How to talk with the IRS

I have been talking to the IRS since I was a 15 year old girl working in my mother’s tax office. I have spoken with them as both a tax payer and as a tax professional. Something I have discovered throughout the years is that the experience level of the agents the IRS hires varies greatly, and I do mean greatly. There are those agents that have worked with taxes privately and with the IRS that are very knowledgeable and helpful and then there are those that have never in their life prepared a tax return as well as many in between. The IRS, I have recently discovered to my dismay, has followed the trend of many software companies that hire inexperienced agents and then arm them with a book of codes. Yes, a book of codes that corresponds to specific tax issues and IRS letters with only a basic outline of how to handle them. If you try to ask the agent to go beyond what they are reading in order to better understand your particular situation, they will most likely not be able to assist you. This is not only frustrating and scary, but just think of how many taxpayers are paying much more than they should simply because they are unable to get to the bottom of their situation! I have found this problem, not only at the basic Individual and Business departments, but also with agents in the Corporations Department.

How does the average taxpayer resolve an issue successfully? It is important as the taxpayer to understand that you have the right to be treated fairly by those with experience. Stand your ground if you do not understand something or something does not sit right with you. Politely ask the agent about their experience with taxes, and if they don’t have the necessary knowledge, don’t be afraid to ask for a supervisor or manager – keep going higher until you are satisfied. If all else fails, know that there is the Taxpayer Advocacy Service to help you. To see if you are eligible for help, contact the Taxpayer Advocate Service Case Intake Line 1-877-777-4778 or TTY/TTD: 1-800-829-4059.

Remember that IRS agents are just people performing a job and paying their bills. Most are very nice and want to help you resolve your issue. So, don’t be afraid to talk to an IRS agent – it’s your money.

Are You Playing Audit Truth or Dare?

There is really no way to avoid an audit 100% of the time. You see, audits occur for a few reasons, two of which have nothing to do at all with the taxpayer being audited. Every year the IRS chooses a group to pick on. Back in about 2001 or 2002, it was single fathers claiming the Head of Household status. I had quite a few clients come to me with beads of sweat on their foreheads and IRS letters in their hands. This year, like last, seems to be the small business owner deductions. Another reason for an audit is miscommunication or better yet, no communication between IRS departments. This causes so many problems due to the variable experience level of the agents. Refer to my blog, How To Talk With The IRS for a better understanding. Yet another reason is because something on the taxpayer’s return has alerted the IRS to a potential issue. This last one can be diminished simply by being smart when preparing a return. Ask yourself if you think the IRS would accept your information and then think about how you would back that information up if it ever comes into question.

Most audits these days are “paper audits”, that is audits that are performed via postal mail. In all cases, the IRS simply wants the taxpayer to back up the information on their tax return. This is why it is vitally important that every tax return prepared, whether by a preparer or by the taxpayer herself, consists of only truthful information and watertight calculations. Regardless of who prepares the return, the taxpayer is ultimately responsible for the information on that return. So, it behooves them to know what is being claimed and to have and keep all the backup information (receipts etc.) for the life of the return. Even though the IRS doesn’t usually go back more than 7-10 years to perform an audit, they are allowed to go back as far as they want, especially if they can prove tax fraud. Therefore, I recommend never throwing out any tax return or backup information. So, keep your return watertight and you will definitely sleep better at night!

MFS Can Be A Bummer

The Married Filing Seperate tax status can be helpful to any married couple for two reasons:

1. You each want to be responsible for only your own tax.

2. You find that this status gives you better results than filing a joint return.

This is generally a desirable way to file for people that are still considered married at the end of the tax year, but are filing for divorce. However, most often especially if children are involved, it may be much more advantageous to both parties if they suck it up one last time and file a joint return. I will give the IRS list below since it can't be made any simpler:

• Your tax rate generally will be higher than it would be on a joint return.
• Your exemption amount for figuring the alternative minimum tax will be half that allowed to a joint return filer.
• You cannot take the credit for child and dependent care expenses in most cases, and the amount that you can exclude from income under an employer's dependent care assistance program is limited to $2,500 (instead of $5,000 if you filed a joint return).
• You cannot take the earned income credit.
• You cannot take the exclusion or credit for adoption expenses in most cases.
• You cannot take the education credits (the Hope credit and the lifetime learning credit), the deduction for student loan interest, or the tuition and fees deduction.
• You cannot exclude any interest income from qualified U.S. savings bonds that you used for higher education expenses.

