As a full time tax preparer for a firm in Greensboro, NC, I see all kinds of omissions and mistakes on tax returns. Most of the cases that I work have not filed returns in years, some as many as six to ten years or more.
Most folks will keep their W-2s even if they don’t file a return for that year. But there are those who just simply discard them away. If you are one of those who do not see the monetary value of that form, let me give you some valuable information that could save you from double taxation, which can amount to thousands of dollars.
Employers who issue W-2s are required to report to the IRS your earnings and deductions (federal withholding, social security and medicare) each year. That is all that they are required to report.
The big misconception is that employers also report your State withholdings to the IRS. This is not the case.
There are only nine (9) States that actually track each individual taxpayer’s withholding contributions during the year. They are Delaware, Georgia, Louisiana, Maryland, Michigan, Minnesota, New York, Pennsylvania and West Virginia. These states track your payments from the quarterly deposits/payments made by the employer.
The remaining States leave the burden of proof on the taxpayer. And the proof is in the W-2 that you attach to your tax return each year when filing. If you do not have the proof then you are considered to have not withheld state taxes. You will then be taxed again on your earnings (double taxation) until you can provide adequate proof.
A W-2 is not the only proof that you can provide. Your final pay stub will also serve as adequate documentation.
If you have lost or misplaced your W-2 and you live in one of the states listed above, you can request a copy of your yearly withholding statement. And of course you can also go back to your employer and request a duplicate copy of your W-2.
Under estimating the importance of the W-2 can be detrimental to your State liability and can cost you thousands. There are thousands of delinquent filers who make that “assumption” each year and the individual States are lining their pockets with your hard earned money.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tuesday, November 27, 2007
Monday, November 26, 2007
Are You Sure That's A Home Office
If you use a part of your home regularly and exclusively for business purposes, you may be able to deduct a part of the operating expenses and depreciation of your home on your tax return.
Individuals claiming home office deductions on Schedule C are required to figure those deductions on Form 8829, Expenses for Business Use of Your Home. However, please remember that if you are an employee claiming unreimbursed job-related expenses, you must use Form 2106, Employee Business Expenses, if applicable, or include the amount directly on Schedule A.
Qualifying for a home office deduction requires the owner to meet two tests. First, the home office must be the principal place of business for the activity. It is not a requirement that the activity be full-time. A home office is determined to be a principal place of business if it is used for substantial managerial or administrative purposes such as scheduling appointments, ordering supplies and keeping records. There can be no other fixed location for such activities.
Second, the space used must be used regularly and exclusively for the activity. You are not required to dedicate a full room to the activity but the space allotted cannot be used for personal purposes. In 2007, the United States Tax Court did hold that keeping some personal papers in a home office will not void the exclusive use test.
An office in the home deduction cannot exceed the gross income derived from the home-based activity. Any unused losses can be carried forward until used.
Claiming a home office deduction does not eliminate the home sale exclusion of income for a homeowner when the home is eventually sold. Depreciation claimed after May 6, 1997 must be recaptured at 25 percent at the time of the sale of the home. In simplier terms, if you deduct depreciation, then you must add back the amount depreciated over the years when the home is sold.
Will the deduction of a home office cause the Internal Revenue Service to audit the tax return? While there is no statistical evidence to support a bona fide answer, you should be aware of the requirements to claim an office in home deduction and document the use of such home office. In doing so, you may want to discuss insurance coverage with their homeowner’s carrier. You should make certain that your coverage is sufficient to obtain the insurance liability of the office in the home.
The following is a list of pro-ratable deductible items which can be used on Form 8829: mortgage interest, real estate taxes, insurance, repairs and maintenance, utilities and of course depreciation.
For all of you who home school your children, please don’t try to use this deduction, it is strictly for business and not educational use. I can assure you that the IRS will send you back to tax school.
S. Raines, Sr. Financial Advisor/Tax Preparer
Individuals claiming home office deductions on Schedule C are required to figure those deductions on Form 8829, Expenses for Business Use of Your Home. However, please remember that if you are an employee claiming unreimbursed job-related expenses, you must use Form 2106, Employee Business Expenses, if applicable, or include the amount directly on Schedule A.
Qualifying for a home office deduction requires the owner to meet two tests. First, the home office must be the principal place of business for the activity. It is not a requirement that the activity be full-time. A home office is determined to be a principal place of business if it is used for substantial managerial or administrative purposes such as scheduling appointments, ordering supplies and keeping records. There can be no other fixed location for such activities.
Second, the space used must be used regularly and exclusively for the activity. You are not required to dedicate a full room to the activity but the space allotted cannot be used for personal purposes. In 2007, the United States Tax Court did hold that keeping some personal papers in a home office will not void the exclusive use test.
An office in the home deduction cannot exceed the gross income derived from the home-based activity. Any unused losses can be carried forward until used.
Claiming a home office deduction does not eliminate the home sale exclusion of income for a homeowner when the home is eventually sold. Depreciation claimed after May 6, 1997 must be recaptured at 25 percent at the time of the sale of the home. In simplier terms, if you deduct depreciation, then you must add back the amount depreciated over the years when the home is sold.
Will the deduction of a home office cause the Internal Revenue Service to audit the tax return? While there is no statistical evidence to support a bona fide answer, you should be aware of the requirements to claim an office in home deduction and document the use of such home office. In doing so, you may want to discuss insurance coverage with their homeowner’s carrier. You should make certain that your coverage is sufficient to obtain the insurance liability of the office in the home.
The following is a list of pro-ratable deductible items which can be used on Form 8829: mortgage interest, real estate taxes, insurance, repairs and maintenance, utilities and of course depreciation.
For all of you who home school your children, please don’t try to use this deduction, it is strictly for business and not educational use. I can assure you that the IRS will send you back to tax school.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tuesday, November 20, 2007
EIC or Cid...The Choice Is Yours
Besides understating income and overstating deductions, the Earned Income Credit (EIC) is the most highly auditable and fraudent error on tax returns. EIC is a refundable credit for low-income taxpayers with earned income. If you qualify for the earned income credit, you may receive a refund even if you had little or no income tax withheld.
Earned income tax credit may be worth checking out, but if you think that you can get away with claiming the credit, you might want to think twice. The earned income tax credit can be very helpful if you have a low salary or do not make a lot of cash each week. If you qualify, you can get a portion of your taxes refunded to you through this clause. Even if you have no tax liability, you may still qualify for a tax refund.
The credit is, however, a bit complicated and will usually take a professional to help to file it. Since the income is low, this may not be a possible option for most taxpayers. There is an online program which can help with the filing call Earned Income Tax Credit Assistant, via the IRS website. Just a few questions and some tax information is all that’s needed and the site can assist you in finding your correct tax bracket/filing status, and will tell you how much you are qualified to get back.
The IRS will refund more money to a tax payer with kids, rather than the individual without children, but it is still possible to get the credit even if you don't have kids.
In 2006, a taxpayer's income had to be less than $12,120 if they didn't have children, $32,001 with one child and $36,348 with two or more kids. Married couples filing jointly are allowed to earn $2,000 more in each category and still claim the credit. All wage or salary income, as well as any self-employment earnings, count toward the eligibility limits. So do investment earnings. In fact, if you make more than $2,800 in investment income, you cannot file for the earned income credit.
