Thursday, February 28, 2008

10 Ways to Avoid Back Taxes this Tax Season

Follow these 10 simple steps to make sure you do not owe IRS back taxes after you file your tax returns this tax season.

1. Claim the right filing status

Make sure that you claim the correct filing status. Do not claim something different in order to get a bigger refund such as claiming "Head of Household" when you really should file as "Single". Alternatively, if you are married you should consider filing jointly to lower your total liability.

2. Make sure your math is correct

Always triple check the math in your income tax returns, even if you have them professionally prepared. For the most part the IRS will fix all simple math errors, but problems can arise if you have the wrong numbers listed for income or deductions that lead to an artificially inflated refund.

3. Include income from ALL sources

Make sure that you include income from all sources on your tax return. This includes regular wages, self-employment earnings, tips, independent contract work, child support, alimony, etc. Trying to hide income from the IRS is a big mistake as they have access to mass amounts of information and can determine your exact earnings for each year.

4. Remember winnings from gambling

All the money you win from gambling must be treated as income. However, you can deduct any money you lost at gambling from your total. For more information on taxes and gambling, check out “How to Accurately Reporting Gambling Profits & Losses To The IRS” on the RDTC Tax Help Blog.

5. Do not over exaggerate charitable contributions

In recent years, the IRS has been cracking down on taxpayers that abuse the charitable contribution deductions. Make sure that you only claim contributions that you can document with some type of proof. Also, do not over inflate the donation amount as excessive donations send a huge red flag to the IRS’s audit department.

6. Mail to the correct address, or e-file

Before popping your tax return in the mailbox, make sure that you are sending it to the correct address. If you mail your return to the wrong address it can get lost and result in unnecessary IRS fees or penalties. Fortunately you can avoid this potential problem completely by e-filing your return.

7. File on time, or request an extension

It is essential that you file your tax return on time or at least request an extension from the IRS. If you just ignore tax day then you will be unhappy when you realize what it will cost you. If you cannot file on time, visit “Need More Time to File?” on

8. Forgetting to pay taxes on time

If you do owe money to the IRS then you must pay it before the April 15 deadline. Not paying does not mean your debt will magically go away. Instead it will begin accruing fees and penalties. To pay your taxes enclose a check with your tax return and write your Social Security number, tax form number and tax year on it.

9. If you notice any errors, re-file immediately!

If you notice an error on your tax return, you should file an amended return as soon as possible. If you wait for the IRS to catch your error then you will likely be faced with fees and penalties in addition to the owed back taxes.

10. Make immediate adjustments to withholding or estimated tax payments

Okay, okay, I will admit, this has more to do with 2008 than this year. However, after preparing, filing, and paying your 2007 federal income taxes, you need to take the information from the return and put it to immediate use. If you ended-up owing taxes, you need to adjust your withholdings and/or start making larger estimated tax payments. If you end-up with a very large refund, again, you may need to adjust your withholdings or estimated tax payments. That way you will receive that refund immediately in your regular paychecks. You could then take that money and put it to good use in wise investments or replenish your savings.

Also, if you do owe for 2007 and will need to work with the IRS at resolving your IRS tax debt (instead of paying in one lump sum), you will be required to make adjustments to your withholding and/or estimated tax payments. That is because the IRS is unwilling to work with taxpayers until they have taken steps to ensure that they will not owe again in the future. Higher withholding taxes and/or estimated tax payments are also allowable expenses, which is important in qualifying for some forms of IRS tax debt resolution (i.e. Offer in Compromise, Installment Agreements, Currently Not Collectible status, etc.).

Monday, February 25, 2008

Other Countries Have Simpler Tax Systems

The Tax Foundation Tax Policy Blog has an interesting article on how other countries around the world are taking steps to simplify their tax systems. Additionally, some of these countries are greatly lowering their corporate tax rates, while the United States corporate rates remain the second highest in the industrialized world at 39.3%. According to the entry, the following countries are taking the actions listed:

  • Poland may adopt a flat tax
  • Iceland and Taiwan to cut corporate tax rates
  • People leaving Ireland due to high personal income taxes
  • Hungarian government considers a flat tax
  • Kuwait cuts corporate tax rate
  • Swiss canton adopts flat tax

For the full entry check out More Countries Move to Simpler, Lower Taxes.

IRS Reminds Farmers & Fishermen They May Have Until March to E-File

The IRS published a release reminding agricultural taxpayers, including farmers and fishermen that they may need to wait until March 3rd to e-file their tax return. According to the IRS, any taxpayer who files Form 1040 returns with Form 4136, Credit for Federal Tax Paid on Fuels, will have to wait.

