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Trump administration’s payroll tax deferral plan takes effect starting today

Beware that employers can take applicable tax payments out of an employee’s paycheck down the road

A good news/bad news story for taxpayers from the Internal Revenue Service (IRS) came Tuesday, the first day of President Trump’s payroll tax deferral.

The good news is that American workers who signed up and took part in the program will see a temporary bump up in their take-home pay. 

The bad news is that they’ll probably see smaller paychecks in early 2021.

Who’s affected?

Under the order, affected workers would be:

  • Employees who will be compensated for any work between September 1, 2020 and December 31, 2020; and 

  • Employees whose pretax, bi-weekly paycheck is less than $4,000.

Those workers have an obligation to pay a 6.2 percent Social Security tax on each paycheck, with their employers picking up the responsibility for a separate 6.2 percent. Both workers and employers will also split a 2.9 percent tax to support the Medicare program. 

Get ready for the rollercoaster

Experts had previously criticized the deferral as being vague, but there are some salient points every applicable taxpayer needs to know because this deferral could also be called a rollercoaster ride.

Until the end of the year, employees who take part in the deferral can count on an interim boost in their take-home pay, but they may be shocked come January when they see that bump headed the other way. 

The simple reason is that employers have to start paying the payroll tax effective January 1, 2021. Those employers have until April 30, 2021 to pay the “applicable taxes” or interest and penalties will begin to pile on. 

And that might create a sticky wicket that taxpayers may not like. According to the order, to fulfill the obligatory taxes, the employer “may make arrangements to otherwise collect the total Applicable Taxes from the employee.” 

A good news/bad news story for taxpayers from the Internal Revenue Service (IRS) came Tuesday, the first day of President Trump’s payroll tax deferral....
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IRS to send stimulus checks to 50,000 spouses that never received one

Taxpayers left out by the mistake should receive their checks by mid-September

There’s cause for celebration for some 50,000 Americans whose portion of the economic impact payments (EIP) -- aka the stimulus check -- was rerouted to pay their spouse's past-due child support. 

The Internal Revenue Service (IRS) says that the catch-up payments are scheduled to be issued sometime in early-to-mid-September. The checks will be mailed to any eligible spouse who submitted Form 8379, Injured Spouse Allocation when they submitted their 2019 (and, in some situations, their 2018) federal income tax return. The IRS said that it will automatically issue the portion of the EIP that was applied to the other spouse's debt.

Didn’t file a Form 8379?

The IRS says that there were some taxpayers who failed to file a Form 8379, and because of that, they did not receive their portion of the EIP. 

“These individuals also do not need to take any action and do not need to submit a Form 8379,” the IRS said. The agency noted that it “does not yet have a timeframe but will automatically issue the portion of the EIP that was applied to the other spouse's debt at a later date.”

Taxpayers who were affected by the mistake can keep tabs on where their check is in the IRS’ pipeline by using the agency’s Get My Payment tool. For more information, the IRS suggests reading the Receiving My Payment section of the Frequently Asked Questions in the Economic Payment Information Center on IRS.gov.

There’s cause for celebration for some 50,000 Americans whose portion of the economic impact payments (EIP) -- aka the stimulus check -- was rerouted to pa...
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IRS reminds taxpayers that unemployment income is taxable

Consumers may want to pay some of those taxes now to avoid a bigger bill in 2021

Those $600 unemployment checks might have been a welcome relief to those whose jobs are impacted by the COVID-19 pandemic, but the Internal Revenue Service (IRS) is reminding recipients that unemployment compensation is taxable. The agency advises that these consumers might want to have some tax withheld now and avoid a tax-time surprise come April 15, 2021.

Unemployment compensation is taxable under United States law, even if it comes from the unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

What to consider other than just unemployment

The IRS suggests that taxpayers take a look at more than just their unemployment compensation from the state and federal governments. Other types of payments taxpayers should check their withholding on include:

  • Railroad unemployment compensation benefits;

  • Disability benefits paid as a substitute for unemployment compensation;

  • Trade readjustment allowances under the Trade Act of 1974;

  • Unemployment assistance under the Disaster Relief and Emergency Assistance Act of 1974; and

  • Unemployment assistance under the Airline Deregulation Act of 1978 program.

The decision is up to the taxpayer

Withholding is completely voluntary, and some consumers might be banking on a return to work at some point and could use the unemployment benefits in the meantime.

However, if a taxpayer can afford to use $60 out of a hypothetical $600 unemployment check to cover their tax liability, then the IRS says that’s a smart thing to do. It may pinch a bit now, but it could save having to write a bigger check in the long run or help consumers avoid the necessity of a smaller return.

Unemployment compensation recipients who return to work before the end of 2020 should use the IRS Tax Withholding Estimator to make sure they’re having enough tax dollars taken out of their pay and won’t be facing a bill to the IRS in 2021.

To go in that direction, the steps are pretty simple: 

  • Fill out  Form W-4V, Voluntary Withholding Request (PDF), and 

  • Give it to the agency paying the benefits, rather than sending it to the IRS. 

  • If the payor has its own withholding request form, use it instead.

For recipients who don’t choose withholding -- or if withholding is not enough -- they can opt to make quarterly estimated tax payments instead. The payment for the first two quarters of 2020 was due on July 15, but it’s possible that the IRS won’t penalize you given the situation with the pandemic. 

Third and fourth quarter payments are due on Sept. 15, 2020 and Jan. 15, 2021, respectively. For more information, including some helpful worksheets, see Form 1040-ES and Publication 505, available on IRS.gov.

