Business or Pleasure?

The hobby loss rule relates to business expenses used as a deduction for activities considered to be hobbies by the IRS. The rule can effect and limit how you account for write-off deductions for these expenses.

The IRS will make the determination about whether or not the activity you are pursuing is a hobby. The deductions for any legitimate expenses of a business may not be greater than income from the activity each year. Deductions from a side business can not be claimed as business deductions and can only be claimed as miscellaneous itemized deductions. To claim in this category, the deductions must be more than 2% of adjusted gross income. All income from a hobby is fully taxable. However, losses that total more than the income cannot be held over into future years and are essentially lost for good.

Hobby Loss Rules and Investments

As the economy has been rocky and the stock market; shaky, investors have been looking for other places to invest money. One option has been to invest in hobby-type activities such as collectibles that are basically guaranteed to increase in value. Most investments into collectibles, such as jewelry and coins, are considered to be safe investments.

If the IRS considers your investment project to be a hobby, you are subjected to the hobby loss rule. You are required to report all income and pay taxes on capital gains from collectibles that have been sold. Typically, only veteran collectors can claim their collectible activities as a business, however anyone can present their case to the IRS about the legitimacy of a business activity.

How to Prove Legitimacy

The IRS will consider income generated from the same activity for three or more consecutive years out of five to be a business for profit. You can help prove the legitimacy of a business in the following ways:

• Create a Business Plan: Creating a formal plan that outlines your expectations for making a profit on your activities.
• Keep Records: Separate the accounting records of your business activity from your personal finance information. Make sure to track all income and expenses accurately.
• Establish a Presence : Open a bank account and a credit card for the business. Do not rely on your own accounts for financial activities for the business.
• Proof of Effort: Be ready to show the IRS that you put in much time and effort to establish your activities for business purposes.

Related posts:

1. Guide to Records Retention For Tax Purposes
2. Paying Back Taxes Owed in a Down Economy
3. Ways To Maximize Your Tax Refund in 2011

Part of being a diligent taxpayer includes keeping proper documentation. One rule to good organization is keeping up with your tax related documents as soon as you are done with them. There are some documents that need to be kept for years and other that can be tossed away as soon as you have finished using them. Acting immediately can help cut down on the clutter and the disorganizations. By filing away paperwork as you handle it and digitizing documents if necessary, you will be more likely to be able to find exactly what you are looking for at the time that you need it. One in particular time of importance is tax time. Without the proper documentation to back up your figures, you cannot get the maximum deductions and tax credits on your income tax return.

Seven Years Worth of Tax Related Documentation

Ideally, your tax records should be kept for seven years. The IRS typically does not require tax returns older than 6 years, but they have asked for older. Therefore, it is a good idea to have tax documentation including receipts, statements, 1099s, w2s, and so on that support each tax year. It is best to seal the papers for each corresponding year in one large envelope and label with the tax year for easy reference and retrieval. Tax authorities have six years to collect on taxes after an audit with certain exceptions. They can also pursue legal action within six years. If you are not audited within three years, your chances of not being audited increases dramatically.

Limited Time Records

There are plenty of documents that you will collect over the year that are only good until they have served their purpose. With businesses, the IRS typically does not request actual receipts under $75 dollars, but will require at least a written record with as much detail as possible.  Documents relating to investments you’ve purchased should be kept safe until the investment is sold and your tax information is filed for that year. If you have records pertaining to the maintenance and repair of your vehicles, keep collecting them until you sell or trade in your car. You can pass along the information to the next owner if you choose or destroy the documents.

Digitizing Documents

Digitizing documents can help you retain and search documents easily. A simple scanner and Google Docs can help you store your document inexpensively in the cloud as well as on your personal computer if you are looking to keep records past seven years.

Understanding the time frame for keeping documents on hand, you can be assured you have the information you need when it comes to tax time. Documenting the expenses and income you have had throughout the year can be a difficult task if you are saving the reminders and the proof of your financial actions. Having an organized method for filing your paperwork will benefit your financial outlook and your stress level when you really need to find important paperwork or take important tax deductions.

Related posts:

1. Start Now: Get Organized for Tax Filing in 2010
2. What Happens After I File My Tax Return?
3. File Late Tax Returns to Take Control of Your Back Taxes

When owner of the New York Yankees died in recent weeks, it shed light on the fact that Steinbrenner’s heirs would not be required to pay taxes on the roughly $500 million fortune. One US Senator pointed out that out of the 400 total billionaires in the United States four have died in 2010 which means the government has lost out on the estate taxes on estates worth billions of dollars.

Why the Lapse?