Married couples who file separate returns are not eligible for the earned income credit. If you are married, but your spouse did not live in your home for the last six months of the year, you may be able to file as head of household and take the credit. But be extremely careful with filing under the “separation rule”. This has become a highly auditable area. The IRS Audit Division has begun requiring “separated” individuals to show proof of separation, i.e. legal separation papers.
And if you have no children, you must meet three additional tests before you can claim it: You must be at least 25 years old, but younger than 65 at the end of the tax year for which you are making the claim, you cannot be the dependent of another taxpayer, and you must live in the U.S. for more than half of the tax year.
Bear in mind, refund returns are scrutinized by IRS’s Criminal Investigation Division. Tax returns claiming an Earned Income Credit are examined even more closely, since there is so much EIC fraud.
There are two major questions that I am asked each year by taxpayers trying to file for EIC who are receiving public assistance from local departments of Social Services.
Will claiming the EIC interfere with my ability to obtain food stamps or other forms of assistance?
No, you can claim the EIC and also receive such forms of assistance as food stamps, TAFDC, and Section 8 rental assistance. However, if the EIC payment you receive is not spent within a certain period of time, it may be counted as an asset and affect your eligibility for these other benefits. Most importantly, if you are caught submitting fraudulent information, you will lose all benefits.
Can legal immigrants claim the EIC?
Yes. Immigrants who are working in the country legally may claim the EIC if they meet the other EIC eligibility requirements and possess a valid Social Security Number, which allows work. An immigrant worker’s main home must be in the United States. Also, immigrant workers’ children must have lived with them in the United States for more than six months out of the year to be able to treat them as qualifying children.
What happens if I make a mistake or error or provide false information in claiming the EIC?
It depends:
If you made an unintentional mathematical error in your computations, the IRS will likely catch the error and correct your mistake and credit you the proper EIC amount. If you make an unintentional clerical error (e.g., you provide an incorrect Social Security number), the IRS will likely require you to provide the correct number before they release the EIC to you.
If the IRS decides or determines your error was due to "reckless or intentional disregard of the IRS rules" it can deny your claim and prohibit you from claiming the EIC for the year in which you applied as well as the next two years.
If the IRS decides that your error was due to fraud (i.e., you intentionally provided false information to the IRS in order to try to claim the EIC when you weren't eligible or a higher amount than you are entitled), the IRS can prohibit you from claiming the EIC for the year in which you applied and the next 10 years.
Making a small unintentional mistake when applying for the EIC should not present a problem. But giving deliberate false information to the IRS when claiming the EIC, is an extremely bad idea.
For anyone who’s EIC filing was denied or reduced in a previous year, you will likely need to complete Form 8862, Information to Claim Earned Income Credit After Disallowance, and attach it to your tax return.
In order to keep the Earned Income Credit program in existence, it is very important that it be fair and that only people who are eligible claim it on their tax returns. Fraud (e.g., individuals who attempt to claim the EIC when they, in fact, know they are not eligible) is very damaging to the EIC program as it reduces the public and lawmakers' desire to support it.
If you have good reason to believe that someone is claiming the EIC in a fraudulent manner (for example, they claim a child on their tax return who is not their own or for whom they are not responsible) you can report it to the federal government by calling the Internal Revenue Service's hotline for tax fraud. The phone number is 1-800-829-0433.
If you are willing to try to “beat the system” and cheat the government and those hard working friends and relatives out of their tax dollars, then you better be prepared to pay the piper when the IRS axe falls. You’ll not only be losing all your DSS benefits; you’ll find yourself in the position of having to hire a tax firm to dig you out of the financial hole that will result. Would it be worth the temporary monetary gain? And, do you really want the IRS on your back for the next ten years or more?
S. Raines, Sr. Financial Advisor/Tax Preparer
Earned income tax credit may be worth checking out, but if you think that you can get away with claiming the credit, you might want to think twice. The earned income tax credit can be very helpful if you have a low salary or do not make a lot of cash each week. If you qualify, you can get a portion of your taxes refunded to you through this clause. Even if you have no tax liability, you may still qualify for a tax refund.
The credit is, however, a bit complicated and will usually take a professional to help to file it. Since the income is low, this may not be a possible option for most taxpayers. There is an online program which can help with the filing call Earned Income Tax Credit Assistant, via the IRS website. Just a few questions and some tax information is all that’s needed and the site can assist you in finding your correct tax bracket/filing status, and will tell you how much you are qualified to get back.
The IRS will refund more money to a tax payer with kids, rather than the individual without children, but it is still possible to get the credit even if you don't have kids.
In 2006, a taxpayer's income had to be less than $12,120 if they didn't have children, $32,001 with one child and $36,348 with two or more kids. Married couples filing jointly are allowed to earn $2,000 more in each category and still claim the credit. All wage or salary income, as well as any self-employment earnings, count toward the eligibility limits. So do investment earnings. In fact, if you make more than $2,800 in investment income, you cannot file for the earned income credit.
Married couples who file separate returns are not eligible for the earned income credit. If you are married, but your spouse did not live in your home for the last six months of the year, you may be able to file as head of household and take the credit. But be extremely careful with filing under the “separation rule”. This has become a highly auditable area. The IRS Audit Division has begun requiring “separated” individuals to show proof of separation, i.e. legal separation papers.
And if you have no children, you must meet three additional tests before you can claim it: You must be at least 25 years old, but younger than 65 at the end of the tax year for which you are making the claim, you cannot be the dependent of another taxpayer, and you must live in the U.S. for more than half of the tax year.
Bear in mind, refund returns are scrutinized by IRS’s Criminal Investigation Division. Tax returns claiming an Earned Income Credit are examined even more closely, since there is so much EIC fraud.
There are two major questions that I am asked each year by taxpayers trying to file for EIC who are receiving public assistance from local departments of Social Services.
Will claiming the EIC interfere with my ability to obtain food stamps or other forms of assistance?
No, you can claim the EIC and also receive such forms of assistance as food stamps, TAFDC, and Section 8 rental assistance. However, if the EIC payment you receive is not spent within a certain period of time, it may be counted as an asset and affect your eligibility for these other benefits. Most importantly, if you are caught submitting fraudulent information, you will lose all benefits.
Can legal immigrants claim the EIC?
Yes. Immigrants who are working in the country legally may claim the EIC if they meet the other EIC eligibility requirements and possess a valid Social Security Number, which allows work. An immigrant worker’s main home must be in the United States. Also, immigrant workers’ children must have lived with them in the United States for more than six months out of the year to be able to treat them as qualifying children.
What happens if I make a mistake or error or provide false information in claiming the EIC?
It depends:
If you made an unintentional mathematical error in your computations, the IRS will likely catch the error and correct your mistake and credit you the proper EIC amount. If you make an unintentional clerical error (e.g., you provide an incorrect Social Security number), the IRS will likely require you to provide the correct number before they release the EIC to you.
If the IRS decides or determines your error was due to "reckless or intentional disregard of the IRS rules" it can deny your claim and prohibit you from claiming the EIC for the year in which you applied as well as the next two years.
If the IRS decides that your error was due to fraud (i.e., you intentionally provided false information to the IRS in order to try to claim the EIC when you weren't eligible or a higher amount than you are entitled), the IRS can prohibit you from claiming the EIC for the year in which you applied and the next 10 years.
Making a small unintentional mistake when applying for the EIC should not present a problem. But giving deliberate false information to the IRS when claiming the EIC, is an extremely bad idea.