Those $600 unemployment checks might have been a welcome relief to those whose jobs are impacted by the COVID-19 pandemic, but the Internal Revenue Service...
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IRS debunks myths about income tax refunds

The only real trick to a quicker refund is going the electronic route and checking the status online

Now that most of America has gotten their July 15 tax deadline out of the way, the Internal Revenue Service (IRS) wants to remind taxpayers that there is no secret formula they can use to find out when their refund will show up in the mail or in their bank account.

Actually, there are several myths that the IRS would like to debunk, with each one representing a heading shown below.

Getting a refund this year means there's no need to adjust withholding for 2020

Not true. To help avoid being surprised next year, the IRS says taxpayers should make changes now. One suggestion consumers can follow is to adjust their tax withholding with their employer to help guarantee that neither too much nor too little tax is withheld from their paycheck. 

There’s also a tool called the Tax Withholding Estimator which will help taxpayers figure out the right amount.

Calling the IRS or a tax professional will provide a better refund date

Again, not true. You can call the IRS or a tax professional all you want, but that will not expedite getting a refund. If someone tells you they know someone on the inside at the IRS or their tax preparer can get you a refund faster, don’t take the bait. 

Sure, you can call the IRS’s automated refund hotline at 800-829-1954, but you’ll get the same information from the "Where's My Refund?" widget on the IRS’ website. If the IRS needs a taxpayer to call them, they will be notified via that same widget.

Ordering a tax transcript is a secret way to get a refund date

Another no. Ordering a tax transcript does nothing -- zero, zilch, nada -- to help taxpayers find out when they will get their refund, and it does not accelerate the issue date of a refund. 

The “Where's My Refund?” tool is wrong because there's no deposit date yet

Straight from the horse’s mouth, the IRS says this about that: 

“When Where's My Refund? shows the tax return status is received it means that we have received the tax return and are processing it. Some returns may take longer to process than others and needs further review. This includes when a return:

  • Includes errors

  • Is incomplete

  • Is affected by identity theft or fraud

  • Includes a Form 8379, Injured Spouse Allocation, which could take up to 14 weeks to process”

If the IRS needs more information to process a tax return, they will contact the taxpayer by mail, not phone or email.

Something is wrong when the refund amount is less than expected

There are instances when a taxpayer gets a refund that is smaller than what they think it should be. The IRS says that happens, but the agency has these reasons why:

  • Taxpayer math errors or mistakes

  • Owing federal or state taxes, child support, student loans, or other federal non-tax obligations

  • A portion of the refund is held while IRS reviews an item claimed on the return

If and when this situation happens, the IRS will mail a letter explaining why adjustments were made. Some taxpayers may also receive a letter from the Department of Treasury's Bureau of the Fiscal Service if their refund was reduced to offset certain financial obligations. If you’re curious about what those “financial obligations” are, the Treasury has a complete rundown here.

Now that most of America has gotten their July 15 tax deadline out of the way, the Internal Revenue Service (IRS) wants to remind taxpayers that there is n...
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IRS moves filing deadline for storm victims in the South

There are some specifics, so make sure you read the fine print

The Internal Revenue Service (IRS) is extending the tax filing deadline to victims of the April storms and tornadoes.

The extension applies to certain counties in Mississippi, South Carolina, and Tennessee and gives residents in those impacted areas until October 15, 2020, to file various individual and business tax returns and make tax payments.

The IRS is using areas designated by the Federal Emergency Management Agency (FEMA) as its basis for qualifying for the extension. At present, those counties include:

  • Mississippi: Clarke, Covington, Grenada, Jasper, Jefferson Davis, Jones, Lawrence, Panola and Walthall counties.

  • South Carolina: Aiken, Barnwell, Berkeley, Colleton, Hampton, Marlboro, Oconee, Orangeburg and Pickens counties.

  • Tennessee: Bradley and Hamilton counties.

If any county or locality is added to the disaster area list, the IRS says those residents will automatically receive the same filing and payment relief. If you live in South Carolina, Mississippi, or Tennessee, you should make a note to check the list of eligible localities on the disaster relief page on IRS.gov, weekly.

The fine print

The IRS notes that there are some specific items taxpayers should pay attention to, including:

  • Dates: Any individual or business affected by the storms and lives in the approved locales still have to file returns and pay any taxes that were originally due on April 15. This includes 2019 individual and business returns that, due to COVID-19, were due on July 15. 

  • IRA contributions: The extension also means that affected taxpayers will have until October 15 to make 2019 IRA contributions.

  • Estimated tax payments: The October 15 deadline also applies to estimated tax payments for the first two quarters of 2020 that were due on July 15 and the third quarter estimated tax payment normally due on September 15. This also includes any quarterly payroll and excise tax returns normally due on April 30 and July 31.

  • Penalties due: If you had penalties on payroll and excise tax deposits due on or after April 12 and before April 27, they will be abated as long as the deposits were made by April 27.

  • Uninsured or unreimbursed disaster-related losses: For any individual or business in a federally declared disaster area that suffered uninsured or unreimbursed disaster-related losses, they can choose to claim them on either the return for the year the loss occurred (in this instance, the 2020 return normally filed next year) or the return for the prior year. 

  • Do not contact the disaster agencies: The IRS says it automatically provides filing and payment relief to any taxpayer with an IRS address of record located in the disaster area. The agency says taxpayers in those areas do not need to contact the agency to get this relief. However, there is one hitch. 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, the taxpayer should call the number on the notice to have the penalty decreased.

