Wednesday, July 23, 2008
Last week, Roni Deutch posted a presidential tax views quiz on her personal blog, Roni Deutch: The Tax Lady Blog. The quiz features a series of statements that you can either agree or disagree with. After you finish it will tell you which presidential candidate your tax views align with based on your answers. Click the link below to check out the quiz.
Typically when you file an extension with the IRS it is for 6 months, meaning that your return would be due on or before October 15th, 2008. However, before you begin preparing your return, double check to make sure that you filed a 6-month extension. And you must have filed the extension prior to or on April 15.
Also, if you owe a federal liability, you will also likely have to pay additional penalties. When you filed an extension, you were granted an extension in the deadline to file a return, not to pay your tax liability. To avoid the penalties, you must have included at least 90% of what you expect to owe at the time of filing your extension or before April 15.
Most tax preparation offices are open extra hours around the October deadline, and many CPAs and accountants also prepare for the rush of “late filers.” If you need help preparing your return, feel free to check out our locations page to find a tax preparer near you.
Friday, July 18, 2008
Dating all the way back to the Civil War Era, the IRS has always been the backbone of the US economy. The way the IRS handles the cash flow and tax system directly affects all of our lives. To better understand this important and debatably useful organization, please enjoy this brief history of the IRS from the Roni Deutch Tax Center®.
The Beginning
The ongoing Civil War raised concern in President Lincoln’s mind about funding. Congress and Lincoln set out to find a way to finance the army and union ranks. In 1867, an Office of the Commissioner of Internal Revenue was created, to head up the Bureau of Internal Revenue. In addition to creating the Bureau, the legislation allowed for certain taxes to fund the war.
The 16th Amendment
In 1913 the 16th amendment gave Congress the right to enact the first income tax. The same year, the very first 1040 form was created and shown to Congress, with a tax rate of 6% levied on persons with incomes of $500,000 or more.
World War I
In 1918, World War I took an expensive turn and the Government sought a simple and safe way to fund their efforts. The income tax was increased to 77% to fund the war. Then, the tax dropped in the years following the way, only to rise again during the great depression. Over time, income taxes have been a way to fund expensive war efforts and economic crises.
Name Change
After the Reorganization Act of 1949, The Bureau of Internal Revenue began to change their overall structure. All jobs under the Commissioner were made into civil jobs, and new professionals were hired. In 1953, the most noticeable change was made when the Bureau of Internal Revenue changed their name to the Internal Revenue Service (IRS), as it remains today.
Major Revisions
The most recent major revisions to the IRS occurred in 1995. Economists and politicians alike began to notice how outdated the system truly was. A commission was instituted to reevaluate the IRS, and in June of 1997 they issued their report. Major changes were made, from the updating to new paperless options of filing taxes to the simplification of tax laws and clarification of taxpayer rights.
Outsourcing Collection
In September of 2006, the IRS made the decision to outsource taxpayer debt collection to private debt collecting agencies. There was resistance and negative response to the decision, as people were worried the high wages the agencies were being given would cause them to use unfair, pressuring tactics. However, the IRS refused to revoke their decision.
Flooding of IRS Headquarters
In June of 2006, a heavy flood forced the Internal Revenue Service headquarters to close its doors. Nearly 2,000 employees were sent to other offices in the D.C. area, or home to work by telecommunication. In December of 2006, the doors were once again opened, and the displaced employees began to move back in.
Tuesday, July 08, 2008
Tax day was a few months ago, but if you haven’t filed a return it is in your best interest to do so as soon as possible. Even if you filed an extension with the IRS, or cannot afford to make any payment, you still need to file a federal tax return. But do not be worried, filing a past due return is not as difficult as you may think.
Gather All Financial Information
Before you even think about sitting down to prepare a tax return, first make sure to gather all of your financial information for the years you plan to file a return for. This will help you easily identify all income, deductions, and credits to include in your return. Some of the document you will need include:
- A copy of last years tax returns.
- IRS Form W-2 from all employers.
- IRS Form 1099 for all self employed individuals, and anyone with profit from capital gains or interest and dividends.
- Social Security numbers for dependents.
- A copy of the last tax return filed.
Prepare and File all Necessary Forms
You can download all necessary forms from IRS.gov, just search for the forms you need, print them out, and follow the attached instructions to complete them. Make sure to sign and date your tax return, then send it to the address at the end of the instructions.