For anyone who’s EIC filing was denied or reduced in a previous year, you will likely need to complete Form 8862, Information to Claim Earned Income Credit After Disallowance, and attach it to your tax return.
In order to keep the Earned Income Credit program in existence, it is very important that it be fair and that only people who are eligible claim it on their tax returns. Fraud (e.g., individuals who attempt to claim the EIC when they, in fact, know they are not eligible) is very damaging to the EIC program as it reduces the public and lawmakers' desire to support it.
If you have good reason to believe that someone is claiming the EIC in a fraudulent manner (for example, they claim a child on their tax return who is not their own or for whom they are not responsible) you can report it to the federal government by calling the Internal Revenue Service's hotline for tax fraud. The phone number is 1-800-829-0433.
If you are willing to try to “beat the system” and cheat the government and those hard working friends and relatives out of their tax dollars, then you better be prepared to pay the piper when the IRS axe falls. You’ll not only be losing all your DSS benefits; you’ll find yourself in the position of having to hire a tax firm to dig you out of the financial hole that will result. Would it be worth the temporary monetary gain? And, do you really want the IRS on your back for the next ten years or more?
S. Raines, Sr. Financial Advisor/Tax Preparer
Monday, November 19, 2007
Can We Find A Home For $110 Million In Refunds
On November 14, 2007, the IRS released, “IRS Has $110 Million In Refund Checks Looking For A Home”, which should make every taxpayer take notice.
The announcement stated that there were 115,478 taxpayers who are due refund checks worth about $110 million. Why? It’s simple, the checks have been returned as undeliverable.
The refund checks averaged about $953 each. Claiming these refunds is as easy as updating your address. The alarming statistic is that some taxpayers have more than one check waiting.
“Taxpayers should not miss out on getting their money back,” said Richard Morgante, commissioner of the IRS Wage and Investment Division. ”The IRS makes it as easy as possible for taxpayers to update their addresses and claim their refunds.”
The IRS.gov tool on their website called “ Where’s My Refund?” enables you to check the status of your refunds. You will be required to provide your social security number, filing status and amount of refund shown on your 2006 return. This tool will give the status of your refund and will provide instructions on how to resolve delivery problems. The telephone version of “Where’s My Refund?” requires calling 1-800-829-1954.
To date (2007), the IRS has processed nearly 105 million refunds, totaling about $240 billion, either by mail or direct deposit. Undeliverable refunds account for less than one-tenth of one percent of all refunds, or about one in a thousand.
Normally a refund check is returned as undeliverable due to taxpayers moving and not updating their address with either the U.S. Postal Service or the IRS.
According to the IRS, the list of taxpayers due undeliverable refunds this year rose about 21 percent from 95,746 last year. The increase is due in part to the Telephone Excise Tax Refund. The refund was a one-time payment available on 2006 federal income tax returns. It was designed to return to individuals, businesses and tax-exempt organizations previously collected long-distance telephone taxes.
Refund checks are mailed to a taxpayer’s last known address. Checks are returned to the IRS if a taxpayer moves without notifying the IRS or the U.S. Postal Service. Updating your address is easy, just access the “ Where’s My Refund?” feature at www.irs.gov. Taxpayers checking on a refund will be asked to provide an updated address if there is an undelivered check outstanding within the last 12 months. Taxpayers checking on a refund over the phone will be given specific instructions on how to update addresses.
A taxpayer can also ensure the IRS has his or her correct address by filing Form 8822, Change of Address (Download the form) or request it by calling 1-800-TAX-FORM (1-800-829-3676). Those who do not have access to the Internet and think they may be missing a refund should first check your returns or contact your tax preparer if the returns are not available, then call the IRS toll-free assistance line at 1-800-829-1040 to update your address.
Requesting Direct Deposit can put an end to undelivered refunds, as well as lost or stolen refund checks. Taxpayers can have refunds deposited directly into their personal checking or savings accounts. Direct Deposit is available for filers of both paper and electronic returns. For paper returns, just fill out the routing and account information on the bottom of Page 2 of the 1040 above the signatures spaces.
How often do you hear the government say that they owe you? Now is the time to regain what is rightfully yours. Have you moved in the last year to two, if so, it’s definitely worth making that call or going online. Remember, every day that this money is not claimed is another day of interest that the IRS is making off of your money, and at $110 million, that’s a lot of interest.
Sharon Raines, Sr. Financial Advisor/Tax Preparer
The announcement stated that there were 115,478 taxpayers who are due refund checks worth about $110 million. Why? It’s simple, the checks have been returned as undeliverable.
The refund checks averaged about $953 each. Claiming these refunds is as easy as updating your address. The alarming statistic is that some taxpayers have more than one check waiting.
“Taxpayers should not miss out on getting their money back,” said Richard Morgante, commissioner of the IRS Wage and Investment Division. ”The IRS makes it as easy as possible for taxpayers to update their addresses and claim their refunds.”
The IRS.gov tool on their website called “ Where’s My Refund?” enables you to check the status of your refunds. You will be required to provide your social security number, filing status and amount of refund shown on your 2006 return. This tool will give the status of your refund and will provide instructions on how to resolve delivery problems. The telephone version of “Where’s My Refund?” requires calling 1-800-829-1954.
To date (2007), the IRS has processed nearly 105 million refunds, totaling about $240 billion, either by mail or direct deposit. Undeliverable refunds account for less than one-tenth of one percent of all refunds, or about one in a thousand.
Normally a refund check is returned as undeliverable due to taxpayers moving and not updating their address with either the U.S. Postal Service or the IRS.
According to the IRS, the list of taxpayers due undeliverable refunds this year rose about 21 percent from 95,746 last year. The increase is due in part to the Telephone Excise Tax Refund. The refund was a one-time payment available on 2006 federal income tax returns. It was designed to return to individuals, businesses and tax-exempt organizations previously collected long-distance telephone taxes.
Refund checks are mailed to a taxpayer’s last known address. Checks are returned to the IRS if a taxpayer moves without notifying the IRS or the U.S. Postal Service. Updating your address is easy, just access the “ Where’s My Refund?” feature at www.irs.gov. Taxpayers checking on a refund will be asked to provide an updated address if there is an undelivered check outstanding within the last 12 months. Taxpayers checking on a refund over the phone will be given specific instructions on how to update addresses.
A taxpayer can also ensure the IRS has his or her correct address by filing Form 8822, Change of Address (Download the form) or request it by calling 1-800-TAX-FORM (1-800-829-3676). Those who do not have access to the Internet and think they may be missing a refund should first check your returns or contact your tax preparer if the returns are not available, then call the IRS toll-free assistance line at 1-800-829-1040 to update your address.
Requesting Direct Deposit can put an end to undelivered refunds, as well as lost or stolen refund checks. Taxpayers can have refunds deposited directly into their personal checking or savings accounts. Direct Deposit is available for filers of both paper and electronic returns. For paper returns, just fill out the routing and account information on the bottom of Page 2 of the 1040 above the signatures spaces.
How often do you hear the government say that they owe you? Now is the time to regain what is rightfully yours. Have you moved in the last year to two, if so, it’s definitely worth making that call or going online. Remember, every day that this money is not claimed is another day of interest that the IRS is making off of your money, and at $110 million, that’s a lot of interest.