  • Put a note on any return claiming a loss: The IRS asks people in affected areas to write the appropriate FEMA declaration number on any return claiming a loss. The numbers are 4536 for Mississippi, 4541 for Tennessee, and 4542 for South Carolina. See Publication 547 for details.

  • Living outside affected areas but doing business within them: There are certain instances where a taxpayer may live outside the affected area but does business in one of the disaster zones. In those cases, the IRS says it will work with taxpayers in extending the deadline. Those taxpayers who want to qualify for relief should contact the IRS at 866-562-5227. 

The Internal Revenue Service (IRS) is extending the tax filing deadline to victims of the April storms and tornadoes.The extension applies to certain c...
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Treasury Department extends deadline for consumers who need to pay back taxes by 90 days

Consumers need to research how their state is handling the change

Individuals and businesses who owe additional income tax for 2019 got a reprieve on Tuesday. Treasury Secretary Steven Mnuchin moved the deadline to pay from April 15 to Tuesday, July 14, 2020. However, the date on filing tax returns did not change. Those are still due on April 15. Filers should also keep in mind that this change is for Federal taxes only.

"We encourage those Americans who can file their taxes, to continue to file their taxes on April 15 because for many Americans you will get tax refunds. We don't want you to lose out on those tax refunds," Mnuchin said.

Deferments and extensions

As part of the coronavirus recovery package the U.S. has put into place, individual and small business filers have the added option of deferring owed taxes up to $1 million. The good news is that they won’t have to take on the sweat of added interest or penalties. Corporations are given even more headroom, with deferments of up to $10 million. 

U.S. citizens who can’t get their paperwork together by April 15 still have the ol’ faithful filing extension to fall back on. Nothing’s changed as far as that goes -- it’s still six months and not a day longer. 

And state taxes?

Keep in mind that what the Federal government modifies regarding tax returns is separate from what the state where you live may offer. 

ConsumerAffairs found that the tax-related changes states are doing on their own are in a constant state of flux. Alabama, for example, has moved its filing deadline from April 15 to April 30, while others have simply reduced support services consumers would otherwise have access to. 

The American Institute of Certified Professional Accountants is keeping a running record of state-to-state changes. You can find that information here.

Individuals and businesses who owe additional income tax for 2019 got a reprieve on Tuesday. Treasury Secretary Steven Mnuchin moved the deadline to pay fr...
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Most people won’t have to pay their federal taxes by April 15th

Because of the coronavirus, the deadline is being extended

Taxpayers won’t have to pay taxes they owe by the April 15th deadline, thanks to an emergency declaration from the White House.

President Trump announced the reprieve, saying the delay in payment would keep more money in Americans’ pockets at a time when they’re coping with the economic fallout from the coronavirus (COVID-19). It wasn’t immediately clear whether taxpayers would still have to file their tax returns by the deadline.

The announcement came Wednesday night in an Oval Office address in which the president said he would use his emergency authority to give individuals and some businesses more time to pay the taxes they owe if they have suffered “adverse effects” from the coronavirus.

However, when he addressed a House committee earlier in the day, Treasury Secretary Steven Mnuchin said the reprieve would apply to nearly everyone, except for large corporations and the “super-rich.”

Mnuchin also said the delay would keep about $200 billion in consumers’ pockets and company coffers to deal with the economic hardships the virus may cause. He told lawmakers the administration could act without having to get Congress’ approval, though there is evidence that the approval might have been granted anyway.

Democrats on board

Two Democratic senators -- Patty Murray from Washington and Bob Menendez from New Jersey -- urged the White House to take the action, saying Americans shouldn’t have to worry about filing their taxes during a health crisis.

“Given the growing nationwide concerns regarding the potential spread and the resulting economic and public health impact of such an outbreak, we urge you to act quickly and remove one source of stress that individuals face during the crisis,” the lawmakers wrote.

At the same time, taxpayers who are owed a tax refund should go ahead and file a return to get their money. Presumably, the Internal Revenue Service (IRS) will process returns normally.

The president is also taking emergency action to provide financial aid to people who have not been able to work because they have either become ill or are under quarantine. Trump said he would work with Congress to appropriate additional money for that use.

Taxpayers won’t have to pay taxes they owe by the April 15th deadline, thanks to an emergency declaration from the White House.President Trump announce...
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IRS reminds first-time filers that Free File might be their best and easiest option

It’s also the quickest way to get a return if you’re due for one

Do you remember the first time you had to file a tax return? For most first-timers, it was a daunting array of too many boxes and what-exactly-are-they-asking-for numbers to track down.

Maybe -- just maybe -- the Internal Revenue Service (IRS) has turned a sympathetic ear to the demographic it’s going to have to deal with for the next 50+ years. As an entry point, the agency has upped its promotion of IRS Free File, a tax return specifically designed for first-time filers and part-time workers. 

The IRS says Free File might be the perfect thing for people looking to save money on federal tax preparation or trusting Uncle Sal to work his magic. It also means free electronic filing and free direct deposit, which the agency says is the fastest way to get a refund.

"Doing your taxes may seem a bit overwhelming, but it's not. Free File does the hard work for you. The software finds the right forms, finds any tax benefits and does all the math," said Ken Corbin, commissioner of the IRS' Wage and Investment division. "Here's a key tip: have all your income records like your Form W-2 ready before you start."

Step-by-step

Free File is best-suited to users under age of 30 with modest incomes and a limited list of deductions. For 2020, the Free File adjusted gross income limit is $69,000. Here's how it works:

  1. On a computer or mobile device (yes, the IRS has made things mobile- and tablet-friendly) go to IRS.gov/freefile to see all Free File options.

