Fraudulent Tax Returns Surge 181%

According to reports, the number of taxpayers attempting to claim inflated refunds was on the rise. When the economy falters people start looking for more cash. And that means more people are willing to “push it” on their taxes. Good luck, when the audits start rolling in.

From Yahoo Finance:

The IRS identified 335,341 tax returns claiming $1.9 billion in fraudulent refunds as of March 4, 2011, according to the findings of an audit conducted by the Treasury Inspector General for Tax Administration. That's a whopping 181% increase from the same period last year.

While the IRS has become more effective in its screening process, a weak economy has also driven more people to cut corners, said Tim Gagnon, assistant academic specialist of Accounting at Northeastern University.

"When the economy gets really bad, people get more touchy about how much they're paying in taxes and look at where they think they can push the envelope a little more," said Gagnon. "100 extra dollars really makes a difference to people now."

Many taxpayers tried to boost their refunds or reduce their tax liability by claiming deductions and credits they didn't qualify for, TIGTA found.

For example, the Earned Income Tax Credit, aimed at helping lower-income taxpayers, has been a large source of fraud, with people falsely lowering their income to qualify or claiming children they don't have. The IRS estimates that 23% to 28% of EITC credits are wrongfully paid to Americans every year, totaling $11 to $13 billion.

More here

Mortgage Denied: Sometimes, for No Good Reason

Due to tighter standards from Frannie Mae and Freddie Mac, getting approved for a mortgage is getting more and more difficult for average Americans. People are getting denied left and right, sometimes for things beyond their control.

CNN reports:

Banks are reluctant to make loans without the Fannie and Freddie guarantee, and loans backed by them account for just about every mortgage written these days.

In 2009, the agencies lifted the minimum credit score that borrowers must have from 580 to 620. That's probably for the best.

But they've pushed through a host of other requirements as well, and that means real estate deals don't get done, even for some relatively low-risk borrowers.

"You can have one Fannie/Freddie guideline you violate and that gets you rejected," said Alan Rosenbaum of GuardHill Financial.

A quarter of all mortgage loan applicants get denied for loans, according to the Federal Reserve. Many other potential homebuyers never even try to get loans, said Jerry Howard, president of the National Association of Home Builders.

More here

Start at the IRS to Find a Missing Child

I've posted stories before about attempts to get the IRS to provide information about child abductors, but did you know there are parental abductors some who blatantly claim their kidnapped children on their federal returns? The hubris here is astonishing.

Washington Examiner reports:

Hardly a week passes without hearing something about missing children in this country. Some are believed stolen for sexual purposes, some are found murdered, and thousands of other children are kidnapped by one of their own parents.

Today, let's focus on parental abductors.

For the parent left behind after a former spouse has kidnapped their child, there is the agony of not knowing when -- or if -- they will ever see their baby again. Even the tiniest clue as to their son's or daughter's whereabouts is vitally important if there is ever to be a reunion.

To those heartsick parents, I say: The IRS may very well know where your missing child is, but the agency won't tell you.

Believe it or not, there are some parental abductors who file tax returns and blatantly claim their kidnapped child as a dependent!

Some of them apparently need the refund money, while others don't want to attract attention for failure to pay. When they file their return, they list their employer and their home address, along with the child's name and Social Security number.

All are major pieces of information the abandoned parent would love to know. But the IRS cloaks itself in Watergate-era privacy laws, shrugs its bureaucratic shoulders and says it just can't help the grieving parent locate the missing child.

Continued here...

Obama Takes Tax Plan to Facebook Billionaires

Today the President is hosting a Webcast meeting from Facebook's headquarters. He is expected to discuss the economy, and his plan for reducing the federal deficit. Interesting choice of venue, but not surprising with his ongoing commitment to social media.

Reuters reports:

National debt is a major concern, particularly after the rating agency Standard & Poor's threatened to downgrade the U.S. credit rating, and Obama has set a goal of cutting the deficit by $4 trillion within 12 years or less.

Obama now plans to touring the nation to tout his plan, including ending tax cuts for those making more than $250,000.

"If we're asking people who are going to see potentially fewer services in their neighborhoods to make a little sacrifice, then we can ask millionaires and billionaires to make a little sacrifice," he told Virginia students on Tuesday.

He will get to make that pitch to the 19th wealthiest person in the United States, Facebook CEO Mark Zuckerberg, who is worth a cool $13.5 billion, Forbes calculates.

Obama will host a Webcast meeting on the economy from Facebook headquarters on Wednesday afternoon.

Business is booming in the tech capital, including at Facebook, the social networking site in a bidding war for talent with the likes of Google and Twitter.

The Silicon Valley economy is recovering from the recession, adding more than 12,000 jobs last year, according to Joint Venture: Silicon Valley. The top shops are in a fight for top talent, as well, say recruiters.

Read more here

Missed the Tax Deadline? Here's My Advice

Yesterday was the deadline to get your tax return filed. Hopefully you filed your taxes right on time and are currently relaxing in post tax season glow. If not, here is my advice on how to get your taxes taken care of without incurring excessive fees and penalties.

Don't Wait Any Longer

The best advice I can give you is not to wait any longer. Get your tax returns prepared and filed as soon as possible. If you get your return filed within the next couple of days, any penalties you’re assessed will be minor, and you may escape the penalties altogether. However, the longer you wait, the more you will end up owing Uncle Sam.

Too Late for an Extension

Unfortunately, if you did not request an automatic extension of time to file with the IRS before the deadline, you missed the opportunity to get an additional six months to file your return. Don’t even bother trying to file one now.

Be Fast, But Cautious

Although you should get your returns filed as quickly as you can, you still need to be accurate and meticulous. Mistakes on your taxes can cost you money through missed deductions, or improperly reported income, and can even invite an audit. Only claim deductions and credits that you are entitled to; make sure you include all sources of income on your return; and double check to make sure your Social Security number, address, and other personal information are all accurate. And for heaven’s sake, remember to sign your tax returns!