Note: if you have received a notice from the IRS, then make sure you mail your return to the address on your notice. Always double check this address, as it may be different from where you usually send your returns.
Make a Payment
If you cannot afford to make a payment to the IRS then do not let it stop you from at least filing a return. If you can pay, the IRS accepts the following payment methods: credit card, electronic funds transfer, check, money order, cashier’s check, or cash.
To make a payment by credit card, you can call or visit the website of the following approved vendors.
- Official Payments Corporation – 1-800-2PAYTAX (1-800-272-9829).
- Link2Gov – 1-888-PAY1040 (1-888-729-1040).
To make a payment by check, money order, or cashier’s check, you should:
- Make your payment payable to ”United States Treasury”
- Include your SSN or EIN, tax period, and information on the attached forms
- Mail to the address listed at the end of your instructions
Cash payments can only be made in person at a local IRS Office. To find the closest IRS office to your home visit IRS.gov.
Last week, the Internal Revenue Service (IRS) reached out to the world's biggest accounting firms asking them to help in their quest to crack down on tax evasion. This move comes just days after a US court ruled the IRS could track down taxpayers suspected of evading US taxes by using Swiss bank accounts. The ruling demanded that the banks hand over records identifying American taxpayers that have foreign accounts.
Barry Shott, a deputy IRS commissioner, sent an e-mail to the six largest account firms claiming, “we are concerned generally by what we are seeing and hearing about the way some foreign banks are behaving with relation to the payment of US taxes by their customers.”
The US Justice Department estimates that up to 20,000 taxpayers have avoided paying nearly $300 million in taxes by abusing laws on Swiss bank accounts. “People should take notice that the secrecy surrounding these accounts is rapidly fading,” claimed IRS commissioner Doug Shulman.
Thursday, July 03, 2008
According to the New York Times, over 840 huge American corporations saved an estimated $265 billion because of a one-time tax break Congress passed to help bring home profits that had been hidden in overseas accounts. Below is an excerpt from the article, but you can view the full version at NYTimes.com.
The windfall resulted from a temporary tax deduction for big corporations, which were keeping billions of dollars in profits in overseas subsidiaries and out of the hands of the Internal Revenue Service.
The total amount brought back to the United States was far above some estimates, according to the data, which provides new details on the tax break.
American companies can typically defer paying taxes on foreign profits as long as they keep that money outside the United States. When companies bring the money back, they usually pay the top corporate tax rate of 35 percent.
In recent years, the biggest and wealthiest companies in the United States have increasingly set up foreign subsidiaries and used them either as foreign operations or offshore repositories.
The subsidiaries, many in offshore tax havens like the Netherlands, Ireland and the Cayman Islands, collectively held about $804 billion in foreign profits on which their American corporate parents had yet to pay any United States taxes, according to the IRS
A one-time tax holiday enacted by Congress in 2004 offered companies the chance to bring that money back at a reduced tax rate of 5.25 percent.
Some of the biggest names in corporate America decided to take advantage, in particular those in the pharmaceutical and technology industries. Pfizer brought back $37 billion, while Hewlett-Packard repatriated $14.5 billion.
In all, 843 corporations took advantage of the offer, according to recent IRS statistics of income data, bringing back $362 billion in foreign profits, paid to the parent corporations as dividends. Of that amount, $312 billion qualified for the tax break, giving those companies total tax deductions of $265 billion claimed from 2004 through 2006.
As we get closer and closer to November, the presidential candidates are continuing to make headlines. Especially when it comes to their economic views. Please enjoy the following excepts from recent coverage, and click the respective titles to read the full articles.
Obama missing chance to campaign as a tax cutter – Few people know that they'd get more under Democrats
Democratic presidential candidate Sen. Barack Obama is trying to avoid two traps that have doomed previous Democrats: Being seen as a "tax-and-spend liberal" who is soft on national security. He's making progress on one trap, but not the other.
Obama's silence on taxes is a bit puzzling, because independent analyses of his plan compared with Sen. John McCain's well-advertised tax cuts show that the vast majority of Americans would be better off under Obama than McCain.
That bears repeating: Obama would cut taxes for ordinary people more than McCain would.
According to the Tax Policy Center's analysis of the two candidates' tax plans, 80% of taxpayers would get more from Obama's cuts than from McCain's. About 95% of taxpayers would pay less under Obama than under current law (which ends many of the tax breaks passed in the past decade).