"Normally, 1040 filers who are farmers or fishermen are not required to make an estimated tax payment if they file their return and pay all taxes due by March 1," claims the IRS. "But this year, because March 1 falls on a Saturday, the date extends to Monday, March 3. For eligible farmers and fishermen who attach Form 4136 to their Form 1040, the return will be considered timely filed with all tax paid if the return is e-filed and accepted on or before March 10 and all tax due is paid on or before March 10."

The IRS expects this delay to affect about 77,000 farmers and fishermen who electronically file Form 1040 with Form 4136 in the early weeks of the filing season. For more information, please visit

Wednesday, February 20, 2008

Clinton, Obama, & McCain: The Good, Bad, & Ugly Candidate Tax Views

As the primary elections continue across the United States, I am keeping to my commitment to getting the candidate’s tax views more attention. So much attention is being placed on superficial topics that taxes are taking a back seat. Taxes and the economy will probably become a popular topic in the general election, but I strongly encourage every one to think taxes now! Read up on the candidate’s respective websites, and check out neutral information sources like

At this point in the game there are only three major candidates left in the race. Each have quite different tax views. Below are the good, bad, and ugly tax views of each major remaining candidate.

Hilary Clinton

The Good

Let Bush’s Tax Cuts Expire

Ms. Clinton adamantly claims that the middle class has been ignored by the current administration and seeks to strengthen and grow the middle class and restore the basic bargain: "if you work hard and do your part, you can build a better life for yourself and your family." One method of doing so would be to let the Bush tax cuts expire. This may be a controversial view, but most liberals will agree that it’s essential for the improvement of the American economy. These tax cuts only go to the extremely wealthy individuals in the country and do nothing for the hard working American class. Although some argue that cutting taxes for the rich stimulates the economy, since these tax cuts were enacted the national debt has only increased. Most Americans are quick to judge any tax increase because no one likes paying more in taxes. However, I doubt any one reading this blog would be affected, as letting Bush’s tax cuts expire would only raise taxes on the super rich.

The Bad

Maintain Current Social Security Cap

Clinton supports retaining the current income cap on the Social Security tax, which is a good idea. Currently income over $102,000 is not subject to taxation from the social security tax. Therefore the top income earners do not pay the social security tax on their full income. Increasing the limit on the social security cap, or removing it all together, would create millions of dollars in additional federal revenue.

The Ugly

Mandatory Health Insurance

With heath care issues on the top of every one’s mind Clinton recently proposed the "American Health Choice Plan" which revolves around an individual mandate requiring everyone to have health insurance. Her plan would give more choices to taxpayers seeking health insurance without quite making it universally available through he federal government. Clinton claims her program would cost about $110 billion per year, but has not yet given any specific information on how the plan would be funded. The concept is not so bad on it’s own, but the lack of funding information makes this an ugly tax view.

Barack Obama

The Good

Tax Wealth More Than Regular Wages

One of the tax cuts enacted by President Bush was to drop the tax rate on capital gains from 20% to 15%. This was another tax break that specifically targets the wealthiest in this country who do not earn wages, but rather live off of investments and accumulated wealth. There’s no reason that capital gains should be taxed so much less then regular wages, and Obama agrees. By raising the tax back to 20% some studies estimate that an additional $100 billion in revenue could be generated for the federal government.

The Bad

New Tax Credits

Obama's tax plan features a prominent "Making Work Pay" credit that would offset federal taxes on the first $8,100 of a taxpayers earnings. It would essentially generate a credit of up to $500 for single persons or $1,000 per family. According to Obama this credit would eliminate income taxes for at least 10 million low-income Americans. The idea of lowering taxes for low paid working Americans is considered great by many liberals, but there isn’t really a need for a new credit to accomplish this. Instead, why not expand the Earned Income Tax Credit or the standard deduction amount rather than trying to get a new credit passed by codgers.

The Ugly

No Taxes For Senior Citizens

One of Obama’s tax proposals is to eliminate all federal taxes imposed on senior citizens making under $50,000 per years and not requiring them to file tax returns. This may be a good way to get the senior vote, but it’s much more complicated than it seems. First of all, senior citizens often have income from multiple sources including capital gains, dividends, Social Security, retirement plans, etc. Determining their exact income would still require the same effort as filing a tax return. Additionally, this plan gives special tax treatment to a group if individuals based solely on their age, which seems like borderline age discrimination. Why should a struggling single mother have to pay taxes on her $49,999.00 income when a retired grandmother would pay noting on the same income amount?