FTP and FTF Penalties

There are two types of penalties that the IRS can assess, Failure to File (FTF), and Failure to Pay (FTP). Therefore, even if you cannot afford to pay the taxes you owe, you should still file a return ASAP to prevent at least one type of penalties. If you don’t file or pay, the IRS will hit you with both.

Payment Options

If you do not have enough money in the bank to pay the taxes you owe, you might want to think about paying by credit card. The IRS does accept credit card payments, just be aware that you will have to pay an additional fee, as well as interest to your credit card company. Of course, that might be a small price to pay for avoiding the stress and hassle of IRS debts.

Payment Plan

Depending on how much you owe, you may be able to set up a payment plan with the IRS, also known as an installment agreement. If you owe less than $25,000, you can use the IRS' Online Payment Agreement program to submit your application. Alternatively, you should consider contacting a tax lawyer or enrolled agent to prepare the application on your behalf.

Substitute Return

If you do not file a return, then the IRS will file a substitute return on your behalf. This is not a good thing since the IRS will likely not include deductions, credits or exemptions for which you are eligible. As you can imagine, that can make your tax bill much larger than it should be. Avoid the entire mess, and file your returns, even if they are late.

State Tax Returns

Like I mentioned in last week's Questions for The Tax Lady entry, some states, including California, will automatically give you an extension if you do not file before the deadline. However, every state has different rules for late filing and payments, so be sure to contact your state’s tax agency to make sure that you are compliant.

Professional Help

Remember, you always have the option to hire a professional to help get your return filed, and setup a payment plan with the IRS. Just keep in mind that many tax preparation offices have seasonal hours, so remember to call and make an appointment as soon as possible.

5 Homebuying Traps to Watch For

Spring season has begun, and houses are going up for sale across the country. Prices are low, and there are plenty of other good reasons to purchase real estate right now. However, be sure that you avoid making one of these missteps.

From MSN:

Considering your house an investment.

(Yale economist Robert Shiller) found that except for a brief period after World War II and the boom between 2000 and 2006, the inflation-adjusted return on housing has been zero. Zilch. Nada. And Shiller's analysis didn't factor in the considerable costs of maintaining, repairing and modifying a home.

Your house is a place to live with tangible and intangible benefits -- you don't need permission to paint or decorate, and you have a place to call "home sweet home." However, depending on where you live, renting may be a far better financial option.

Buying too much house.

Your lender and your real-estate agent will try to tell you how much you can afford, but they don't know your goals. Ever heard the expression "house rich, cash poor"? Weston advises, "In general, limiting your housing costs -- including mortgage, property taxes and homeowners insurance -- to 25% of your gross income will ensure you have enough money left over to cover other goals, like retirement savings."

Overpaying for a mortgage.

Lenders are mighty picky about whom they extend credit to. Money Talks News explained how to get the best mortgage deal in three steps:

• Increase your credit scores as much as possible.
• Research interest rates and call the lenders to learn about fees.
• Get lenders to compete for your business.

Read more here

45% Don't Owe U.S. Income Tax

According to new reports, nearly half of Americans did not pay federal income taxes for tax year 2010. However, as CNN reporter Jeanne Sahadi explains, this statistic is often misunderstood, and misrepresented. Remember, politicians use stats like this to get everyone riled up, without providing any underlying information. Remember, everyone pays taxes, just not everyone pays federal income taxes, and that’s by design.

From CNN.com:

For tax year 2010, roughly 45% of households, or about 69 million, will end up owing nothing in federal income tax, according to estimates by the nonpartisan Tax Policy Center. Some in that group will even end up getting paid money from the federal government.

That does not mean such households end up paying no taxes whatsoever. For instance, those in the group still pay other taxes such as state and local income taxes, as well as property and sales taxes.

And the group doesn't necessarily get off scot-free when it comes to payroll taxes -- which support Social Security and Medicare.

More than two-thirds -- or 49 million of the 69 million households -- pay payroll tax. Of those, 34 million end up paying more in payroll taxes than they get back on their federal return. The other 15 million pay payroll tax but they get enough refundable credits to offset what they paid.

More here

Michele Bachmann Tax Day Rally Draws Sparse Crowd

The Tax Day rally hosted by Michele Bachmann has been called a "dud" by bloggers, for only drawing about 300 people. The rally took place in Columbia, SC yesterday. Ouch, having your event called a dud can’t feel good.

Politico reports:

Bachmann met privately with South Carolina GOP Gov. Nikki Haley ahead of her speech to the small crowd in the Palmetto state’s capital.

The Minnesota congressman rallied the tea party supporters with a call to block Washington from raising the debt ceiling and an attack on President Barack Obama for being too close to Wall Street.

She told reporters after the rally that while she has yet to make an announcement on a run for president, she is looking forward to the opportunity to take on Obama, The Associated Press reported.

The rally's sparse attendance is attracing nearly as much attention as Bachmann's remarks.

Will Folks, a widely read blogger in South Carolina political circles, termed the rally a “dud” in a post Monday afternoon.

“Politicians, political operatives and members of the media came close to outnumbering attendees at a much-hyped Columbia, S.C., tea party rally starring U.S. Rep. Michele Bachmann and S.C. Gov. Nikki Haley on Monday,” Folks wrote.

Continue reading at Politico.com...

Obama Made $1.7 Million in 2010, Paid $453,770 Tax

The White House released the income tax return of President Barack Obama and his wife Michelle, and according to their returns, the Obamas made $1.7 million in 2010. The first couple paid over $450,000 in federal income taxes, and donated $245,000 to charitable causes.