Sharon Raines, Sr. Financial Advisor/Tax Preparer
Wednesday, November 14, 2007
The Top 5 of the "Dirty Dozen" List of Mistakes
After receiving the November, 2007 issue of the FEDERAL TAX ALERT from the National Society of Tax Professionals and reading this article, I felt that I really needed to pass this information along. And trust me, it is the most valuable information that you can receive for the 2008 tax season or for any tax year.
Checkout ”Ten Ways To Annoy An IRS Agent” first.
http://www.youtube.com/watch?v=5NkG2Ho39iU
“The IRS announces each year what they are going to be looking for in their annual “Dirty Dozen” report. They also make the audit statistics available in order to see that they are auditing taxpayer’s returns.
The following are the top five red flags for audits. They include:
Location. Where you live makes a difference in determining whether you are more at risk from an audit. You are more likely to get an audit if you live in one of these places:
Los Angeles, North Central District (ND, SD, MN), Southern California, Northern California, Manhattan, Central California, Brooklyn, Southwest (AZ, NV, NM), South Florida and Houston.
How Much You Make. This statistic is fascinating. It would seem to make sense that the IRS is more likely to audit people who make more money. But, the fact is that they are actually more likely to audit people who make LESS money. In fact, the most likely return to be audited is a return that includes a business that makes less than $25,000 per year. If you do not have a business, you have the most chance for an audit if you file a Form 1040A and make less than $25,000 per year.
Business Entities. If you have a business, you are much more likely to be audited if you operate in a Sole proprietorship, Schedule C. In fact, you are ten times more likely to be audited as a Sole Proprietorship than if you are an S Corporation or C Corporation. Why? That is because most Sole Proprietorships do not have great recordkeeping systems and the IRS knows that.
Under-reporting Income. the IRS receives copies of your K-1s form Limited Partnerships and S Corporation, 1099s from interest, dividends and sales, and W-2s. If you do not report these items on your return, or you report a different amount, your return will get pulled for inquiry.
Who Files Your Return Matters. If you have a complex return and prepared it yourself or if your return was prepared by someone on the IRS’s problem preparer list, you are more likely to be audited.”
The most important advice that you need to remember is “once you have been audited, then
you cannot go back and amend a return for changes”. Once the audit has taken place you will have to live with the IRS’s decision and finding. And once that happens, most folks find themselves having to solicit the help of Tax Resolution services such as Effectur, Inc to help with audit representation and negotation of payments.
“What is the difference between a taxidermist and a tax auditor?” The taxidermist takes only your skin!”…………
S. Raines, Sr. Financial Advisor/Tax Preparer
Checkout ”Ten Ways To Annoy An IRS Agent” first.
http://www.youtube.com/watch?v=5NkG2Ho39iU
“The IRS announces each year what they are going to be looking for in their annual “Dirty Dozen” report. They also make the audit statistics available in order to see that they are auditing taxpayer’s returns.
The following are the top five red flags for audits. They include:
Location. Where you live makes a difference in determining whether you are more at risk from an audit. You are more likely to get an audit if you live in one of these places:
Los Angeles, North Central District (ND, SD, MN), Southern California, Northern California, Manhattan, Central California, Brooklyn, Southwest (AZ, NV, NM), South Florida and Houston.
How Much You Make. This statistic is fascinating. It would seem to make sense that the IRS is more likely to audit people who make more money. But, the fact is that they are actually more likely to audit people who make LESS money. In fact, the most likely return to be audited is a return that includes a business that makes less than $25,000 per year. If you do not have a business, you have the most chance for an audit if you file a Form 1040A and make less than $25,000 per year.
Business Entities. If you have a business, you are much more likely to be audited if you operate in a Sole proprietorship, Schedule C. In fact, you are ten times more likely to be audited as a Sole Proprietorship than if you are an S Corporation or C Corporation. Why? That is because most Sole Proprietorships do not have great recordkeeping systems and the IRS knows that.
Under-reporting Income. the IRS receives copies of your K-1s form Limited Partnerships and S Corporation, 1099s from interest, dividends and sales, and W-2s. If you do not report these items on your return, or you report a different amount, your return will get pulled for inquiry.
Who Files Your Return Matters. If you have a complex return and prepared it yourself or if your return was prepared by someone on the IRS’s problem preparer list, you are more likely to be audited.”
The most important advice that you need to remember is “once you have been audited, then
you cannot go back and amend a return for changes”. Once the audit has taken place you will have to live with the IRS’s decision and finding. And once that happens, most folks find themselves having to solicit the help of Tax Resolution services such as Effectur, Inc to help with audit representation and negotation of payments.
“What is the difference between a taxidermist and a tax auditor?” The taxidermist takes only your skin!”…………
S. Raines, Sr. Financial Advisor/Tax Preparer
Tuesday, November 13, 2007
A Generation of Plastic Babies
Having read some of Kevin Rosen’s articles, columnist for the Kansas City Star. He writes high quality columns about kids and money on a regular basis. However, one of his recent articles has drawn a lot of heat. In the article, Kevin made the following statement:
“Wouldn’t it be nice if our children grew into adulthood in a world without credit cards? Look at all the problems that would be solved in a cash-and-carry society — no gut-wrenching debt overloads, no junk mail from credit card issuers, and perhaps most important, fewer opportunities for cyber thieves to steal our identities.”
It’s an interesting idea - could your children live without credit cards? Do you wish society didn’t have credit cards? I’m positive that banks and credit card companies would fight you tooth and nail.
I was raised by “children of the depression”. I was taught that if we didn’t have the money, don’t even think about asking for it! You certainly won’t get in financial trouble. I have tried to live up to this, but I never thought I would see our society in such overwhelming indebtedness due credit cards. The truly sad part is that Americans carry the mindset that if they don’t have those little plastic cards, then they have no clout. Do you leave home without your American Express Card?
If you have a child who has graduated from high school then you can remember all those gifts that came in the mail from credit card companies. My daughter received two dozen or more. We agreed that one card with a limit of $300 would suffice for extreme emergencies. But the number of graduates to fell into the plastic trap is astounding and unfortunately some of them are still paying the price, along with those never ending student loan payments.
After reading various reports by student loan providers who surveyed graduate-school students about credit-card usage, I believe that we now have a “generation of plastic babies”. Among other things, the report found that 93 percent of these highly educated students try to pay at least the minimum monthly requirement, but only 20 percent acknowledged paying off their credit card bills in full each month.
But you know the old saying, children learn by example. Take a look at the example these children have learned from in the past courtesy of Credit Counseling Biz:
It is estimated that, on average, 20% of Americans have “maxed out” their credit cards.
About 25% of adults in the United States have a history of credit problems.
Americans’ average credit card debt is $8400 per household.
Roughly 24% of personal expenditures in the United States are made using bank credit cards, retail cards, and debit cards.
In the first quarter of 2002, total credit debt was $660 billion. Total credit card debt was approximately $60 billion.
Approximately 185 million American consumers have at least one credit card.
Of those 185 million consumers with credit cards, 1.3 million credit card holders declared bankruptcy in 2002.
Americans pay, on average, an 18.9% interest rate on credit cards.
The average household pays $83.33 in credit card interest per month.
On average, the typical credit card purchase is 112% higher than if using cash.
More than 40% of American families spend more than they earn. (Federal Reserve).
As of 1995, 92% of American family disposable income is spent on paying debts, up from 65% in 1975. (Federal Reserve)
An $8,000 debt, at a rate of 18% interest, will take over 25 years to pay off and cost more than $24,000 in the long run.
