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