From Bloomberg.com:

The Obamas reported $1.3 million in taxable income after deductions, according to a 2010 tax return released by the White House today, the deadline for filing tax returns. Obama earned his $400,000 presidential salary plus almost $1.4 million in income associated with his books.

The Obamas’ adjusted gross income dropped about 69 percent from last year, when it was $5.5 million. Their total federal income tax liability dropped about 75 percent from last year, when it was $1.8 million.

In 2010, Obamas donated $245,075 to charities, or 14.2 percent of their adjusted gross income. That’s less than the $329,100 they gave in 2009, when charitable contributions made up 6 percent of their adjusted gross income. In 2009, the Obamas also donated the entire $1.4 million that the president received for winning the Nobel Peace Prize, which wasn’t counted as taxable income because it was transferred directly to charities.

The largest single donation of $131,075 in 2010 went to Fisher House Foundation Inc., which provides lodging for military families visiting people who are hospitalized. The next-largest contribution, $15,000, went to the Clinton-Bush Haiti Fund.

Read more here

Where to Get Your Tax Day Freebies and Discounts

Today is the deadline to get your federal tax returns filed, which also means companies are offering Tax Day promotions. Go on and get your free stuff!

From CBSnews.com:

HydroMassage:

HydroMassage locations nationwide will provide free massages between April 14 and April 18 to help eliminate the stress of tax filing. Get a coupon for a free message at www.hydromassage.com/taxday.htm and call ahead to schedule a session.

IHOP:

IHOP has a kids-eat-free special offer the entire month of April. From 4 p.m. to 10 p.m., children 12 and younger get one free meal with each paying adult.

Cinnabon:

Cinnabon will offer two free Classic Cinnabon Bites on April 18 from 6 p.m. to 8 p.m. as part of its Tax Day Bites promotion.

California Tortilla:

California Tortilla is giving customers free chips and cheese (queso) with a purchase on April 18 because "you have to pay the big cheese."

More here

How You Should Talk So the IRS will Listen

If you have to deal directly with an IRS agent, either because of an audit or a back tax debt, then here are a few rules to consider (via WSJ.com).

Rule 1: Don't ignore the tax man. The IRS "has an automated collections system," says John Barrie, a tax lawyer and partner at Bryan Cave LLP. "They will start issuing notices. Each notice gets a little more harsh." Soon enough, the IRS may place a levy on your wages or bank account.

Rule 2: You need to communicate with the IRS, but that doesn't mean telling them everything. Taxpayers often get defensive -- and chatty.

Rule 3: Treat the agent as an equal and maintain emotional control. You want this person to be on your side.

Rule 4: Don't arrive ready to write a check. And don't respond to an IRS letter by dropping a check in the mail. The IRS may be wrong. But once you agree on a payment plan, stick to it.

More at WJS.com...

Tax Breaks for the Unemployed

If you are unemployed, taxes may be the last thing on your mind, however, you are actually entitled to a handful of additional tax breaks. Read on, the unemployed need all the money help they can get.

CNN reports:

"This is your money that you're entitled to, and if you're unemployed it's really in your interest to get that money back this year," said Bob Meighan, vice president at TurboTax. "Refunds are averaging around $3,000, which is a pretty good chunk of money, especially if you're unemployed -- but time is running out, so get your records together and get started."

Job seekers: If you lost your job and were seeking a new one last year, you can deduct many of the costs associated with your hunt.

This includes headhunter or career coach fees, the cost of printing, photocopying or creating resumes, and even fees for joining job search sites. You can also deduct phone and fax expenses, as well as the cost of traveling to and from interviews -- including airplane tickets, bus rides and gas money.

As a job seeker, you can even deduct the cost of taking continuing education classes to maintain the skills used in your previous line of work.

And the money spent on job hunting doesn't have to result in employment. To claim the deductions, you simply need to itemize them on your return. If you do end up scoring a job and need to relocate at least 50 miles away from your current home, you can also deduct the cost of moving.

Continue reading here

Questions for the Tax Lady: April 18th, 2011

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question: I had $20,000 worth of credit card debt forgiven last year, and now the IRS is claiming I owe back taxes on that money. Was I supposed to include the forgiven debt on my tax return?

Answer: I hate to be the bearer of bad news, but canceled debt is considered taxable income by the IRS. Your creditor may have sent you a 1099-C, showing the forgiven debt. The IRS also receives a copy of this, and will slap you with a tax bill that can make your jaw hit the floor.

Canceled debts should be listed as income on line 21 of Form 1040.

While canceled debt that resulted from a foreclosure is exempted from your income (thanks to the Mortgage Debt Forgiveness Act), credit card debt that is forgiven is absolutely taxable.

I’m so sorry you are in this position. Your best bet at this point is to resolve your back tax debt as quickly as possible, either through an installment agreement, or if your financial situation is dire, you may be able to be placed on Not Currently Collectible status. While your debt does not go away, you will at least be protected from forced collections until your money outlook improves.

Question: Roni, I wasn't able to finish calculating my estimated tax payment. Is there any way I can get an extension? If not, is there a penalty if I don't get the payment sent to the IRS for a couple more days?

Answer: The IRS does not offer extensions for estimated tax payments. If you are late, for whatever reason, you should pay them as quickly as possible, and you should expect a penalty for underpaying your taxes. I know, it seems strange, but according to the IRS, those payments ensure you are paying enough taxes. Failure to pay by the due date means you have underpaid your tax obligation. That penalty is imposed on each underpayment for the number of days it remains unpaid.

Generally, the penalty will be imposed when you file your tax returns. Last year’s penalty for underpayment was 4% for the number of days the payment remained unpaid. So, a few days will probably not hurt too badly, but it can add up quickly. So make every effort to file on time, and start your calculations a little earlier for your June payment.

World Bank: Food Prices have Entered the 'Danger Zone'

The World Bank warns that high food prices are pushing millions of people into extreme poverty and could condemn a generation to malnutrition.

