, in turn, is aided by taking a few steps between now and December 31 to get ready. Here are five things you can do now to get ready:

  1. Think about any life changes you had in 2012 and how these may affect your tax return. Many common events, like having a baby or buying a home, can trigger tax credits or deductions. Start planning for your income tax return by putting together an action timeline and to-do list.
  2. Choose a professional tax preparer, if you need help completing your return. You'll want someone who has been around for a while and who will be around later. If you don't already have a tax preparer, ask friends and family for a referral.
  3. Start now gathering documents you'll need to complete your return. Keep in mind your W-2 and 1099 forms won't be available until the end of January but there are other documents that will prove helpful, like a copy of last year's tax return. If you have a part-time business you can begin now to organize and gather receipts.
  4. Consider year-end tax moves that will reduce your taxable income, such as giving to charity, prepaying your January mortgage payment or increasing your retirement plan contributions.
  5. Create a plan with your tax preparer that includes a list of things to do to get your taxes done this year. Start a shoebox for your tax documents, review your year for life changes and put a target date on the calendar to file.

Significant season

“The coming tax filing season is shaping up to be like no other in recent years,” said Mark Steber, chief tax officer, Jackson Hewitt Tax Service Inc. “The combination of expiring tax laws and tax policy changes, possible renewed retroactive provisions and last-minute legislative action calls for taxpayers to be extra careful when managing their taxes in order to ensure that there is no money left on the table."

Steber suggests keeping an eye out for late year legislative changes that can impact your future taxes. For example, Extender Provisions, which include the deductions for state and local sales tax, the mortgage insurance premium, deductions for out-of-pocket classroom expenses for teachers, deductions for college tuition and fees, as well as the $500 credit for making energy-efficient home improvements, could all be on the table.

That means paying attention to the news out of Washington over the next few weeks. What happens there could affect you tax-wise in the coming years.

Believe it or not, tax-filing season is right around the corner. While Congress and the president wrestle over the “fiscal cliff” and the futur...

Internal Revenue Services to be Limited During the Labor Day Weekend

Maintenance and upgrading of an electrical system will curtail some activities

A planned power outage around the Labor Day weekend will affect a number of Internal Revenue Service (IRS) systems and limit the availability of several services between Thursday, Aug. 30 and Tuesday, Sept. 4. 

The systems will be unavailable due to maintenance and upgrading an electrical system. 

Detailed information describing what systems are affected by the temporary outage can be found below: 

Toll-free services 

  • Assistors who support the main toll-free lines can only provide limited service beginning early Thursday morning, Aug. 30 through 4 p.m. ET Friday, Aug. 31. During this time, help will be available for tax law issues, but the system will be unable to access or update tax account information.
  • The main toll-free system will be completely unavailable after 4 p.m. ET Friday until noon ET on Tuesday, September 4. For the tax practitioner community, the e-help desk toll-free service and the Practitioner Priority Service will be available during the dates and times indicated above. 

Taxpayer Assistance Centers 

  • The Taxpayer Assistance Centers (TACs) will remain open for their regular hours during the outage period. They will be able to answer your tax law questions, prepare your returns and perform limited service to your tax account. If you need to make a tax payment, the TACs can accept most forms of payment, including checks and money orders, but cannot accept cash payments during the outage period. 

Taxpayer notice information 

  • If you have questions on a CP2000 notice, you received in the mail and you need to call the IRS, assistors will be available at the toll-free number included in the notice throughout the maintenance period.
  • Help will be available on other notices associated with a balance due or an open correspondence exam issue through 4 p.m. ET Friday, Aug. 31 and after noon ET on Tuesday Sept. 4.
  • Help on notices related to levies or liens will be unavailable Thursday, Aug. 30 until noon ET on Tuesday, Sept. 4. 

Information for business filers 

  • If you are a business filer and in need of an Employee Identification Number or need to make a Federal Tax Deposit, it's best to do so before Friday, Aug. 31 at 4 p.m. Those services will not be available until the outage period ends and the systems are restored around noon ET on Tuesday, Sept. 4. 

Information for student aid applicants 

  • If you need to file the Federal Application for Student Aid form, the FAFSA will be available electronically, but the fields requiring tax return information will not automatically populate during the outage. Keep these outage dates in mind as you or your student(s) need to submit this form, particularly if you don’t have access to previous year’s tax returns. 

Interactive tax assistant availability 

  • The Interactive Tax Assistant will be available on IRS.gov throughout the outage period. 

Electronic federal tax payment system 

  • You will be able to make payments through the EFTPS. Your account will be updated after the outage period and will reflect the date you made the payment.
A planned power outage around the Labor Day weekend will affect a number of IRS systems and limit the availability of several services between Thursday, Au...

Suit: National Tax Preparer Chain Misled Consumers

Mo' Money accused of misleading consumers about fees

The state of Illinois is seeking to shut down Chicago and East St. Louis locations of Mo' Money, a national tax return preparation service.

Illinois Attorney General Lisa Madigan, who sued the company, said it charged customers at least $800,000 in hidden costs and fees for services, while filing inaccurate tax returns without consumers’ authorization. The suit also seeks refunds to customers of at least 800,000.

“Without customers’ permission, this company filed annual tax returns riddled with errors and charged taxpayers exorbitant, undisclosed fees, but worst of all, it failed to provide consumers with their refund checks,” Madigan said. “While the promise of fast cash may be tempting, these heavily marketed refund services always end up costing taxpayers much more in the end.”

Undisclosed fees

Mo' Money is based in Memphis, Tenn., and does business nationwide. Madigan said the company advertised its tax refund anticipation programs primarily to low-income taxpayers as a way to receive and spend refunds instantly. But, she says, Mo’ Money used these programs to automatically deduct hundreds of dollars in undisclosed fees before consumers ever received their refunds – as much as $700 per person.

The suit also alleges Mo’ Money filed tax returns without consumers’ authorization, which in some cases were fraught with errors. For other consumers, Mo’ Money charged fees to file Illinois state tax returns but never completed the filings on taxpayers’ behalf. Consumers have waited weeks – and many continue to wait – to receive refund checks due to these alleged deceptive practices, Madigan said.

Madigan’s office has received 76 complaints against Mo’ Money this year. Consumers have also contacted the Better Business Bureau, City of Chicago and the Chicago Police Department.

When selecting a tax preparer, consumers should avoid basing their decision on the desire for Refund Anticipation Loans (RAL). These loans carry big fees and aren't that much faster than filing a return electronically and having the refund direct deposited to a bank account.

Mo' Money faces Illinois lawsuit...

IRS Cracking Down On Refund Fraud

Identity theft also victimizes the federal government

There are many good reasons you should protect your identity from thieves. But the Internal Revenue Service (IRS) hopes you do so because it can reduce the growing problem of refund fraud.

That's when someone steals an identity and files a bogus tax return, claiming a large refund. By the time the fraud is discovered, the perpetrator has cashed the refund check and moved on.

The IRS and Justice Department recently carried out a massive national sweep cracking down on suspected identity thieves as part of a stepped-up effort against refund fraud and identity theft. The sweep has already resulted in hundreds of arrests and indictments, the IRS said.

Sending a message

In addition, IRS auditors and investigators conducted extensive compliance visits to money service businesses in nine locations across the country in the past two weeks. The approximately 150 visits occurred to help ensure these check-cashing facilities aren’t facilitating refund fraud and identity theft.

“This unprecedented effort against identity theft sends a strong, unmistakable message to anyone considering participating in a refund fraud scheme this tax season,” said IRS Commissioner Doug Shulman. “We are aggressively pursuing cases across the nation with the Justice Department, and people will be going to jail. This is part of a much wider effort underway at the IRS to help protect taxpayers.”