  2. You can use the Lookup Tool to help choose a Free File offer to file your taxes for free online. All that takes is a couple of minutes to answer a handful of simple questions about income, age, any applicable military pay, and state residence to find out which offers are available for you.

  3. You may notice offers from tax prep services like H&R Block or TurboTax -- partners that, according to the IRS, set their own eligibility standards generally based on income, age and state residency. As an added plus, two products are in Spanish. 

As a side note, it may be helpful to do some extra homework about the tax prep services the IRS is partnered with. A good place to start might be ConsumerAffairs “Best Tax Software and Services” guide. If you search for “free file” on each company’s listing, you might find other consumer reviews or input from ConsumerAffairs’ Tax Software team.

  1. Next, you’ll pick a provider and follow the links to their site to begin filling out your tax return.

And, like that, you’re done!

Getting ready

Yes, there’s some work involved in getting File Free-ready, but it’s generally simple stuff. Here’s what you should have ready:

  • Before anything else, check with your parents to make sure they are not claiming you as a dependent. If they are, then you can’t claim yourself as a dependent, too. 

  • Social Security number.

  • Wage and income information (i.e. Form W-2 or Form 1099.) The IRS reminds filers that parts of college scholarships or grants may be taxable income.

  • Documentation for all tax credits and deductions. That stuff is shifting sand territory at the IRS, so while some of what worked last year might be good-to-go in 2020, it would be a smart move to call the IRS and confirm what is and isn’t.

  • For any and all electronic tax returns, filers are required to use their prior-year adjusted gross income as part of their electronic signature. “If you are a first-time filer over the age of 16, simply enter 0 (zero) as your prior-year income for signature purposes. If you filed before, your prior-year tax return will show your adjusted gross income,” advises the agency.

  • And, by all means, get your bank account and routing number. The fastest way to get a refund is through direct deposit to a financial account.

And, remember…

The IRS isn’t the vulture it used to be portrayed as. It’s actually very accommodating and ready to help where it can. Consumers can get a list of phone numbers and times the IRS takes calls here

Keep in mind that the IRS has gone through a long, protracted cutback, and there’s fewer agents to help than there were in the past. Given that, there can be a wait depending on when you file, so if you’re reading this in late March, you might want to grab a snack.

Do you remember the first time you had to file a tax return? For most first-timers, it was a daunting array of too many boxes and what-exactly-are-they-ask...
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House passes changes to IRS tax-filing system

Despite bipartisan support, the measure is not without controversy

Democrats and Republicans in Congress find little they can agree on these days, but a bill to modernize federal income tax filing passed easily in the House with bipartisan support.

The Hill reports the outlook for the bill appears solid in the Senate when that chamber takes up the measure.

The bill is designed to make it easier for people to file their taxes, according to Rep. John Lewis (D-Ga.), who authored the bill. Among its provisions is an improvement in taxpayer services, beefed up identity theft protection, protection of taxpayers’ rights when they are involved in an enforcement action, and overall improvements to the Internal Revenue Service’s (IRS) information technology and electronic systems.

Point of contention

But the bill also solidifies the IRS’s relationship with commercial tax preparation software companies, making them the official tool for online tax filing. But ProPublica reports it goes farther, blocking the IRS from offering its own tax filing portal.

“Companies like Intuit, the maker of TurboTax, and H&R Block have lobbied for years to block the IRS from creating such a system,” ProPublica reports. “If the tax agency created its own program, which would be similar to programs other developed countries have, it would threaten the industry’s profits.”

‘Final nail in the coffin’

Mandi Matlock, a tax attorney who does work for the National Consumer Law Center, told the group the law could be the “final nail in the coffin” for the IRS ever launching its own tax filing system.

Most of the “no” votes against the measure came from freshmen members elected last November. Some suggested the measure benefitted the “corporate tax lobby” at the expense of taxpayers.

Even some who voiced concerns about codifying the participation of commercial tax preparation services ended up voting for the measure, saying the benefits of the entire measure outweighed their concerns.

Taxpayers can still use the IRS’s Free File service if their income is $66,000 or less. For those with incomes above $66,000 the IRS provides free fillable tax forms.

The Free File service provides free tax preparation software with available free state return options. Consumers can use the Free File Software Lookup Tool to find free federal and free state return options.

Democrats and Republicans in Congress find little they can agree on these days, but a bill to modernize federal income tax filing passed easily in the Hous...
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New fraud prevention report sounds alarm for taxpayers

To guard against identity theft, consumers need to consider a lot of moving parts and information

Tax filing day is less than two weeks away, and another red flag has been raised about the importance of consumers keeping their personal data away from prying eyes.

In Shred-it’s just released 2019 Tax Season and Fraud Prevention Report, it caught our attention at ConsumerAffairs that more than one third (38 percent) of taxpayers say they’re sweating that they could become a victim of identity theft during tax season, yet nearly half of all taxpayers (45 percent) confess that they stash their tax documents in an unsecure location like a storage box, desk drawer, or unlocked file cabinet at home or work.

Here are some key takeaways from Shred-it’s survey of 1,800 taxpayers:  

  • More than a quarter (26 percent) of taxpayers say they know someone who has been a victim of tax fraud or tax identity theft.

  • More than a third (35 percent) of U.S. taxpayers think using tax preparation software and filing their return directly online puts them at a greater risk of tax fraud or tax identity theft than if they used a certified tax preparer (10 percent), a family member or friend (26 percent).

