IRS to Start Processing Delayed Returns on February 14th

On Friday the IRS announced that they aim to begin processing tax returns delayed by last month’s tax law changes on February 14th. This includes taxpayers who itemize deductions, claim the tuition fees or educator expenses deductions. At least you get three extra days to file, right?

From IRS.gov:

Beginning Feb. 14, the IRS will start processing both paper and e-filed returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917 and the educator expenses deduction. Based on filings last year, about nine million tax returns claimed any of these deductions on returns received by the IRS before Feb. 14.

People using e-file for these delayed forms can get a head start because many major software providers have announced they will accept these impacted returns immediately. The software providers will hold onto the returns and then electronically submit them after the IRS systems open on Feb. 14 for the delayed forms.

Taxpayers using commercial software can check with their providers for specific instructions. Those who use a paid tax preparer should check with their preparer, who also may be holding returns until the updates are complete.

Most other returns, including those claiming the Earned Income Tax Credit (EITC), education tax credits, child tax credit and other popular tax breaks, can be filed as normal, immediately.

Read more at IRS.gov

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Questions for the Tax Lady: September 27th, 2010

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. I will do my best to get an answer for you!

Question #1: Taxes are not our only debt, we lost our home, cars and have several medical bills, and collections along with tax levies coming all the time. Are taxes dischargeable in bankruptcy, we have to file chapter 7 anyway, and our attorney thinks he get our largest tax debt included since it is over 4 years old now.

Answer: I’m so sorry to hear of your difficulties. While not for everyone, bankruptcy can be a lifesaver for those drowning in debts.

To answer your question, some tax debts can be discharged through a Chapter 7 bankruptcy filing. There are five criteria for determining if the federal income tax debt is dischargeable:

1. The due date for filing the tax return associated with the tax debt is at least three years ago.
2. The tax return was filed at least two years ago.
3. The tax assessment is at least 240 days old. (This is one that trips people up. Make sure you know when the IRS officially assessed the debt.)
4. The tax return was not fraudulent.
5. The taxpayer is not guilty of tax evasion.

If your bankruptcy attorney is advising you to include your tax debts in the bankruptcy filing, and you are confident you meet the above criteria, then I would trust your attorney. If you are not sure your tax debt meets these requirements, you may request your tax transcripts from the IRS to verify the dates of the debt assessment, the due date of the returns and more.

Question #2: If you missed filing a tax return for two years, can you still get a payment plan from the IRS?

Answer: The IRS offers payment plans called Installment Agreements for people who are unable to pay their entire tax bill at once. However, there are some sticking points:

1. The IRS will not enter into an Installment Agreement with you until you are 100% compliant in your tax filings. Before you apply for an Installment Agreement, find a qualified tax professional to help you prepare and file the missing tax returns.

2. The IRS bases the amount of your monthly payment on your ability to pay, so be prepared for a much higher payment amount than you might hope for. The IRS has very specific guidelines for determining how much you should be paying them each month, and many taxpayers suffer from a little sticker shock when they see how much the IRS expects.

Once you’ve filed the missing returns, and have your financial information handy, fill out Form 9465 Installment Agreement Request, or visit www.irs.gov and click on I Need To… Set Up a Payment Plan from their menu options.

IRS announces Open House for Individuals and Small Businesses

Do you struggle to make sense of your taxes? Maybe you have questions about a notice you received or need help preparing your tax return? I have good news for you. The IRS recently announced that they will be hosting a special nationwide Open House on Saturday, May 15. Individual taxpayers and small business owners can get help with their tax returns, IRS notices and payments, audits and more. At least one IRS office will be open in every state on May 15th from 9am until 2pm. During the Open House you can speak with an IRS representative either in person or over the phone. Keep in mind though, small business owners with tax issues should probably consult a qualified tax professional.

This is the first in a series of Open House days the IRS has scheduled, with more events planned for June 5 and June 26. If you struggle with back taxes and do not want to speak to the IRS, you can always contact one of my representatives by visiting my website here.

For the location of the nearest IRS Open House this Saturday, click here.

What You Can Learn From Your Tax Return

It’s the final stretch of the tax filing season, but before storing away your tax return, take a moment to go over it. Studying your tax return will help you plan for the future. It can help you determine the best use of your money, what investments to make, and whether or not to make portfolio changes. A CNN article, Learn From Your Tax Return, offers tips in what to look for in using your 1040 for financial planning.

Colorado Springs financial planner Allan Roth says that if you have more than $1,000 in taxable interest (on Line 8a) or more than $1,000 in “unqualified” dividends (line 9a minus line 9b), it is a sign that you might want to relocate some holdings into tax-deferred accounts. As is, you might be paying more taxes than you need to on certain assets.