Refund fraud has turned into a large, seasonal bonanza for identity thieves. In addition to opening credit card accounts in the victim's name, the fraudster files a tax return in their name, usually very early in the season. Instead of just getting a credit card, which is usually cancelled once the identity theft is discovered, the criminal gets cash from the U.S. government.

Checking the check-cashers

But first, the criminals have to find a place to cash the checks from the IRS, and banks generally ask too many questions. That's why IRS agents visited 150 money services businesses to help make sure these businesses are not knowingly or unknowingly facilitating identity theft or refund fraud. The visits occurred in nine high-risk places identified by the IRS covering areas in and surrounding Atlanta, Birmingham, Ala., Chicago, Los Angeles, Miami, New York, Phoenix, Tampa and Washington, D.C.

In addition, the IRS has more than 250 check-cashing operations under audit across the country and will be looking for indicators of identity theft as part of the exam effort.

The IRS said it is taking a number of additional steps this tax season to prevent identity theft and detect refund fraud before it occurs. These efforts includes designing new identity theft screening filters that will improve the IRS’s ability to spot false returns before they are processed and before a refund is issued, as well as expanded efforts to place identity theft indicators on taxpayer accounts to track and manage identity theft incidents.

To help taxpayers, the IRS earlier this month created a new, special section on its website dedicated to identity theft matters, including YouTube videos, tips for taxpayers and a special guide to assistance. The information includes how to contact the IRS Identity Protection Specialized Unit and tips to protect against “phishing” schemes that can lead to identity theft.

The IRS is trying to reduce refund fraud from identity theft...

When Filing Taxes, Don't Overlook Extra Income

Consumers chagrined to find free airline miles are taxable

When it comes time to fill out your federal tax return, you enter your income from your job or business and list all your deductions. But remember, income doesn't have to be money.

For example, if you won a new car at the county fair last summer, you must pay taxes on the market value of the car. The organization that gave away the car should have sent your a Form 1099, listing the taxable value of the car.

Also, when companies provide you with something of value as an incentive to do business with them, there are usually tax implications. Last year Citibank offered customers who opened a new checking account 30,000 frequent flier miles. Those miles have a value, and many customers who got them were surprised they carry a tax liability.

Kieth, of San Diego, opened one of the accounts last year and the miles were deposited to his account.

“I received a $750.00 tax liability 1099 notice for these miles from Citibank: labeled 'other income,' for opening the checking account,” Kieth told ConsumerAffairs.com. “No disclosure at all upon opening the account of this outcome was offered. Only now receiving the liability have I been informed. And they will not accept back the miles they gave me as payment to expunge this liability. Had I known I'd never have opened the account.”

Noella, of San Mateo, Calif., said she too was unhappy to receive the 1099 for the miles. However, she does admit that the offered carried the disclaimer “customer is responsible for any taxes, if any.”

Remember, if you receive anything of value in the course of doing business, the Internal Revenue Service will likely expect you to pay taxes on it.  

Getting free airline miles from a bank can add to your tax bill...

Court Bars Tax Fraud Scheme

Nevadan promoted claim that citizens can "opt out" of paying taxes

A federal court has permanently barred David Champion from promoting a tax fraud scheme designed to assist his customers evade federal taxes. The civil injunction was signed by Judge Percy Anderson of the U.S. District Court for the Central District of California.

The court determined that Champion promotes a tax fraud scheme based on the frivolous claim that U.S. citizens can choose to opt out of federal income taxation by declaring themselves to be “non-taxpayers.”  

The court found that Champion promotes the scheme through websites, a radio program and a self-published work entitled Income Tax: Shattering the Myths. According to the government complaint, Champion, who currently resides in Nevada, repeatedly helped his customers evade taxes by establishing sham “pure trusts” to which they transferred their business and personal assets, and he falsely informed his customers that their purported trusts did not need to file income tax returns or pay taxes.

Judge Anderson held that Champion’s theories concerning the government’s taxing authority are wrong. Among other things, the injunction order bars Champion from instructing people that they may become “non-taxpayers,” from offering his services to assist others in taking advantage of this false status, and from forming trusts for others.

The government alleged that Champion’s misconduct led to civil and criminal penalties against his customers. The complaint states that Internal Revenue Service (IRS) inquiries into eight of Champion’s customers revealed that he had assisted them in evading payment of approximately $1.4 million in income taxes.

In the past decade, the Justice Department’s Tax Division has obtained hundreds of injunctions to stop tax-fraud promoters and unscrupulous tax-return preparers.  

A federal court has permanently barred David Champion from promoting a tax fraud scheme designed to assist his customers evade federal taxes. The civil i...

How To Report Miscellaneous Income On Your Taxes

Outside income, even gambling winnings have to be reported to the IRS

While most people are aware they must include wages, salaries, interest, dividends, tips and commissions as income on their tax returns, many don’t realize that they must also report "outside," or miscellaneous income.

With a tough economy and raises few and far between, more people are doing work on the side to earn extra money, so the reporting requirements affect a lot more taxpayers than before. In addition to income from side jobs, the Internal Revenue Service (IRS) also requires you to report:

  • barter exchanges of goods or services,
  • awards, prizes, contest winnings and
  • gambling proceeds

Taxpayers must report all income from any source and any country unless it is specifically exempt under the U.S. tax code. There may be taxable income from certain transactions even if no money changes hands.

You report this income using Form 1099-MISC, which you should receive from the person paying you. It is a common misconception that if a taxpayer does not receive a Form 1099-MISC or if the income is under $600 per payer, the income is not taxable. However, the IRS says there is no minimum amount that a taxpayer may exclude from gross income. If you earn it, you must report it.

All income earned through the taxpayer’s business, as an independent contractor or from informal side jobs is self-employment income, which is fully taxable and must be reported on Form 1040.

Use Form 1040, Schedule C, Profit or Loss from Business, or Form 1040, Schedule C-EZ, Net Profit from Business (Sole Proprietorship) to report income and expenses. Taxpayers will also need to prepare Form 1040 Schedule SE for self-employment taxes if the net profit exceeds $400 for a year. Do not report this income on Form 1040 Line 21 as Other Income.

Independent contractors must report all income as taxable, even if it is less than $600. Even if the client does not issue a Form 1099-MISC, the income, whatever the amount, is still reportable by the taxpayer.

Fees received for babysitting, housecleaning and lawn cutting are all examples of taxable income, even if each client paid less than $600 for the year. Someone who repairs computers in his or her spare time needs to report all monies earned as self-employment income even if no one person paid more than $600 for repairs.

Bartering

Bartering is an exchange of property or services and oftentimes this slips through the tax-reporting cracks. But the IRS says even bartering is subject to taxation.

The fair market value of goods and services exchanged is fully taxable and must be included on Form 1040 in the income of both parties. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. Income from bartering is taxable in the year in which the taxpayer received the goods or services.

Gambling winnings

In most places, gambling is against the law. Even so, gambling winnings are fully taxable and must be reported on Form 1040.

Gambling income includes, among other things, winnings from lotteries, raffles, horse races, poker tournaments and casinos. It includes cash winnings as well as the fair market value of prizes such as cars and trips.

Even if a W-2G is not issued, all gambling winnings must be reported as taxable income regardless of whether any portion is subject to withholding. In addition, taxpayers may be required to pay an estimated tax on the gambling winnings.

Losses may be deducted only if the taxpayer itemizes deductions and only if he or she also has gambling winnings. The losses deducted may not be more than the gambling income reported on the return.