The Telegraph reports:

Robert Zoellick, World Bank president, said food prices are at “a tipping point”, having risen 36pc in the last year to levels close to their 2008 peak. The rising cost of food has been much more dramatic in low-income countries, pushing 44m people into poverty since June last year.

Another 10pc rise in food prices would push 10m into extreme poverty, defined as an effective income of less than $1.25 a day. Already, the world’s poor number 1.2bn.

Mr Zoellick said he saw no short term reversal in the damaging effect of food inflation, which is felt much more in the developing world as packaging and distribution accounts for a far larger proportion of the cost in the advanced economies.

Asked if he thought prices would remain high for a year, Mr Zoellick said: “The general trend lines are ones where we are in a danger zone… because prices have already gone up and stocks are relatively low.”

Rising prices have been driven by the changing diet of the ballooning middle classes in the emerging markets. “There is a demand change going on, with the higher incomes in developing countries. People will eat more meat products, for example, that will use more grain.

Read more here

Foreclosure Filings Plunge in First Quarter

Even though one in every 80 California housing units and one in every 35 Arizona housing units received a foreclosure notice the first quarter of 2011, foreclosure filings were at a three-year low. The reason? Lenders are inundated with stalled paperwork.

From Huffington Post.com:

In the first quarter of 2011, home repossession filings were down 30 percent from one year prior to 680,000, RealtyTrac reported. The decrease, however, appears to have less to do with a recovering economy than the processing problems that are stalling foreclosures and backlogging banks and mortgage companies across the country, RealtyTrac says.

Nationally, successful home repossessions fell 17 percent from the same period last year, too, with just over 215,000 in the first three months of 2011. But new foreclosure filings sped up in March, suggesting the total number of foreclosures could still hit 1 million in the U.S. by the end of the year.

That means foreclosures remain a looming threat to further derail an already fragile housing market, RealtyTrac CEO James Saccacio said in a release.

“The nation’s housing market continued to languish in the first quarter, even as foreclosure activity fell to a three-year low,” Saccacio said. “Weak demand, declining home prices and the lack of credit availability are weighing heavily on the market, which is still facing the threat of a looming shadow inventory of distressed properties."

Nevada had the highest foreclosure rate in the first quarter, with one filing for every 35. In Arizona, one in every 60 housing units received a foreclosure notice; in California, it was one in every 80.

More here

Dollar Weakens After Unemployment Claims Rise

Applications for unemployment benefits rose from 27,000 to 412,000 last week, right before the dollar fell against most major currencies.

From ABC News:

The euro rose to $1.4460 in midday trading Thursday in New York, from $1.4441 late Wednesday. The British pound rose to $1.6348 from $1.6274. The dollar fell to 83.26 Japanese yen from 83.82 yen, and fell to 0.8925 Swiss franc from 0.8963 Swiss franc.

The U.S. dollar was also lower against most other currencies around the world, including ones in Canada, Australia, Hong Kong and Latin America.

More here

7 Best Cards for Bad Credit

Are you looking for a way to rebuild your credit? CNN Money provides a list of seven cards that might help:

Orchard Bank credit card

Orchard Bank, part of megabank HSBC, offers three credit cards plus a secured card for consumers needing to rebuild their credit. You simply apply and the bank decides which card you qualify for based on your credit worthiness.

The unsecured cards come with annual fees ranging from $39 to $59, depending on credit history, and APRs range from 14.9% to 19.9%, also based on your credit.

To put that in perspective, a credit card like the Applied Bank Unsecured Visa Gold -- which also targets consumers with poor credit -- comes with a 29.99% APR for all customers.

Capital One Secured MasterCard

The annual fee on this secured card is a reasonable $29, and while most secured cards require security deposits of around $250, you can deposit as little as $49 and still get a credit line of $200. If you deposit more -- like $99 or $200 -- you can increase your credit line up to $3,000.

"It's more of a secured card than an unsecured card, but it's both, which is very nice," said Curtis Arnold, founder of CardRatings.com. "And some people just don't have 200 bucks to put down as a deposit, so only having to put $49 down is great."

More here

Can’t File on Time? Get an Extension until Oct. 17

In their newest press release, the IRS is reminding people that you can always request an automatic extension of time to file your tax return. I've include text of their release below, or you can check out this article I posted a few weeks ago on why you might want to request an extension even if you intend to file your return in on time.

Are you unable to complete and file your federal individual tax return by the April 18 deadline? If so, you can request an extension of time to file, which will automatically give you until Oct. 17, 2011, to submit your tax return to the Internal Revenue Service.

An extension gives you an additional six months to file your tax return. But keep in mind that an extension of time to file is not an extension of time to pay. All outstanding balances are due on April 18, 2011.

The IRS expects to receive approximately 10 million extension requests in 2011, which is about the same as last year.

Numerous Ways to Get an Extension

In order to get an extension, you need to file Form 4868 with the IRS.

Taxpayers can electronically file Form 4868 through IRS Free File or Free File Fillable Forms. Using Free File to prepare and electronically submit Form 4868 is free to everyone, regardless of income.

More at IRS.gov...

Stocks Edge Higher after Obama Speech

After the President announced his intentions to trim the deficit by $4 trillion the Dow Jones rose 7 points, and the Nasdaq gained 17 points.

From CNN.com:

Despite a strong open -- thanks to better-than-expected earnings and revenue from JPMorgan Chase (JPM, Fortune 500) -- stocks spent the early part of Wednesday's session in the red.

The losses came after JPMorgan CEO Jamie Dimon said that mortgage-related losses would continue for some time, and warned that investors should not expect additional dividend increases beyond the 25 cents set for this quarter. Shares of the bank slid almost 1%. JPMorgan is the first major bank to report first-quarter results.

