Tax Tips & Other Interesting Related Information

Tax Audit - Real World

2011-11-03T15:23:00.001-07:00

My wife and I have been the subject of a tax audit since the beginning of the year (2010) and while many fear it, we just seem to take it a day at a time. This is not to say it has been taxing as they say, an audit expected to take 60-90 days continues mainly due to scheduling during the year of our availability matching up with the auditor that was assigned to do the audit. The reason for the audit was there were a number of questions regarding our 2008 return that IRS felt best could be answered by us sitting down and discussing it. My wife is a certified CPA and takes care of all our taxes and related business needs. It has been a bit challenging in that our daughter decided to personalize our desktop computer that had been our primarily business computer, and erased all the business related information that tends to get asked for in an audit. We have spent countless hours re-creating many of the required expense related documents. The good news is that my wife keeps everything so most of the raw material required to accomplish feat has been available but not without quite a bit of digging through loads of files for the year in question. Each time we meet with the auditor a new list of questions require us to dig a little deeper. However, as we near the end of the year hopefully we are also nearing the end of the audit. It has been quite a learning experience in making sure you keep track of those things that come together to make up your return. It also helps to remember where you stored the tax related documents that I believe by law you need to keep for seven years.

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File On Time Even If You can't Pay

2011-04-08T06:34:00.000-07:00

Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns.

As the day draws near many of us are stressed to the max on getting our income tax filed on time. I have always been one those you hate that say something like I already have my refund check because I filed as soon as I received all the 1099’s from the previous year. However, I know that is not the case for many and as the deadline draws near, many are working hard to get it done. However, you may not be aware of the IRS is ok with you filing on time even if you can’t pay. If your return is complete and you are unable to pay the amount of tax due, you need not request and extension. You can chose to pay an installment of amount due and the IRS will send you a bill or notice for the balance due. You can actually apply online to make payments at the IRS website at http://www.irs.gov and click “Apply for an Online Payment Agreement (OPA)” at the left side of the home page under Online Services. If you are unable to make payments, call the IRS at 800-829-1040 to discuss your options. What many don’t realize is an extension only allows you extra time to complete your paperwork it does not extend the time you have to pay tax that is due. You will be required to pay interest on the amount you own when paid anytime after the April 18 deadline, plus any other penalties you might own. If you chose to file an extension you will require the Form 4868 and it should be filed by April 18, 2011. Since almost everything is online these days you are able to E-file your return or extension and the IRS will acknowledge receipt. The forms required for filing an extension are free and obtainable on the IRS form website. You may request EFT electronic funds transfer if you choose to pay balance via your checking or saving account for information about these and other methods of payment, visit the IRS website at http://www.irs.gov or call 800-TAX-1040 (800-829-1040). If you need to file an extension form 4868 is available for download from the IRS website or may be ordered by calling 800-TAX-FORM (800-829-3676).You can also obtain the form at your local IRS office. Telephone requests normally take 7 - 15 days to process and ship. If you are making a payment to the IRS a few things you should know. Never send cash! If you file electronically, you can file and pay in a single step by authorizing an electronic funds withdrawal via tax preparation software or a tax professional. Whether you file a paper return or electronically, you can pay by phone or online using a credit or debit card. Electronic payment options provide an alternative to paying taxes or user fees by check or money order. You can make payments 24 hours a day, seven days a week. Visit the IRS website at http://www.irs.gov and search e-pay, or refer to Publication 3611, IRS e-File Electronic Payments for more detail. Enclose your payment with your return but do not staple it to the form. If you pay by check or money order, make sure it is payable to the “United States Treasury. Always provide your correct name, address, Social Security number listed first on the tax form, daytime telephone number, tax year and form number on the front of your check or money order. Complete and include Form 1040-V, Payment Voucher, when mailing your payment to the IRS. Double-check the IRS mailing address. This will help the IRS process your payment accurately and efficiently.

Taxes why we pay them?

2010-10-02T08:31:00.001-07:00

It is pretty obvious why we pay taxes right? However, there seems to be a constant debate across the country on the subject. It is pretty basis to understand as a country we have expenses and our federal, state and city taxes are used to cover those expenses, right? Why the debate?