People often keep their fixed-income holdings outside their IRAs and 401(k)s, but tax-wise, that doesn't make sense. Interest from CDs and bonds is taxed at your ordinary income rate, and the same is true for dividends earned on REITs.

So you're better off sheltering these highly taxed investments in tax-advantaged accounts (with the exception of the dough you plan to tap in the short term or have earmarked for emergencies).

As for how to invest taxable money, consider a stock index fund that covers the total U.S. or international markets. Such funds don't trade holdings frequently, so they don't generate many capital gains. While they may pay qualified dividends, those will be taxed by the feds at only 15% for now. And the yields tend to be low. So even with President Obama's proposal to shift dividends to a 20% rate for couples making more than $250,000, a stock index fund would still make sense.

Read more of the article here.

A Financial Report Card, Right in Your Tax Return

In today’s tough economic climate most Americans are confused about their finances, and it can be difficult to determine where you stand financially. However, as New York Times author Jan Rosen explains, your tax return can offer several clues to help assess your finances. Check out a snippet of her piece below.

MOST of us would like an answer to this question: Am I on the royal highway toward realizing my long-term financial goals — building up savings for the children’s education and for retirement, for example — or am I bumping along a back road that ends far short of my goals?

Your tax return can provide clues for answering that question. So, before filing away a copy of your 2009 return, spend some time reviewing it. Even if you want professional advice, you should still review the return first. “The client who gets the best advice is often the one who raises the best questions,” said Sidney Kess, a New York tax lawyer and certified public accountant. He and two other accountants who specialize in personal finance offered pointers for going through the return, the topics to consider and the questions to ask.

INVESTMENTS. Look at Lines 8 and 9 of the 1040 for interest and dividends, and, if you have more than $1,500 of either, look at the attached Schedule B. Line 13 will show net capital gains or losses with the details of your trades reflected on Schedule D.

If Schedule D showed only gains, take it as a warning sign, said Lyle K. Benson Jr., who heads his own firm, L. K. Benson & Company in Baltimore, adding, “Harvesting losses is an important part of good planning.” Often investors do not want to sell losers, feeling a stock will surely bounce back. But a capital loss could offset a capital gain, making the gain tax-free, and the money that was recognized in selling losers could be reinvested, perhaps more productively, he pointed out. Net losses of up to $3,000 can offset ordinary income with any excess carried forward to future years.

Many tax professionals expect tax rates to rise, and if they do, harvesting losses can become even more valuable. President Obama has proposed raising the rate on long-term gains — those held more than a year — to 20 percent for most taxpayers, and under present law the top rate for ordinary income next year is to rise to the 2001 top of 39.6 percent.

Continue reading at NY Times.com…

The IRS Has $1.3 Billion for People Who Have Not Filed a 2006 Tax Return

The Internal Revenue Service announced that 1.4 million people did not file a federal income tax return for 2006. Now, when a taxpayer is entitled to a refund but does not file a tax return, that taxpayer will not be issued their refund—this is called an unclaimed refund. Unclaimed refunds total more than $1.3 billion for the tax year 2006! If you did not file a 2006 tax refund and think you have a refund due, you must file your 2006 return with the IRS no later than Thursday, April 15, 2010.
The IRS estimates the average unclaimed refund for tax-year 2006 is about $604.
There are various reasons taxpayers decide not to file a tax return, some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. $604 is a good reason to file your 2006 tax return. Here’s the bottom line: taxpayers only have three years to file a tax return to claim a refund; after the three years have passed, money that should have been yours, becomes property of the U.S. Treasury. For 2006 returns, this three year window closes on April 15, 2010. Though back-year tax returns cannot be filed electronically, taxpayers can still speed up their refunds by choosing to have them deposited directly into a checking or savings account. If you need help getting back tax years filed hire a tax professional.

IRS Suspends Tax Practitioner for Preparing False Tax Returns

Last week, the IRS published a new press release announcing that, “a Certified Public Accountant has been suspended for twelve months from practice before the Internal Revenue Service by the Office of Professional Responsibility for providing false or misleading information in connection with the preparation of his clients’ tax returns.”

“Practitioners have a duty both to their clients and to the system to insure taxpayers are complying with tax laws and filing complete and accurate tax returns,” Karen L. Hawkins, Director of the Office of Professional Responsibility said.

Robert A. Loeser, a certified public accountant from Houston, Texas, assisted his clients to lower their tax bills by claiming false business expenses on tax returns he prepared.

