The Tax Domme

Financial difficulty tax issue information

2010-04-15T21:37:00.000-07:00

Here is a bit of helpful information for U.S. taxpayers experiencing financial difficulty straight from the IRS website.

Taxpayer Advocate Service Case Intake Line: 1-877-777-4778 or TTY/TTD: 1-800-829-4059

PDFs:

Tax Impact of Job Loss

Job Related Questions During an Economic Downturn

Low Income Taxpayer Clinic List & Info.

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IRS Help for Financially Distressed Taxpayers
IRS website

If you are facing financial difficulties and struggling to meet your tax obligations the IRS can help. As the 2009 tax filing season begins, in addition to new credits, deductions and exclusions, the IRS is taking steps to help people who owe back taxes. Here are some areas where IRS can help:

• Added Flexibility for Missed Payments: The IRS is allowing more flexibility for individuals with existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship. Depending on the situation, the IRS may allow a skipped payment or a reduced monthly payment amount. Taxpayers in this 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 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 are not necessarily 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.

• Postponement of Collection Actions: IRS employees will have greater authority to suspend collection actions in hardship cases where taxpayers are unable to pay. If an individual has recently encountered a job loss or other financial problem, IRS assistors may be able to suspend collection in some situations without documentation to minimize burden on the taxpayer.

• 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 of 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.

If you are behind on tax payments there could be additional help available if you are facing an unusual hardship situation. For assistance with your back taxes contact the phone numbers listed on your IRS correspondence.

East Coast Storm Victims Granted Extensions

2010-04-01T20:08:00.000-07:00

* * Storm Victims Granted Extensions * *
via NATP

Victims of severe storms and flooding that began March 12 in Rhode Island, West Virginia, and Massachusetts may qualify for tax relief. President Obama has declared several counties in these states federal disaster areas qualifying for individual assistance. As a result, the IRS is postponing until May 11 certain deadlines for taxpayers who reside or have a business in the disaster area. This includes the April 15 deadline for filing 2009 individual income tax returns, making income tax payments, and making 2009 contributions to an IRA. In addition, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after March 12 and on or before March 29, as long as the deposits were made by March 29.

Additional information is available on these IRS websites:

Massachusetts - http://www.irs.gov/newsroom/article/0,,id=220830,00.html
Rhode Island - http://www.irs.gov/newsroom/article/0,,id=220829,00.html
West Virginia - http://www.irs.gov/newsroom/article/0,,id=220828,00.html

Summary of the updates of some of the 2010 tax law credits

2010-02-10T09:30:00.000-08:00

Here are quick highlights of some of the 2010 tax law credit changes. I think they may make some of you very happy. Know that it is necessary to qualify for these credits based on a number of specific criteria. More information can be found at Internal Revenue Service

Earned Income Credit Expanded:
The credit has been expanded for larger families. As with the original credit, childless and single taxpayers may qualify for this credit as well.

Home buyer Tax Credits:
First-time home buyer tax credit has been extended to April 30, 2010. The limit of the credit remains $8,000.

Current homeowners that have lived in their home as their primary residence for a minimum of five consecutive years may qualify for a $6,500 tax credit when purchasing a new home.

Making Work Pay Tax Credit:
The changes in the tax tables may allow for bigger paychecks, however taxpayers should make sure that with the change in the tax tables, they are having enough tax taken out of their paychecks. Too little tax withheld could result in tax due on their tax return. This credit is also available to the self-employed who qualify. Self-employed individuals should calculate their withholding during the year and adjust if necessary. IRS Withholding Calculator

American Opportunity Credit:
This is a modification of the Hope Credit, allowing for higher income and adding required course materials as part of the qualifying expenses. It is now also allowing for 4 post-secondary years instead of the former two.

Sales Tax Deduction for New Vehicle Purchases:
New cars, light trucks, motor homes and motorcycles purchased between Feb. 17, 2009, through Dec. 31, 2009 may be eligible for a deduction of state and local sales and excise taxes. For those that live in a state that does not have sales tax, a deduction for other taxes and fees is provided. This deduction is not subject to itemized deductions qualification!

Residential Energy Credit:
Homeowners that make energy saving improvements to their homes may now qualify for an increase to 30% of the cost of all qualifying improvements such as energy saving windows, efficient air conditioning & heating, and the installation of insulation. The new maximum limit of the credit is $1,500 for those modifications done in 2009 and 2010.

Still Waiting for a W-2 or 1099?

2010-02-10T09:28:00.001-08:00

W-2s and 1099s are to be sent out by January 31st. Many companies send them out earlier, but many do not. Therefore, do not be alarmed if you have not yet received yours.