But the market again reversed course in the afternoon after Obama laid down a series of spending and deficit targets, adding that he wants $3 in spending cuts for every $1 in additional tax revenue.

"Investors wanted to see some movement toward fiscal responsibility, but just not too much and not too soon, and that's exactly what the president gave them," said Doug Roberts, chief market strategist at Channel Capital Research.

Roberts added that the market has been supported by the government's stimulative policies, including the Federal Reserve's Treasury purchases and Congress' decision last December to extend the Bush-era tax cuts.

"Investors are relieved to hear that Obama's plan to reduce the deficit is gradual, not imminent," Roberts said. "The government's deficit has been taking painkillers for years now, and it's finally about to get some surgery. But nobody's amputating anything."

Continue reading here...

Obama Calls for Cutting Tax Breaks to Raise $1 Trillion

Yesterday President Obama announced his intentions to reduce $4 trillion from the federal deficit. His plan includes $1 trillion of tax increases over the next decade, including new deduction limits and higher tax rates for wealthy Americans.

Business Week reports:

“I believe reform should protect the middle class, promote economic growth, and build on the fiscal commission’s model of reducing tax expenditures so that there is enough savings to both lower rates and lower the deficit,” Obama said in his remarks at George Washington University in the capital.

Until now, Obama’s calls for a tax overhaul had focused on the corporate tax code and on allowing income tax rates for high earners to rise in 2013. Under current law, all of the income tax cuts that were extended last year would revert to pre-2001 levels at the end of 2012.

He reiterated his support for those policies today.

“I agreed to extend the tax cuts for the wealthiest Americans because it was the only way I could prevent a tax hike on middle-class Americans,” Obama said. “But we cannot afford $1 trillion worth of tax cuts for every millionaire and billionaire in our society. We can’t afford it. And I refuse to renew them again.”

Obama’s support for revenue-raising tax changes puts him at odds with many congressional Republicans, including House Majority Leader Eric Cantor of Virginia and Senator Orrin Hatch of Utah, the top Republican on the Finance Committee.

More here

5 Tips to Save Money on Taxes

Consider these tips to make sure you don't waste money rushing to get your return in before the deadline.

From MSN.com:

File on time. Even if you can't pay all your taxes, you should file a return or an extension to avoid the penalty for not filing on time. Death, by the way, is not an excuse for missing the deadline. As executor of an estate, I filed two years of tax returns for a deceased relative. Because I filed those returns after the deadline, the deceased (actually her estate) was assessed a penalty.

Take advantage of free online filing options. Yes, you can buy tax software, and if you have a complicated return, you may need it. But if you made less than $58,000 last year, you can use Free File, a partnership between the IRS and vendors of tax software. Each company has slightly different rules. If you made more, you can use free IRS online forms.

Get free in-person help. Organizations from AARP to the IRS provide free help to taxpayers at sites around the nation. If you made less than $49,000 last year or you're over 60, volunteers will prepare your tax returns for free, so why pay someone to do it?

Find a good accountant. If you have a complicated tax return, paying an accountant or enrolled agent may save you more in taxes than you pay in fees. Just because you can do your own taxes doesn't mean that you should. Hiring a tax pro could save you not only time and money, but your sanity and your marriage. Not all tax preparers are equal and fees vary, so be sure to check out any pro you consider.

Keep good records. The tax code provides all kinds of deductions, from business mileage to energy tax credits. But you can't deduct mileage you've forgotten. That's why it's important to set up a system for the records you use to prepare your taxes. Consider a mileage log in your car, an online or computer accounting program or an old-fashioned envelope system. How you keep the records doesn't matter. What matters is that you have all the information when it's time to do your taxes.

Read more here

10 Tips to Save Money This Spring

The weather is warming up and tax season is coming to an end. Spring is here, and with summer just around the corner, now is a good time to start thinking about saving money.

1. Plan your Summer Vacation NOW

Summer may feel like it’s still a long way off, but if you are thinking about taking a vacation in July or August, you should think about finalizing your plans ASAP. Plane tickets, hotel rooms, and other travel expenses are usually cheaper when you book in advance.

2. Cut Bad Habits

Take a hard look at your bank and credit card statements and see if you can spot any bad financial habits. Eat a lot of fast food? Spend a lot of money on entertainment? Try cooking at home more or renting DVDs at Redbox machines instead of going to the movies.

3. Avoid ATM Fees

A few weeks ago I reported that some banks were testing $5 ATM fees; that means up to five bucks that you are essentially lighting on fire when you withdraw cash. To avoid these fees, all you need to do is make the extra effort to use your own bank’s ATM, or using withdrawal methods that don’t charge you, like getting cash back at grocery stores. It's also a good idea to keep an extra twenty in your wallet for emergencies.

4. Consider Buying Used

If you’re in the market for a lawn mower, a new desk or a bike, you might consider buying used. Warmer weather brings with it garage sales. And don’t forget about CraigsList or Oodle. Bargains abound and people are often willing to negotiate on price. Just remember to try before you buy!

5. Research Major Purchase Online

Thinking about buying a new computer or television? A little time spent researching your options can save you hundreds of dollars. Prices vary from retailer to retailer and from one manufacturer to the next. And don’t forget to look at online reviews. No matter how great the sale was, if your new computer or TV is a dud, you’ve wasted money. This tip goes way beyond electronics. If you’re looking for a new car, check out eBay motors. Ned a new cell phone, Amazon might have exactly what you are looking for at a fraction of the price. Get creative, and see how much money you can save!

6. Plant a Garden

Before it gets too hot out, plant a small garden in your back yard and in few weeks you can cut back on your weekly grocery bill. Consider vegetables such as radishes and arugula that grow quickly (an average of 30 and 35 days respectively). If you use fresh herbs in your cooking, you can grow almost everything you need in windowsill planter or on your kitchen counter. No more wasting store bought herbs that go bad before you can use them.