For no legitimate business purpose, Loeser’s clients were advised to forward funds from their businesses to two corporations Loeser controlled. The corporations then rebated the funds to his clients. Loeser prepared the clients’ books and business tax returns expensing and deducting the entire amounts that were paid to the corporations.

The IRS alleged Loeser violated Circular 230 by giving false or misleading information to the Department of Treasury and the IRS.

Questions for the Tax Lady: February 8th, 2010

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 #1: When is the deadline for making donation’s to Haiti relief funds that can be included as charitable contributions on my 2009 return?

According to the IRS contributions of cash made after January 11, 2010 and before March 1, 2010, can be treated as contributions made on December 31, 2009 if such contributions were for the purpose of providing relief to victims in areas affected by the earthquake in Haiti that occurred on January 12, 2010. To be safe, you should try to make any donations that you plan to include on your tax return as soon as possible.

Question #2: What items should I bring with me when I take my tax return in to have it prepared?

I actually posted a blog entry on this very topic a few weeks ago. You can find the detailed list here, but essentially you will want at least the following items:

1. Identification

2. Last Years Tax Return

3. Documentation from ALL Sources of Income

4. Self Employment Documents

5. Financial Gain or Loss Statements

6. Mortgage and Real Estate Taxes

7. Automobile and DMV Documents

8. Deductible Expenses Receipts

9. Additional Deduction Documentation

10. Anything Else your Tax Professional Wants

10 Reasons to File your Tax Return Early

Tax season is here again, and the RDTC Tax Help Blog has posted a great article discussing reasons why you should file your tax return early, the best of which is simply the stress relief of knowing you’re finished. You can find a few of the tips below, but be sure to read the full list at 10 Reasons to File your Tax Return Early.

1. Less Chance of Late Fees

If you file your return nice and early, the chance of having to pay a late fee is pretty much nonexistent. Just make sure all necessary documents and payments are included with your return to ensure there will be no return service required.

2. Avoid the Crowds

The last two weeks before April 15th tax preparation companies, accountants, and tax professionals become extremely busy. If you want to avoid waiting hours inside a crowded office then you should get your returns filed before busy season begins.

3. Time for Credit, Deduction Research

When you choose to prepare your return last minute, it can be too easy to miss a tax deduction or credit that could put extra money in your pocket. Starting early gives you enough time to relax and spend enough time on your return to find all available deductions and credits.

IRS Announces Streamlined and Simplified Notices to Taxpayers

From the IRS Newsroom:

Today, the Internal Revenue Service unveiled its first redesigned notices that are part of an on-going effort to improve the way it corresponds with taxpayers.

The nine new notices are among the first to be reviewed and revised for clarity, effectiveness and efficiency. The agency also will create an office that ensures the effort to improve communications is on-going and permanent.

“One of my priorities is to ensure that we have clear and simple communication with taxpayers. In the past, our notices often looked more like legal documents and not an effort to communicate clearly. The differences between the old and new notices are like night and day. They show the potential of our on-going effort in this area,” said IRS Commissioner Doug Shulman.

In July 2008, Shulman appointed the Taxpayer Communications Taskgroup to review IRS correspondence. The task group found that IRS notices have different looks, messages and do not use consistent language. Because of this, some notices are creating unnecessary confusion for taxpayers.

Nine notices will feature the new design format beginning in January. These notices account for approximately 2 million pieces of correspondence with individuals, businesses and exempt organizations. A revised web page is available at www.irs.gov/notices.

The new format includes a plain language explanation of the nature of the correspondence, clearly states what action the taxpayer must take and presents a consistent, clean design. The new format also guides taxpayers to appropriate pages on IRS.gov where they can find accurate and relevant information quickly and easily.

Use American Express Points to Pay Taxes

American Express cardholders may not be able to use their card at every single small business in the country, but the still widely accepted credit giant announced on Monday that customers could now use their rewards points to their tax bills. Several card companies offer programs that offer airline miles, gasoline credits, other rewards, but American Express’ new program to use reward points to pay taxes is an industry first. CNN Money.com posted an article this morning on AmEx’s announcement; you can find a clip from their story below.

AmEx (AXP, Fortune 500) cardholders can use the points toward federal, state and local income tax payments when they use one of two Web sites to file their taxes: Pay1040.com and OfficialPayments.com.

But to pay off $5,000 in taxes a cardmember would have to charge $1 million.

That's because it takes a whopping 200 points to pay off just $1 in taxes. And, according to an AmEx spokeswoman, cardmembers typically earn about one point for every dollar charged to their credit card.