If you do not receive anything by February 14th, or if your wage statement is wrong, you should first contact your employer. If you do not get a response, you can register a complaint with the IRS and file Form 4852 for a substitute W-2 or other wage statement. The IRS will then send a letter to your employer to get a fire under them. Your employer should send you a letter with the information needed after that.

* You may not submit this form until after February 14th.

* It is important that the number you use on your wage statement matches the ID number you use on your tax return!

Complete Your Tax Worksheets

2010-02-10T09:27:00.000-08:00

If you prepare your taxes yourself, you may have noticed worksheets in your tax packet if using the paper method or an icon to open a worksheet in a tax preparation software program. Do not ignore these important tools! Worksheets and tables are used to make sure that the taxpayer actually qualifies for the credits for which they are applying. There is a lot of valuable information contained within and the answers to the questions asked can either make or break your credit qualification. Many terrible mistakes are made by skipping this step and many a taxpayer who received a refund has had to pay back some or all of the monies received. Be smart - be complete. ;)

Tax Break on New Car Purchases Available in States With No Sales Tax

2009-08-01T13:08:00.000-07:00

NATP

The IRS announced that the tax break for the purchase of new motor vehicles is also available in states such as Alaska, Delaware, Hawaii, Montana, New Hampshire, and Oregon that do not have a state sales tax. Under the American Recovery and Reinvestment Act of 2009, taxpayers who buy a new motor vehicle this year are entitled to deduct state or local sales or excise taxes paid on the purchase.

Taxpayers who purchase a new motor vehicle in states that do not have state sales taxes are entitled to deduct other fees or taxes imposed by the state or local government. The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee. According to the IRS, Congress intended for these fees or taxes to qualify for this special tax deduction.

To qualify for this deduction, the vehicle must be purchased after February 16, 2009, and before January 1, 2010. Taxpayers can claim this special deduction only on their 2009 tax returns to be filed next year.

The deduction is limited to the fees or taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home, or motorcycle. The deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 ($250,000 and $260,000 for joint filers).

IRS Releases Audit Technique Guide on Hobbies

2009-08-01T12:57:00.000-07:00

NATP

The IRS has released a new Audit Technique Guide, IRC § 183: Activities Not Engaged in For Profit, that auditors will use to differentiate between a business activity in which deductions are allowable, an activity not engaged in for profit where deductions are limited, and personal activities for which deductions are generally not allowed.

Some of the factors examination agents will consider when determining if an activity is engaged in for profit include whether: (1) the activity has large expenses with little or no income; (2) losses from the activity offset other income on the taxpayer's return; (3) the activity results in a large tax benefit to the taxpayer; and (4) the taxpayer's history of the activity shows that it generated profits in any tax year.

The guide also provides a list of possible activities that may be affected by the hobby loss rules of §183. The appendix lists the nine relevant factors used to evaluate whether an activity is engaged in for profit with a brief explanation of each factor.

A more simplified version can be found by the IRS below.

Is your hobby really an activity engaged in for profit?
By the IRS

In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business or for the production of income. Trade or business activities and activities engaged in for the production of income are activities engaged in for profit.

The following factors, although not all inclusive, may help you to determine whether your activity is an activity engaged in for profit or a hobby:

Does the time and effort put into the activity indicate an intention to make a profit?
Do you depend on income from the activity?
If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
Have you changed methods of operation to improve profitability?
Do you have the knowledge needed to carry on the activity as a successful business?
Have you made a profit in similar activities in the past?
Does the activity make a profit in some years?
Do you expect to make a profit in the future from the appreciation of assets used in the activity?

An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses).

If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.

What are allowable hobby deductions under IRC 183?

If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.

Deductions for hobby activities are claimed as itemized deductions on Schedule A, Form 1040. These deductions must be taken in the following order and only to the extent stated in each of three categories:
Deductions that a taxpayer may claim for certain personal expenses, such as home mortgage interest and taxes, may be taken in full.
Deductions that don’t result in an adjustment to the basis of property, such as advertising, insurance premiums and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
Deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.

President Approved “Cash for Clunkers”

2009-08-01T12:50:00.000-07:00

NATP

On June 24, President Obama signed HR 2346, the 2009 Supplemental Appropriations Bill for Iraq, Afghanistan, Pakistan, and Pandemic Flu. Contained within this bill is a provision under Title XIII, Consumer Assistance to Recycle and Save Act of 2009 that provides $1 billion for vouchers of $3,500 or $4,500 to be applied toward the purchase or lease of a new fuel efficient automobile or truck. This provision is more commonly known as “Cash for Clunkers.”