7. Programmable Thermostat

When the weather heats up the air conditioner starts working overtime. Now is the time to install a programmable thermostat. Running your air conditioning all day long can make for some shockingly high energy bills. By investing in a programmable thermostat you can set your air conditioning to only turn on before you get home from work.

8. Pay Bills Online

Saving 44 cents may not seem like much, but every little bit helps. Selecting paperless billing and paying your bills online saves you the cost of a postage stamp, and it also allows you to reduce the amount of unnecessary paper being wasted.

9. Cut Back Dryer Use

You can hang a clothesline in your backyard, or just lay a few items out over chairs inside your home. Dryers use a lot of electricity, and you can cut back your monthly bill significantly by letting a few garments air dry. Hang drying items indoors can even extend the life of your clothes.

10. Spring Cleaning Finance Style

Now is the time to get organized! Make sure you file all of your tax and financial documents from last year safely, and make a game plan for your bills and monthly budget. By staying on top of your finances, and expenses, you can avoid missing any payments or being hit with expensive late fees.

Obama Urged to Protect Social Security

Yesterday a group of over 250 policy experts and economists sent the President an open letter urging him to protect the entitlement program. They claimed that Social Security does not contribute to the federal deficit.

CNN reports:

The push to protect the program is just one component in a broader fight between Democrats and Republicans in Washington about how to put the nation back on a path towards fiscal sustainability.

It comes days after Congress approved an 11th hour plan to fund the government, as they narrowly averted a shutdown. But bigger legislative issues remain unresolved, including a proposal to lift the nation's$14 trillion debt ceiling.

Supporters say Social Security is an independent, self-financing program that has no authority to borrow, and therefore cannot deficit spend. But critics say the program is already adding to the shortfall because the federal government must issue new debt to pay back money it borrowed from the Social Security trust fund.

Regardless, both sides generally agree that Social Security needs to be reformed as the nation's population gets older and the number of Americans collecting benefits outpaces the amount of money flowing into the system.

More here

Why do People Cheat on Their Taxes?

The difference between what the federal government is owed, and what it actually collects is expected to be around $300 billion this year. Why do so many people fail to pay their full tax bill? According to CNBC reporter Stuart Green, it is because Americans do not feel morally obligated to pay the IRS.

From CNBC.com:

Why and how are so many people avoiding what Franklin thought was a certainty?

Much of the gap is the result of good faith mistakes by taxpayers — no surprise given the mind-numbing complexity of the tax code.

But some significant part of the disparity is the result of intentional evasion, non-payment, or underpayment. The question is why. Why are so many Americans willfully and flagrantly violating our tax laws?

he issue is a complex one, but a few key factors can be identified. One is that the norms associated with the duty to pay taxes are surprisingly weak. Most scholars agree that society’s ability to enforce compliance with the law lies less in the government’s power to impose sanctions than it does in the norms by which people direct their lives.

Generally speaking, people refrain from committing crimes not because they fear sanctions if they do, but because they believe it is morally wrong to engage in the conduct prohibited.

In the case of paying taxes, lots of people apparently believe it’s not morally wrong to fail to pay what’s owed. Suspicion of taxes is deeply rooted in our national psyche, going back to the Boston Tea Party of 1773 and the Whiskey Rebellion of the early 1790s.

Continue reading here...

10 Tax Goofs Many of Us Keep Making

Are you guilty of making any of these goofs on your return?

From MSN.com:

Year after year, the IRS sees Americans committing the same sorts of mistakes on their returns. Many of these errors are easy to avoid; some are more complicated.

Claiming the wrong status

Sorry, you can't just choose to file single or married. Your marital status is determined as of Dec. 31. Anything before that date really doesn't matter for tax purposes. If you're married you file either jointly or married filing separately. You may qualify for "head of household," but you have to satisfy all the requirements. You don't qualify just because you consider yourself the head of your household. In fact, you can't be head of household if you're married unless you qualify as an abandoned spouse.

Claiming the wrong status could kill your eligibility for the child tax credit, the earned-income credit and exemptions for dependents. Check out the instructions for Form 1040 detailed information to help you select your correct filing status.

Omitting or using wrong Social Security numbers

The Social Security numbers you list for your dependents, the earned-income credit and the child tax credit must match your dependents' Social Security cards. Otherwise, the IRS computers will reject your credits and deductions.

Continue here

US Lacks Credibility on Debt, says IMF

Yesterday the International Monetary Fund issued a stern message to its largest shareholder, the United States. The head of fiscal affairs at the IMF said that the US lacks a credible strategy to stabilize its mounting debt.

The Financial Times reports:

In an unusually stern rebuke to its largest shareholder, the IMF said the US was the only advanced economy to be increasing its underlying budget deficit in 2011 at a time when its economy was growing fast enough to reduce borrowing.

The latest warning on the deficit was delivered as Barack Obama, the US president, is becoming increasingly engaged in the debate over ways to curb America’s mounting debt.

To meet the 2010 pledge by the Group of 20 countries for all advanced economies – except Japan – to halve their deficits by 2013, the US would need to implement tougher austerity measures than in any two-year period since records began in 1960, the IMF said. In its twice-yearly Fiscal Monitor, the IMF added that on its current plans the US would join Japan as the only country with rising public debt in 2016, creating a risk for the global economy.

Carlo Cottarelli, head of fiscal affairs at the Fund, said: “It is a risk that if it materialises would have very important consequences ... for the rest of the world. So it is important that the US undertakes fiscal adjustment in a way sooner rather than later.”

At the moment, the US has outlined less than half of the tax increases and spending cuts necessary to bring its public debt down in the medium term, the IMF calculated. “More sizeable reductions in medium-term deficits are needed and will require broader reforms, including to social security and taxation,” the IMF said.