"In light of the economy, we wanted to give cardmembers a practical use for their rewards points," said spokeswoman Mona Hamouly.

7 Easy Steps to an Early Tax Refund

As you know, I am a champion for ending your “refund addiction”. By that, I mean, adjust your withholdings so that you don’t receive a fat check in April or May, but rather get the money spread throughout the year. Remember, getting a refund should be a reminder that you have been loaning the government money interest-free throughout the year.

That being said, if you are – or anticipate – being due a refund, the sooner you do finish preparing your return, the sooner you will get it. Additionally, by filing early you can sit back and relax while most of Americans are rushing to beat the tax deadline. MSN Money shared 7 helpful tips for getting an early refund, while still being accurate. You can check out a snippet of the blog entry below.

So, if you want to get your 2009 taxes in early and get your refund quickly, here are Schnepper's Seven Strategies to getting those dollars in your pockets ASAP. Here's what you have to do:

1. Get started

The first step is the hardest. Stop thinking about it and get moving. Until you actually start your return, you'll never finish it. That's probably going to slow down your refund.

If you don't have all your numbers, just put your name and address on the form. It will get you in the mind-set to move forward.

Your first step is to break the inertia. As my father used to say, a trip of a thousand miles begins with a traffic jam! Break that jam and get moving.

2. Accumulate the data

January is collection month. By the second week of February in 2010, you should have the numbers in hand. Make sure you've gotten W-2s and any statements from your brokers and banks. You'll receive 1099 forms for any interest, dividends and stock sales.

Your mortgage company will send you a Form 1098 for any interest and real-estate taxes paid. Get those statements together and review the numbers. They're not always right. They won't include any interest you paid the very end of December because the creditor won't have received the money until 2010.

Questions for the Tax Lady: January 4th, 2010

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 #1: I keep hearing that there will be no estate tax in 2010, but what will happen come 2011?

As I explained in this blog entry a few weeks ago, starting on January 1, 2011 the estate tax will return even more aggressive than before. Unless legislation is passed in the next year, the tax would resume with a 55% rate on all estates valued at more than $1 million, which would revert the estate tax back to levels seen in the early 1990’s.

Question #2: How do I change the address the IRS has on file for me after moving to a new state?

Generally, you should not worry about officially notifying the IRS about a recent move. If you are changing jobs then the IRS will automatically update your records once your employers files your new IRS Form W2. Otherwise, next time you file a tax return make sure to list your current address. The IRS will see the change, and automatically update their records.

Expanded 120-Day Time Window Applies to Disclosure Authorizations

According the newest IRS press release, a new rule has expanded to 120 days for the time period during which the Internal Revenue Service may share a taxpayer’s tax-return information with third parties, based on a taxpayer’s written disclosure authorization.

The newly-expanded time window is retroactive to Oct. 19, 2009. Consequently, any disclosure authorization signed and dated by a taxpayer on or after Oct. 19 qualifies for the new 120-day window. Forms affected by this change include:

• Form 4506, Request for Copy of Tax Return,
• Form 4506-T, Request for Transcript of Tax Return,
• Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript and
• Form 8821, Tax Information Authorization.

Many taxpayers use these forms to authorize the sharing of their tax information with others, including financial service providers. The IRS will share the requested information with the designated third party, as long as the agency receives the disclosure authorization within 120 days of the date it is signed and dated by the taxpayer.

The IRS on Dec. 18, 2009 released Notice 2010-8, which set forth an interim rule extending from 60 to 120 days the period within which signed and dated authorizations to disclose taxpayers’ tax-return information to third parties must be received by the IRS in order to be effective. The IRS made this change because some institutions charged with assisting taxpayers in their financial dealings have encountered difficulty in obtaining written disclosure authorizations and submitting them to the IRS within the 60 days allowed by the existing regulation. The interim rule will remain in effect until the IRS amends the regulations under section 6103(c) of the Internal Revenue Code.

IRS to Reduce Mileage Deduction for 2010: Will You Owe More?

From WalletPop.com:

The IRS made an announcement this month that is a matter of pennies but could significantly affect some taxpayers' 2010 amount owed; by reducing the allowance for mileage deductions.

Claiming the mileage traveled for business is, after all, one of the favorite ways to rack up deductions, which you must declare on Schedules A and Form 2106 or 2106-EZ. For outside salespeople, pizza delivery people, and others who spend a lot of time on the road for work, it's huge, and it adds up fast; with 2009 rates at 55 cents per mile for business travel (anything done for pay -- going on appointments, taking your boss to the airport, going to the post office, etc. -- except your commute) an average employee who drove 10,000 miles for work could save $1,000 in taxes. The deduction rates for driving for medical purposes or moving, at 24 cents a mile, weren't shabby, either, and meant that many taxpayers could make a big reduction in their taxes owed simply by writing down mileage.