The vehicles must be purchased or leased between July 1 and November 1, 2009. To qualify for a voucher, the vehicle traded in must be scrapped, and the purchased vehicle must achieve greater fuel efficiency than the vehicle to be turned in. The amount of the voucher the purchaser is entitled to receive will depend on the type of vehicle purchased and the amount of the increased fuel efficiency.

Make Work Pay Credit

2009-08-01T12:45:00.000-07:00

This credit for working people, $400 individuals and $800 for working married couples, is a credit utilized during this year by reducing increments in tax due by 6.2% resulting in possible higher paychecks for those who qualify. Those working individuals that do not receive the full amount or any of this credit during the year may be able to apply for it on their income tax returns. Employers will have generally calculated this change in withholding by early last Spring. You can make changes to your withholding by filing Form W-4 with your employer.

Those that are self-employed may also benefit from this credit if they qualify by adjusting their scheduled estimated payments during the year and filing their 2009 Income Tax Return.

"If you're not eligible for the Making Work Pay tax credit, withholding changes could mean a smaller refund next spring. A limited number of people, including those who usually receive very small refunds, could in some situations owe a small amount rather than receiving a refund. Those who should pay particular attention to their withholding include:

Pensioners
Married couples with two incomes
Individuals with multiple jobs
Dependents
Some Social Security recipients who work
Workers without valid Social Security numbers" (IRS)

The DC Madam and the IRS

2009-05-20T14:46:00.000-07:00

Montgomery Sibley was the attorney for the D.C. Madam, Deborah Jeane Palfrey. He has written a book about her and the judicial system events that led to her ultimate suicide available now.

Why Just Her

http://www.whyjusther.com

The DC Madam and the IRS

By Montgomery Sibley

One of the untold stories about the D.C. Madam involves the Internal Revenue Service. It was in June 2006 that the Senate Judiciary Committee approved a bill sponsored by committee chairman Sen. Charles Grassley, R-Iowa, authorizing at least $2 million toward the establishment of an office in the IRS criminal investigation unit to prosecute unlawful sex workers for violations of tax laws.

How curious it was then that the IRS immediately found an ally in the U.S. Postal Service which has been investigating since 2000 – but not charging – a minor escort agency in the District of Columbia called Pamela Martin & Associates run since 1993 by Jeane Palfrey.

I will skip over the rest of the story quickly. Jeane’s assets were seized by IRS investigators in October 2006, she was indicted in March 2007, tried in April 2008 and committed what I call court-induced suicide on May 1, 2008. I am sure Senator Grassley was pleased to get such a dangerous criminal off the street, though the IRS did leave 89 other escort agencies operating – and still operating – in the District of Columbia.

The IRS spent thousands of man-hours collecting each Postal Money order sent to Jeane and tracking it back to the escort who sent it. The spreadsheets with this information run to the hundreds of pages. At Jeane’s criminal trial, the IRS agent, Troy Burrus’ testified:

Q. Does Ms. Palfrey’s [Federal Tax] return show gross receipts or net receipts?

A. It shows gross receipts.

Q. And where does it show that?

A. On line one, under part one for the income, it shows the gross receipts.

Q. And what [are] gross receipts, just to make sure?

A. Gross receipts in this instance would be all the income that was received by the business during that year.

Q. And did you compare the tax returns to the bank records for Ms. Palfrey?

A. Yes.

Q. And what did that show?

A. The comparison of the bank records for this year, 2002, show that there was a greater amount of gross receipts than was reported on this line.

Simply stated, Jeane under reported her income for 2002 – and as Agent Burrus’ records revealed for every other year as well. But Jeane was not charged with an tax offenses? Why? I believe it was because such a charge would have opened the door to an intense investigation by Jeane’s defense team as to whether it was to please the powerful Senator Grassley who held their purse strings. Hence, the tax crimes that could have been charged were not charged.

Ah, the IRS acting to appease the powerful . . . who would have thought it!

Adult Entertainment Industry as a Social Taboo

2009-05-04T09:52:00.000-07:00

I wrote this argumentative essay a few years ago and thought that this would be an appropriate first non-tax related blog submission. I do believe that it could use a bit of further work as it was written in haste, however the basic idea is really how I am feeling more and more in regard to this topic.

I should state that I am in no way a 'man hater' or hold all men responsible for every injustice in the world. I love and respect men as I do women. I feel that a better world will come from all of us doing our part.

Identification of the Adult Entertainment Industry as a Social Taboo is a Social Construct

I argue that the identification of the Adult Entertainment Industry as a social taboo is a social construct set up to subjugate women both socially and economically.