Prizes and awards

In most cases the cash value of prizes or awards won in a drawing, quiz show program, beauty contest, or other event, must be included on the tax return as taxable income. Taxpayers must also report the fair market value of merchandise or products won as a prize or award, as taxable income. For example, both a $500 cash prize and the fair market value of a new range won in a baking contest must be reported as other income on Form 1040, Line 21.

For more information about miscellaneous income reporting requirements, check out IRS Publication 525 - Taxable and Non-Taxable Income.

Explanation of miscellaneous income reporting requirements...

'Free' TurboTax Charges Usurious Interest Rates, Suit Alleges

Fees deducted from refund amount to quadruple-digit interest, suit claims

A federal class action lawsuit says Intuit charges usurious "quadruple-digit interest rates" as fees for using the "free" online edition of its TurboTax software.

Tasha and Frederick Smith say they used Intuit's online tax preparation software in 2009, 2010, and 2011. Each time, they say, they deferred paying the $86.90 fee to use the software, and chose to have it deducted from their tax refund, Courthouse News Service reported.

Intuit charged them another $29.95 for this, more than 34 percent of the $86.90 fee, the Smiths say. Their suit alleges that Intuit violates the Truth in Lending Act, and California business and usury laws.

The Smiths, who live in Arkansas, say that each year they received their refund from the IRS in about two weeks.

"Plaintiffs paid $29.95 for an approximate 14-day loan of $86.90," the complaint states. "The APR, properly calculated in accordance with TILA, was an exorbitant quadruple-digit interest rate. Such interest rates also violated California's usury laws."

Service fee

Intuit calls the $29.95 charge a Refund Processing Service Fee. The Smiths call it "a ruse and merely a device through which usurious interest would be exacted".

The Smiths may be onto something but, considering how distasteful the subject of taxes is, most consumers seem fairly satisfied with TurboTax.  We analyzed 74,000 consumer comments on Twitter, Facebook and other social media and found positive sentiment running high:

Most of the complaints we hear at ConsumerAffairs.com have to do with alleged errors and billing problems.

"D" of Mineola, Teas, for example, said that he used TurboTax Premier 2010. Software and that it allowed a passive loss on rental property even though his family's income was above $150,000.  The result was an IRS audit and $5,000 or so of additional taxes, penalties, interest and expense.

"T" of Deerfield Beach, Fla., also found himself in trouble with the IRS after using TurboTax.

"In 2010 I used a free version of Turbo Tax online," he said. "At that time of completing the taxes, I was only able to retrieve a cover page ... indicating the refund due me and four other lines. The 1040EZ was not attached. I saved what was available to my computer and was grateful I was receiving a refund."

But T's gratitude was short-lived: "Now, a year later I am being contacted by Internal Revenue citing I owe them as the witholding amount was different than that indicated on my W2."

A federal class action lawsuit says Intuit charges usurious "quadruple-digit interest rates" as fees for using the supposedly "free" online edition of its ...

New Form 1099-Ks Due January 31

Your part-time business may mean a new tax reporting requirement

If you own a business that accepts credit or debit cards, you will receive a new form – 1099-K – from your credit card processor by January 31. You'll file that with your tax return, as a statement of income.

The form must be generated to show the following transactions:

  • All payments made in settlement of payment card transactions (e.g., credit card); 
  • Payments in settlement of third party network transactions IF:
  • Gross payments to a participating payee exceed $20,000; AND
  • There are more than 200 transactions with the participating payee.

 That means if your business generated less than 20,000 in credit or debit card sales last year, or fewer than 200 credit or debt card transactions, you won't be getting a form and it isn't required as part of your return.

Filing deadlines and procedures

1099-Ks are due to merchants by January 31, 2012. Electronically filed 1099-Ks are due to the IRS April 2, 2012 (normally March 31), while paper 1099-Ks are due February 28, 2012.

It's not just banks and credit card companies that have to issue the new form. So do third party networks such as PayPal and Google. That's where some consumers could find themselves caught up in the new reporting requirements.

The IRS generally isn't interested in what you make at your annual yard sale. But if you have a booming business selling other people's unwanted junk on eBay, and you made more than 200 PayPal transactions totalling over $20,000, then you'll be getting a form and you have to file.

The new requirement is part of a law Congress passed in 2008 in an effort to help the IRS collect more revenue.

The new form 1099-K tracks credit and debit card sales...

Walmart Rolls Out Tax Preparation, Refund Check-Cashing Services

"Americans shouldn’t have to pay exorbitant prices on their everyday financial needs”

Walmart is offering new services that it says will help consumers save money on their income tax preparation and it's offering to cash their refund checks for $3 if the check is under $1,000 and $6 for checks up to $7,500.

Last year more than 60 million Americans didn’t have access to traditional banking services – such as credit cards and checking accounts – adding up to billions of dollars in fees paid by Americans who can least afford them, Walmart noted.

The average refund is $2,902 and many taxpayers spend up to $90 just to cash the check.

“We believe Americans shouldn’t have to pay exorbitant prices on their everyday financial needs,” said Daniel Eckert, vice president of Walmart Financial Services. “It’s their money and we want to make sure they can cash checks, pay bills and transfer money at a low price.”

Leading up to the biggest tax filing week of the year, January 16 through 22, Walmart said it has worked with Jackson Hewitt and H&R Block to double its in-store tax kiosks and lower the cost for tax preparation services.

Jackson Hewitt will offer free federal Form 1040EZ filing at its Walmart kiosks throughout the tax season and H&R Block will offer a free federal Form 1040EZ until February 29 for simple returns. H&R Block will have 250 kiosks in Walmart stores, while Jackson Hewitt is adding approximately 800 kiosks bringing their Walmart footprint to 2,800.  

“Customers need to make every dollar count in this tough economy, and that’s why we’re committed to helping customers pay less for their financial services during tax season and throughout the year,” said Eckert. “With more than 3,000 tax preparation kiosks in Walmart stores across the U.S. and low flat-fee check cashing services, our customers can conveniently make their refund dollars stretch farther by simply taking care of their tax needs at Walmart.”

Walmart is offering new services that it says will help consumers save money on their income tax preparation and it's offering to cash their refund checks ...

Gay Marriage Highlights Inequities in Tax Laws

Anti-tax rhetoric likely to be put to the acid test as gay couples assert their rights

We don't want to be the cause of any wedding bell blues but all the gay newlyweds in New York State need to keep in mind that the state's new same-sex marriage law doesn't cut much wedding cake come tax time.

While New York and a growing number of smaller states now recognize gay marriage, the Internal Revenue Service does not, thanks to the 1996 Defense of Marriage Act, which prohibits all federal agencies from recognizing same-sex marriages.

That means that same-sex couples are likely to face higher tax bills for health care, harsher estate-tax treatment and higher tax preparation costs.

This apparent inequity drew little attention when only a handful of relatively small states allowed gay marriage. But New York is not only the nation's third-most-populous state, it's also home to many of the richest, most influential and most litigious gay Americans.

After all, in a time when most state legislatures can't agree on whether or not to turn the lights on when it gets dark, New York's lawmakers and governor put up little resistance to legalizing same-sex marriage, thanks to a well-organized and very well-financed lobbying effort by the gay community.

This influential group is not likely to return meekly to the closet when it's time to cough up the annual tax payment. Count on some skillful use of the GOP's anti-tax rhetoric when New York's gay community takes the tax fight to Capitol Hill – and when the Obama Campaign's fundraisers come calling.

Health care

Perhaps the biggest inequity gay couples currently face involves company-paid health benefits. With many large employers paying for family health insurance for all married employees, those in same-sex marriages find themselves having to pay additional income tax on the benefits provided to their same-sex partners.