McCain and Obama on Tax Reform
Hardly anyone disagrees with this statement: The nation's tax system is a mess. The U.S. tax code is riddled with far too many deductions, credits, exemptions, exclusions, phase-ins, and phase-outs. Nobel laureate Milton Friedman noted half a century ago that constant changes in the tax code discourage long-term planning by households and businesses. He was right, but that has not stopped Democrats and Republicans from tinkering with taxes ever since the income tax was imposed in 1913.
Perhaps it is the safest forecast in politics and economics that history will repeat itself when it comes to the tax code. It's going to get even more complex next year, since both Sen. John McCain and Sen. Barack Obama are proposing major tax initiatives.
For instance, among his proposals, McCain wants to make the 2001 and 2003 tax cuts permanent (with the exception of the estate tax repeal), phase in a two-thirds increase in the dependent exemption, and offer a voluntary alternative tax with two rates and a larger standard deduction and exemption.
McCain will repeal the AMT. Wait, no ...
...not exactly. The presidential candidate has been saying he would eliminate the so-called "wealth tax" that threatens the non-wealthy. But now he supports a more modified plan.
Sen. John McCain's pledge to repeal the Alternative Minimum Tax has morphed into a promise to phase it out.
Translation: More than 4 million households would continue to pay the so-called "wealth tax" under his proposal during his term if elected. And the tax likely would remain on the books long after the presumptive Republican nominee left office.
But McCain's amended AMT policy would still end up protecting most of the folks who would be unfairly trapped by the tax, which otherwise would raise a ton of revenue from middle- and upper-middle-income families instead of the wealthy, for whom the tax was initially intended.
Obama tax plan too big a burden on rich, some say
Though the Illinois senator's plan would pump billions of dollars into the system, it also would fundamentally change how the program is funded. Many economists said the economy would be hurt by sending some rich folks' overall tax burden soaring past 60%, which one analyst said Obama's proposal would do.
His plan would work like this: Those who earn $102,000 annually or less, a figure that's adjusted each year for inflation, would continue to pay the 6.2% Social Security tax, while their employers also paid 6.2%.
Obama asks donors to help Clinton pay off debt
Sen. Barack Obama has asked top contributors to help former rival Sen. Hillary Clinton retire the debt from her failed presidential campaign, an Obama campaign source said. Obama and Clinton ran a protracted race for the Democratic presidential nomination that left Clinton with a campaign debt of more than $22 million when she bowed out this month.
About $12 million of that amount is money the senator from New York loaned to the campaign herself. Obama asked members of his National Finance Committee to contribute to Clinton's campaign if they were so inclined, but he did not direct them to do so, the Obama campaign source said Tuesday
Obama Jabs at McCain Tax Cuts
Sen. Barack Obama told a crowd of predominately white, middle class voters today that his tax plan will provide three times more relief than Sen. John McCain’s proposed cuts. He charged McCain with only helping the wealthiest families, saying that his tax cuts will only go to households earning more than $2.8 million a year.
“Now, I don’t want to embarrass anybody but how many people here make more than $2.8 million a year,” Obama asked the audience here, “If you’re there, I want to know you because we’re still fundraising!”
Friday, June 20, 2008
On June 17, 2008 President Bush signed the Heroes Earnings Assistance and Relief Tax (HEART) Act (HR 6081). The new law provides tax cuts for members of the military who are receiving combat pay, saving for retirement or purchasing their own homes. It will also ease rules for military families hoping to qualify for the earned income tax credit, make penalty-free withdrawals from their pension plans, and access unspent amounts held in their health flexible spending arrangements. Below a summary of the legislation from
the Library of Congress. To learn more about the bill, including voting records, news and blog coverage, check out
Open Congress.org.
Heroes Earning Assistance and Relief Tax Act of 2008 -Amends the Internal Revenue Code to provide tax benefits and incentives for military personnel.
Title I: Benefits for Military - (Sec 101) Exempts married taxpayers who file a joint tax return from the identification requirement for the 2008 recovery tax rebate if at least one of the filers is a current member of the Armed Forces.
(Sec. 102) Makes permanent the election to treat combat zone compensation as earned income for purposes of the earned income tax credit.
(Sec. 103) Makes permanent the exemption from the first-time homebuyer rule for veterans using mortgage revenue bonds to purchase a residence. Increases the issuance limits on mortgage revenue bonds for veterans in Alaska, Oregon, and Wisconsin to $100 million after 2009. Revises the definition of "qualified veteran" for mortgage bond financing eligibility purposes to eliminate the pre-1977 active duty requirement and to reduce the eligibility period to 25 years.