  • Nearly half (46 percent) of the taxpayers that file with a tax preparer are unsure how their tax preparers store/dispose of their tax documents.

  • 47 percent of taxpayers say they don’t know how long they’re supposed to keep tax documents before disposing of them. By the way, the Internal Revenue Service (IRS) says that 3 years is the minimum but the length is dependent on a variety of factors.

  • More than half of the Gen Zers (56 percent) are the least confident in their abilities to detect fraudulent tax emails compared to Millennials (69 percent) and Baby Boomers (60 percent).

  • Millennials (43 percent) are the most worried about becoming victims of tax fraud or tax identity theft compared to Baby Boomers (34 percent) and Gen Z (33 percent).

  • Men (9 percent) are more likely than women (5 percent) to say they have been a victim of tax fraud or tax identity theft, but both sexes are almost equally as worried that they could become a victim of tax fraud or tax identity theft.

Steps consumers can take to protect themselves

“Tax season can be a stressful time for consumers -- between all of the paperwork you need to receive and compile to then scheduling an appointment with a tax preparer or making time to do your taxes yourself, there’s a lot of moving parts and information to consider,” Shred-it’s SVP, Ann Nickolas told ConsumerAffairs.

Nickolas said it’s important that taxpayers keep their information security top of mind -- especially since there tends to be a resurgence of scams and fraud attempts each year. With tax day approaching, Nickolas shared three tips and best practices to help consumers keep their information safe this tax season:

  1. Question disposal and storage methods. If you’re not doing your taxes yourself, and instead have tapped the assistance of a friend, family member or a certified tax preparer, one of the most important questions you should ask is how this person or organization is storing your highly sensitive information and also, how are they disposing of the tax paperwork. Do they use the services of a professional information destruction and disposal company that securely shreds your tax paperwork? Are they storing your files in a locked cabinet? Who has access to this paperwork? Your tax paperwork (think student loan information, mortgage and business documents, your SSN and more) are extremely sensitive documents. You want to ensure that when you hand over this information that the person is protecting it securely.

  2. Upgrade your own disposal and storage methods. Since it’s recommended to keep your tax returns for a number of years it’s time to rethink how you’re storing and, then, disposing of your own information. Taxpayers should upgrade their information security habits at home by investing in a locked file cabinet, and professionally shredding all paperwork before disposing of it.

  3. Maintain a clean desk policy at home. Whether you have a dedicated office space in your home or if your tax paperwork tends to sit on the counter, table or on the entryway shelf, consumers should avoid letting any information, let alone tax paperwork, pile up. This is especially important if you have visitors entering your home. Keeping your information out of sight, and in a locked cabinet will help to safeguard you from potential risk.

Haven’t filed your tax return yet?

If the new tax laws puzzle you or if you just need some extra time to file, the IRS is hosting a free webinar regarding tax returns on Thursday, April 4.

The webinar, called “Filing is the Thing to Do, Even if You Have a Balance Due,” is slated for 2 p.m. Eastern time. The hour-long webinar will include a Q&A session and, of particular note for taxpayers who need more time to prepare their taxes, the IRS will provide information on how to apply for an extension of time to file during this session.

Tax filing day is less than two weeks away, and another red flag has been raised about the importance of consumers keeping their personal data away from pr...
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Average tax refunds are down 8 percent so far this year

The IRS has processed fewer returns than at this point last year

Taxpayers were supposed to pay less in taxes in 2018 under the latest overhaul of the tax system. But so far, federal income tax refunds don’t reflect that.

New data from the IRS show that returns are lagging the pace of last year’s filing -- not surprising given the government shutdown. But the refunds that have been sent out so far are about 8 percent less than at a similar point last year.

Refunds to date have averaged $1,865 compared to $2,035 for 2017 returns. On the surface it would seem to suggest that the tax cuts passed by Congress in late 2017 aren’t helping the average consumer. But there could be another explanation. Many taxpayers may have adjusted their withholding and didn’t pay into the system as much as they did in previous years.

We’re also early in the tax-filing season because of the government shutdown. At this point in 2018 the IRS had processed nearly 18 million tax returns. To date, the agency has processed just over 13 million.

Significant changes

There were significant changes to the tax law for 2018, many of them affecting middle-income earners. First, the new tax law lowered most tax rates. More importantly, it nearly doubled the standard deduction, shielding more income from taxation.

Many workers saw an increase in their paychecks after their employers made adjustments, but it is possible many employers slightly under-withheld, resulting in smaller refunds.

According to the IRS data there have been 4.6 million refunds so far this year, but that is running well behind the 6.1 million refunds that had been sent out at this time last year. The IRS has distributed $8.7 billion in refunds so far compared to $12.5 billion in refunds at this time last year.

Taxpayers were supposed to pay less in taxes in 2018 under the latest overhaul of the tax system. But so far, federal income tax refunds don’t reflect that...
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Government employee union warns of further tax refund delays

Whether it’s silent protest or financial hardship, the number of government employees staying home continues to mount

The dance the Trump administration has been doing with Internal Revenue Service (IRS) employees may have blown up in its face.

Despite the White House calling 30,000 furloughed IRS employees back into work to process tax refunds, many of those who were recalled are reportedly skipping work, which could exasperate things even further.

The Washington Post’s account of the situation says that hundreds of IRS employees have asked for -- and have been granted -- time off from work thanks to the financial hardship the shutdown is having on them. Add to that the backing of their union, which sounded a warning that an organized protest could result in even more workers staying away from work.