These are absolutely astounding and maddening figures, and signals a need for credit education in classrooms, but most of all, on the home front.
First and foremost, don’t even think about giving them a card until they can handle cash responsibly and have a firm understanding of the benefits and dangers of using credit cards. It also doesn’t hurt to help them set up something like an automatic withdrawal from their checking account to pay off the balance each month.
We all love the convenience and purchasing power that credit cards offer. But without the proper education, credit cards can turn into your worst nightmare and you’ll find yourself needing professional “tax help”. Let me give you my “throw it back at them” “tax debt help”.
When you find yourself unable to make that minimum payment, don’t be surprised when you get a call from the credit card company wanting to settle for pennies on the dollar. Sure, their offer sounds great at the time, “if you’ll settle with us for this amount” (normally 1/3 to ½ of the balance), “then we’ll write off the remaining balance”. What they don’t tell you is that you’ll be getting a 1099-C Cancellation of Debt at the end of the year to report to the IRS. The IRS considers the write-off amount to be reportable income, and of course, you’ll be taxed on that amount.
Be prepared for the call, when they make you that offer, before you agree, ask them if they are going to 1099-C you for the balance. If they say yes, tell them that you will agree to the payoff if they will “forgive” the remaining balance and of course get it in writing!
In the past year, I have worked with a staggering number of clients who have unfiled tax returns due in part to these high balance write-offs. Not only do they have to pay the tax on the write-offs, but, failure to file penalties compounded with interest can result in garnishments and an eventual IRS Levy. The final result could be, having to contract a Tax Resolution firm such as Effectur, Inc. to help alleviate the financial burden of the plastic. There are great non-profit credit counseling agencies such as In Charge Debt Solutions who can help you with budgeting and repairing credit problems.
As parents, it is our job to educate, protect and prepare our children for the future. They may kick, scream and yell, but let’s steer them in the right direction and make them the “plastic-less generation”.
Sharon Raines, Sr. Financial Planner/Tax Preparer
“Wouldn’t it be nice if our children grew into adulthood in a world without credit cards? Look at all the problems that would be solved in a cash-and-carry society — no gut-wrenching debt overloads, no junk mail from credit card issuers, and perhaps most important, fewer opportunities for cyber thieves to steal our identities.”
It’s an interesting idea - could your children live without credit cards? Do you wish society didn’t have credit cards? I’m positive that banks and credit card companies would fight you tooth and nail.
I was raised by “children of the depression”. I was taught that if we didn’t have the money, don’t even think about asking for it! You certainly won’t get in financial trouble. I have tried to live up to this, but I never thought I would see our society in such overwhelming indebtedness due credit cards. The truly sad part is that Americans carry the mindset that if they don’t have those little plastic cards, then they have no clout. Do you leave home without your American Express Card?
If you have a child who has graduated from high school then you can remember all those gifts that came in the mail from credit card companies. My daughter received two dozen or more. We agreed that one card with a limit of $300 would suffice for extreme emergencies. But the number of graduates to fell into the plastic trap is astounding and unfortunately some of them are still paying the price, along with those never ending student loan payments.
After reading various reports by student loan providers who surveyed graduate-school students about credit-card usage, I believe that we now have a “generation of plastic babies”. Among other things, the report found that 93 percent of these highly educated students try to pay at least the minimum monthly requirement, but only 20 percent acknowledged paying off their credit card bills in full each month.
But you know the old saying, children learn by example. Take a look at the example these children have learned from in the past courtesy of Credit Counseling Biz:
It is estimated that, on average, 20% of Americans have “maxed out” their credit cards.
About 25% of adults in the United States have a history of credit problems.
Americans’ average credit card debt is $8400 per household.
Roughly 24% of personal expenditures in the United States are made using bank credit cards, retail cards, and debit cards.
In the first quarter of 2002, total credit debt was $660 billion. Total credit card debt was approximately $60 billion.
Approximately 185 million American consumers have at least one credit card.
Of those 185 million consumers with credit cards, 1.3 million credit card holders declared bankruptcy in 2002.
Americans pay, on average, an 18.9% interest rate on credit cards.
The average household pays $83.33 in credit card interest per month.
On average, the typical credit card purchase is 112% higher than if using cash.
More than 40% of American families spend more than they earn. (Federal Reserve).
As of 1995, 92% of American family disposable income is spent on paying debts, up from 65% in 1975. (Federal Reserve)
An $8,000 debt, at a rate of 18% interest, will take over 25 years to pay off and cost more than $24,000 in the long run.
These are absolutely astounding and maddening figures, and signals a need for credit education in classrooms, but most of all, on the home front.
First and foremost, don’t even think about giving them a card until they can handle cash responsibly and have a firm understanding of the benefits and dangers of using credit cards. It also doesn’t hurt to help them set up something like an automatic withdrawal from their checking account to pay off the balance each month.
We all love the convenience and purchasing power that credit cards offer. But without the proper education, credit cards can turn into your worst nightmare and you’ll find yourself needing professional “tax help”. Let me give you my “throw it back at them” “tax debt help”.
When you find yourself unable to make that minimum payment, don’t be surprised when you get a call from the credit card company wanting to settle for pennies on the dollar. Sure, their offer sounds great at the time, “if you’ll settle with us for this amount” (normally 1/3 to ½ of the balance), “then we’ll write off the remaining balance”. What they don’t tell you is that you’ll be getting a 1099-C Cancellation of Debt at the end of the year to report to the IRS. The IRS considers the write-off amount to be reportable income, and of course, you’ll be taxed on that amount.
Be prepared for the call, when they make you that offer, before you agree, ask them if they are going to 1099-C you for the balance. If they say yes, tell them that you will agree to the payoff if they will “forgive” the remaining balance and of course get it in writing!
In the past year, I have worked with a staggering number of clients who have unfiled tax returns due in part to these high balance write-offs. Not only do they have to pay the tax on the write-offs, but, failure to file penalties compounded with interest can result in garnishments and an eventual IRS Levy. The final result could be, having to contract a Tax Resolution firm such as Effectur, Inc. to help alleviate the financial burden of the plastic. There are great non-profit credit counseling agencies such as In Charge Debt Solutions who can help you with budgeting and repairing credit problems.
As parents, it is our job to educate, protect and prepare our children for the future. They may kick, scream and yell, but let’s steer them in the right direction and make them the “plastic-less generation”.
Sharon Raines, Sr. Financial Planner/Tax Preparer
Tuesday, November 6, 2007
"Be Prepared for the Preparers!"
“Be Prepared for the “Preparers”!
With the recent news that overall nationwide tax preparation fees will increase by 30% for the 2007 filing season, It’s time to get folks to remember their Boy and Girl Scout days and “Be Prepared” to get the best bang for your bucks.
I’ve often wondered what percentage of taxpayers would prefer going to an incompetent tax preparer if it meant that they would file an incorrect return and taking the risk of betting with Uncle Sam. While reading several articles on the IRS website recently on the Return Preparer Fraud program, there was some very valuable information that I want to pass along. This is an excerpt from those articles:
“Return Preparer Fraud generally involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients. Preparers may also manipulate income figures to obtain fraudulent tax credits, such as the Earned Income Tax Credit.
In some situations, the client (taxpayer) may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns. However, when the IRS detects the false return, the taxpayer must pay the additional taxes and interest and may be subject to penalties and criminal prosecution.