But for 2010, the standard rates will fall considerably, down to 50 cents for business miles and 16.5 cents for medical miles or moving, affecting that sample average taxpayer by more than $200 in taxes owed at the end of the year. For serious road warriors, it could be a huge impact, increasing taxes owed by more than a thousand dollars.

The IRS didn't explain why it made such a relatively big change in medical and moving mile rates; down from 24 cents to 16.5 cents, a 33% decline, compared to a 9% decrease for business miles. For the taxpayer who moves across country for work in 2010, it will mean a difference of $200 or thereabouts in gross income; not an enormous difference in taxes owed. This leaves me to wonder how much this rate affects the IRS' revenues, and why the agency decided to make such a big change to what seems a far less important deduction for the average American worker.

Questions for the Tax Lady: December 7th, 2009

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 #1: My boss usually gives me a present for the holidays, but this year she gave me a bonus check. Will I need to include these funds on my next tax return?

Yes, any cash gifts or items that are “easily exchangeable” for cash that you are given by an employer should be reported to the IRS. However, since your employer printed you out a check then odds are that she intends to include it on your W-2 form, but if you want to be extra cautious then you can always ask her. For more information on the tax implications of holiday presents from employers check out this entry on the RDTC Tax Help Blog.

Question #2: What is the 2009 standard deduction amount?

According to this IRS press release, for the 2009 tax year “the new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.”

Questions for the Tax Lady: September 14th, 2009

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 #1: If I rent out a spare bedroom in my house do I need to report the income to the IRS?

Yes, you will need to report your income to the IRS. When you prepare your tax return you should complete a Schedule E and attach it to your IRS Form 1040. In addition to rent you will need to include any lease canceling payments, or other expenses paid by tenants.

Question #2: How do I change the amount of taxes that get taken out of my paycheck?

Changing your withholdings or claiming an additional dependent is actually very easy. Just ask your employer for a new IRS Form W-4 and fill it out to reflect your current financial situation.

President Instructs IRS to Give Americans Easy Tax Time Option to Save

In the president’s weekly address last week, he made a big announcement about IRS forms. Starting in 2010, taxpayers will be allowed to purchase U.S savings bonds while filling out their tax return, simply by checking one box next time you fill out an IRS Form 1040. This will allow the IRS to use funds from your refund to order between $50 and $5,000 worth of savings bonds. According to Obama, “We have to revive this economy and rebuild it stronger than before. And making sure that folks have the opportunity and incentive to save. . .is essential to that effort.”

"We are thrilled to see the option to purchase U. S. Savings Bonds with tax refunds returned to the tax form," said Peter Tufano, a Harvard Business School professor and chairman of the not-for-profit Doorway to Dreams (D2D) Fund which has been working to restore the purchase option, removed from Form 1040 in 1968. "Saving is difficult for most people, as evidenced by low U.S. savings rates in the last few decades. Research shows that making it easy for people to save can boost savings, helping people take care of themselves and their families. The Obama administration is giving over 100 million refund recipients a universal, simple, and solid savings option."

"The process of buying a bond at a bank can be time-consuming and unfamiliar. Now the low and moderate-income clients we serve will have an easy way to create savings by checking a box," said Courtney Noble, United Way of King County Tax Campaign Manager and member of the Savings Bond Working Group, who, along with community-based groups nationwide worked with D2D and the Treasury Department on this project. "Moreover, enabling people to save at tax-time -- when refunds often give people the most money they will have all year -- will cultivate savings habits."

Continue reading at PR News Wire…

Prepare Audit-Ready Tax Returns

Last week a new article I penned for WomenEntrepreneur.com titled “Prepare Audit-Ready Tax Returns: Getting audited is unlikely, and you can reduce the chances further by steering clear of IRS 'red flags' was published in their Money and Finance section. In the column I explain the three different types of audits the IRS conduct, and how you can prepare returns that will stand up to an audit. Check out the introduction of the article below, or read the full version here.

"Audit."

It just might be the most terrifying word in the English language. It can strike fear in the heart of even the most diligent taxpayer. But listen up, ladies. Audits are not the life-shattering events everyone thinks they are. The more you know about the audit process, the less you have to fear.

An audit is simply the process of the IRS closely reviewing your tax return and backup documentation as part of the agency's compliance checking. Think of it as a government quality-control tool, much like the quality-assurance checking you do in your own business.