President Tony Reardon of the National Treasury Employees Union (NTEU) -- which represents 150,000 employees at 33 federal agencies and departments --  called out the the government to find a way out of the mess.

“We’ve said all along that it is grossly unfair that federal employees are the pawns in someone else’s fight, and now the situation is dire,” Reardon said in a statement. “Take our nation’s civil servants out of the crossfire and pay them, period.”

Don’t hold your breath

If you use the 2013 government shutdown as a measuring stick in regards to tax refunds, 2019 is not a pretty picture. The 2013 shutdown lasted 16 days and resulted in delays of more than $2 billion in tax refunds, which means that we’re well over the $4 billion mark already for this year’s shutdown.

If your tax return has already been filed, the IRS is tied to the hip to the shutdown and doesn’t have a good idea of when those refunds might get processed. With IRS employees demonstrating some defiance on top of the agency being closed, it may be a while -- much longer than the typical 21 days -- before those refunds are distributed.

If you haven’t done your taxes yet, don’t think you’ll get a break however. The IRS reminds taxpayers that the underlying tax laws remain in effect during the shutdown, so all taxpayers should continue to meet their tax obligations as they normally would.

The dance the Trump administration has been doing with Internal Revenue Service (IRS) employees may have blown up in its face.Despite the White House c...
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Treasury Department lays out final rules on 20 percent tax deduction for businesses

Small and medium-sized business are the big winners, but there’s lots of clarifications yet to be made

In the midst of all of the Trump administration’s tugs-of-war that have consumed 2019 so far, the White House has released the final rules for a new business tax deduction -- one it’s had in the works for nearly two years.

The final regulations were a key component of the Tax Cuts and Jobs Act -- one which allows owners of sole proprietorships, partnerships, trusts, and S corporations to deduct up to 20 percent of their qualified business income.

The Treasury crows that “the final regulations ensure that this historic tax cut will be available to the broadest spectrum of American businesses,” but as tax plans go, there are always winners and losers.

On the winning side of the new plan are rental real estate owners, assisted living facilities, and employment staffing companies. On the losing side are real-estate settlement agents, major league sports team owners, physical therapists, and writers -- all given the thumbs-down from the Treasury Department.

But the big winner are small and medium-size business owners who will enjoy a new 20 percent tax deduction plum. Administration officials said the new rules give the green light to millions of businesses to file their 2018 taxes with the confidence they’re eligible for the break.

“Small and mid-size businesses are the engines of growth for the U.S. economy,” said Secretary Steven T. Mnuchin. “The pass-through deduction will drive more investment in U.S. companies and higher wages for American workers. This provision will reduce pass-through business tax rates to their lowest rate in more than 80 years.”

17-40 million will enjoy the deduction

The Treasury Department estimates that the number of U.S. business owners lucky enough to get the 20 percent break runs somewhere between 17 and 40 million. As things stand now, the deduction is available to small business owners with income below $315,000 for married couples filing jointly and $157,500 for single filers without limitations.

For business owners above those income thresholds, the regulations are a bit tighter. However, the architects of the plan have built in some flexibility for those who can “provide certainty and flexibility by clarifying the definitions of ‘specified service trade or business’ and ‘unadjusted basis immediately after acquisition’ of qualified property, and by including ‘aggregation rules’ for filers with pass-through income from multiple sources.”

That’s a mouthful -- and a confusing one at that. ConsumerAffairs asked Nicole Kaeding, director of federal projects at the Tax Foundation, for an easier-to-understand version.

“Because the deduction is so generous, the Treasury is simply putting ‘guardrails’ on them so individuals don’t abuse the privilege,” Keading said.

How those “guardrails” shake out could be a problem, though. Keading told the New York Times that the regulations would likely lead to lawsuits that force courts to determine whether many individual businesses qualify.

In the midst of all of the Trump administration’s tugs-of-war that have consumed 2019 so far, the White House has released the final rules for a new busine...
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Charities concerned about impact of last year’s tax law change

The increase in the standard deduction has many nonprofits concerned about a drop in year-end donations

Charities are worried that they may receive fewer donations this holiday season as a result of the Tax Cuts and Jobs Act passed by Congress last year.

The new law, which went into effect in January, nearly doubled the value of the standard deduction for both individuals and married couples, thereby reducing the tax payoff for donations. Under the tax law change, many taxpayers who used to itemize deductions may find it less necessary to include charitable donations.

The number of people who claim the deduction for charitable giving is expected to fall to 16 million this year from 37 million last year, according to estimates from the Tax Policy Center.

Donor numbers already declining

Charities have already noticed a drop in the number of donors this year.

“Compared with last year, the number of donors dropped 4.3% while the value of donations increased 2.6% through Sept. 30, according to a study released Tuesday by the Association of Fundraising Professionals,” the Wall Street Journal reported.

The American Red Cross is among the nonprofits bracing for the impact of the new tax law. The organization said it’s concerned that fewer taxpayers will be taking advantage of the charitable deduction due to the increase in the standard deduction.

“The American Red Cross is disappointed that the new tax law did not contain a universal charitable deduction available to all taxpayers, whether they itemize or not,” said Greta Gustafson, a spokesperson for the organization. “At this point, it’s too early to assess the full impact of the law, but it is certainly an issue we will raise next year with the new Congress.”

It could take several years to see the implications of the new law in regards to the number of charitable donations, since many people make donations for reasons other than financial benefit.

“It’s a very individual basis, and we’re not going to know the answer to this until 2020 or 2021,” Robert Sharpe, a consultant who works for nonprofits, told the Journal. “Right now, only the most sophisticated people have talked to their advisers about the impact.”