While most preparers provide excellent service to their clients, the IRS urges taxpayers to be very careful when choosing a tax preparer. You should be as careful as you would in choosing a doctor or a lawyer. It is important to know that even if someone else prepares your return, you are ultimately responsible for all the information on the tax return.”
If you are a “joint jumper” and run from one tax professional to another to get the result you want, just remember, you can go to ten different tax professionals and get a different answer for any one question. There are volumes and volumes of tax code and laws, no one professional knows the answer to every question. A good professional should be upfront and let you know that they don’t know the answer, but they’ll find it. That’s true professionalism, someone worth trusting and someone worth sticking with.
Here are my tips for Choosing a Return Preparer:
Avoid “I can get you more” tax preparers
Avoid preparers who base their fee on a percentage of the amount of your refund.
Find out the person’s credentials. Ask if they take continuing education classes each year for tax updates. If they can’t look you in the eye and say yes, then that’s your cue to say no!
Never use a tax professional who will not sign your tax return or who doesn’t provide you with a copy for your records.
Make sure that your preparer can be contacted during the year to answer any questions you may have after the return has been filed.
Review your return before you sign it and ask questions on entries you don't understand.
Never sign a blank tax form.
Find out if the preparer is affiliated with a professional organization that holds them to a code of ethics.
Ask questions, there are no stupid questions when it comes to your financial future.
On the other hand if you do find that preparer who finds you that refund be prepared for the wrath of the IRS. You might make it through the first, second and third year without a word. But suddenly one day that letter comes in the mail. After opening the letter, you find that you are being audited and the scrambling begins for receipts, which by the way, you don’t have. Now think about this, after the audit and the adjustments, you’re facing three years of additional liability and accrued interest.
Tax evasion is a risky crime, a felony, punishable by five years imprisonment and a $250,000 fine.
As a year round tax preparer, I find myself amending returns that have been prepared by every profession whether it be an accountant, CPA, independent firms and of course, the self-preparers. And as the years pass, I realize that there is no one sector of tax professionals who shouldn’t be questioned on their credentials or education. Working with clients who have received that audit letter and find themselves in major “tax debt” trouble, I understand the overwhelming need for “tax debt help” to avoid an “IRS Levy”. They find themselves in a situation of having to hire the services of Tax Resolution firms such as Effectur, Inc.
The final result of being “prepared” can be paying four to five times the amount you would have paid had the returns been completed correctly. Seems to me the only one who is truly prepared is Uncle Sam as he “prepares” to take your money.
Sharon R. Raines, Sr. Financial Advisor/Tax Preparer
With the recent news that overall nationwide tax preparation fees will increase by 30% for the 2007 filing season, It’s time to get folks to remember their Boy and Girl Scout days and “Be Prepared” to get the best bang for your bucks.
I’ve often wondered what percentage of taxpayers would prefer going to an incompetent tax preparer if it meant that they would file an incorrect return and taking the risk of betting with Uncle Sam. While reading several articles on the IRS website recently on the Return Preparer Fraud program, there was some very valuable information that I want to pass along. This is an excerpt from those articles:
“Return Preparer Fraud generally involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients. Preparers may also manipulate income figures to obtain fraudulent tax credits, such as the Earned Income Tax Credit.
In some situations, the client (taxpayer) may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns. However, when the IRS detects the false return, the taxpayer must pay the additional taxes and interest and may be subject to penalties and criminal prosecution.
While most preparers provide excellent service to their clients, the IRS urges taxpayers to be very careful when choosing a tax preparer. You should be as careful as you would in choosing a doctor or a lawyer. It is important to know that even if someone else prepares your return, you are ultimately responsible for all the information on the tax return.”
If you are a “joint jumper” and run from one tax professional to another to get the result you want, just remember, you can go to ten different tax professionals and get a different answer for any one question. There are volumes and volumes of tax code and laws, no one professional knows the answer to every question. A good professional should be upfront and let you know that they don’t know the answer, but they’ll find it. That’s true professionalism, someone worth trusting and someone worth sticking with.
Here are my tips for Choosing a Return Preparer:
Avoid “I can get you more” tax preparers
Avoid preparers who base their fee on a percentage of the amount of your refund.
Find out the person’s credentials. Ask if they take continuing education classes each year for tax updates. If they can’t look you in the eye and say yes, then that’s your cue to say no!
Never use a tax professional who will not sign your tax return or who doesn’t provide you with a copy for your records.
Make sure that your preparer can be contacted during the year to answer any questions you may have after the return has been filed.
Review your return before you sign it and ask questions on entries you don't understand.
Never sign a blank tax form.
Find out if the preparer is affiliated with a professional organization that holds them to a code of ethics.
Ask questions, there are no stupid questions when it comes to your financial future.
On the other hand if you do find that preparer who finds you that refund be prepared for the wrath of the IRS. You might make it through the first, second and third year without a word. But suddenly one day that letter comes in the mail. After opening the letter, you find that you are being audited and the scrambling begins for receipts, which by the way, you don’t have. Now think about this, after the audit and the adjustments, you’re facing three years of additional liability and accrued interest.
Tax evasion is a risky crime, a felony, punishable by five years imprisonment and a $250,000 fine.
As a year round tax preparer, I find myself amending returns that have been prepared by every profession whether it be an accountant, CPA, independent firms and of course, the self-preparers. And as the years pass, I realize that there is no one sector of tax professionals who shouldn’t be questioned on their credentials or education. Working with clients who have received that audit letter and find themselves in major “tax debt” trouble, I understand the overwhelming need for “tax debt help” to avoid an “IRS Levy”. They find themselves in a situation of having to hire the services of Tax Resolution firms such as Effectur, Inc.
The final result of being “prepared” can be paying four to five times the amount you would have paid had the returns been completed correctly. Seems to me the only one who is truly prepared is Uncle Sam as he “prepares” to take your money.
Sharon R. Raines, Sr. Financial Advisor/Tax Preparer
Monday, November 5, 2007
"Paying Yourself Can't Be Bad!"
One of the biggest fears that millions of taxpayers face during tax season is having to file that dreaded 1099-Misc incomes on their returns. You work all year independently not having any federal, state, social security or medicare tax deducted, and now it’s time to pay those taxes.
Suddenly in January, you receive that 1099 in the mail and the sweat starts rolling. You furiously start digging for deductions. The IRS considers you to be a “sole proprietor” or “independent contractor” and you’ve got to file a Schedule C (Profit and Loss From Business) with your return. Your Tax Preparer enters your information and when you look at the finished return, you find that Line 58 of your 1040 under “Other Taxes” shows an amount for “Self-Employment Tax”.
The first question that most of my clients ask is “What is this and why am I having to pay another tax?”. My first response is “Do you have a 401K or retirement plan?”. They suddenly look at me wondering why I’m asking that question and what does this tax have to do with my retirement. That’s when I begin my spill about “why paying yourself can’t be bad”.
When you’re a W-2 wage earner, your employer is responsible for taking out the necessary taxes, but when you work as a 1099 wage earner, you alone are responsible for the payment of these taxes. Federal tax payments can be made quarterly to the IRS, but self-employment taxes can only be paid at the end of the year when you file your return.
Self-employment tax is composed of a Social Security tax of 12.4% and a Medicare tax of 2.9%. For 2006, the maximum amount of wages and/or self-employment income subject to the Social Security part of the self-employment tax is $94,200. All net earnings are subject to the Medicare portion of this tax. Therefore, if your salary income as an employee is $94,200 or above, you would have already paid all the Social Security tax you owe. Your self-employment income would, however, be subject to the Medicare tax of 2.9%. There is no limit on the amount of earnings subject to the Medicare portion of the self-employment tax.