Some businesses now offer to reimburse employees for the additional tax they incur on such benefits but that raises the question of whether the reimbursement is taxable as income.

Of particular interest to affluent gay couples is the estate tax – or the "death tax," as the Tea Party and GOP call it. Currently, a heterosexual spouse can inherit money and property from a deceased marriage partner without tax penalties if the estate is under $5 million. Any amount over that is taxed at up to the top rate of 35 percent.  

Gay couples receive no such benefits and any assets left by one homosexual partner to another are subject to full taxation.  The "taxation without representation" argument is older than the United States and -- except for its feudal treatment of the District of Columbia -- is one that Congress finds difficult to resist.  

We don't want to be the cause of any wedding bell blues but all the gay newlyweds in New York State need to keep in mind that the state's new same-sex marr...

IRS Revokes Tax-Exempt Status of 275,000 Organizations

Contributions to the organizations will no longer be deductible

Before you make a tax-deductible gift to your favorite charity, make sure it's still a charity.  The Internal Revenue Service has announced that about 275,000 organizations have automatically lost their tax-exempt status because they did not file legally required annual reports for three consecutive years.

Consumer protection officials around the country have been warning consumers that contributions to these organizations will no longer be deductible and taxpayers could face penalties if they mistakenly claim deductions.

“Ohioans are very generous and support a wide variety of charitable organizations and causes,” said Ohio Attorney General DeWine. “It is important that Ohio charitable donors check if a non-profit has lost its tax-exempt status to know for sure if their gift will be tax deductible or not.”

The IRS said it believes the vast majority of these organizations are defunct, but it also announced special steps to help any existing organizations to apply for reinstatement of their tax-exempt status.

Congress passed the Pension Protection Act (PPA) in 2006, requiring most tax-exempt organizations to file an annual information return or notice with the IRS. For small organizations, the law imposed a filing requirement for the first time in 2007. In addition, the law automatically revokes the tax-exempt status of any organization that does not file required returns or notices for three consecutive years.

For several years, the IRS has made an extensive effort to inform organizations of the changes in the law through multiple outreach and education avenues, including mailing more than 1 million notices to organizations that had not filed.

In addition, last year the IRS published a list of at-risk groups and gave smaller organizations an additional five months to file required notices and come into compliance. About 50,000 organizations filed during this extension period.

Most are in compliance

Overall, the IRS believes the vast majority of small tax-exempt organizations are now in compliance with the 2006 law.

“During the past several years, the IRS has gone the extra mile to help make tax-exempt groups aware of their legal filing requirement and allow them additional time to file,” IRS Commissioner Doug Shulman said. “Still, we realize there may be some legitimate organizations, especially very small ones, that were unaware of their new filing requirement. We are taking additional steps for these groups to maintain their tax-exempt status without jeopardizing their operations or harming their donors.”

The list of organizations whose tax-exempt status has been revoked for failing to meet their filing requirement, available on the IRS website at www.IRS.gov, includes each organization’s name, Employer Identification Number (EIN) and last known address. It is searchable by state. It also includes the effective date of the automatic revocation and the date it was posted to the list. The IRS will update the list monthly to include additional organizations that lose their tax-exempt status.

This listing should have little, if any, impact on donors who previously made deductible contributions to auto-revoked organizations because donations made prior to the publication of an organization’s name on the list remain tax-deductible. Going forward, however, organizations that are on the auto-revocation list that do not receive reinstatement are no longer eligible to receive tax-deductible contributions, and any income they receive may be taxable.

IRS Revokes Tax-Exempt Status of 275,000 Organizations Contributions to the organizations will no longer be deductible...

IRS: Breast Pumps Now Deductible as Medical Expense

Ruling was long sought by pediatricians

The Internal Revenue Service has a Valentine's Day gift for nursing mothers: breast pumps and lactation supplies may now be taken as a medical deduction on your tax return, or can be reimbursed under flexible-spending accounts or health-savings accounts.

The ruling is effective immediately and documented expenses can be taken on 2010 returns.

(Read consumer complaints about tax preparation companies.)

Previously, the IRS had ruled that breast-feeding wasn't a health benefit. But now the agency has decided that, like obstetric care, breast pumps and related nursing supplies may be eligible.

In a classic bit of bureaucratic hair-splitting, the IRS cautions taxpayers that before claiming a deduction, taxpayers should be certain the item in question is used “primary for extracting milk or for other purposes.” What other purposes might those be? Good question.

Keep in mind that medical expenses are not deductible until they exceed 7.5 percent of adjusted gross income.

The American Academy of Pediatrics praised the ruling, saying it makes breast-feeding “a more practical option for new and working mothers.”

Consumers should consult their tax advisor for more information.

IRS: Breast Pumps Now Deductible as Medical Expense. Ruling was long sought by pediatricians...

How To Deduct Medical Expenses On Your Tax Return

It all depends on how much money you made

If you have a high-deductible health plan, or no plan at all, it's possible you spent money on health care in 2010. Keep in mind the Internal Revenue Service (IRS) allows you to deduct some of those expenses, if you meet certain criteria.

Qualifying expenses include those spent on yourself, your spouse and your dependents, and include both medical and dental expenses. The test by which you can determine whether you have a medical expense tax deduction has to do with the total amount of your expenses and how much you earned last year.

You may deduct only the amount by which your total medical care expenses for the year exceed 7.5% of your adjusted gross income (AGI). You do this calculation on Form 1040, Schedule A in computing the amount deductible.

For example, let's assume your AGI is $40,000. If you mulltiply that amount by 7.5% you get $3,000. If you paid $5,000 in medical expenses in 2010, which get to write off the amount that exceeds $3,000, which is $2,000. However, if you paid medical expenses totalled $2,500, you may not deduct any of your medical expenses because they are not more than 7.5% of your AGI.

What counts as medical expense?

A deduction is allowed only for expenses primarily paid for the prevention or alleviation of a physical or mental defect or illness. Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body.

These expenses include payments for legal medical services rendered by any medical practitioner and the cost of equipment, supplies, and diagnostic devices used for medical care purposes.

Medical expenses include insurance premiums paid for medical care or qualified long-term care insurance. The deduction for a qualified long-term care insurance policy's premium is limited. If you are self-employed and have a net profit for the year, you may be able to deduct (as an adjustment to income) amounts paid for medical insurance for yourself and your spouse and dependents.

You cannot take this deduction for any month in which you were eligible to participate in any subsidized health plan maintained by your employer or your spouse's employer. If you do not claim 100 percent of you self-employed health insurance deduction, you can include the remaining premiums with your other medical expenses as an itemized deduction on Form 1040, Schedule A. You may not deduct insurance premiums paid by an employer-sponsored health insurance plan (cafeteria plan) unless the premiums are included in Box 1 of your Form W-2.

Medical expenses may include:

  • Fees paid to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and Christian Science practitioners for medical care expenses
  • Payments for hospital services, qualified long-term care services, nursing services, and laboratory fees including the incidental cost of meals and lodging charged by a hospital or similar institution if your principal reason for being there is to receive medical care
  • Payments for acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction are also deductible medical expenses. You may include amounts you paid for participating in a smoking-cessation program and for drugs prescribed to alleviate nicotine withdrawal
  • The cost of participating in a weight-loss program for a specific disease or diseases, including obesity, diagnosed by a physician. In general, you may not deduct the cost of purchasing diet food items or the cost of health club dues
  • The cost of drugs is deductible only for drugs that require a prescription, except for insulin
  • Admission and transportation to a medical conference relating to the chronic disease of yourself, your spouse, or your dependent (if the costs are primarily for and essential to the medical care). However, you may not deduct the costs for meals and lodging while attending the medical conference
  • The cost of items such as false teeth, prescription eyeglasses or contact lenses, laser eye surgery, hearing aids, crutches, wheelchairs, and guide dogs for the blind or deaf, and
  • Transportation costs primarily for and essential to medical care that qualify as medical expenses. The actual fare for a taxi, bus, train, or ambulance can be deducted. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses. With either method you may include tolls and parking fees

 The medical care deduction is fully explained in IRS Publication 502.