The questions that come to mind are the following:

- What is the current debt of the United States and who are the debtors?
- What is the expense distribution for Federal Taxes in the United States?
- What is the primary expense distribution for State Taxes in the United States?
- What is the primary expense distribution of taxes in major cities of the United States?
- What is the distribution across the United States of those who pay federal income taxes?
- What are the future implications of continuing to be in debt as a country?

What it all adds up to is the cost of a life style we have become accustom to in the United States. It is the financial contribution we make for the freedoms we have and the amenities that go along with it. However, the cost of living as a country continues to rise as a part of the world economy and our taxes are only a portion of the revenue required to fuel it. This is not to say that continuing to be in debt and living outside our budget is the right long term strategy but it is the reality of our current situation as a nation.

Tax Relief 2010 - What is the plan?

2010-08-06T17:32:00.000-07:00

The passing of the American Recovery and Reinvestment Act of 2009 set into motion a wide specturm of programs to aid the United States as a whole in the implementation of an aggresive recovery plan to re-establish and promote an improved economic and infrastructure outlook for the future in America. Many of us have seen the signs and posting related to the implementation of this plan in our states, city and towns across the country. Each of these programs are expected to have wide reaching impacts in our communities as it relates to educations, roads, small business, communication and so many other areas of opportunity to improve the current and future state of the United States. What is about to follow is but a slice of a much larger pie of how it is being implemented and resources that are available if you have a deeper and wider interest. The recovery.gov website is one stop shopping to gain full insight to the act as it relates to planning, tracking, implementation, transparency, progress to date and expectations for the future.

The Office of Tax Analysis estimates that, as of June 2010, $223 billion in tax relief has been made available. This relief comes in various forms including the Making Work Pay tax credit, COBRA Continuation Coverage Assistance, and tax incentives for businesses.

On Feb. 13, 2009, Congress passed the American Recovery and Reinvestment Act of 2009 at the urging of President Obama, who signed it into law four days later. A direct response to the economic crisis, the Recovery Act has three immediate goals:
* Create new jobs and save existing ones
* Spur economic activity and invest in long-term growth
* Foster unprecedented levels of accountability and transparency in government spending

The Recovery Act intends to achieve those goals by:

Providing $288 billion in tax cuts and benefits for millions of working families and businesses. Increasing federal funds for education and health care as well as entitlement programs (such as extending unemployment benefits) by $224 billion. Making $275 billion available for federal contracts, grants and loans. Requiring recipients of Recovery funds to report quarterly on how they are using the money. All the data is posted on Recovery.gov so the public can track the Recovery funds.

Cumulative as of....................Mar '09 - Jun '10

Making Work Pay..........................$73.0
Other Individual Credits...............$98.0
Energy Incentives..........................$7.3
Tax Incentives for Business...........$38.5
COBRA...........................................$4.8
Manufacturing & Economic Recovery,
Infrastructure Refinancing, Other...$1.4
Cumulative Totals........................$223.0

In addition to offering financial aid directly to local school districts, expanding the Child Tax Credit, and underwriting a process to computerize health records to reduce medical errors and save on health care costs, the Recovery Act is targeted at infrastructure development and enhancement. For instance, the Act plans investment in the domestic renewable energy industry and the weatherizing of 75 percent of federal buildings as well as more than one million private homes around the country.

Construction and repair of roads and bridges as well as scientific research and the expansion of broadband and wireless service are also included among the many projects that the Recovery Act will fund.

While many of Recovery Act projects are focused more immediately on jumpstarting the economy, others, especially those involving infrastructure improvements, are expected to contribute to economic growth for many years.

Bottom Line Don't Worry About It

2010-02-20T20:42:00.000-08:00

Tax audits are a part of the tax collection process, but that doesn't mean that you have to be among the few to be chosen. The key to avoiding an audit is to be truthful and able to provide the proper documentation of your deductions, donations and income. While being audited is not a goal anyone strives for getting back every cent that is own to you is and should be your goal. The idea is to review every area of your income status for income tax rebates, earned income credits and ultimately the maximum income tax refund.