Simply put, they are social security and medicare payments that you make to yourself calculated on the “net” amount of your 1099 income. They are a mandatory tax imposed by the Social Security Administration, which are enforced and collected by the IRS. When collected, the IRS deposits these funds in your name with the Social Security Administration.
When you look at that final 1040 amount, and you realize that you are having to play catch-up on all the federal, state and self-employment taxes that were not paid during the year….yes, I can see where the sweating would begin. But please take some advice, even though you panic and sweat, don’t just go home and toss the return aside and not file. The result of not filing can result in a tax burden that far exceeds that of the original return balance. Failure to file can result in your having to hire a Tax Resolution service such as Effectur, Inc. to assist you in “making peace” with the IRS.
Remember self-employment tax is you paying yourself in the form of income and health care benefits at your retirement. So, “paying yourself can never be bad!”.
Sharon R. Raines, Financial Planner/Tax Preparer
Suddenly in January, you receive that 1099 in the mail and the sweat starts rolling. You furiously start digging for deductions. The IRS considers you to be a “sole proprietor” or “independent contractor” and you’ve got to file a Schedule C (Profit and Loss From Business) with your return. Your Tax Preparer enters your information and when you look at the finished return, you find that Line 58 of your 1040 under “Other Taxes” shows an amount for “Self-Employment Tax”.
The first question that most of my clients ask is “What is this and why am I having to pay another tax?”. My first response is “Do you have a 401K or retirement plan?”. They suddenly look at me wondering why I’m asking that question and what does this tax have to do with my retirement. That’s when I begin my spill about “why paying yourself can’t be bad”.
When you’re a W-2 wage earner, your employer is responsible for taking out the necessary taxes, but when you work as a 1099 wage earner, you alone are responsible for the payment of these taxes. Federal tax payments can be made quarterly to the IRS, but self-employment taxes can only be paid at the end of the year when you file your return.
Self-employment tax is composed of a Social Security tax of 12.4% and a Medicare tax of 2.9%. For 2006, the maximum amount of wages and/or self-employment income subject to the Social Security part of the self-employment tax is $94,200. All net earnings are subject to the Medicare portion of this tax. Therefore, if your salary income as an employee is $94,200 or above, you would have already paid all the Social Security tax you owe. Your self-employment income would, however, be subject to the Medicare tax of 2.9%. There is no limit on the amount of earnings subject to the Medicare portion of the self-employment tax.
Simply put, they are social security and medicare payments that you make to yourself calculated on the “net” amount of your 1099 income. They are a mandatory tax imposed by the Social Security Administration, which are enforced and collected by the IRS. When collected, the IRS deposits these funds in your name with the Social Security Administration.
When you look at that final 1040 amount, and you realize that you are having to play catch-up on all the federal, state and self-employment taxes that were not paid during the year….yes, I can see where the sweating would begin. But please take some advice, even though you panic and sweat, don’t just go home and toss the return aside and not file. The result of not filing can result in a tax burden that far exceeds that of the original return balance. Failure to file can result in your having to hire a Tax Resolution service such as Effectur, Inc. to assist you in “making peace” with the IRS.
Remember self-employment tax is you paying yourself in the form of income and health care benefits at your retirement. So, “paying yourself can never be bad!”.
Sharon R. Raines, Financial Planner/Tax Preparer
"Does the IRS Have A "Blind-Eye" for Federal Employees
The Senate Finance Committee found in April that more than 450,000 federal employees and retirees owe back federal taxes (totaling about $3 billion), including almost 5 percent of the employees and retirees of the U. S. Tax Court. [U. S. Senate Committee on Finance (press release), 4-25-07].
"Tax Advocate" groups and "Tax Protestors" are having a field day with this issue. With the IRS cracking down on middle class American's "tax debt", it appears to me that there is a double standard with the IRS.
Spreadsheets obtained by Washington, D.C., radio station WTOP under the Freedom of Information Act show that hundreds of thousands of government employees failed to file a tax return for the 2005 tax year. No federal agency was exempt, though "tax compliance" varied from one agency to another.
Seventy-one employees in the Executive Office of the President, which includes the White House, owe $664,527 in taxes for 2005. Approximately 20 of those employees have entered into an IRS payment plans, bringing the EOP balance down to $455,881 owed by 50 employees.
"In the past, IRS officials have been quick to compare the federal workers' rate of compliance with the general public's. But this year, the IRS is not able to track the compliance rate for the general public." - WTOP
Documents proved that one-third of the employees, or 149,500, entered into payment plans with the IRS. The United States Postal Service was the highest level of noncompliance, and the Treasury Department had the lowest level.
The IRS enters into a contract with new employees that make it a requirement to keep their 1040 filings and payments current or it is automatic grounds for discharge. If the IRS does not enforce the provisions of their own employment contracts, how can they expect and pressure taxpayers to enter into payment arrangements. Instead, they issue an "IRS Levy", Garnishment and even attach personal property?
As a veteran Tax Advisor/Preparer, I have seen how the IRS deals with delinquent filers/payers.....smells like double standards and a "blind-eye" to me!
S. Raines
Senior Tax Preparer/Advisor
Effectur, Inc. (www.effectur.com)
"Tax Advocate" groups and "Tax Protestors" are having a field day with this issue. With the IRS cracking down on middle class American's "tax debt", it appears to me that there is a double standard with the IRS.
Spreadsheets obtained by Washington, D.C., radio station WTOP under the Freedom of Information Act show that hundreds of thousands of government employees failed to file a tax return for the 2005 tax year. No federal agency was exempt, though "tax compliance" varied from one agency to another.
Seventy-one employees in the Executive Office of the President, which includes the White House, owe $664,527 in taxes for 2005. Approximately 20 of those employees have entered into an IRS payment plans, bringing the EOP balance down to $455,881 owed by 50 employees.
"In the past, IRS officials have been quick to compare the federal workers' rate of compliance with the general public's. But this year, the IRS is not able to track the compliance rate for the general public." - WTOP
Documents proved that one-third of the employees, or 149,500, entered into payment plans with the IRS. The United States Postal Service was the highest level of noncompliance, and the Treasury Department had the lowest level.
The IRS enters into a contract with new employees that make it a requirement to keep their 1040 filings and payments current or it is automatic grounds for discharge. If the IRS does not enforce the provisions of their own employment contracts, how can they expect and pressure taxpayers to enter into payment arrangements. Instead, they issue an "IRS Levy", Garnishment and even attach personal property?
As a veteran Tax Advisor/Preparer, I have seen how the IRS deals with delinquent filers/payers.....smells like double standards and a "blind-eye" to me!
S. Raines
Senior Tax Preparer/Advisor
Effectur, Inc. (www.effectur.com)
"Do You Wear The Pants In Your Family?"
You might think so, but the IRS has the final say during tax season. The most grossly abused and misunderstood filing status on tax returns are individuals and even married couples who think that they qualify for the “Head of Household” status. Just being the “head of your house” or “wearing the pants in the family” does not necessarily qualify you for head of household status.
Generally, to qualify for head of household status you must be “unmarried” (single or legally separated), and not be eligible to file as a “qualifying widow” or widower, and have a “dependent child”. You must also have provided more than half the cost of maintaining, where you live as your main home for a “qualifying dependent” (generally a blood relative or adopted child).