John McCain

The Good

Investment Tax Cuts

McCain is a strong supporter of lowering taxes to encourage economic growth, which is the dominant economic stance of the Republican party. Not only does he support renewing the Bush tax cuts, but he also favors numerous tax cuts. McCain hopes to reduce taxes on Capital Gains, Interest, Dividend, Investment income, and even corporate tax rates. And as if his tax cuts weren’t enough, McCain also supports a new rule that would require a 3/5-majority vote to raise taxes. In summary, McCain is a strong supporter of permanent tax cuts, and the Republicans love him for it.

The Bad

Continued War Funding

McCain is a strong supporter of the American military and the "War on Terror," with promises of a continued military presence in Iraq. According to his website, he believes that the answer to our current national security problems is to not "roll back our overseas commitments," but to increase the size of our Army and Marine Corps and continue the current War on Terror. McCain has recognize there is a problem with current military spending but has not provided any information on how to continue the military efforts while lowering the current $12 billion-per-month budget.

The Ugly

No Pledge Against Taxes

Although liberals typically support raising taxes to stimulate the economy, this view is very unpopular among republicans. McCain is one of the only republicans who ran for president this year who declined to sign the pledge put forth by Americans for Tax Freedom not to impose any new taxes or increase existing taxes. The conservative wing of the Republican Party are almost always against increasing taxes and this lack of a commitment could hurt his chances of winning the presidency.

Friday, February 15, 2008

Economic Stimulus FAQs

There has been a lot of confusion lately about the recently passed economic stimulus package. To help sort out the bewilderment about these rebate checks, the tax professionals at the Roni Deutch Tax Help Blog have composed answers to the following rebate related FAQs.

1. How are the rebate amounts determined?
2. How will the "reduced rebate" work?
3. Who will qualify to receive a "reduced rebate"?
4. Who will NOT qualify to receive a rebate?
5. Do I need to apply for the rebate?
6. What if I only have Social Security income and no tax liability?
7. When will I get my check?
8. What if I filed as Head of Household or Married Filing Separately?
9. Will the rebate delay or impact my 2007 tax refund?
10. Will I be taxed on my rebate check?
11. Will this rebate cut into my 2008 refund?

You can check out the full entry, including answers, by check out Economic Stimulus Package: Clearing Up Any Confusion on the Tax Help Blog.

IRS Now Processing AMT Affected Returns

Yesterday afternoon, the IRS announced that they have begun officially processing the five tax forms that were affected by the last minute AMT legislation. On Monday, IRS systems began to unofficially accept and process returns that include the five affected forms. After several days of processing, the IRS has confirmed that their systems are in fact working properly.

Back in December, the IRS announced that they would have to delay the processing of several AMT affected tax forms. However, for most people the filing season this year began on time. Only taxpayers whose return included the five affected forms were forced to wait.

The affected forms include:

  • Form 8863, Education Credits
  • Form 5695, Residential Energy Credits
  • Schedule 2, Form 1040A, Child and Dependent Care Expenses for Form 1040A Filers
  • Form 8396, Mortgage Interest Credit
  • Form 8859, District of Columbia First-Time Homebuyer Credit

Tuesday, February 12, 2008

World’s Dumbest Taxpayer

An Oregon man trying to pay his taxes in cash led to the state’s largest marijuana bust in over 10 years after a tax clerk smelt marijuana on the money.

According to the Associated Press, in Oregon, the Benton County sheriff's department arrested a man for trying to pay a tax clerk his tax liabilities with $600 in cash. Paying your taxes in cash is not usually considered illegal – however, the bills this gentlemen used apparently smelled like marijuana.

The concerned tax worker reported Eric Brian Michaelis to the Benton County sheriff’s department who then discovered over 230 marijuana plants inside Michaelis’ home. Deputies found plants in almost every room in his house, some reportedly over four feet tall. They also discovered a back-up generator that could be used to power "grow lamps" in the case of an electrical power outage.

"It's safe to say that it's at least the biggest indoor marijuana bust in the last 10 years," claimed the Chief Deputy District Attorney Chris Stringer.

Mr. Michaelis was arrested and forced to turn over $65,000 in cash that was seized in his house. He was also sentenced to 16 months in prison. However, there was no mention as to whether his original $600 payment was accepted or not.

