Monday, December 29, 2008
According to their newest press release, the IRS has placed its comprehensive tax guide for individuals on IRS.gov, updating it for tax year 2008. The updated on-line version of IRS Publication 17, “Your Federal Income Tax,” contains more than 900 interactive links.
Publication 17 has been updated with important changes for 2008, including information on the new recovery rebate credit, new first-time-homebuyer credit, and an additional standard deduction for real estate taxes. It has been published annually by the IRS for more than 65 years and has been available on the IRS Web site since 1996.
As in prior years, the publication provides information on how to file an individual tax return, what to include as income, how to calculate capital gains and losses, how IRAs and other expenses can affect how much income to report, whether to take the standard deduction or itemize, and how to figure taxes and credits.
From the Wall Street Journal.com:
President-elect Barack Obama and his energy team could face the most inauspicious climate in years for pushing ahead with their plans to remake U.S. energy strategy.
Mr. Obama plans soon to introduce his energy and environment team, which will include Nobel Prize-winning physicist Steven Chu as energy secretary and former Environmental Protection Agency Administrator Carol Browner as White House energy adviser.
The team's makeup shows that Mr. Obama plans to put a heavy emphasis on combating climate change and promoting technologies to wean the U.S. off imported oil. He is packaging such priorities as a way to boost employment and help the economy by pouring money into efficiency projects.
But the next administration will face a range of obstacles on the energy front, from plummeting oil prices and a declining economy to potential rifts among Mr. Obama's own advisers.
In a sign of one major internal difference, Mr. Chu has called for gradually ramping up gasoline taxes over 15 years to coax consumers into buying more-efficient cars and living in neighborhoods closer to work.
"Somehow we have to figure out how to boost the price of gasoline to the levels in Europe," Mr. Chu, who directs the Lawrence Berkeley National Laboratory in California, said in an interview with The Wall Street Journal in September.
But Mr. Obama has dismissed the idea of boosting the federal gasoline tax, a move energy experts say could be the single most effective step to promote alternative energies and temper demand. Mr. Obama said Sunday that a heightened gas tax would be a "mistake" because it would put "additional burdens on American families right now."
Tuesday, December 23, 2008
The holiday season is upon us, and as we spend time celebrating the season with our families it is still important to remember that tax season is only a few weeks away! So if you have any extra time over the holiday break then you might want to consider getting a head start on organizing your financial documents!
Thanks to Tax Credit Casualties for the picture!
There is nothing worse than getting a notice from the IRS in the mail letting you know that you are being audited. Fear, panic and worry will set in before you even have time to wonder why the IRS selected you. To help you better understand why people get chosen for audits, and better yet, how you can avoid them yourself, please enjoy this list of ways to prevent an IRS audit.
1. Keep Neat
One of the easiest ways to get audited is by simply not providing all the correct documentation. When doing your taxes, it can be easy to miss a step or forget to include a few things. Unfortunately, this looks like evasion to the IRS, so do everything you can to keep all your tax documents together before tax season. That way you can make sure that all of your returns are accurate before you file them.
2. Keep Business Separate
It's easy to get carried away when buying stuff for "the office". However, make sure that when you are buying anything for your business that it is a business expense allowed by the IRS. Additionally, too many write-offs for your business that seem suspicious are a big red flag for the IRS, so only write-off items that clearly serve a business function.
3. Check Your Income
Make sure the income you put on your return matches the income number on your income forms exactly. While this does not always make for an audit, it only takes a few things to raise suspicion. Listing an incorrect income is of the easiest ways to get audited, but can easily be avoided by double-checking your return before you file it.
4. Remember the Extras
It is imperative to include any and all cash gifts, gambling winnings, or contest prizes you received during the tax year. One famous case of this mistake was the winner of the first survivor, Richard Hatch, who "forgot" to claim his million dollar prize and eventually went to jail for tax evasion.
5. Be Honest
Things like round numbers and unrealistic charity deductions are a dead give away. Always be honest on your return, even if it means you will owe the IRS money. If audited and found in error, then the IRS will assess interest and penalties on top of the original tax liability.
6. Check With a Pro
If you are not completely sure your information is accurate or correct, then you should check with a tax specialist. Even if you are used to doing your taxes on your own, making a big mistake on your return and getting audited is not worth it. Hiring a professional may cost a little more, but at least you can rest assure that your return was prepared correctly.