The estate tax lapse is a idiosyncrasy of politics and tax laws. In 2001 under the leadership of President George W. Bush, the estate tax rate was lowered to 45% from 55%. Also, the amount an individual can pass on to heirs without incurring the estate tax increased from $1 million to $3.5 million. The new tax schedule was then set to expire at the end of 2009. A new higher rate was set to begin again in 2011. This left 2010 open with no regulation and when lawmakers came to an impasse, nothing else was ever decided.

Political Sides

As Democrats have been pushing to extend the benefits for the unemployed, Republicans have been pushing for inheritance tax breaks. But as time goes on some Democrats are jumping on board the estate tax train. Republicans believe that a tax cut, especially a cut on the ‘death tax’ as estate taxes are sometimes called, is a way to stimulate the economy. They say that without the breaks, small and family-run business will continue to suffer without the break.

Several Republicans have proposed a measure to ease up on the estate tax by offsetting the lost revenue with other resources. The drawback is that no new idea for offsetting lost revenue has been conceived. Last year, the income brought by estate taxes totals $14 billion. It may be some time until an idea is born.

Taxes like the estate tax have been in America since the early days and were used to finance wars, including the Civil War. In 1916, a permanent version of the tax was established. When the 2001 reduction of the estate tax was presented, the US was not yet in a full-fledged war with Iraq or Afghanistan and there were budget surpluses in the government.

Poor Entrepreneurs, Lucky Heirs

While estates may be exempt from federal taxes, some states will still impose taxes on an estate. Small business owners and entrepreneurs will hurt the most due to the lack of action on the part of Congress. Health care reform became the hot topic of debate and the estate tax seems to have fallen by the wayside.

Any inheritance awarded in 2010 will be without obligation to the government for estate taxes but come 2011 the estate tax will be reinstated and heirs to estates will be required to pay a higher rate than in 2009. The exemption level will go back to the original $1 million like it was in 2001.

Related posts:

1. Start Now: Get Organized for Tax Filing in 2010
2. IRS Interest Rates Remain Unchanged for Q1 2010
3. Understanding Your Rights To An IRS Appeal

Back to school shopping is big business for retail stores and a necessary evil for parents with school-aged kids. Since consumers are cutting back on spending and not hitting the malls as often as they (and retailers) would like, there may be new tax-free incentives coming to a state near you just in time for the school bell to ring.

The Back-to-School Tax Holiday

Believe it or not, sales tax holiday on school purchases have been around since the late 90’s. New York was the first state to offer families a period of time where items could be purchased tax-free. Consumers save a couple of bucks and give them extra incentive to shop at local retailers. Retailers win also because they sell more merchandise. Stores in states that offer sales tax holidays have reported significant increases during the special days. Since tax-free days are set up for only a limited time, there is a definite increase in the traffic headed out to the malls and retail outlets.

As for individual states, they also see incentives from sales tax holidays. Products not listed for sale at a tax-free price still tend to sell once shoppers head out to the stores. States see the revenue from the sales that may not have happened on a regular day. Additionally, consumers who live in non-holiday states which border other states offering tax-free sales holiday will often travel over state lines to do their shopping, increasing the sales revenue of holiday-offering state.

What’s Included in Tax Free?

Included on the list of non-taxed items are typical back-to-school supplies including clothing, shoes, books, computers, sporting goods, and essentials like pencils, pens, crayons, and backpacks. State governments have also figured out inventive ways to increase the incentives being offered and the merchandise being sold. They have begun implementing sales tax-free holidays during other times of the year for consumers wanting to purchase energy-saving appliances, hunting supplies, and even emergency preparedness products.

Where Are the Sales?

So far in 2010, 16 states have already announced sales tax holidays including the following upcoming dates:

August

• Alabama (6th-8th) – clothing, computers, school supplies, books
• Illinois (6th-15th) – clothing, footwear, school supplies
• Iowa (6th-7th) – clothing
• Louisiana (6th-7th) – tangible personal property
• Missouri (6th-8th) – clothing, computers, school supplies
• New Mexico (6th-8th) – clothing, computers, school supplies
• North Carolina (6th-8th) – clothing, school supplies, instructional materials
• Oklahoma (6th-8th) – clothing
• South Carolina (6th-8th) – clothing, school supplies, computers
• Tennessee (6th-8th) – clothing, school supplies, computers
• Virginia (6th-8th) – clothing, school supplies
• Maryland (13th-15th) – clothing, footwear
• Texas (20th-22nd) – clothing, backpacks, school supplies

September

• West Virginia (9/1 – 11/30) – energy star products
• Louisiana (3rd-5th) – firearms, ammunition, hunting supplies

October

• Virginia (8th-11th) – energy star products

November

• North Carolina (5th-7th) – energy star products
• South Carolina (26th-27th) – guns, rifles, handguns

For more information about sales tax holidays in your area, contact your state’s revenue or tax department for details about sales dates, tax-free merchandise, and any limitations on sales holidays.