Charities are worried that they may receive fewer donations this holiday season as a result of the Tax Cuts and Jobs Act passed by Congress last year....
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Ohio says residents can use Bitcoin to pay their tax bills

The big question is will businesses take to the notion

Cryptocurrency regained some of its lustre on Monday, as the state of Ohio announced that it’s permitting businesses to pay their tax bills using the digital currency.

With that move, Ohio becomes the first U.S. state to accept Bitcoin as payment for taxes and has built a special website -- www.OhioCrypto.com -- to manage the effort.

Ohio’s state treasurer, Josh Mandel, crafted the blueprint so that it works for everyone -- “from mom and pop coffee shops to Fortune 100 companies.”

“[I] believe in leveraging cutting-edge technology to provide Ohioans more options and ease while interfacing with state government,” he said.

Why cryptocurrency?

While it might take time for the initiative to gain some traction and get businesses comfortable with using cryptocurrency, Mandel’s office sees these advantages for Ohio businesses:

  • Quick and easy – Businesses can pay their taxes in three quick steps using the cryptocurrency tax payment portal.

  • Real-time tracking – Payments on the blockchain can be tracked on an instantaneous basis.

  • Secure payments – Cryptocurrencies cannot be transferred to third parties without user initiation.

  • Low fees – A minimal fee is charged to confirm transactions on the blockchain network.

  • Transparency – Anyone can view all transactions on the blockchain network.

  • Mobile options – Consumers can easily make tax payments on their mobile phone or tablet.

Who’s eligible?

Any business operating in Ohio -- whether it’s headquartered in Ohio or not -- is eligible to pay taxes in cryptocurrency via OhioCrypto.com. All told, Ohio’s new system will accept payments for 23 different taxes ranging from Sales Tax to Motor Vehicle Use tax.

To become eligible, all a business has to do is:

  1. Register online at OhioCrypto.com

  2. Enter in the tax amount due, enter business tax payment amount, and select the tax period date.

  3. Use the business’ cryptocurrency wallet to pay the invoice with Bitcoin. All payments are processed by the Ohio Treasurer’s office third party cryptocurrency payment processor, BitPay.

While Bitcoin is the only accepted cryptocurrency to start, the Treasurer’s office says it’s looking forward to adding more cryptocurrencies in the future.

So… good move or bad move?

Only time and the market will tell if Mandel’s plan will hold water.

According to various tweets regarding Ohio’s digital move, Mandel has been a fan of Bitcoin for some time and was “initiated in order to draw attention to the state’s tech enthusiasm.” Still others raise the question of the move being “too speculative” and that paying by Bitcoin “does not make the state tech-friendly [but] makes it financially irresponsible.”

While Ohio is alone in working the pay-taxes-with-crypto angle, other states such as Wyoming and Florida are warming up to digital currencies, with Florida’s focus squarely on the consumer.

“Other states have identified and are taking action against bad actors in the cryptocurrency industry. Florida must also protect our residents,” remarked Jimmy Patronis, the Sunshine State’s Chief Financial Officer.

Cryptocurrency regained some of its lustre on Monday, as the state of Ohio announced that it’s permitting businesses to pay their tax bills using the digit...
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Tax-filing deadline extended another day

IRS computer problems prevented tax-filers from paying electronically

The crush of last-minute tax filers crashed an Internal Revenue Service (IRS) computer network, so the tax agency is extending the tax deadline through today.

“Individuals and businesses with a filing or payment due date of April 17 will now have until midnight on Wednesday, April 18,” the IRS said in a statement. “Taxpayers do not need to do anything to receive this extra time.”

According to the announcement, the IRS encountered system issues Tuesday morning. Taxpayers were still able to file their tax returns electronically if they were using software and the IRS's Free File. Taxpayers using paper to file and pay their taxes at the deadline were not affected by the system issue.

What failed was the part of the IRS network that allows taxpayers to pay their taxes electronically. Direct Pay failed early in the day – reportedly from the large number of people trying to access it – and wasn't restored until late in the afternoon.

The part of the network that allows taxpayers to pay their taxes in installments was also affected, but it has since been restored.

Busiest tax day of the year

“This is the busiest tax day of the year, and the IRS apologizes for the inconvenience this system issue caused for taxpayers,” said Acting IRS Commissioner David Kautter. “The IRS appreciates everyone’s patience during this period. The extra time will help taxpayers affected by this situation.”

Consumers who used commercial tax preparation services were also affected by the outage. A spokesperson for Intuit told CNBC that consumers using the company's service should continue filing their taxes normally. She said that returns filed while the IRS system was down were held until it was working again.

The extension moves the tax-filing deadline two days beyond its traditional date. The normal April 15 deadline was extended to April 16 this year because of a District of Columbia holiday on Monday.

The crush of last-minute tax filers crashed an Internal Revenue Service (IRS) computer network, so the tax agency is extending the tax deadline through tod...
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IRS: Don't forget to report cryptocurrency profits

Being paid in virtual currency can also have tax consequences

If you were one of the fortunate investors who made a killing on Bitcoin in 2017, or maybe just earned a few bucks on a digital currency transaction, the Internal Revenue Service (IRS) is reminding you to report it on your tax return.

The tax agency says a profit from a cryptocurrency transaction is no different than a capital gain on a stock or real estate transaction. Using a virtual currency to pay for goods and services can also have tax consequences, the IRS says.

The IRS outlines some of the issues a taxpayer must consider here. In some instances, the tax issues raised by cryptocurrencies can be somewhat complicated.