You may also qualify if you are legally separated and your spouse was not a member of the household during the last six months of the tax year. You must have provided more than half of the cost of maintaining a household (main home) for a child who is a qualifying dependent.
A major problem faced by the IRS is when both separated parents claim head of household and both claim the child(ren). If a “multiple support agreement” exists, then the spouse listed in the agreement takes precedent. In the case where there is no agreement, the one maintaining the home will be granted the status. Both will be notified by the IRS to provide proof. School address records are the most fool-proof evidence of support.
There are special rules for claiming your “parent(s) as a dependent(s)”. If your parent is a qualifying dependent, you may be eligible to file as head of household even if they do not live with you. However, you must be able to claim an exemption for them. Also, you must pay more than half the cost of keeping up their home. If the parent has no filing requirement and the only income that they receive is a minimal amount of Social Security, go ahead and claim them, even if you aren’t filing head of household. The IRS is hoping that you won’t since it would be considered a lost exemption. Lost exemptions save the IRS money and not you. If the parent is in a rest home or nursing home situation and you are paying a major portion of the costs, claim them and use the status if you are eligible. If you and your siblings are sharing support, take turns in claiming them.
Another important thing to remember is that U. S. citizens with a “nonresident alien spouse” are considered unmarried and cannot claim head of household. The IRS does not recognize the spouse as a qualifying dependent since they do not have their U. S. citizenship.
As most “Baby Boomers” can attest, prior to 1970, “Head of Household” meant “the man of the house” or “the husband”. This is evident with published census records which always listed the head of household as the husband. Recent “Census Bureau” statistics have proven this to no longer be true.
Amazingly, single parent demographics show that the percentage of children with single parents rose from 23% in 1980 to 31% in 2002. Here are some eye-opening statistics on the “single family household”:
· 26% of U. S. children under the age of 18 years old live in a single-parent home (Archived at: http://www.census.gov/prod/2005pubs/p70-104.pdf).
· 4.4 million is the number of U. S. male-maintained family household with no wife present. That’s 4.2 percent of all households. (Archived at: http://www.census.gov/prod/2005pubs/censr-20.pdf.
· 12% of U. S. family households are female-maintained with no husband present. That hasn’t changed for the past 15 years (Archived at: http://www.census.gov/prod/www/statistical-abstract.html.
· 4% of U. S. family households are male-maintained with no wife present – a one percent increase since 1990 (Archived at: http://www.census.gov/prod/www/statistical-abstract.html.
In 2006 the IRS began a strict enforcement of the “Earned Income Credit” and head of household status. A large majority of EIC filers are also claiming head of household status. The enforcement policy was enacted to stop the overwhelming nationwide abuse. Remember, this branch of the federal government has access to all public and private (financial institutes, banks, etc.) records and can easily verify your living arrangement. If audited and found to have erroneously filed, your social security number could be flagged for an indefinite period, and even though you may quality, you would not be allowed to claim either. The audit can also mean the assessment of penalties, interest and the repayment of any refunds received. These assessments far exceed any reduction in liability or refund you may have been trying to achieve. You may find yourself having to contact a Tax Resolution firm (Effectur: America's Premier Tax Debt Relief Solution) for “Tax Debt Help” to negotiate payment plans or help release an “IRS levy” (What to do if you receive a Levy Notice) or to prevent “Garnishments”.
Gentlemen, you can keep your “social standing” and wear the pants in your household but remember, Uncle Sam is not “gender specific” on who wears those pants when filing.
S. Raines, Sr. Tax Advisor/Preparer
Generally, to qualify for head of household status you must be “unmarried” (single or legally separated), and not be eligible to file as a “qualifying widow” or widower, and have a “dependent child”. You must also have provided more than half the cost of maintaining, where you live as your main home for a “qualifying dependent” (generally a blood relative or adopted child).
You may also qualify if you are legally separated and your spouse was not a member of the household during the last six months of the tax year. You must have provided more than half of the cost of maintaining a household (main home) for a child who is a qualifying dependent.
A major problem faced by the IRS is when both separated parents claim head of household and both claim the child(ren). If a “multiple support agreement” exists, then the spouse listed in the agreement takes precedent. In the case where there is no agreement, the one maintaining the home will be granted the status. Both will be notified by the IRS to provide proof. School address records are the most fool-proof evidence of support.
There are special rules for claiming your “parent(s) as a dependent(s)”. If your parent is a qualifying dependent, you may be eligible to file as head of household even if they do not live with you. However, you must be able to claim an exemption for them. Also, you must pay more than half the cost of keeping up their home. If the parent has no filing requirement and the only income that they receive is a minimal amount of Social Security, go ahead and claim them, even if you aren’t filing head of household. The IRS is hoping that you won’t since it would be considered a lost exemption. Lost exemptions save the IRS money and not you. If the parent is in a rest home or nursing home situation and you are paying a major portion of the costs, claim them and use the status if you are eligible. If you and your siblings are sharing support, take turns in claiming them.
Another important thing to remember is that U. S. citizens with a “nonresident alien spouse” are considered unmarried and cannot claim head of household. The IRS does not recognize the spouse as a qualifying dependent since they do not have their U. S. citizenship.
As most “Baby Boomers” can attest, prior to 1970, “Head of Household” meant “the man of the house” or “the husband”. This is evident with published census records which always listed the head of household as the husband. Recent “Census Bureau” statistics have proven this to no longer be true.
Amazingly, single parent demographics show that the percentage of children with single parents rose from 23% in 1980 to 31% in 2002. Here are some eye-opening statistics on the “single family household”:
· 26% of U. S. children under the age of 18 years old live in a single-parent home (Archived at: http://www.census.gov/prod/2005pubs/p70-104.pdf).
· 4.4 million is the number of U. S. male-maintained family household with no wife present. That’s 4.2 percent of all households. (Archived at: http://www.census.gov/prod/2005pubs/censr-20.pdf.
· 12% of U. S. family households are female-maintained with no husband present. That hasn’t changed for the past 15 years (Archived at: http://www.census.gov/prod/www/statistical-abstract.html.
· 4% of U. S. family households are male-maintained with no wife present – a one percent increase since 1990 (Archived at: http://www.census.gov/prod/www/statistical-abstract.html.
In 2006 the IRS began a strict enforcement of the “Earned Income Credit” and head of household status. A large majority of EIC filers are also claiming head of household status. The enforcement policy was enacted to stop the overwhelming nationwide abuse. Remember, this branch of the federal government has access to all public and private (financial institutes, banks, etc.) records and can easily verify your living arrangement. If audited and found to have erroneously filed, your social security number could be flagged for an indefinite period, and even though you may quality, you would not be allowed to claim either. The audit can also mean the assessment of penalties, interest and the repayment of any refunds received. These assessments far exceed any reduction in liability or refund you may have been trying to achieve. You may find yourself having to contact a Tax Resolution firm (Effectur: America's Premier Tax Debt Relief Solution) for “Tax Debt Help” to negotiate payment plans or help release an “IRS levy” (What to do if you receive a Levy Notice) or to prevent “Garnishments”.
Gentlemen, you can keep your “social standing” and wear the pants in your household but remember, Uncle Sam is not “gender specific” on who wears those pants when filing.
S. Raines, Sr. Tax Advisor/Preparer
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