You can deduct medical expenses if you meet certain criteria....

Deducting the Business Use of Your Home

It's a helpful deduction, but follow the rules closely

With rising unemployed, it's a safe bet that more people who lost a job last year decided to give up the rat race and start their own business and work from home. If so, you'll probably be writing off the business use of your dwelling.

While the Internal Revenue Service (IRS) provides many tax breaks for the business use of a home, there are many specific rules and requirements that must be followed. Perhaps most important, there must be a solid wall, figuratively at least, between personal and business uses. The two cannot mix.

If you have started a business, chances are you have already retained the services of an accountant. If not, it is highly advisable, especially to help you find your way through this part of the tax code. For starters, we'll provide an overview of what you can, and cannot, write off.

Home sweet home

When the IRS uses the term "home," it includes many types of dwellings. It can be a house, apartment, condominium, mobile home, boat, or similar property which provides basic living accommodations. It also includes structures on the property, such as an unattached garage, studio, barn, or greenhouse. You may take the deduction whether your own the property or rent it.

Generally, you cannot deduct items such as mortgage interest and real estate taxes as business expenses (they're already deductible on your personal return). However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements.

Even then, your deduction may be limited.

To qualify to deduct expenses for business use of your home, you must use part of your home:

  • Exclusively and regularly as your principal place of business,
  • Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business,
  • In the case of a separate structure which is not attached to your home, in connection with your trade or business,
  • On a regular basis for certain storage use,
  • As a daycare facility

Exclusive use

To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition.

You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Even if you use a personal area of your home occasionally for business purposes, it does not qualify as a business use deduction.

Regular Use

You must also use the business portion of your home on a regular basis. Incidental or occasional business use is not regular use. You must consider all facts and circumstances in determining whether your use is on a regular basis.

To qualify under the trade-or-business-use-test, you must use part of your home in connection with a trade or business. If you use your home for a profit-seeking activity that is not a trade or business, you cannot take a deduction for its business use.

You can have more than one business location, including your home, for a single trade or business. To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business.

Principal place of business

To determine whether your home is your principal place of business, you must consider the relative importance of the activities performed at each place where you conduct business, and the amount of time spent at each place where you conduct business.

Your home office will qualify as your principal place of business if you use it exclusively and regularly for administrative or management activities of your trade or business, or if you have no other fixed location where you conduct substantial administrative or management activities of your trade or business.

If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses.

After you determine that you meet the tests under Qualifying for a Deduction, you can begin to figure how much you can deduct. You will need to figure the percentage of your home used for business and the limit on the deduction. This is where you probably need some accounting help.

If you decide to go it alone, or just want to better understand the process, IRS Publication 587 covers it in detail.

The IRS allows you to deduct the business use of your home, but there are many rules that must be followed....

Feds Reach Americans with Disabilities Act Settlement With H&RBlock

Tax preparation firm will make greater efforts to facilitate communication with its disabled clients

The Justice Department DOJ) has reached a comprehensive settlement agreement under the Americans with Disabilities Act (ADA) with HRB Tax Group Inc., H&R Block Tax Services LLC and HRB Advance LLC (H&R Block).

As part of the agreement, Block will strive to ensure effective communication with individuals who are deaf or hard of hearing in the provision of income tax preparation services and courses at more than 11,000 owned and franchised offices nationwide.

Sign language provision

The settlement agreement, which resolves an ADA complaint filed by an individual who is deaf, requires, among other things, that H&R Block furnish appropriate auxiliary aids and services -- including sign language interpreter services -- when necessary to afford a person who is deaf or hard of hearing equal access to the goods, services and accommodations made available to others.

"By signing this agreement, H&R Block has affirmed its commitment to providing effective communication with people who are deaf and hard of hearing not only at their tax preparation offices in San Antonio, where the complaint originated, but at their locations across the country," said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division. "The agreement will ensure that individuals who are deaf or hard of hearing have equal access to tax preparation services at more than 11,000 offices nationwide."

Provisions

The agreement requires that H&R Block:

  • Provide auxiliary aids and services, including qualified sign language interpreters, to persons who are deaf or hard of hearing when necessary to ensure effective communication of its tax preparation services, programs and courses;
  • Adopt and enforce a policy on effective communication with individuals who are deaf or hard of hearing for all H&R Block offices nationwide, post the policy on its websites and in its employee manuals, and distribute the policy to current and new employees and contractors;
  • Establish and maintain a list of sign language interpreter providers;
  • Post and maintain in a conspicuous location in all reception areas of H&R Block offices a notice stating that individuals who are deaf or hard of hearing have a right under the ADA to request a sign language or oral interpreter or other form of auxiliary aid or service if needed;
  • Provide staff training on the ADA and H&R Block’s obligations to provide effective communication to individuals with disabilities;
  • Monitor franchisees' compliance with this requirement consistent with monitoring of compliance with the franchise agreements and other requirements of federal, state or local laws; and
  • Pay $5,000 damages to the individual who filed an ADA complaint and a $20,000 civil penalty.

ADA requirements

The ADA prohibits discrimination against customers with disabilities by businesses that serve the public. Among other things, the act requires tax preparation services, accountants, lawyers, doctors and other businesses to provide equal access to customers who are deaf or hard of hearing.

When services such as tax preparation involve important, lengthy or complex oral communications with customers, businesses are generally required to provide qualified sign language interpreters and other auxiliary aids, free of charge, to individuals who are deaf, are hard of hearing or have speech disabilities.

Other auxiliary aids may include the use of relay services for telephone communication, exchanging notes for brief and uncomplicated communications, providing assistive listening systems and receivers in classes for attendees who are hard of hearing, and providing captioned videos.

The appropriate auxiliary aid to be provided depends on a variety of factors including the nature, length and importance of the communication; the communication skills and knowledge of the individual who is deaf or hard of hearing; and the individual’s stated need for a particular type of auxiliary aid.

Auxiliary aids must also be provided for individuals who are blind or have low vision, such as materials in Braille, large print or accessible electronic formats such as email or HTML, qualified readers and assistance in filling out forms.

Feds Reach Americans with Disabilities Act Settlement With H&R BlockTax preparation firm will make greater efforts to facilitate communication with its...

When Deducting Mileage, Keep Careful Records

The mileage deduction can add up, but you may be asked to provide proof

The Internal Revenue Service (IRS) allows you to deduct mileage on your personal vehicle under certain circumstances. But you need to know what those circumstances are, and keep careful records.

For example, the IRS allows business owners using their vehicle for company business to deduct 50 cents per mile driven on their 2010 tax return. The rate also has been set for 2011 at 51 cents per mile.

You can also deduct what are called “medical miles.” These are trips to the doctor or for medical treatment. Mileage can be deducted at 16.5 cents per mile for 2010 and 19 cents per mile for 2011.

If you do volunteer work for a qualified charity, the IRS allows you to deduct mileage at the rate of 14 cents per mile, for both 2010 and 2011.

Estimates won’t cut it

But you can’t guess or estimate at the mileage. The IRS will want to see a log of the travel, made at the time the mileage is incurred. The log needs to show the mileage at the start of the trip and at the end, along with the date and purpose of the trip.