7. Be Frugal
The more big and expensive items you buy, the more likely you are to make a mistake on your taxes and get audited. To avoid accidentally missing a large ticket item on your tax return, try to buy your large items in moderation and keep records of all purchases.
8. Be Meticulous
Even if you do keep good records, hire a professional, and spend frugally, you can still be audited. The only way to truly avoid this is to follow all of the above steps, and then meticulously go over all your information and check for mistakes. When it comes to tax filing, mistakes are easy to make, and taking the extra ten minutes to review your return can save you a lot of time in the future.
Wednesday, December 17, 2008
With all of the foreclosures and debt consolidations going on in the country these days, many people are wondering how forgiven debt from a mortgage or loan will affect their upcoming tax return. Fortunately About.com put together an interesting article explaining the tax implications of canceled debt. Below is a quote from the article, but you can read the full text at Canceled Mortgage Debt and Taxes.
Lenders sometimes cancel or forgive a person's debt. While this relieves the debtor of an immediate financial stress, it often triggers a tax liability. Under the tax law, canceled debt is considered income to the debtor and is included as part of the debtor's income. Not only does this impact how much tax is paid, but can reduce deductions that are limited based on adjusted gross income.
Current tax law provides three remedies for excluding canceled debts from taxes. There is an exclusion in the case of insolvency, for cases involving bankruptcy and a new exclusion for certain types of mortgage debt. The mortgage exclusion is the most important of these exclusions.
In December 2007, Congress passed the Mortgage Forgiveness Debt Relief Act. This new law provides some relief for homeowners who lose their house through foreclosure or short sales, or who restructure their mortgages with a lower principal amount. The law enables individuals to exclude from tax up to $2 million of certain mortgage debt canceled by lenders. There are a number of criteria that need to be met to qualify for this exclusion.
Canceled mortgage debt that does not meet these criteria might still be excluded using the rules for insolvency or bankruptcy. People with home equity loans and cash-out or debt-consolidation refinances will need to do some extra bookkeeping to make sure they can take full advantage of all the tax exclusions that apply to them.
The Roni Deutch Tax Relief Blog, recently posted an article with 6 reasons to hire a tax lawyer. Below are 3 of the reasons, but you can check out all 6 by clicking here.
1. Experience
Tax lawyers have the education, training, and experience to help you solve your tax troubles. A competent tax lawyer will be knowledgeable about the IRS’ complicated tax code and therefore, better suited to help you resolve your tax debt.
2. IRS Defense
As you may already know, the IRS can be aggressive in their collection efforts. If you feel the IRS has treated you unfairly, then it is in your best interest to hire someone who has experience in dealing with the IRS and won’t be intimidated.
3. Privileged Communications
When you communicate with a tax lawyer or his or her staff, you can rest assure that what you tell them will remain confidential. Like all lawyers, tax attorneys are required to keep your communications confidential. They will only discuss with the IRS your financial information in order to resolve your tax debt.
Tuesday, December 09, 2008
According to their newest press release, the IRS is offering taxpayers tips for year-end donations. As we get closer to the end of the tax year, and the holidays ascend upon us, people tend to get more generous with their donations. However, if you plan to claim these charitable contributions then you want to make sure to follow the IRS’ guidelines, as they have become quite strict with these charitable contributions over the years. Below is a snippet from the IRS’ news release, but you can check out the full text at their website, IRS.gov.
“Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years.
One provision offers older owners of individual retirement arrangements (IRAs) a different way to give to charity. There are also rules designed to provide both taxpayers and the government greater certainty in determining what may be deducted as a charitable contribution. Some of these changes include the following.
Special Charitable Contributions for Certain IRA Owners
An IRA owner, age 70 ½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charitable organization. This option, created in 2006 and recently extended through 2009, is available to eligible IRA owners, regardless of whether they itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.
To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the amount given to the charity.
Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
Transferred amounts are counted in determining whether the owner has met the IRA’s required minimum distribution rules. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.
Rules for Clothing and Household Items
To be deductible, clothing and household items donated to charity must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to be in good used condition or better if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances, and linens.”
In the spirit of the holiday season, Roni has posted an entry on her personal blog (Roni Deutch: The Tax Lady Blog), with tips on how to save money this holiday season. The poor economy is affecting millions of Americans, and pretty much everyone is looking for ways to save money during the holidays. Below are three of the tips from Roni’s blog, but you can view all ten at 10 Tips to Save Money this Holiday Season on The Tax Lady Blog.