More here

Top Tax Breaks for Entrepreneurs

Here we are, deep in the midst of tax season. If you haven’t filed your business tax return yet, now is the time to kick it into high gear. To help you finish strong, here are more valuable business deductions to help you save money on your taxes.

Taxes Paid

Let’s start with my personal favorite: TAXES. Yes, most entrepreneurs are able to deduct taxes they pay in operating their businesses. That being said, there are some rules for how and when to deduct:

• Sales taxes paid for business purchases should be deducted as part of the cost of the total item. This holds for all your normal day-in/day-out business purchases – think: supplies. As for larger purchases, a company car, these are capital expenses, and the taxes are added to the car’s cost basis, which is deducted over several years.
• Employment taxes paid for your employees are deductible as a business expense. If you are a sole proprietor or self-employed, your self-employment taxes are deducted on your personal tax return, not your Schedule C.
• If you pay real estate taxes for property used for business, you can deduct those taxes.

Auto Expenses

New business owners are known for putting in some serious drive-time. Most of us think “mileage” when talking about deducting auto expenses, but if you have a newer car primarily for business purposes, you might be better off going the actual expenses route. Instead of tracking miles, you track the actual expenses of operating and driving your vehicle, and that means you can deduct depreciation. Work with your tax professional to find out which method works for you, because once you choose, it can be a hassle to switch.

Starting a Business

If you started a new business in 2010, first, Congratulations! Now, you need to think about deducting the expenses associated with starting a business. Amounts you paid for advertising, supplies, repairs, utilities, etc, prior to opening your doors are deducted as capital expenses. This means there is a cap on how much you can deduct. In 2010, you can deduct up to $10,000, with any remaining amounts deducted over 15 years. Of course, once your doors are open, those costs are deducted as business expenses.

Business Interest

No business can operate without credit, but that credit comes at a cost: interest. Lucky for entrepreneurs, interest incurred for business purchases is 100 percent deductible. So hold on to your credit and loan statements, and deduct the amount of interest you paid in 2010.

Bad Debts

We must also discuss a harsh reality in these tumultuous economic times: bad debts. I think we have all been there, people who order, but never pay. It can take slim profit margins and reduce them to nothing. Fortunately for some, if your business sells actual goods, you can deduct the cost of the items that sold, but were never paid for. On the other hand, if your business is a service, there is no deduction allowed for bad debts. Bummer, but perhaps that little nugget of information can prompt you to evaluate your payment terms and get at least part of the sale up front.

New Equipment

If you purchased new equipment for your business in 2010, you may be able to write off the entire cost this tax season. How? Section 179, baby! I have written about this invaluable tax break before (http://www.womenentrepreneur.com/2009/10/new-tax-laws-equal-tax-savings.html) but the basic idea is that you may be able to deduct up to $250,000 of the cost of new equipment that was put into service by December 31, 2010. There are restrictions and phase outs, but for small business owners who made significant capital expenditures last year, this deduction can be a life saver.

What if you purchased some expensive software last year? Generally, you are required to depreciate the costs of business software over 36 months. However, lucky for you these costs are eligible for the Section 179 deduction, so long as it was purchased and placed into service as of December 31, 2010. This includes any software that came with a new computer system, or was purchased separately.

Charitable Contributions

If your business is an S corporation, an LLC or a partnership (in other words, a pass through entity), the business can make charitable donations, and pass the deduction on to you. This includes gifts of cash, or donated office supplies, like computers and desk chairs. If your business is a regular C corporation, the company can take the deduction itself. There is a caveat here, however. If you donate office furniture or computers, and they have been fully depreciated, your business will not receive a deduction. You can still donate and enjoy the sense of good will, but there is no tax benefit. Either way, it pays – in either tax breaks, or community appreciation – for your business to be charitable.

Advertising and Promotion

There is a quote credited to advertising legend Steuart Henderson Britt, “Doing business without advertising is like winking at a girl in the dark. You know what you are doing, but nobody else does.” In other words, your business may be exactly what someone needs, but if you are not advertising, they will never find out about you. Because advertising and promotion is so crucial to your business, those costs are all deductible. Remember to keep track of all your advertising expenses, including the costs for designing and producing any advertising, and the costs for placing those ads.

How are YOU Spending YOUR Refund?

Since tax seasons is almost over, I've been wondering what my readers are using their refunds on... Did you get a state or federal return? What are you doing with it? Are you following my advice regarding the rule of thirds, or are you using all of your refund as a down payment on a house.

Whatever you are doing with your refund, I want to know!

Let me know about your refund via Twitter or Facebook. I'll be responding to all messages, and retreating messages about refunds. I'm hoping to put together an article for my blog on what my friends are using their refunds on, and if your message is selected then I'll send you a link to watch my documentary, Death or Taxes online for free!

Ozzy and Sharon Osbourne Owe Nearly $2 Million to the IRS in Back Taxes

The IRS has been making tons of headlines recently, do you think it's tax season scare tactics, or just business as usual for the government?

NY Daily News reports:

The IRS filed documents saying the stars owe $718,948.25 for 2008 and another $1.03 million for 2009.

They aren't the only Osbournes with tax woes: daughter Kelly owes $34,000, the site reported.

On Saturday, Sharon lamented to her Twitter followers that she had been duped by people she thought were handling the matter.

"You can't rely on anyone but yourself. You have to be on top of your own business affairs," she tweeted. "My fault … lesson learned."

Read more here

Obama Puts Taxes on Table

The President will lay out his plan for reducing the deficit tomorrow, and in addition to suggesting cuts, Obama will also call for a tax increase in his 2012 budget. The proposal will include a tax hike for taxpayers making over $250,000.

From WJS.com:

In a speech Wednesday, Mr. Obama will propose cuts to entitlement programs, including Medicare and Medicaid, and changes to Social Security, a discussion he has largely left to Democrats and Republicans in Congress. He also will call for tax increases for people making over $250,000 a year, a proposal contained in his 2012 budget, and changing parts of the tax code he thinks benefit the wealthy.