Related posts:

1. North Carolina’s Plan to Negotiate Back Taxes With Firms Pays Off

1. Sen. John Kerry- Our favorite democrat from Massachusetts, slipping the presidential nomination in 2004, has also slipped something else. Boat “slip” that is, as Kerry just recently docked his $7 million boat in Rhode Island to avoid paying a $500,000 Massachusetts tax fee.
2. Tim Geithner- One would think that the Secretary of the Treasury would have a bit more of a handle on his own money. Claiming to have made a “simple mistake,” Geithner reportedly missed paying self-employment taxes from years 2001 to 2004, when he worked for the International Monetary Fund. How much exactly did Geithner “forget” about, around $34,000.
3. Nancy Killefer – As Obama’s nominee for Chief Performance Officer in 2009 and former Clinton administration treasury department employee, Killefer was ready to go for the newly- created CPO position. Well, until she dropped out of the running due to her discovered failure to pay unemployment taxes for household help in D.C, resulting in a $900 tax lien. The CPO position, originally created by Obama to help federal agencies reach established performance targets, would probably be better suited for someone who could manage and reach their own monetary targets, first.
4. Tom Daschle – Another one of Barack Obama’s nominees, this time for the position of Secretary of Health and Human Services, also withdrew from the ballot after an exposed failure to pay income taxes. Owing the IRS approximately $128,000, Daschle joined Geithner on apparently making what the White House claimed to be a “serious mistake” in failing to pay his back taxes.
5. Lael Brainard-  Finally, we have Mrs. Brainard, current Secretary of the Treasury for International Affairs and former deputy of the Clinton administration, who too has seen trouble with the IRS. Turns out Lael was late on paying property taxes from 2005 to 2008, accumulating penalties and interest over the time.

Fighting for an increase in taxes yet slacking on paying their own tax bills, these five individuals should probably work less on arguing for a tax increase and perhaps put their money where their mouths are.

Related posts:

1. One More Obama Nominee With Tax Problems

The US Government has been charged with the task of setting the American people back to work after the devastating effects of the financial crisis. The Government recognizes that massive unemployment only exacerbates the situation and so it has tried to come up with initiatives to stimulate employers to hire additional staff or to retain existing ones. The HIRE Act and the Payroll Tax Exemption are two such initiatives and the following questions provide answers to several consistently gray areas.

What is the HIRE Act?

The Hiring Incentives to Restore Employment (HIRE) Act was enacted on March 18^th 2010 and will continue until December 31^st 2010. This act is the umbrella under which the two employer incentives are held. The first pertains to the Payroll Tax Exemption which is awarded to employers who hire employees who were previously unemployed. The second, the New Hire Retention Credit, refers to a business credit which is awarded to employers who retain certain staff for 52 consecutive weeks.

What is the Payroll Tax Exemption?

The Payroll Tax Exemption gives employers an exemption from paying their 6.2% share of an employee’s social security tax during the period from March 18^th to December 31^st 2010. Both the employer and the employee must ensure they are qualified to receive this exemption.

Who are qualified employers?

Most companies, both new and existing, in all US Territories qualify for this tax exemption. Generally speaking, government employers do not qualify, although public institutions such as Colleges and Universities may qualify.

Who are qualified employees?

As long as the employee begins work after February 3^rd 2010 and before January 1^st 2011 they can qualify. The employee must also have been unemployed directly before getting this job for at least two months. In addition the employee should not be related to the employer in any way.

Do qualified employees need to do anything for employers to benefit under this new law?

Qualified employees need to prove that they were previously unemployed by swearing an affidavit under penalty of perjury. Form W-11 was created by the IRS to make this easy for the employer.

Are there any stipulations on when an employer cannot claim the tax exemption?

An employer does not qualify if they are already claiming the Work Opportunity Tax Credit (WOTC) on the same employee. The employer also cannot claim the exemption if the new employee was hired to replace an existing employee unless the old employee left voluntarily or was fired with cause.

What is the New Hire Retention Credit?

This is the second half of the HIRE Act and it relates to employers who manage to keep staff for 52 consecutive weeks. The New Hire Retention Credit is the same exemption of the 6.2% employer contribution (up to a limit of $1000) but it is rewarded only after the employee has been retained for the period and on the condition that the employee’s pay has not decreased significantly over the period.

How does an employer claim these benefits?

This tax exemption is claimed on the employer’s 2011 income tax return.

These frequently asked questions should significantly clear up any uncertainty surrounding these exemptions. For even more information you can consult the IRS website.

Related posts:

1. Tax Credits To Keep In Mind for 2010 Taxes
2. 2010 Is The Year To Die: Understanding the Estate Tax Changes
3. Should You Borrow From a 401K to Pay Taxes You Owe?