Before beginning my argument, I feel it necessary to define the terms 'social construct' and 'subjugation' in order to keep clear my points and ideas. As defined by Webster's Dictionary, a social construct is "a social mechanism, phenomenon, or category created and developed by society; a perception of an individual, group, or idea that is `constructed' through cultural or social practice". Webster's also defines subjugation as "to bring under control or conquer".

To be an adult entertainer in the United States of America more often than not means leading a double life. To the outside world, the entertainer is a student, a wife, a mother, a daughter, a sister, best friend, coworker in a mainstream job and even fellow church congregant. When performing within their Adult profession they may be an exotic dancer, escort, phone sex operator, dominatrix, submissive, porn actress, smut writer or any combination of these. The reason for secrecy stems from the fact that there has been created a separate set of social rules for those that demand the product, sex, and those that supply it.

The Adult Entertainment Industry, like any industry relies on the basic economic concept of supply and demand. Without the demand, there would be little reason for the supply. Some statistics from the California's Adult Industry in 1999 found in a white paper created by The US adult entertainment industry trade association, The Free Speech Coalition states the following in regard to video rentals and sales and erotic dancing support the economic demand for the Sex industry.

Adult Video sales and rentals:

In stores in the Western Region of the United States (California, Arizona, Oregon and Washington), adult video made up 35.6% of the sales and rentals in stores that carry both general release and adult video. This means that many if not most video retailers depend upon adult product to stay in business.
Mail order provides a means for distribution of adult products with minimal intrusion into the community, and substantial privacy for the consumer. A survey of mail order providers conducted by the Free Speech Coalition established that in 1998, there was $200 million in adult video sales, plus additional millions in sales of magazines, lingerie and novelties. The sales of these products generate tax revenue and employment in California which sites most of the product manufacturers.
Mail order and related shipping in California generates so much revenue that following the U.P.S. strike, the U.S. Postal Service assigned a special sales staff to encourage the adult industry to keep using the U.S.P.S.

Erotic Dance:

The dance industry creates over 20,000 jobs in California, while providing almost $1 billion in revenues.
The dance industry brings in an estimated $500,000 to local governments in much-needed tax revenue, most of which goes towards law enforcement.

However, many consumers of sex, hold the entertainers to a separate set of social standards than themselves. They consider this part of their male privilege since most of the entertainment is aimed at the male consumer who is quite often at a higher social and economic advantage. Evidence of this can be seen at strip clubs that are predominantly male-owned and operated. Some have regulations not allowing female patrons to enter unless they are accompanied by a male. Other evidence of the disparity of social standing between the customer and sex worker can be found in the social attitude toward both. Men are lightly, if at all chastised for patronizing a strip club, calling a phone sex operator or keeping an appointment with an escort and yet responsible women legitimately employed are denied housing, loans from financial institutions and employment in non-adult professions. They lose their children in custody battles, are shunned by friends and family and put out of their places of worship simply for attempting to make a living. For many of these women, work in this industry is the only way they can make enough money to survive or pay for their education.

Stating that it is the Adult Entertainment Industry that is creating misogynistic attitudes toward women and is the cause of many of our society's ills deflects the focus off men, thus creating a sense of shame and fear in the entertainers, the majority of whom are women, as they are now left to hold the burden of what is considered a social 'problem'. As a social problem, it is something that is sought to be eradicated. In 2005, Congress created the Anti-Obscenity Squad to combat "the war on porn". Attorney General Gonzales made this a top priority. In one newspaper, an agent was even reported stating, "Honestly, most of the guys (agents) would have to recuse themselves." (The Washington Post, 9/20/05) Yet, these very agents continue to target manufacturers and suppliers of legal pornography that was designed for enjoyment by consenting adults, not that which is considered 'kiddie porn'. Acts such as these only serve to disable those in the industry making them a pariah in society. It also serves to disable them financially, many who are already economically disadvantaged. This keeps the impoverished marginalized, dependent on and fearful of the system, unable to stand up for themselves and fight those who are subjugating them. This system has been defined as the Matrix of Domination. Marilyn Frye (1983), feminist theorist and professor at Michigan State University, states that the Matrix of Domination refers to "a network of forces and barriers which are systematically related and which conspire to the immobilization, reduction, and molding of the oppressed." To better understand how this system of oppression works and is implemented, it is important to understand the Categorization Process (SCCF) in which people are dehumanized in a systematic way in order for subjugation to take place. This system is used for all types of race and gender discrimination. A brief synopsis of the process in four steps is given below:

The Categorization Process (The Creation of the Other)

1) Naming (labeling)