1. Re-Use Decor
It is okay to buy a few new decorations, but why re-buy everything when you can simply re-use last year’s decor? The great thing about decorating is you can always make something old look new by presenting it in a new way. You could use some of last year’s ornaments as a table centerpiece with some new holiday ribbon around it. Or, you could use garland and decorations to create a festive wreath. There are thousands of ideas on recycling holiday decor online, easily accessible by a quick Google search.
2. Know What to Buy
By now it is probably a good idea to have a gift list made so that you know exactly who to buy for. Try listing multiple gifts possibilities for each person, so you more to choose from and more flex on your budget. This will give you extra time to sniff out the best deals, and you will have the hardest part done: choosing what to get everyone!
3. Shop Online
Shopping online has it is ups and downs, but if done right it can save you lots of money. If you buy multiple items on one site, you can receive discounts or free shipping. Also, shopping online has the benefit of being able to compare prices with other stores (PriceGrabber.com) almost instantly, guaranteeing you the best price.
Thursday, December 04, 2008
Although our country is still relatively new, and our tax code is constantly evolving, the concept of taxation is actually very old. From Jewish slavery in Ancient Egypt to the French Revolution, taxes have formed and become a part of our world history.
Egyptian Taxes
The first known taxation system was in ancient Egypt. The Pharaoh would collect taxes twice a year from the Egyptians. One of the most commonly taxed items in the ancient world was cooking oil, which was actually taxed throughout Egyptian history because of shortages. Egyptian taxes eventually became so widely known that they were even mentioned in the bible, "when the crop comes in, give a fifth of it to Pharaoh."
Athens, Greece
To the Athenians in Greece, war was a lifestyle, and a pricey one at that. As such, Athenians taxed their citizens for war costs with a tax they called “eisphora.” The most historic factor of this tax was that it exempted no one, which many consider the first democratic taxation system, as after the wars the money was often refunded to the people. There is also some documentation of a tax put on foreigners (or any individual without an Athenian mother and father), called “metoikion.”
Salt Tax in India
Salt has been taxed in India for centuries. However, in 1835 the British East India Company raised the import taxes drastically after they began to impose rule over Indian provinces. The salt tax was raised and lowered by multiple leaders and events, and was not repealed until 1946.
Rome and Caesar
Taxes called “portoria” were first levied in Rome on imports and exports to the city. Caesar Augustus, who is now considered a genius tax strategist of his time, gave individual cities the job of collecting taxes. He also raised sales taxes on slaves from 1% to 4%, and created a tax to raise retirement funds for soldiers of the army.
Great Britain
The occupation of the Roman Empire may have sparked the flame for first taxes in England. During the 11th century Lady Godiva's husband, Leofric, Earl of Mercia, said he would lower taxes were she to ride through the streets naked on a horse. Lady Godiva made the now famous ride and lowered taxes for her people.
The French Revolution
Before the French Revolution, civil unrest laid heavily on the shoulders of high taxes for lower classes. While clergymen and nobles were exempt to taxes, peasants and regular wage earning workers were not. The tax gap also left lower class citizens unable to pay court fees, making justice unaffordable except by those wealthy enough to afford it. While the true cause of the French Revolution is still being debated today, many Historians feel these high and unfair taxes were a large contributing factor to the civil unrest.
Tuesday, November 25, 2008
According to their newest press release, the IRS is claiming that “individual taxpayers e-filed almost 90 million tax returns during 2008, an increase of more than 12 percent over the prior year. Of the 155 million tax returns filed, about 58 percent were filed electronically.”
“More people with home computers and businesses embraced electronic filing this year," said IRS Commissioner Doug Shulman. “Every year, more people realize that electronic filing is the safe, accurate way for taxpayers to complete their taxes and get faster refunds.”
“While the total number of returns has increased by 23 percent during the past decade, the number filed electronically has increased by 206 percent.
This year, almost 27 million returns were filed by individuals from their home computers, up from 22.6 million last year — a 19 percent increase. Filings from home computers accounted for 30 percent of all returns e-filed by individuals. Even though individual tax filings were spurred to unprecedented levels by the economic stimulus payments, the percentage of those e-filed increased to 58 percent.”