Constantly in the limelight, Khloe has been spotted spending thousands on shopping trips down Ocean Drive, hosting outrageous late night parties, and wining and dining at the finest restaurants. There were even reports that her present to Lamar for the LA win was a $400,000 Rolls Royce, to which she claims against. Regardless, money has never appeared to ever be an issue for Mrs. Kardashian, or Mrs. Kardashian Odom to be exact.

So what’s the problem? According to Access Hollywood, the State of California filed a tax lien against Khloe on July 28, 2010, for a total of just under $18.5 thousand dollars. The amount stems from unpaid back taxes and their consequential penalties and interest, which date back to 2007.

Apparently Khloe has paid the lien, or actually, paid the lien a long time ago, but her accountant never filed it. With a new accountant at her disposal, the lien has reportedly been paid off, and it’s only a matter of time before Khloe’s name gets cleared, or so she claims.

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1. Healthcare Bill Disaster- Send 1099s to Everyone
2. Joe “Girls Gone Wild” Francis is Suing the IRS
3. More than 50% of Americans Pay Taxes – Just Not Federal Income Tax

Tracking Made Easy

In 2011, all tax preparers that are paid to complete tax returns must provide their registration number, or PTIN, on all returns on which they assist in preparation. The IRS can then use this number to identify the preparer that has made a large amount of mistakes whether the errors were fraudulent or innocent in nature. In the event large numbers of errors are attributed to an individual preparer, the IRS can impose penalties. Taxpayers will be able to search a database created by the IRS to determine which tax preparation professionals are registered properly.

Who Will This Affect?

The new IRS regulations will not affect certified public accountants or tax lawyers because both groups are already required to be held to the standards of other professional associations. Other preparation individuals not included in the regulations by the IRS include volunteers who do not get paid for services like those working for AARP or the IRS Volunteer Income Tax Assistance service.

The large majority of affected groups will be the self-employed individuals who do tax work for friends and family for a fee. Also, tax preparers who are working for a large chain agency like H & R Block and Jackson Hewitt Tax Service be required to register with the IRS. Most national chains are in support of the measure and have worked closely with the Internal Revenue Service to create the new tax industry regulations. Additionally, most chain agencies train their employees above and beyond what the IRS will require. Some do argue though that those registered may not be the ones actually completing the forms, but only signing off on them.

Steps Taken

The steps toward the new regulations have begun already in 2010. The IRS will begin setting up online registration for paid tax preparers. Every tax preparer must be registered before the 2011 tax season. It is not yet known what the registration fee will be.

There will be two tests required which will be available in the Spring 2011. The tests will be available online and of the two tests, the individual must pass one to be licensed. The first test will cover wage and non-business Form 1040 and the second will cover the wage and small business Form 1040, which includes Schedules C, E, and F as well as other related documents. Ongoing design of the registration program for preparers as well as the renewal process is being conducted by a management consulting firm contracted by the IRS.

The End of an Era

2010 will be the last year individuals can get paid for preparing taxes without registering with the IRS. The agency hopes to improve on the tax industry as a whole and provide consumer protection from bad tax advice by unknowledgeable preparation service workers. All individuals looking for registered tax assistance is urged to consult with the IRS database once established to find a new preparation service or to find out if their current tax preparer is licensed.

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1. Ways To Maximize Your Tax Refund in 2011
2. Types of Tax Experts and When to Use Each One
3. Healthcare Bill Disaster- Send 1099s to Everyone

What’s Tucker to do?  I’m not sure how well stand up comedy gigs pay, and unless Tucker makes his way back into Hollywood soon, he could have a hard time getting the money back to the IRS. To his credit, he is reportedly attempting to sell his 9,000 square foot Florida estate to raise some quick funds. But, whatever the case may be, Tucker better act soon, or you can count on checking back one year from now for a third update, or maybe actually see him in jail, and this time for real.

Related posts:

1. Chris Tucker Owes $3.6 Million in Back Taxes
2. Chrysler Group’s CEO Jim Press Owes About $1M in IRS Back Taxes
3. Sinbad Owes Over $8 Million in Back Taxes

It is a common misconception that when it comes to the IRS, you have little or no rights concerning tax issues. With thousands of tax codes to contend with, it is not unusual for taxpayers to feel overwhelmed and intimidated by the entire tax process. While it is true that the IRS is a powerful and sometimes unforgiving collection machine, the taxpayer still has rights that must be acknowledged. If you feel that the IRS has made a mistake which has affected you in a negative manner, you can appeal if you understand your rights and how the system works.