"Every corner of the federal government has to be looked at here," David Plouffe, a senior White House adviser, said Sunday in one of multiple television appearances. "Revenues are going to have to be part of this," he said, referring to tax increases.

Until now, Mr. Obama has been largely absent from the raging debate over the long-term deficit. The White House has done little with the recommendations of its own bipartisan deficit commission. And Mr. Obama's 2012 budget didn't offer many new ideas for tackling entitlement spending, among the biggest long-term drains on the federal budget.

The president stayed out of the long-term deficit debate in an apparent effort to see whether Republicans would move first in offering long-term deficit-reduction ideas—something House Budget Committee Chairman Paul Ryan did with an ambitious plan last week to trim spending now and in the future.

Continue reading at WJS.com…

Trump Proposes Massive Onetime Tax on the Rich

Although he has yet to officially announce a campaign to run for President, Donald Trump is already offering advice on dealing with the deficit. His suggestion? A one time net worth tax on the wealthiest Americans.

CNN reports:

Billionaire businessman Donald Trump has a plan to pay off the national debt, grant a middle class a tax cut, and keep Social Security afloat tax rich people like himself.

Trump, a prospective candidate for the Reform Party presidential nomination, is proposing a onetime net worth tax on individuals and trusts worth 10 million or more.

By Trumps calculations, his proposed 14.25 percent levy on such net worth would raise 5.7 trillion and wipe out the debt in one full swoop.

The U.S. national debt decreased by 9.7 billion in September but remains at 5.66 trillion, according to the latest U.S. Treasury figures.

The net worth tax is the cornerstone of Trumps economic plan released Tuesday morning.

Continue reading here

Don’t Fall Prey to the 2011 Dirty Dozen Tax Scams

In a new press release, the IRS warns taxpayers of twelve tax scams to avoid this year.

From IRS.gov:

“The Dirty Dozen represents the worst of the worst tax scams,” IRS Commissioner Doug Shulman said. “Don’t fall prey to these tax scams. They may look tempting, but these fraudulent deals end up hurting people who participate in them.”

The IRS works with the Justice Department to pursue and shut down perpetrators of these and other illegal scams. Promoters frequently end up facing heavy fines and imprisonment. Meanwhile, taxpayers who wittingly or unwittingly get involved with these schemes must repay all taxes due plus interest and penalties.

Following is the Dirty Dozen for 2011:

Hiding Income Offshore

The IRS aggressively pursues taxpayers involved in abusive offshore transactions as well as the promoters, professionals and others who facilitate or enable these schemes. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through the use of nominee entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or insurance plans.

In early February, the IRS announced a special voluntary disclosure initiative designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes. The new voluntary disclosure initiative will be available through Aug. 31, 2011. The IRS decision to open a second special disclosure initiative follows continuing interest from taxpayers with foreign accounts. In response to numerous requests, information about this initiative is available on IRS.gov in eight different languages, including: Chinese, Farsi, German, Hindi, Korean, Russian, Spanish, and Vietnamese.

More at IRS.gov...

How to Take a 100% Tax Write-Off for a New Porsche, BMW or Cadillac

Looking for a way to lower your tax liability in 2011? Thanks to a temporary tax law, you can write off the full cost of many luxury SUVs as long as it is used 100% for business, and weighs at least 6,000 lbs. Remember the “Hummer loophole?” Yep, it’s back and it’s even more ridiculous.

According to Fortune.com, vehicles that qualify include: the Porsche Cayenne Turbo, the BMW X6 M, and the Ford Lincoln Navigator.

If this high octane tax deduction sounds to you like an echo from the past, it is. Early last decade, there was a public furor over the “Hummer loophole” which allowed small business owners and self employed folks (including doctors, real estate agents and others with a purported business use for a vehicle) to deduct most of the cost of purchasing big SUVs.

Back then, taxpayers were exploiting Section 179 of the U.S. Tax Code – a provision designed to allow small businesses to expense (or immediately write off) small capital investments. As part of the 2003 Bush tax cuts, the maximum Section 179 write-off was increased from $24,000 to $100,000. In October 2004, after the Hummer hullabaloo, Congress limited the write-off for trucks weighing between 6,000 and 14,000 pounds to $25,000, curbing luxury SUVs’ tax appeal. (Write-offs for luxury cars were already more limited.)

But as my colleague Ashlea Ebeling explains in a story here in Forbes about smart tax moves for the next two years, an immediate SUV write off is allowed again under a different, even more generous provision of the tax code, good through Dec. 31, 2011. She writes:

Last December’s bipartisan tax deal included a temporary 100% write-off (known as 100% bonus depreciation) for new equipment placed in service by Dec. 31, 2011. This break, which is unlikely to be extended, isn’t just for big companies. “It could be significant savings for the little guy, too,” says Howard Krant, a New York City CPA. He notes that 100% bonus depreciation can be more valuable than another, longer-standing 100% write-off provision (known as Section 179) available to small businesses. That’s because you can’t use Section 179 to claim a loss.

Continue reading here

Top 20 Tax-Procrastinating Cities

Texas and California lead the nation in the amount of residents that wait until the last minute to file their tax returns. MSN Money put together the following list of this year's late filing cities. Check out the 20 top tax-procrastinating cities below, or click here for the full article.

1. Houston

2. Chicago

3. New York

4. Austin, Texas

5. San Antonio, Texas

6. San Francisco

7. Seattle

8. San Diego

9. Los Angeles

10. Dallas

11. Las Vegas

12. Washington, D.C.

13. Portland, Ore.

14. Atlanta

15. Phoenix

16. Philadelphia

17. Orlando

18. Jacksonville, Fla.

19. Tampa

20. San Jose, Calif.

Read more here