If you lived with your spouse at any time during the tax year:

• You cannot claim the credit for the elderly or the disabled.
• You will have to include in income more (up to 85%) of any social security or equivalent railroad retirement benefits you received, and
• You cannot roll over amounts from a traditional IRA into a Roth IRA.

The following credits and deductions are reduced at income levels that are half of those for a joint return:

• The child tax credit,
• The retirement savings contributions credit,
• Itemized deductions, and
• The deduction for personal exemptions.
• Your capital loss deduction limit is $1,500 (instead of $3,000 if you filed a joint return).
• If your spouse itemizes deductions, you cannot claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.

Congratulations, you’re in business!

Are you among the self-employed? Well, if you are in business for yourself, work as an independent contractor or a combination of the two, then yes, you are definitely self-employed. You are still self-employed for the income you receive from your business even if you are employed as an employee at another job from which you receive a W-2 statement at the end of the year.

Operating a business comes with a plethora of responsibilities of which many people overlook. It is important to remember to acquire all the necessary licenses and permits, acquire the appropriate tax identification number for which you qualify, keep good and accurate records throughout the year, file the appropriate tax forms and pay the necessary taxes for your business in a timely manner. These responsibilities do not stop at the federal level. It is vitally important to find out what is required of business owners in your particular state, and in some cases, those of your city as well. Disorganized records, taxes filed late and paid late or not at will cost you dearly in fees and fines.

Taking care of the necessary research and creating an organized, well-maintained business, no matter what kind of business, will reward you far beyond the financial profits you will accrue. Take pride in the fact that you are the captain of your own financial ship, navigating that ship through the Sea of Success!

Understanding Self-employment Taxes

All self-employed individuals who have earned income of $400 or more are required to pay self-employment tax. This tax covers your Social Security and Medicare payments that your employer would normally cover if you were an employee.

You figure and file your SE tax on Schedule SE along with your 1040 form. The rate at the moment is 15.3%. This is split into two parts, 12.4% for social security and 2.9% for Medicare (hospital insurance). It is important to note that he SE tax rules apply no matter how old you are and even if you are already receiving social Security or Medicare payments.

It is possible to get a Self-employment tax deduction. You can deduct half of your SE tax when you calculate your adjusted gross income. This deduction only affects your income tax however; it does not affect either your net earnings from self-employment or your Self-Employment tax.

When do you pay your Self-Employment taxes? Well, our system is a pay-as-you go or pay-as-you-earn. This means that you pay your taxes as you acquire income throughout the year. If you expect to owe $1000 or more in taxes, including SE taxes, then you must pay quarterly estimated tax payments in relation to the income you receive during the year. It is important to understand well the concept of this tax and when and how much you need to pay so that you won’t find yourself with a hefty penalty when you file your next tax return

Copy of Your Tax Return – How to Get One

Copy of Your Tax Return – How to Get One
http://www.irs.gov/taxtopics/tc156.html

"If you need an exact copy of a previously filed and processed tax return and all attachments (including Form W-2), you should complete Form 4506 (PDF), Request for Copy of Tax Return, and mail it to the address listed in the instructions, along with a $57.00 fee for each tax year requested. The check or money order for the fee should be made payable to the "United States Treasury". Copies are generally available for returns filed in the current and past six years. Copies of jointly filed tax returns may be requested by either spouse and only one signature is required. Allow 60 calendar days to receive your copies."

IRS's New 'What If?' Section

The “What Ifs” of an Economic Downturn
http://www.irs.gov/newsroom/article/...201853,00.html

IRS.gov now has a list of What If? scenarios that deal with payment and other financial problems.