IRS Appeals System

• There may be an occasion when the IRS makes adjustments to a taxpayers tax return. When this occurs, the filer will receive a notice explaining an adjustments that the IRS proposes, as well as information as to how you can request a conference with the Appeals office.
• The Appeals office does not only deal with tax return adjustments but any number of other situations. If you disagree with liens, levies, offers in compromise, trust fund recovery penalties, interest and penalties they may all be presented to the Appeals office.
• Before meeting with a representative from the Appeals office, it is important that you gather all of your relevant information to the case in question. You have the right to represent yourself or have an attorney speak on your behalf. It is imperative that you have any records or documentation that support your position, otherwise you might be wasting everyone’s time. Understand the appeal’s process is not designed for anyone who simply doesn’t not want to pay tax liabilities but rather for those who have a legitimate reason for disagreeing with an IRS ruling.
• The Appeals office is the only administration within the agency that allows you take action against an IRS ruling.
• Some actions may be appealed through a court of law, versus the Appeals system. This may be necessary for those who do not wish to deal with the Appeals office or those who have gone through the Appeals office without the desired results.

Not all rulings are eligible for an appeal. Carefully read any correspondence you have received from the IRS to determine whether or not the ruling in question is eligible for an appeal. This information will be noted somewhere within the documentation the IRS sends to you regarding the ruling.

It is important to note that the Appeals office is independent of other IRS departments; specifically the departments that make the rulings which may be subject to dispute. As a neutral party, the Appeals office can review the ruling and help the taxpayer and the government as an impartial mediator. This is beneficial to all parties as they try to reach an decision with which everyone is in agreement.  If you have received a notification from the IRS that a determination has been made which is eligible for appeal, and you feel that determination was made in error, know your rights and contact an Appeals office representative to further discuss the matter.

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1. Tax Audit Defense: How to Defend Against an IRS Audit
2. What if the IRS Denied My Installment Agreement Request?
3. 2010 Is The Year To Die: Understanding the Estate Tax Changes

1. Lil Wayne- Perhaps Lil Wayne is really enjoying his time in prison? That’s our assumption at least, because this rapper is basically asking for more time in the slammer; this time, for failing to pay his taxes. Just last month, the IRS filed a $1.13 million, or as Wayne would put it, ‘a milli,’ tax lien against Lil Wayne for unpaid income taxes from years 2004, 2005, and 2007. And this isn’t his first encounter with the big boys, as Wayne previously had a lien filed against him in 2008, but managed to scrape up the $966,840 to pay it off.  Let’s see if he can do it again…
2. Chamillionaire- Our boy Cham’s recent house foreclosure in Houston proves his inability to meet off mortgage payments. But, turns out that Chamillionaire has been struggling paying off taxes, too. Owing $184,000 in back taxes resulting from unpaid income taxes in 2007, Chamillionaire could be in over his head this time. If this rapper doesn’t clean up his act soon, he may actually have to change his name for more reasons than one.
3. DMX- Income tax, Income tax, Income tax- how many times do we have to say it until our rappers get a hint? Maybe we could make up a rap about it for them to understand better. Regardless, DMX is another one who owes over one million to the IRS in back taxes from failing to pay his income tax in 2002, 2003, and 2005. The money added up and the IRS, along with the State of New York, issued out more than one lien against him- culminating to over $1.5 million dollars.
4. Nas- So did we save the best for last? You decide. The numbers speak for themselves in Nas’ case, as he owes over $2.5 million dollars to the IRS. The money is a result of a tax lien filed against the rapper from unpaid federal taxes from 2006 and 2007. Now, not only does Nas have to worry about child support payments to ex-wife Kelis, but paying off his major tax bill, too.

So,that’s all for now, ladies and gentlemen. But, we aren’t making any promises that this is the last time we’ll be reporting on rappers with tax issues…

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1. NAS Owes the IRS 2.5 Million In Back Taxes
2. Chrysler Group’s CEO Jim Press Owes About $1M in IRS Back Taxes
3. Three Artists Who Cannot Seem To Rap Up Their Back Tax Issues

If you have received a notice from the IRS the first and most important thing is to not panic. Most notices are minor and should not be of long lasting concern and many do not even require any action on your part. Here is some information that will help guide you through the process and put your mind at ease.

First, read the letter in full. Most often when you receive a notice from the IRS it is for something simple and straightforward. The letter should very clearly state the reason for the inquiry and exactly what it is that you need to do. Almost all notices can be dealt with on your own and you most likely will not need to call the IRS or visit one of their offices.

In the upper right hand corner of the notice you will find a notice number. You can visit the IRS Website to find out more information on your specific notice.

Most often people receive notices from the IRS to request payment or to as notification of a change that has taken place or will take place on your account. Sometimes a notice may also request additional information in order to process you tax return.

In the letter you will find very specific directions on what you need to do. If the letter is for a correction notice you will want to compare the information in the letter to your tax return. If you agree with the correction, then you do not need to do anything more, unless you owe additional money in which case you will need to send in payment.

If you do not agree with the correction then you will need to take immediate action and respond to the correction. You will need to write a letter in dispute and include all back up documentation to verify your claim. With the letter you will need to include the tear of portion of the notice received by the IRS. In the upper left hand corner of the notice you will find the address to mail your letter. After your request is received it will take a minimum of 30 days for the IRS to review and respond.