Some examples of mileage that can be deducted as business travel include:

  • If you work from a home office -- driving from your home office to meet a client for business purposes
  • When you drive to a bank to make deposits or other business transactions
  • When you drive to pickup mail from your P.O. Box or from your UPS Store
  • When you drive to the Post Office to buy stamps (for your business of course) or send business mail
  • When you drive to an office supply store to make purchases for your business

Technology aid

The CarCheckup is a device made to provide diagnostic help for carowners. It works with foreign and domestic makes, starting with the 1996 model year. It can tell owners how the engine is performing and why, for example, the “check engine” light is on.

But the company also says it can be useful if you need to keep a log of your mileage for tax purposes.

“Consumers are equipping themselves with a gadget that lets them track and store vehicle mileage online so it’s simple to deduct from their taxes,” said company spokesman Jim Hoff.

The cellphone-sized device plugs directly into your car’s diagnostic port, required on all vehicles made after 1996 and usually located just under the steering column, and records information from the vehicle’s computer while you drive. Then, you remove it, swing out the build-in USB port, and plug it into your computer. CarCheckup will automatically upload your car’s data including the date, time, mileage and more for each trip.

Hoff quotes the IRS as saying “if you prepare a record in a computer memory device with the aid of a logging program, it is considered an adequate record."

You can check out the IRS rules on business travel here.

If you choose to deduct vehicle mileage, keep in mind that you can’t deduct gasoline purchases or maintenance expenses. However, you may be able to deduct fees and taxes, interest on your vehicle loan, and qualifying tolls and packing expenses. Check with your accountant or tax professional to make sure you qualify for a mileage deduction.

A technological aid might help you keep track of deductible vehicle miles....

College Students Reminded About Education Tax Credit

Opportunity credit has been expanded

As you may know, a tax credit is much better than a tax deduction, and Treasury Secretary Tim Geithener is reminding college students to take advantage of a significant tax credit for tuition expenses.

The tax benefit is provided under the American Opportunity Tax Credit (AOTC), which allows parents and students to receive a tax credit of up to $2,500 for college expenses. Geithener says it can help make postsecondary education a reality for many students and families.

A recent Treasury Department analysis shows that 9.4 million families with college students are expected to benefit from the credit in 2011.  The AOTC is expected to provide $18.2 billion in tax relief to make college more affordable next year, and families are expected to benefit from an average credit of $1,900.

"America's prosperity depends on the economic policies we pursue to strengthen our nation's competitiveness," Geithener said.  "And the strength and competitiveness of our nation will depend largely on continuing to have the best educated students in the world."

Tax credit is expanded

The Obama Administration extended the AOTC, which was initially created under the Recovery Act, for an additional two years as part of the year-end tax cut package the President signed last month.  The AOTC replaced the Hope credit for 2009 and 2010 and with this extension will continue to do so for 2011 and 2012.

While the AOTC will provide greater benefits in the future, it's also helping students who have qualified education expenses in 2009 and 2010. Taxpayers will receive a tax credit based on 100 percent of the first $2,000 of tuition, fees and course materials paid during the taxable year, plus 25 percent of the next $2,000 of tuition, fees and course materials paid during the taxable year, according to the Internal Revenue Service (IRS).

For students claiming the maximum credit for these four years, the AOTC will provide up to $10,000 to help pay for the cost of college. The maximum available credit this year would cover about 80 percent of tuition and fees at the average two-year public institution, or about a third of tuition and fees at the average four-year public institution in 2011, according to a new Treasury analysis.

Improving on Hope

Geithener says The AOTC improves on its predecessor, the Hope credit, by providing larger tax cut for almost all students, applying to the first four rather than two years of college, and covering text books, a substantial cost to the typical college student, while the Hope credit did not. 

In addition, the AOTC is partially refundable, meaning that families with no federal income tax liability can receive the credit. These families are expected to receive more than $4 billion in refunds from the AOTC in 2011.  In addition, more families are eligible for larger credits because the income limits were expanded compared to the Hope credit.

Along with the tax credit, Secretaries Geithner and Duncan highlighted several other initiatives the Administration has undertaken to make college more affordable and accessible, including simplifying the Free Application for Federal Student Aid and increasing Pell grants, which are the main source of federal aid for low-income students enrolled in institutions of higher education.

A taxpayer who pays qualified tuition and related expenses and whose federal income tax return has a modified adjusted gross income of $80,000 or less ($160,000 or less for joint filers) is eligible for the credit. The credit is reduced ratably if a taxpayer's modified adjusted gross income exceeds those amounts. A taxpayer whose modified adjusted gross income is greater than $90,000 ($180,000 for joint filers) cannot benefit from this credit.

The Treasury Department is reminding college students and their families to take advantage of the Opportunity Tax Credit....

Treasury Launches Pilot Program for Convenient Tax Refunds

Program using prepaid debit and payroll cards would also make refunds fast and safe

Just in time for tax season, the U.S. Department of the Treasury is launching a pilot program to offer taxpayers a safe, convenient and low-cost financial account for the electronic delivery of their federal tax refunds. 

The new account card option provides everyday money-saving conveniences and consumer protection features for taxpayers with limited or no access to traditional banking services.

“This pilot program will provide low- and moderate-income Americans with a low-cost option for faster delivery of their federal tax refund,” said Deputy Secretary of the Treasury Neal Wolin. “This innovative card can be used for everyday financial transactions, such as receiving wages by direct deposit, withdrawing cash, making purchases, paying bills and building savings safely and conveniently, giving users more control over their financial futures.”

Prepaid debit cards

As the next step in this pilot, originally announced in September, Treasury is mailing letters to 600,000 low- and moderate-income individuals nationwide.  The letters will invite these taxpayers to consider activating a MyAccountCard Visa® Prepaid Debit Card in time to have their 2010 federal tax refund direct deposited to the card. 

Compared with paper checks, direct deposit provides a safer, faster and more convenient way to receive a federal tax refund as well as other regular income.

Payroll cards

Treasury also is beginning a companion pilot to encourage tens of thousands of current and potential payroll card users to direct deposit their 2010 federal tax refund onto existing payroll cards.  Nationwide, more than 1.7 million workers use payroll cards to receive and access their wages, often because they do not have bank accounts. 

Working with ADP, a provider of payroll services, Treasury will highlight the safety, ease and convenience of direct deposit onto payroll cards through tax season communications, including materials distributed with pay statements.

Card advantages

The letters mailed to taxpayers about MyAccountCard contain information about the card’s features, including free services and the fee structure for optional services.  Many of the features, including free point-of-sale transactions, free online bill pay, free ATM cash withdrawals at more than 15,000 ATMs nationwide, and free cash back at participating retail stores, will help cardholders limit the costs of using the card. 

The information also explains how to sign up, and how to use the card to receive a federal tax refund and conduct everyday financial transactions.

As part of the pilot, Treasury will randomly offer several different variations of MyAccountCard in order to evaluate which product features, fee structures and marketing messages generate the greatest positive response from taxpayers.  The results of the pilot will help determine the benefits and feasibility of a card account as an integrated part of the tax filing and refund process.

Treasury Launches Pilot Program for Convenient Tax Refunds Program using prepaid debit and payroll cards would also make refunds fast and safe ...

'Tax Resolution' Firm Charged With Misleading Customers

Texas AG cites nearly 1,000 complaints about defendants' conduct and business practices

May 14, 2010
A company that purports to help consumers who are having tax problems has problems of its own in Texas.

Houston-based TaxMasters, Inc., and its chief executive officer, Patrick Cox, are facing multiple violations of the state's Deceptive Trade Practices Act and Debt Collection Act.