Selected to be Audited

2010-02-20T20:41:00.001-08:00

What should you do if you are selected to be audited? Be truthful with the auditor and respond to all inquiries regarding you income tax as soon as possible. Be prepared to show all of your documentation. If you prepare your own tax return it is still a good idea if possible, to have a qualified accountant or tax attorney represent you. If someone else prepared your taxes be it a professional firm or your family member that is a CPA let them know so they are available for the meeting with the auditor.

Higher Income Does Matter

2010-02-20T20:39:00.000-08:00

There is nothing the individual taxpayer can do about this one, the more you make does increase your chances of an audit. If you earn more than $100,000 each year, your odds of being audited does increase. There are statistics that measure your chance of being audited based on having a higher income. However, it shouldn't be an issue of fear and/or dread as opposed to a incentive to always keep your records and documentation in order and available.

Home Office Business Deductions

2010-02-20T20:38:00.000-08:00

Be sure you can support home office business deductions with backup and documentation of the related expenses. This means you need to keep receipts and bills where possible for the home office business expenses. If you file excessive or unwarranted deductions this can raise a red flag to the IRS, as well as large deductions in comparison to your amount of income.

For example, if you earned $40,000 as an handyman (operating from home), home-office related deductions totaling $20,000 will draw a great deal of attention to your tax return.

Be sure to deduct only items that were used in the course of your business.

Don't Under-Report Income

2010-02-20T20:36:00.000-08:00

You need to report all money that you received throughout the year from work and/or from the sale of an asset (such as a home) to the IRS. If you fail to report income and you are caught, you will be forced to pay back-taxes plus penalties and interest.

Is there a way the IRS can tell if you haven't reported something? While there are some cases they will Not be able to determine an under-reported return. However in some situations where large transactions have occurred there could be an audit trail for an asset that could ultimately be traced back to you.

In bottomline is, it's better to be safe than sorry. Make sure you report all of your income.

Make Sure You Sign the Return

2010-02-20T20:35:00.000-08:00

There are quite a few income taxs forms depending on the schedule you submit. So double checking before you push the button or close the envelope is a good practice. While this seems like a small issue it is an issue that will raise a red flag and possibly cause the IRS to wonder what else you might have missed or left out of the return. The other serious implication is an un signed return leaves a question of you legally holding yourself responsible for the content of the return.

Use your Calculator - Math Errors

2010-02-20T20:34:00.000-08:00

Try to cover all the bases while this may sound simple, many returns are selected for this reason alone. So when filling out your tax return make sure that everything adds up. There are free online income tax calculators specifically design for this purpose that might be a good investment of time. Even a small math error can raise eyebrows and impact the timeliness of your tax refund.

Don't Over-Estimate Donated Amounts

2010-02-20T20:33:00.000-08:00

The IRS encourages individuals to donate things like clothes, food and even old automobiles to charities. It does this by offering a deduction in return for a donation. However, the way this works is that it is up to the taxpayer to determine the value of goods that are donated.

As a general rule, individuals should value the items they donate at anywhere between 1% and 30% of the original purchase price. There may be exceptions or special circumstances and should be supported with justification and documentation.

If in doubt about the value of an item consider having an appraiser write a letter. In fact, for individual items valued at $5,000 or more, an appraisal is required. Another benchmark the IRS uses that could come in handy is the willing-buyer-willing-seller test.

This means that taxpayers should value their goods at a point or price where a willing seller (who is under no duress) would be able to sell his property to a willing buyer (who also is under no duress to purchase the item).

Avoid a Tax Audit - Income Tax Tips

2010-01-09T08:23:00.000-08:00

The 2009 tax season is here and if you are looking for a great return and at the same time want to do everything possible to avoid an audit here are a few tax tips that will prepare you for that unlikey audit and possibly could put money back in your pocket.

If history is any indicator, less than 1% of Americans will be audited by the Internal Revenue Service in the coming year. And while some of these audits are totally random, and there's nothing that the individual taxpayer can do about them, many audits are actually caused by the taxpayers themselves.

The good news is that there are all kinds of resources out there to assist you in getting your maximum return while abiding by the tax laws put in place to fund the tax system. There are a number of on-line resources developed by some of the best in the business of filing income tax return forms. In a number of case they have made online free tools like income tax calculators, tax fund estimators and tax refund calculators available for your use.

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