If you do not believe the notice is clear or you do have additional questions you can contact the IRS at the phone number in the upper right hand corner of the notice. Before you make the call it is a good idea to gather any information you may need to get your questions answered. At the very least have your IRS notice and tax return statement with you in order to expedite the call.

A final note is to always make sure you keep very good records of all correspondence with the IRS. Make sure you make copies of all written correspondence and detailed notes on any phone conversations. If you ever feel you are being treated unfairly you can always contact a tax expert for advice. You should also call the IRS immediately if you think you have received a fraudulent notice.

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In a perfect world we could be rest assured that any person, company, or offer we came across was legitimate. Unfortunately, this is not the reality of the world in which we live and therefore consumers across the nation must always be on the lookout for scams perpetrated by con artists. Criminals looking to make a quick buck have been doing so for generations, however with the invention and subsequent popularity of the Internet, these scams touch even more victims today.

To trick people into falling for their scams, criminals often misrepresent themselves as a well known company or government agency. The Internal Revenue Service (IRS) and it’s likeness have been used in many scams simply due to the fact that people commonly react to any correspondence they receive from the IRS.

The following tips will help you spot and respond to any tax scams that may come your way during tax season or throughout the year.

• Be wary of email-  This is true for all Internet scams but especially true for correspondence allegedly coming from the IRS.  As a general rule, the IRS does not use the email to contact taxpayers regarding tax accounts or issues with taxes.  In fact, the IRS is not going to contact you via email unless you have initiated the correspondence and even at this point will likely not discuss tax information via this method of communication. The IRS (and any legitimate company, bank, business) will never ask for confidential information via an email. Any email received by the IRS or what looks to be a bank, credit card company, or government agency asking for PIN numbers, bank information, or other personal or financial information should be reported as a phishing email and not responded to by the recipient.
• Understand how cyber-criminals get your information-  Internet scams using unsolicited email are popular due to the fact that many people do not realize they have been duped until it is too late. When you receive a suspicious email, understand that by navigating the email- i.e. clicking on links or opening attachments, that you make your computer vulnerable to malware that may be downloaded onto your computer and used to remotely view the information contained on your hard drive. Clicking on links may direct you to “look-a-like” websites that while similar to the real deal, are not the official websites of the IRS or other government agency. By entering personal information on a fictitious website or responding to an email, you open yourself up to identity theft and other scams that hurt your personal finances.
• Look for signs-  If you are not sure whether or not the email you have received is the real deal first, remember the first tip- the IRS does not contact you via email.  If you are still unsure or dealing with an email that is not from the IRS, hunt for the following signs: any request for personal information, enticing offer (encouraging you to respond), threats (your account is at risk or you will be in trouble if you don’t reply), and incorrect grammar, misspelling and odd phrasing or use of words. If you spot any of these telltale signs, you are almost always dealing with a scam.

When in doubt, remember that you can always ignore an email and look up the contact information of the sender and initiate your own call to see if the email is legitimate. Do not use the information made available in the email as many con artists set up elaborate scams including fake phone numbers that may be used to gather more personal information. Always follow your instinct and follow up on your own; independently from the email.

Related posts:

1. IRS Phishing Emails – Do Not Reply With Sensitive Info
2. What to Know About Receiving an IRS Notice
3. Understanding Your Rights To An IRS Appeal

Starting with tax year 2012, that is all about to change.  Hidden in the Healthcare reform bill are changes to how 1099-Misc forms are used. You will need to report any and all transactions totaling more than $600 for the fiscal year, whether it is to independent contractors, businesses, or even retailers!

If you go to the store to buy a computer for your business that costs more than $600, you will need to issue them a 1099- Misc form!  You’ll need the store’s federal ID number to issue it.  If you pay more than $600 a year to your cable internet or phone companies, they will also need 1099-Misc forms.  Landlords, health insurance, accountants… the list goes on and on.

The new law for 1099-Misc extends extension 6041 of the Internal Revenue Code, which is the section that requires business owners to report income paid (non-salary) over $600 in a year, and changes it from having to send 1099-Misc forms to individuals, to any business or individual:

“Section 6041 of the Internal Revenue Code provides that all persons engaged in a trade or business who make a payment in the course of such trade or business to another person of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income of $600 or more in any taxable year shall render a true and accurate return setting forth the amount of such gains, profits, and income, and the name and address of the recipient of such payment.Section 1.6041-1(a)(1)(i) of the Income Tax Regulations provides that the payments required to be reported under section 6041 include the following: (1) salaries, wages, commissions, fees, and other forms of compensation for services rendered aggregating $600 or more; and (2) interest, rents, royalties, annuities, pensions, and other gains, profits, and income aggregating $600 or more. The return of information required by section 1.6041-1(a)(1)(i) must be made on Form 1099. See section 1.6041-1(a)(2).”