(Sec. 104) Requires tax-qualified pension plans to entitle survivors of plan participants who die while on active military duty to additional benefits and benefit accruals provided under such plans for participants who resume and then terminate employment due to death.
(Sec. 105) Treats differential wage payments to an employee as a payment of wages for income tax purposes. Defines "differential wage payment" as any employer payment to an individual serving on active duty in the uniformed services for more than 30 days that represents wages such individual would have received if such individual were performing services for the employer.
Treats an individual receiving differential wage payments as an employee and treats such payments as compensation for retirement plan purposes.
(Sec. 106) Allows members of the uniformed services whose retired pay in any taxable year is reduced due to an award of disability compensation by the Department of Veterans Affairs (VA) an extension of the three-year limitation period for filing tax refund claims until one year after the date of a disability determination. Limits the period for which such refund claims may be filed to taxable years beginning more than five years before the date of a disability determination.
(Sec. 107) Makes permanent the penalty exemption for premature withdrawals from retirement plans for individuals called or ordered to active military duty on or after December 31, 2007.
(Sec. 108) Makes permanent the authority of the Social Security Administration (SSA) to disclose tax return information to the VA for purposes of making veterans benefit determinations.
(Sec. 109) Allows a tax-free rollover of any military death gratuity and any group life insurance payment to a survivor's Roth individual retirement account (Roth IRA) or to an education savings account.
(Sec. 110) Allows an active Peace Corps volunteer an election to suspend the running of the five-year period for determining ownership and use of a principal residence for purposes of the tax exclusion of the gain from the sale of such a residence.
(Sec. 111) Allows certain small business employers a tax credit for up to 20% of the differential wage payments made for the benefit of active duty members of the Armed Forces.
(Sec. 112) Allows an exclusion from gross income for bonus payments made by a state or political subdivision to current or former members of the uniformed services (or dependents) for service in a combat zone.
(Sec. 113) Makes permanent the exclusion from the gross income of certain employees of the intelligence community of gain from the sale of their principal residences without regard to otherwise applicable five-year residential use and holding requirements.
(Sec. 114) Allows a tax-free distribution of unused benefits in a health flexible spending arrangement to any member of an Armed Forces reserve component who is ordered or called to active duty.
(Sec. 115) Exempts certain state and local payments to and benefits for volunteer firefighters and emergency medical responders from federal employment and unemployment taxes.
Title II: Improvements in Supplemental Security Income –
(Sec. 201) Amends title XVI (Supplemental Security Income for the Aged, Blind, and Disabled) of the Social Security Act to treat cash remuneration paid to a member of the uniformed services as earned income and certain housing payments to such members as in-kind support and maintenance for supplemental security income (SSI) program purposes.
(Sec. 202) Excludes state annuity payments to blind, disabled, or aged veterans for purposes of SSI benefit determinations.
(Sec. 203) Excludes any cash or in-kind benefit paid to an AmeriCorps participant from SSI income eligibility and benefit determinations.
Title III: Revenue Provisions –
(Sec. 301) Sets forth additional rules for the tax treatment of high-income individuals who relinquish U.S. citizenship or residency to avoid U.S. taxation (expatriates). Treats all property of expatriates as sold for fair market value on the day before the expatriation date and includes gain (over $600,000) or loss from such sale in their gross income. Allows expatriates to elect to defer payment of any tax resulting from expatriation if adequate security for payment of such tax is given.
Requires 30% withholding of tax for certain items of deferred compensation payable to expatriates.
Imposes a separate tax on gifts and bequests from expatriates exceeding $10,000, payable by the recipient of such gift or bequest.
(Sec. 302) Treats certain foreign subsidiaries of U.S. companies performing services under a contract with the U.S. government as U.S. employers for purposes of Social Security and Medicare employment taxes.
(Sec. 303) Increases the minimum penalty for failure to file an individual income tax return to $135 or 100% of the amount required to be shown on such return.
Title IV: Parity in the Application of Certain Limits to Mental Health Benefits - Amends the Internal Revenue Code, the Employee Retirement Income Security Act of 1974 (ERISA), and the Public Health Service Act to extend through 2008 parity requirements applicable to mental health benefits offered by group health plans
According to Web CPA, earlier today a judge ruled against the IRS in support of the Freedom of Information Act. The ruling will basically force the IRS to stop defying previous orders and turn over statistical information to outside researchers. Below is a quote from the article, but you can read the full version at
Judge Orders IRS to Turn Over Agency Statistics on Web CPA.