According to the enforcement action filed by Attorney General Greg Abbott, the defendants unlawfully misled customers about their service contract terms, failed to disclose its no-refunds policy, and falsely claimed that the firm's employees would immediately begin work on a case -- despite the fact that TaxMasters did not actually start to work on a case until its customers paid in full for services, even if that delayed response meant taxpayers missed significant IRS deadlines.

"In the midst of a national economic downturn, TaxMasters used a nationwide marketing campaign to offer services for distressed taxpayers who needed help dealing with the IRS," Abbott said. "A state investigation and nearly 1,000 customer complaints indicate that the defendants routinely misled customers about the nature of their tax resolution service agreements -- and worse, attempted to enforce those improper agreements through unlawful debt collection tactics. The state's enforcement action seeks to prohibit the defendants from continuing to violate the law and seeks restitution for the financially struggling taxpayers who were harmed by the defendants' unlawful conduct."

TaxMasters advertises a tax resolution service for federal taxpayers who have received notice from the IRS of an audit, garnishment, lien, levy or tax deficiency. Citing a self-styled "national advertising campaign" and high-profile "endorsements," the company claims to have "one of the most effective tax relief teams in the tax representation business."

However, a state investigation -- and nearly 1,000 complaints submitted to the Office of the Attorney General and the Better Business Bureau of Houston -- indicate the defendants have unlawfully misled their customers and failed to disclose material facts about their service agreements.

'Free' coonsultation

TaxMasters' ads encourage taxpayers to call its toll-free number for a "free consultation" with a "tax consultant." Court documents indicate callers are not connected to an employee qualified to give tax advice, but rather with a TaxMasters sales representative who recommends a "solution" for between $1,500 and $9,000 or more.

According to court documents, many callers were offered an installment plan so that they could pay the defendants' fee over a specified period of time. However, callers who asked to see written terms and conditions prior to making a payment were informed that a credit card or bank account number is necessary to generate a written TaxMasters service contract.

As a result, TaxMasters customers were unaware -- and the defendants' personnel did not have a practice of disclosing -- multiple aspects of the TaxMasters service agreement that were harmful to taxpayers.

For example, the company did not disclose that all customer payments submitted to TaxMasters are non-refundable. Because customers were not provided written contracts and sales personnel did not reveal the no-refunds policy, customers did not know that they would not be able to recover any installment payments they submitted to TaxMasters -- even if they ultimately decide to cancel before TaxMasters actually did any work on their tax case.

The state's enforcement action also cites TaxMasters for failing to reveal that it would not begin work on a case until all installment payments had been remitted and the entire fee was paid. Multiple complaints indicate that customers entered into an installment agreement with the understanding that TaxMasters would immediately begin work on their case -- only to discover later that no action was taken.

Customers often learned there was a problem when they received a notice from the IRS indicating that an important deadline had been missed or that additional fees and penalties had accrued.

Court documents also indicate the defendants failed to disclose TaxMasters' requirement that customers pay the entire service fee -- even if they opt to cancel their contract. Because customers are not provided a written contract, they were not properly informed that agreeing to make a single payment over the telephone obligated them to pay the entire fee quoted by sales personnel.

Further, not only did TaxMasters attempt to obligate its customers to a fee in the absence of a signed contract, the defendants used unlawful debt collection tactics to enforce the unauthorized obligation.

Failure to disclose

According to the state's enforcement action, the defendants not only failed to disclose material terms and conditions governing its services, but also failed to properly provide the "tax resolution" services that were advertised.

Customer complaints obtained by the AG's office cite TaxMasters for failing to contact and consult with the IRS on the client's behalf; failing to appear on the client's behalf at an IRS audit or hearing; failing to postpone or stop a wage or bank account garnishment; and failing to stop a levy or lien against a client's property.

When customers who were unhappy with the defendants' services sought refunds, TaxMasters refused to return the customers' money. Court documents indicate TaxMasters not only refused to honor refund requests, it also pursued debt collection efforts against clients who cancelled their contracts.

The state's enforcement action also charges TaxMasters with unlawfully threatening to pursue customers in Harris County courts, even if those customers did not reside in the county. Under Texas law, entities seeking to enforce a consumer contract can only do so in a county where the agreement was executed or where the consumer resides.

The AG is seeking restitution for each TaxMasters customer who was financially harmed by the defendants' unlawful conduct. In addition, it is asking for civil penalties of up to $20,000 for each violation of the Texas Deceptive Trade Practices Act.

'Tax Resolution' Firm Charged With Misleading Customers...

Liberty Tax Service Barred From Deceptive Ads

California takes out preparer for deceptive advertising

Liberty Tax Service — the nation's third largest tax preparer — has been barred from deceptive advertising that "blurs the line" between tax refunds that are free and high-cost loans. The order stems from a suit filed by the state of California.

"Liberty Tax Service lured cash-strapped Californians into paying for high-cost loans, when they could obtain tax refunds free from the IRS just weeks later," said California Attorney General Edmund G. Brown Jr., who won the ruling in a lawsuit. "This ruling bars Liberty from deceptive advertising that blurs the line between IRS tax refunds and pricey loans."

Liberty's print and television ads misled customers by promising "Most Refunds in 24 Hours." In reality, Liberty was selling refund anticipation loans, not a tax refund.

Customers had to pay an upfront fee of about $30 plus interest, at a rate that could be as high as 395 percent annually. By contrast, tax refunds are available at no charge from the IRS and generally arrive anywhere from 8 days to 4 weeks after returns are filed.

In February 2007, Brown filed suit in San Francisco Superior Court against Liberty Tax Service as part of an effort to stop deceptive marketing associated with Refund Anticipation Loans. Brown reached settlements with Jackson Hewitt in 2007 and with H&R Block in 2009 over similar claims.

The ruling holds Liberty responsible for its deceptive marketing, which also included print ads that failed to include disclaimers mandated by law and television ads that included those disclaimers, but so briefly and in such faint type that the Court said they were "plainly designed to be overlooked by consumers."

According to the IRS, refund anticipation loans target low-income taxpayers, especially those who receive the Earned Income Tax Credit. Approximately 70 percent of Liberty Tax Service's refund anticipation loan customers in 2006 and 2007 received this credit.

The ruling:

• Bars Liberty Tax Service from using false or misleading advertising to sell tax refund loans;

• Requires the company to review and monitor the ads run by its California franchisees;

• Requires the company to discipline franchisees that fail to receive approval of their ads from Liberty and report those franchisees to the Attorney General; and

• Requires the company to pay $1.16 million in civil penalties, $135,886 in restitution, and the Attorney General's costs.

Two violations of the advertising provisions of the injunction by a single franchisee will result in a $15,000 fine; a third violation requires the termination of the franchisee. The injunction also imposes limitations on Liberty's ability to collect, on behalf of itself or others, money supposedly due from its customers for previous years' tax refund loans.

The judgment requires Liberty Tax Service to inform these alleged debtors of supposed debts before the consumers takes any step that would commit them to having any amount of the alleged debt deducted or withheld even temporarily from their refund. This is a significant modification of Liberty Tax Service's past collection practices.

Consumer advocates and policymakers, including the U.S. Taxpayer Advocate, have sharply criticized such practices for years.

Liberty Tax Service the nation's third largest tax preparer has been barred from deceptive advertising that "blurs the line" between tax refunds that are f...

Scam Artists Jump on Tax Rebate Plan

Need Social Security number to issue check, callers tell victims


Con artists in Missouri are exploiting consumers' hopes of receiving hundreds of dollars in tax rebates -- proposed under last week's federal economic stimulus package -- in their latest scheme.

The Federal Bureau of Investigation (FBI) today warned taxpayers that scam artists are contacting consumers at home and claiming to be with the Internal Revenue Service (IRS). The con artists tell consumers they need their Social Security and bank account numbers to send their rebate checks.