As we get closer and closer to tax day stories that mention taxes are gaining popularity. Usually these articles talk about humorous tax deductions or advice on filing your taxes, but this article really stood out and made me laugh aloud. I guess the lesson learned is that federal taxes and illegal drugs do not mix.

Friday, February 08, 2008

Tax Policy Podcast with Taxpayer Advocate Nina Olson

The Tax Foundation Blog recently conducted an interview with interview with Ms. Nina Olson, the nation's Taxpayer Advocate at the IRS. The podcast interview can be downloaded at the Tax Policy Podcast page.

In the interview Ms Olson discusses the role of the Taxpayer Advocate in protecting taxpayer rights, the independence of the office, and the annual report she submits to Congress identifying problems facing taxpayers. She also talks about the problems that both the IRS and taxpayers face when they make last minute changes to the tax code. The interview is slightly over 20 minutes, but presents tons of great information for any one interested in tax policy.

IRS Warns Taxpayers of Correct Locations

With tax season in full swing, taxpayers across the nation are beginning to file their returns with the IRS. As such the IRS distributed a press release reminding taxpayers that they may have to send their return to a different location than prior years.

If you received a booklet from the IRS then the correct mailing list will be included on the labels you receive. Additionally, taxpayers that e-file their returns will not need to worry. According to the IRS the mailing changes affect returns from seven states: Iowa, Kansas, Kentucky, Oklahoma, Pennsylvania, West Virginia, and Wisconsin.

Taxpayers should send:
  • Returns from Iowa, Kansas, Oklahoma and Wisconsin to the IRS center in Fresno, California.
  • Returns from Kentucky to the IRS center in Austin, Texas.
  • Returns from Pennsylvania and West Virginia to the IRS center in Kansas City, Missouri.
For more information on the correct mailing addresses for the IRS centers, please visit

Thursday, February 07, 2008

Top 10 Reasons Wesley Snipes Was Acquitted

Last Friday, a jury acquitted actor Wesley Snipes of all the charges of felony tax fraud. He was however found guilty of three misdemeanor charges of failing to file tax returns and will still have to pay millions to the IRS. The maximum sentence carries up to three years in prison, but he is expected to get a much lighter sentence. Although he was found guilty for the lighter charges his felony tax fraud had carried a maximum of up to sixteen years in prison.

Essentially the jury determined that Snipes had no intention to defraud the government, but the more I thought about this case the more I realized there were probably dozens of other reasons the jury decided to acquit Snipes. Below is a list of the top 10 reasons why Snipes was actually acquitted.

10) Wesley Snipes is an international celebrity, and everyone knows that famous people automatically get one "get out of jail free" card. It is the American way.

9) At his trial, Snipes was frequently attired in a very "Matrix-y" look of a solid black suit, dress shirt, and tie, and sunglasses. The jurors were probably fooled into thinking Snipes was from the future and that the statute of limitations for his crimes had already expired.

8) Snipes said under oath that he did not intend to defraud the government, although he had never paid taxes on tens of millions of dollars he earned. The jury probably just assumed that since he was under oath, he must have been telling the truth.

7) In the Blade films, Snipes played a vampire hunter who devoted his life to saving the lives dozens of innocent people. How could the jury possible be expected to put a Vampire-hunter in prison? What if we come under attack from Transylvania?

6) In 2001 Snipes was nominated for Best Actor in a Network/Cable Movie for his work in HBO’s made for TV movie, "Disappearing Act." Unfortunately he got beat out by T. K. Carter, who famously played Milo Williams in "Good Morning, Miss Bliss" a/k/a "Saved by the Bell, the Junior High Years". The jury probably figured it was punishment enough to go from being an international movie star to losing a network/cable movie award to Milo Williams.

5) Before his trial, Snipes spent a few months in the African country Namibia, the same place Angelina Jolie chose to give birth in. Jurors probably assumed Snipes was doing charity work with Brad and Angelina and therefore felt he deserved a lighter sentence.

4) Over the past few years, IRS has successfully charged numerous high profile individuals for criminal evasion including Edward and Elaine Brown and Richard Hatch. The jury probably just figured since the New England Patriots could not go undefeated, neither should the IRS.

3) In the movie, "White Men Can’t Jump," Snipes’s character famously uttered the phrase, "you can put a cat in an oven, but that don't make it a biscuit." At trial, his attorneys successfully confused the jury by repeatedly citing this phrase when objecting to any evidence the IRS presented of Snipes’s tax fraud.