2) Aggregating/Disaggregating
-Lumping and dissecting

3) Dichotomizing (polarizing)
-Creating master and subordinate categories

4) Stigmatizing (dehumanizing, objectifying)
-Through the use of stereotypes in different mediums

The process for my purpose of this paper begins with the naming and labeling of adult industry workers as dirty, immoral, degraded, victims and any plethora of words that negatively describes their profession. The second step continues with lumping all adult entertainers as the labels previously described and then dissecting them into different levels of immorality and dirtiness dependent upon the specific type of entertainment performed. The third step, dichotomizing, puts the consumer in the role of 'master' and the entertainer into the role of 'subordinate'. This gives all the power to the consumer and thus produces a sense that the transaction of money and sex is not one that is equal. Thus, the entertainer is not thought of, or thinks of themselves as a business person deserving of the respect and rights that other business people enjoy. The final category stigmatizes the entertainer and dehumanizes them via various types of stereotypes so that society can disassociate themselves with these now non-humans and thus remove their rights socially without guilt or question. Doing this then opens the door to put the entertainer in an economic disadvantage as they are not able to receive the rights to business that they are entitled.

Identifying the Adult Entertainment Industry as a social taboo is a social construct set up to subjugate women both socially and economically.

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Works Cited:

Frye, Marilyn (1983) The Politics of Reality Trumansburg, N.Y. The Crossing Press.

Powerpoint presentation.Taking Apart the Story: Race, Class, Gender, and Sexuality.

The US adult entertainment industry trade association, The Free Speech Coalition

(1999). White paper entitled: The Truth About California's Adult Industry, found online at Adult Mags Direct: http://www.melonfarmers.co.uk/arwhitep.htm

The Washington Post (9/20/05)
Webster's Dictionary

Hybrid Vehicle Credits

2009-03-19T19:06:00.000-07:00

NATP

The IRS released a listing of 2009 and 2010 model year hybrid vehicles that qualify for the §30B credit. The credit is only available to the original purchaser of a new, qualifying vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.

Qualified Hybrid Vehicles

Balance Due Notice After Payment

2009-03-12T13:32:00.001-07:00

NATP

Balance Due Notice After Payment

When an electronically filed return posts and a corresponding payment is not in the system, a notice is automatically generated. Since a payment mailed the same day as the return is e-filed takes additional time to post, notice issuance has increased as the number of returns filed electronically has increased.

In the past several years, the IRS has taken steps to prevent this from happening during the peak filing season. Beginning in June 2009, all balance due notices will be delayed for two weeks to allow any mailed payments to post. This should greatly reduce the number of erroneous notices.

The IRS has also become aware that some notices may be issued when payments have been made using EFTPS. Again, there is a short lag time as the information is transferred from EFTPS to the IRS and, because of the timing, a notice may be issued. The reprogramming in June 2009 should eliminate this situation as well.

Please note that all balance due notices state: If you have already paid your tax in full or arranged for an installment agreement, please disregard this notice. Therefore, if a payment has been sent, no further action is needed unless a second notice is received. These notices may also be avoided by using electronic funds withdrawal for the tax due, interest, and penalties.

Interest Rates Decrease for Second Quarter

2009-03-12T13:31:00.000-07:00

NATP

The IRS has announced that the interest rates for tax overpayments and underpayments for the calendar quarter beginning April 1, 2009, will decrease by a full percentage point. The interest rates are as follows:

4 percent for overpayments (3 percent in the case of a corporation);
4 percent for underpayments;
6 percent for large corporate underpayments; and
1.5 percent for the portion of a corporate overpayment exceeding $10,000.

IRS Ends Private Debt Collection Program

2009-03-12T13:18:00.001-07:00

Just in from my tax organization:

IRS Ends Private Debt Collection Program

After conducting an extensive review of the private debt collection program, including the cost effectiveness of the effort, the IRS has announced that they will not renew its contracts with two private debt collection agencies.

The IRS determined that the work is best done by IRS employees who have more flexibility handling cases, which is particularly important with many taxpayers currently facing economic hardship. The current one-year contracts expired Friday, March 6.

How to talk with the IRS

2009-01-13T16:51:00.001-08:00

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?

2009-01-13T16:50:00.001-08:00

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

2009-01-13T16:48:00.000-08:00

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!

2009-01-13T16:47:00.000-08:00

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

2009-01-13T16:45:00.000-08:00

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

2009-01-13T16:25:00.000-08:00

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

2009-01-13T13:08:00.000-08:00

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

2009-01-13T13:05:00.000-08:00

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

2009-01-13T13:03:00.000-08:00

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

2009-01-13T12:59:00.000-08:00

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.