But this is simply a ploy to steal consumers' identity, FBI officials said.

"They're calling people on the phone and asking for their personal information, and the people are thinking they're going to get some money quicker than they normally would," Special Agent Jeff Lanza, spokesman with the FBI Bureau in Kansas City, told WDAF-TV.

Lanza said four Kansas City consumers have received these calls and his office is worried some unsuspecting taxpayers might fall for this scam.

"It's got credibility because it's been in the news," Lanza told reporters. "Everyone is talking about the rebate. They'll probably get more people to respond because of that."

Lanza, however, said the IRS would never ask consumers for such personal information over the phone or through e-mail. Neither would any other governmental agency.

And Congress has not yet approved the tax-rebate plan.

Consumers who receive these calls should immediately hang up, FBI officials said.

More Scam Alerts ...

Scam Artists Jump on Tax Rebate Plan: Con artists in Missouri are exploiting consumers' hopes of receiving hundreds of dollars in tax rebates in their late...

Tax Breaks for Family Caregivers

Elderly parents may qualify as dependents


If youre supporting an elderly parent, you may qualify for some tax relief if you pass Uncle Sams tax test. Heres what you should know.

If youre supporting your elderly mother (or father), to get a tax deduction, youll need to claim her or him as a dependent on your tax return. For the 2007 tax year, claiming an additional personal exemption would reduce your taxable income by $3,400. But to get this tax break, youll need to pass two tests:

Income test: To qualify as a dependent, your parents 2007 income must be less than $3,400. Her income from Social Security does not count towards that total (disability payments dont count either). But if your parent receives more than $3,400 from other sources, such as pension benefits, interest and dividends from investments, or withdrawals from retirement savings plans, you cant claim him or her as a dependent.

Support test: In addition to the income test, you must provide more than half of your parents costs for housing, food, medical care, transportation and other necessities. Even if all your mother's or dad's income is from Social Security, you cant claim him or her as a dependent unless you pay more than half your parent's living expenses.

Note: Your parent doesnt have to live with you to qualify as a dependent, as long as she meets the income test and you provide more than half her financial support.

If your mother lives with you, you can include a percentage of your mortgage, utilities and other expenses in calculating how much you contribute to her support. IRS Publication 501 has a worksheet that can help you with this.

Shared support

If you share the financial responsibility for your mother with other siblings, you may be eligible for the IRS multiple-support declaration.

Heres how it works. If one sibling is providing more than half the parents financial support, only that sibling can claim the parent. But if each sibling provides less than 50 percent support, but their combined assistance exceeds half the parents support.

In that case, any sibling who provides more than 10 percent can claim the parent as a dependent. But only one sibling can claim the tax break in any given year. Siblings can rotate the tax break, with one claiming the parent one year and another the next. The sibling who claims the parent as a dependent will need to fill out IRS Form 2120 and file it with his or her tax return.

Medical deductions

If you cant claim your mom as a dependent, you may still get a tax break for helping pay her medical costs. The IRS lets taxpayers deduct money spent on a parents health care and qualified long-term care services, even if the parent doesnt qualify as a dependent.

To claim this deduction, you still must provide more than half your moms support, but your mom doesnt have to meet the income test. And the deduction is limited to medical, dental and long-term care expenses that exceed 7.5 percent of your adjusted gross income. You can include your own medical expenses in calculating the total. See the IRS publication 502 Medical and Dental Expenses, for details.

Savvy Tips: You can access, download and print any of the IRS publications and forms mentioned in this column at www.irs.gov. Or call 800-829-3676 and they will mail them to you.

And for help preparing your taxes, dont forget about AARPs Tax-Aide program. A free tax preparation and counseling service available to all taxpayers, middle and low income, with special attention to those 60 years and older and you dont have to be an AARP member to get help. To locate a Tax-Aide site near you, call 888-227-7669 or visit www.aarp.org/taxaide.

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Jim Miller is a contributor to the NBC Today show and author of The Savvy Senior books.

If youre supporting your elderly mother (or father), to get a tax deduction, youll need to claim her or him as a dependent on your tax return....

Paying Taxes With Your Credit Card Can Get Expensive


More and more Americans are paying their tax bill with their credit cards. Some card issuers are even offering incentives for paying the bill using their card.

Though the convenience and added perks may sound like a great deal, the Association of Independent Consumer Credit Counseling Agencies (AICCCA) suggests consumers take a second look before charging their taxes.

"Consumers would be wise to consider all payment options and avoid charging their tax bills if other payment arrangements are available," said AICCCA President David Jones. "With some 50 percent of credit card users revolving a balance monthly, adding to those balances is not a good idea."

AICCCA advises consumers consider the following before charging their tax bills:

• You will pay more than the amount owed the IRS. The convenience of charging your tax obligation comes with a 2.49 percent fee assessed by the third-party company that processes the transaction. If your tax liability were $3,000, your total charge would be $3,074.70.

• A reward from your card issuer may not be cost effective. For those consumers that want to cash in on double air miles or other incentives, check the math and determine if the reward outweighs the processing fee to use your credit card.

• Revolving the tax charge on your credit card will increase your total tax bill. Consumers who will be charging to a credit card account would be wise to determine how long it will take to pay off the charge. Interest charges add up quickly and your tax bill could end up costing you much more than the original amount if the balance will not be paid within 90 days or so. A $3,000 balance at the average annual interest rate of 13 percent is up to an additional $32.50 per month in interest charges.

• Adding tax bill to a credit card with an existing balance could spell disaster. With the universal default clause that is buried in the fine print of many consumers' credit card agreements, a missed payment on any account could mean an automatic increase in annual interest rate charges to 30 percent or more. The last thing you want to do is pay a 30 percent surcharge on your tax liability until the entire balance of your card is paid off.

Paying Taxes With Your Credit Card Can Get Expensive...

Court OKs Class Action Against H&R Block

A Pennsylvania appeals court has ruled that lawsuits accusing H&R Block Inc. of charging unnecessary fees for filing tax forms electronically can be treated as class actions and don't have to be arbitrated.

Erin McNulty and Brian Erzar sued block, claiming the company charged clients millions of dollars in unnecessary e-filing fees. The plaintiffs alleged that Block did not adequately indicate that customers could avoid the fees by filing traditional paper returns.

Block's lawyers argued that a provision in a separate contract that the clients signed with Household Bank requires any claims to be settled through arbitration, not a class action. The agreement with Household Bank was for refund anticipation loans related to the clients' tax returns.

But in the court's opinion, Pennsylvania Superior Court Judge Richard Klein held that an e-filing fee was a separate and distinct transaction from the application for the loan and wasn't covered by the arbitration clause.

"The trial court found that charging a fee to push the 'send' button (basically the equivalent of putting a stamp on an envelope) was too attenuated to the loan application process and so was exempt from the arbitration case," Klein wrote.

"We believe the court's decision runs counter to the weight of state and federal law, and are considering an appeal of the decision to the Pennsylvania Supreme Court," Block said in a statement.

The case now returns to the Lackawanna County, Pa., Court of Common Pleas for trial.

Block has faced consumer class actions and criticism dating to the mid-1990s for how it hss marketed its high-interest refund anticipation loans.

The company settled a Texas lawsuit in June that called for it to distribute $26 million in cash, as well as tax preparation and software coupons, to 700,000 tax service customers. In April, a federal judge in Chicago rejected Block's proposed settlement in a similar class-action suit. That suit is pending.

A Pennsylvania appeals court has ruled that lawsuits accusing H&R Block Inc. of charging unnecessary fees for filing tax forms electronically can be treate...