2) One spectator reportedly filmed the entire trial. Another repeatedly yelled, "Action" and "Cut" at the beginning and end of each session of the trial. This confused the jury into thinking they were in fact cast into a movie – a courtroom drama, starring Wesley Snipes. It probably also helped that the judge in the case looked like actor Tom Wilkinson, and that Snipes’s list of potential witnesses included Sylvester Stallone, Muhammad Ali, Spike Lee, and Tom Brokaw. When the prosecutor failed to get Snipes to say, "You can’t handle the truth," the jury figured they had to acquit.

1) "Blade: Trinity," Snipe’s 2004 episode of the Blade franchise was poorly received by critics and took in substantially less money then the previous films at the box office. Five of Snipe’s latest six movies went directly to DVD and were not released in theaters. Snipes has not had a multi million dollar pay check in nearly five years and it is unlikely Snipes will ever be featured in a large budget film again. It is even more unlikely that Snipes saved enough of his money to fully re-pay his tax liabilities. The jury figured, "hey, why beat a dead horse?"

Wednesday, February 06, 2008

Survivor Winner’s Tax Appeal Denied

Former Survivor winner Richard Hatch – who made the list of biggest tax evaders on the RDTC Tax Help Blog – had his appeal denied by a Boston-based 1st U.S. Circuit Court of Appeals on Friday. Hatch claimed that he caught Survivor employees smuggling food to other contestants, but CBS denies these allegations. He said the show’s producers made a deal to pay his income taxes if he kept his mouth shut. However, the court noted that that Hatch was given several opportunities to testify about the deal, but he never took the opportunity.

"The failure of Hatch to present any evidence of such conversations when invited by the court strongly suggested that no actual promises were made, and no such 'deal' actually existed," the court wrote in its 52-page decision. "It was not the court's right, much less duty, to put words in Hatch's mouth." For more details check out Yahoo News.

IRS Audits More Millionaires

According to ABC News, in 2007 one out of every 11 households with incomes over $1 million were audited by the IRS in 2007. However, the IRS claims it’s auditing rates were up for people of all income levels last year.

The audit rates in 2007 were as follows:

  • 9.25% for those with incomes of more than $1 million, up from 6.3% in 2006.
  • 2.87% for those with incomes above $200,000, up from 2.5% in 2006.
  • 0.93 percent for those earning under $100,000, up from 0.89% in 2006.

The IRS looked at a total of 1,384,563 returns in fiscal 2007. This represents 1.03% of the total individual returns filed with the IRS. The average audit rate was up 7% from the year before. On the business side, the IRS focused on partnerships and mid-market corporations in 2007, especially those with assets between $10 million and $50 million.

Friday, February 01, 2008

IRS Promotes EITC Awareness

The Department of Treasury, the IRS, and dozens of other non-government partners are kicking off EITC (Earned Income Tax Credit) Awareness Day to promote the refundable tax credit for low-wage workers and options for free tax preparation.

"Believe it or not, there are many taxpayers who are eligible to receive the Earned Income Tax Credit, but fail to claim it simply because they are not informed," claimed U.S. Treasurer Anna Escobedo Cabral.

According to IRS data, over 22.4 million taxpayers received more than $43.7 billion from the EITC last year. However, they estimate that approximately one in four eligible taxpayers fail to claim the EITC.

"Ensuring that more eligible families receive their EITC is important this year, as it is every year. I encourage people all across America to check to see if you are eligible for the Earned Income Tax Credit," said Treasury Secretary Henry M. Paulson, Jr.

IRS Warns of Rebate Scams

According to the IRS, there are a few new e-mail and telephone "scams". These scams pretend to be from the Internal Revenue Service and attempt to get taxpayers personal or financial information The IRS is expecting the scams to continue through April 15th.

This time around the IRS is warned to lookout for scams that mention advance payment checks from the IRS. Congress has not yet passed the economic stimulus package, and even so, the checks are not expected to be mailed out until this spring.

The IRS’s new release claims: "identity thieves use a victim’s personal and financial data to empty the victim’s financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name, file fraudulent tax returns or even commit crimes. Most of these fraudulent activities can be committed electronically from a remote location, including overseas. Committing these activities in cyberspace allows "scamsters" to act quickly and cover their tracks before the victim becomes aware of the theft."

Therefore, it is important to be aware of these scams so you do not fall victim to their gimmicks. The IRS never sends out e-mails requesting personal or financial information. If you do receive an e-mail like this, do not reply to it. Instead, forward it to

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