“The case dates back to 1976 when graduate student Susan Long prevailed in an FOIA lawsuit against the IRS, and the agency had to begin providing her with audit and examination data. After the court order, Long used the IRS data to report on the IRS's performance for nearly 30 years.
However, in 2004, the agency stopped complying and refused to provide the information, claiming that the data would violate taxpayer privacy. Long, now a professor at Syracuse University and co-director of its Transactional Records Clearing House, filed suit in 2006. She has obtained a court order from Judge Marsha Pechman of the U.S. District Court for the Western District of Washington, who ruled that the 1976 court order remains enforceable.
The ruling requires the IRS to turn over thousands of pages of agency statistics to TRAC, to produce data electronically and stop redacting the information, and to produce samples of other requested statistical information. Judge Pechman further denied the IRS's requests that the consent decree be modified, holding that the IRS was not in a position to request relief because it had violated her orders.
Long estimates that the IRS will initially have to turn over approximately 100,000 pages of statistical tables and probably 10,000 pages per month thereafter. The data will concern tax audits, including comprehensive details on the audits of individuals, detailed reason for tax audits, how priorities have changed over time, how much time the IRS is spending on audits, and official priorities on large corporate audits, tax shelters and pass-through entities, providing a detailed picture of IRS policies and practices.
Wednesday, June 18, 2008
Since summer lands right in the middle of the year it makes for a great time to review your financial situation and plan a tax strategy for the rest of the year. Follow these top 10 summertime tax tips from the Roni Deutch Tax Center® tax professionals, and you will be prepared for tax season come this January.
1. Update and organize your financial records
Can you think of a better way to spend a beautiful summer day then staying inside and organizing your financial documents? Ok, you can probably think of hundreds of activities you would rather do, but it is important to make sure your financial records are in order. This will allow you to review your information and prepare for the rest of the year. In addition, this activity can either be chipped-away at or taken care of all at once. Thus, if there is one, blistering hot day in July or August, you might decide to devote it to document organization and tax planning.
2. Hire a young family member during summer break
If you have a child, or know someone who has the summer off, you could consider hiring him or her to work for your business (if you have one). This can help you lower profits by writing off additional payroll expenses, and can provide quality working experience to a child or family friend.
3. Send your child or dependent to camp
If you have a child or qualifying dependent that has the summer off from school, and you do not have a business to hire them at, then you can always send them to a day camp. You can then write off the expenses under the child and dependent care credit. However, you can only use the credit for day camps, not over night camps.
4. Donate unneeded winter clothing
Now that it is hot outside, you probably do not have any need for a closet full or long pants, coats, thermal underwear, etc. So why not donate them to charity? Just make sure you get a receipt for the donation so that you can the donation amount in your charitable contributions.
5. Take a business trip
If you have to travel for a business reason this summer, then you can deduct your airfare, hotel expenses, meals, etc. Although the trip must be for a qualifying business purpose, there are still many professional conferences offered in spots like Las Vegas, Hawaii, or the Caribbean.
6. Throw a company party
If you throw a company party, picnic, barbecue, etc., then you can deduct half of all related costs on your next tax return. These types of events are great for employee morale and are great for summertime when people are usually in a more festive mood.
7. Trade in for a hybrid
This tip may be a bit more expensive than most of our readers were hoping for, but if you buy a qualifying hybrid this summer, you can claim an alternative motor vehicle credit and save on gas. And with gas prices getting dangerously close to $5 a gallon, this purchase can correlate to huge tax savings by lowering the amount you pay in federal excise taxes on gas.
8. Get checked up
Health is always important – especially when there is a potential tax deduction to consider. Thus, take some time this summer to make your family’s medical, dental and eye doctor appointments for the balance of the year. You will then maximize your family’s medical expenses – and, hence, medical deduction – for the year.
9. Purchase an energy-efficient air conditioner
It takes a lot of energy to cool a house on a 110-degree day in August. If you upgrade to an energy-efficient air conditioner, you can save on the overall cost of cooling your home, and take additional tax credits on qualifying purchases.
10. Meet with your accountant
Accountants are usually quite a bit slower in the summer months. This is a great time for you to meet with your accountant or financial planner to review your total tax situation, and plan your strategy for the rest of the year. That way there will be no surprises this tax season when you get ready to file.