IRS Helping More This Year for People Who Owe Taxes

IRS Helping More This Year for People Who Owe Taxes
http://www.irs.gov/newsroom/article/...202244,00.html

• Postponement of Collection Actions: IRS employees will have greater authority to suspend collection actions in certain hardship cases where taxpayers are unable to pay. This includes instances when the taxpayer has recently lost a job, is relying solely on Social Security or welfare income or is facing devastating illness or significant medical bills. If an individual has recently encountered this type of financial problem, IRS assistors may be able to suspend collection without documentation to minimize burden on the taxpayer.
  

• Added Flexibility for Missed Payments: The IRS is allowing more flexibility for previously compliant individuals in existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship. The IRS may allow a skipped payment or a reduced monthly payment amount without automatically suspending the Installment Agreement. Taxpayers in a difficult financial situation should contact the IRS.
  

• Additional Review for Offers in Compromise on Home Values: An Offer in Compromise (OIC), an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt for less than the full amount owed, may be a viable option for taxpayers experiencing economic difficulties. However, the equity taxpayers have in real property can be a barrier to an OIC being accepted. With the uncertainty in the housing market, the IRS recognizes that the real-estate valuations used to assess ability to pay may not be accurate. So in instances where the accuracy of local real-estate valuations is in question or other unusual hardships exist, the IRS is creating a new second review of the information to determine if accepting an offer is appropriate.
  

• Prevention of Offer in Compromise Defaults: Taxpayers who are unable to meet the periodic payment terms of an accepted OIC will be able to contact the IRS office handling the offer for available options to help them avoid default.
  

• Expedited Levy Releases: The IRS will speed the delivery of levy releases by easing requirements on taxpayers who request expedited levy releases for hardship reasons. Taxpayers seeking expedited releases for levies to an employer or bank should contact the IRS number shown on the notice of levy to discuss available options. When calling, taxpayers requesting a levy release due to hardship should be prepared to provide the IRS with the fax number of the bank or employer processing the levy.
  

Tax Highlights for 2009 Part II

Penalty for Failure to File Income Tax Return Increased
If you file more than 60 days after the due date (including extensions), the minimum penalty is the smaller of $135 or 100% of the unpaid tax.


Real Estate Standard Deduction
Taxpayers can claim an additional standard deduction, based on the state or local real estate taxes paid in 2008. The maximum deduction is $500, or $1,000 for joint filers.

*** Land Contract purchases can qualify. ***

Mortgage Workouts and Foreclosures
For most homeowners, these are now tax-free. Eligible homeowners can exclude debt forgiven on their principal residence if the balance of the loan was less than $2 million. The limit is $1 million for a married person filing a separate return. See Form 982 and its instructions for details.

Tax Highlights For 2009 Part I

I am going to be throwing down some of the highlights for this tax season for you that I think are important. I am quoting the IRS directly and giving the link to specific items to avoid confusion. I will be adding to this thread in the coming weeks so stay tuned!


Recovery Rebate Credit:
http://www.irs.gov/newsroom/article/...186065,00.html


" * Individuals who did not receive an economic stimulus payment.

* Those who received less than the maximum economic stimulus payment in 2008 — $600 per taxpayer; $1,200 if married filing jointly because their qualifying or gross income was either too high or too low.

* Families who gained an additional qualifying child in 2008.

* Individuals who could be claimed as a dependent on someone else’s tax return in 2007, but who cannot be claimed as a dependent on another return in 2008.

*Individuals who did not have a valid Social Security number in 2007 but who did receive one in 2008."


First-Time Homebuyer credit:
http://www.irs.gov/newsroom/article/...202222,00.html

Ignore the word 'credit' - this is a LOAN that needs to be repaid!

"If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. If you make an eligible purchase in 2009, you can choose to claim the credit on either your original or amended 2008 return, or on your 2009 return."

"The credit normally must be repaid over a 15-year period starting the second year after the year the credit is claimed.

The credit is reduced or eliminated for higher-income taxpayers. The credit is phased out based on your modified adjusted gross income. In general, for a married couple filing a joint return the phase-out begins at $150,000 and is completely phased out at $170,000. For other taxpayers, the phase-out range is between $75,000 and $95,000."

Addendum to the First Time Home Buyer Credit: Land Contract purchases can qualify.