For example, a taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.

Big profits in 2017

The IRS reminder may have been prompted, in part, by the fact that some taxpayers who purchased Bitcoins early in 2017 and sold late in the year reaped enormous profits. At the start of 2017, one Bitcoin was worth less than $1,000. By mid-December it was worth almost $20,000.

The IRS says taxpayers who do not properly report the income tax consequences of cryptocurrency currency transactions can be subject to audit and be liable for penalties and interest. But should you neglect to report thousands of dollars in Bitcoin profits, things could get a lot stickier.

"Taxpayers could be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions," the IRS warns. "Criminal charges could include tax evasion and filing a false tax return."

A tax evasion conviction could result in a prison sentence of up to five years and a fine of up to $250,000.

If you were one of the fortunate investors who made a killing on Bitcoin in 2017, or maybe just earned a few bucks on a digital currency transaction, the I...
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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...
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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...
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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. ...
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Watch out for crooked income tax preparers

It's your name on the return and you're responsible for any chicanery

Many years ago, my accountant looked at me sadly as he finished my tax return. "You are really getting hit this year," he said. "You need some dependents. My daughter is a lovely girl with three beautiful children. That's four deductions right there."

"What are you suggesting?" I asked. "I've never even met your daughter."

"You don't have to," he said. "It would just be for tax purposes."

He wound up in prison and all of his former clients, including me, were ruthlessly audited by the IRS. Another accountant once tried to rent me his house in the Bahamas and said I could write off the travel and rent as a business deduction, claiming I had attended a professional conference. 

The world is, of course, full of con men, scam artists, and chiselers of all stripes, never more so than at this time of year when the iron boot of the state falls upon us all, demanding its fair share of our income for the year.

While you are no doubt honest and forthright, not all tax preparers are and some, like my former CPAs, may make suggestions that sound attractive but in reality are paths that can lead straight to the federal penitentiary. It's your name on the tax return and if you let your preparer pull any funny business, you may be held equally responsible.

2.1 million

The IRS and the Justice Department are onto just about any clever little tax dodge you can think of and the chances of getting caught are actually pretty high. Of the 150 million returns filed in 2014, the IRS identified more than 2.1 million as claiming fraudulent refunds totaling more than $15.7 billion. In 2015, 35 fraudulent tax preparers were shut down and many were prosecuted on criminal charges. 

“Every year, thousands of federal income tax returns are prepared by people who care much more about making a quick buck than about preparing accurate returns,” said Acting Assistant U.S. Attorney General Caroline D. Ciraolo.  “Most tax return preparers are honest.  But some preparers who charge clients a percentage of their tax refund intentionally prepare false returns to increase their clients’ refund, and thus their own fees."

Ciraolo said also that some preparers who charge by the form will intentionally prepare incorrect forms that their clients don’t need in order to increase their compensation. 

"Taxpayers might think that they’re getting a good deal on their taxes, or that as long as someone else prepares the return, they’re not responsible.  They’re wrong.  Taxpayers who have their return prepared incorrectly are required to pay the tax they owe, or pay back the refund they weren’t entitled to get.  These clients might also owe interest and penalties, which can be substantial," she said.

Red flags

Ciraolo lists some red flags you can watch for when choosing a tax preparer:

Your refund should never be deposited directly into a preparer’s bank account. To be sure your payment goes where it is supposed to go, it must be made directly to the IRS and your state tax collector. 

Never sign a blank return or a blank form, or sign a return or a form without reading it first. By law, a return preparer must provide a client with a completed copy of the return no later than the time the customer is asked to sign the return. Failing to review it carefully can land you in hot water.

Don’t use a preparer who mischaracterizes your expenses. Remember that trip to the Bahamas? The IRS nabbed a preparer who pulled a similar stunt, deducting purchases at Tiffany & Co., Louis Vuitton, and Royal Caribbean Cruise Lines as “medical expenses.” 

Don't set up phony businesses. One of the most common dishonest return-preparation practices is to prepare returns that include non-existent businesses, sometimes based on a client’s hobbies. Collecting trout lures is fine but don't call it a business if it isn't. 

Some other fraudulent schemes and practices that have been stopped by federal courts include:

  • Fabricating fake Form W-2 (Wage and Tax Statement) information;
  • Claiming bogus education and first-time homebuyer credits;
  • Claiming phony child and dependent care credits or residential energy credits;
  • Claiming fraudulent fuel tax credits;
  • Falsely exempting foreign earned income;
  • Inflating unreimbursed employee business expense deductions; and
  • Fraudulently inflating or decreasing a client’s income or deductions to maximize the Earned Income Tax Credit.

The IRS advises taxpayers who ask a tax professional to prepare their return to be careful in the professional they select. The IRS offers some basic tips and guidelines and even a number of instructional YouTube videos. They're worth checking out.

No less a public figure than Donald Trump freely admits to doing everything legal to minimize his annual tax payment. There's nothing wrong with that but the key word is "legal." When presented with an option that sounds too good to be true, chances are it is. 

Many years ago, my accountant looked at me sadly as he finished my tax return. "You are really getting hit this year," he said. "You need some dependents. ...
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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...
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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....
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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...
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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...
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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...
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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...
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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 ...
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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...
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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...
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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...
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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...
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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...
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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...
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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...
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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...
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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...
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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...
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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...
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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...
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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...
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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...
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'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 ...
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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...
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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 ...
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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...
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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...
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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...
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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....
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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....
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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...
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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....
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'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...
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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...
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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....
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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...
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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...
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