If you thought filing your business taxes was a nightmare before, just wait until you deal with this nightmare of paperwork!  For small businesses without accounting departments, this is going to be a time consuming task.  While the changes are being initiated to increase tax revenues for the government, there’s a good chance that it won’t have much effect.  If you consider the increased need for professional tax services that a change like this will cause; and the fact that tax services are eligible business expenses and are deducted at tax time – it seems that the change will result in more paperwork but not much more in tax revenues for the government.

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1. Method Man- Or, more formally, Clifford Smith, has been all the talk this past week. What’s the big fuss? First off, he was arrested in October on felony charges, and accused of declining to pay $32,799 in personal income tax along with state income tax. Method Man pled guilty to the charges, and surrendered $106,000 in back taxes, penalties and interest over to the IRS. While the arrest could have guaranteed him four years in prison, our Man got off with a mere ‘conditional charge’- basically a spot in time out, with all charges cleared as long as he could stay out of trouble.
2. Swizz Beatz- Celebrated producer and acclaimed artist ‘Swizzy’ owes an even larger chunk of change to the IRS. Apparently, Beatz was recently served a $652,727 tax lien for unpaid federal taxes from 2008. What’s worse, this isn’t the first time. Swizz’s history shows a total of almost $2.2 million in back tax debt. I guess all of his ‘money in the bank’ could only last for so long…
3. Fat Joe- We should have known when his two million dollar Florida estate went on the market. Owing over $71,000 to cover the lost judgment against Florida Sun Trust, Fat Joe takes the third and final position on our list. And, it turns out that Florida may be the least of this rapper’s worries. Fat Joe reportedly owes back taxes amounting to $139,000 from previous liens such as the $105,000 claim from the state of New Jersey in 2008.

So will our rappers clean up their acts? My opinion? They should focus less on rapping about money and more on taking charge of it and maybe, just maybe, they could have a lasting chance.

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3. Florida Introduces Amnesty Program to Provide Back Tax Relief

That being said, make sure to act quickly in informing the IRS of your situation and inability to pay. The worst thing that one can do when unable to taxes would be to do nothing, and unfortunately this seems to be the case time and time again. While it may be easier to ignore the problem and withhold payments for the time being, just one missed payment can begin a slew of unpleasant events with the IRS. It’s likely that the IRS will immediately detect the defaulted agreement and take action much quicker than you expect. And, once they begin, garnished wages, tax levies, and other forced collections, all become likely scenarios- causing you even more money.

Sound appealing? We didn’t think so, either. And, even though contacting the IRS to let them know that you cannot make your payments on your tax installment agreement may not be the most enjoyable thing to do, it’ll sure save you a lot of unnecessary stress and trouble. Be sure to explain your situation carefully, capitalizing on any details you deem important. Also, prepare for the call before hand with proper dates and documents to back up your assertion. If your case appears valid, the IRS will likely understand- they are human, too. In most cases they’ll work with you to adjust the installment agreement- either reducing the payments or even deferring them for a later time.

However, the IRS may not be so understanding if they investigate and consider your monetary actions and inability to pay unwarranted. Be advised that the IRS will study each situation carefully; even requesting income and expense documents, in order to make sure that an individual is truly unable to pay because of ill circumstances rather than unwise monetary actions- like gambling in Vegas or making extravagant purchases. But, even if this is this case, contact the IRS anyway, because defaulting on a tax installment agreement with no explanation can yield far worse consequences, as previously discussed.

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In Florida’s case, because the state has no income tax, the amnesty period proves less intense. Regardless, the tax period still helps everyone. For the state, more unpaid taxes are returned- bringing valuable money back to public use.  For the individual, more money is saved, because less money goes to tax penalties and interest.  It becomes a win-win situation for all.

Which taxes, or actually, unpaid taxes, are eligible? All Department of Revenue administered taxes due before the starting date of the program (July 1, 2010) are entitled to relief.  However, unemployment taxes and the Miami-Dade County Lake Belt fees are not included in the arrangement. Furthermore, there are a few guidelines. For one, your tax liability must not already be covered by an existing settlement. And two, you must not be convicted or under criminal investigation for violating a Florida revenue law. If you meet the requirements, and of course owe back taxes to the state of Florida, visit www.myflorida.com/dor/amnesty to fill out a Tax Amnesty Agreement form asap. If you cannot pay your taxes by Sept 30, 2010 (the end of the program) an installment agreement may be your best option.

What if you owe money that has not yet been identified? It’s in your best interest to own up and participate in the program, as the interest required on the amount will be cut in half. If your liability has already been identified, the interest amount will still reduced, but by one fourth. As for penalties- they will be completely waived, regardless of situation.

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3. Oregon State Tax Amnesty for Back Taxes Ends 11/19

What is the Deal With the Corporate Tax?

Under the current tax regulations, corporate earnings are being taxed twice. The first time they are taxed is when the corporation earns money. They are taxed a second time when the money is dispersed to the individual shareholders. The corporate income tax is considered to be a growth preventing measure that, if eliminated, would help cut wasteful tax distortions and allow growth in the short and long-term. It would also help to increase America’s competitiveness across the globe and raise wages in the future. Currently, the US has the second-highest ranking corporate income tax. Other chief competitors of the US have already reduced their corporate income tax rate, leaving America to be less competitive in business.

State corporate taxes are descendants of the federal income tax and as such, have flaws. Businesses are being double taxed at the agency and individual levels and essentially penalized as a corporation. There is also issue with the fact that business span across different states and the rules differ for corporate income in each state. Many believe that local government will use the corporate income tax as their own economic development account when they are used to offer tax incentives and credits to bring new business into the state. Overall, state corporate income tax does not bring in a lot of revenue. Some businesses skirt the system by establishing holding companies in states like Delaware to avoid the higher tax costs.

What Are States Doing?

Some states have already begun fundamental tax reform. For instance, California has proposed a BNRT, or business net receipts tax, which is based on a Value Added Tax that replaces the corporate income tax and reduces personal income and sales taxes. Ohio has done away with several business taxes. This includes the corporate income tax. They have replaced the eliminated taxes with gross receipts or the CAT (corporate activity tax).

Where Is the Solution?

Some have suggested dropping state corporate income tax across the board and requiring reporting of all business income. This will prevent companies from shifting monies to states with lowered or no taxes. Regardless of the many opinions on the tax issue, it doesn’t seem likely that elimination will happen. It is too easy for states to go along with the federal income tax legislation and regulations. While tax reform issues are still on President Obama’s agenda, it doesn’t appear it is a main focal point for change at this time, leaving America struggling for the competitive edge and job security.

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Concern now is that the Internet has changed the way things are being done. The Web has been providing consumers information in a way never before done and is essentially strong-arming the media companies to follow suit. News organizations now must work to adapt to the changing market through experimentation. Reports show there is doubt the market will survive on its current course and thus the government needs to step in and save the day.

Varieties of ideas are being thrown into the mix to help save the industry but most are not to the consumer’s benefit. Some proposals include taxation on news websites that can be collected and divided up between newspapers. The tax would also affect sites like Digg and Reddit. These sites gather news links from around the world and give readers a forum to discuss news issues hence their popularity.

In addition to the taxing of news websites, proposals also offer the possibility of tax exemptions to news organizations. Thoughts about establishing a national fund for news organizations have also been discussed. Those funds would be created from monies coming from the new taxes. There has even been talk of an extra tax being placed on electronic devices people use to read the news, like the Apple iPad or Amazon Kindle. Even laptops and desktop PCs may see the added tax.

Should the government step in, the conflict of interest that would be created is apparent. Government contributions to the salaries of reporters and news workers would hardly create unbiased results. There would be no incentives for telling a story like it is. Consumers would suffer the most if it is decided that the government is the only saving grace. It would become only more difficult for them to read about or share various viewpoints on newsworthy subjects.

Some of the proposed taxes include:

Broadcast taxes – since commercial radio and television broadcasters are given rights to a profitable spectrum for free, it is essentially a public subsidy. When taxed at a rate o 7%, a fund of up to $6 billion dollars could be collected. In return, commercial broadcasters would not be obligated to provide public-interest programming estimated to cost broadcasters $10 billion each year.

Electronic device tax –If a 5% tax is added to consumer electronics, the amount collected is estimated to be around $4 billion each year.

Taxes on advertising – a 2% tax on commercial advertising would bring in about $6 billion a year. If the tax write-off on ad costs for businesses where changed from a write-off every year to one covering a 5-year period, another $2 billion could be collected.

Cell phone taxes – if consumers were to pay a small tax on their cell phone bills for the content they access digitally, $6 billion could be collected each year of taxed at 3% of the monthly fees.

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Danielle Staub, the reality show’s “cast out” often attacked for viscous and rude behavior, has also been targeted by a group a little different than her fellow Housewives- The IRS. In March of 2006, Danielle reportedly had a $111,161 tax lien filed against her. And, just one year later in 2007, faced yet another lien. Perhaps Danielle should concentrate more on paying the IRS, rather than her plastic surgeon.

Caroline Manzo, contrasting Danielle as the sweet, mother-like figure of the wives, has also shown signs of monetary issues. On the surface, Caroline appears to be one of the most well off of the bunch, owning Jersey’s prestigious Brownstone event facility among other valuable assets. However, Caroline’s assets, including the infamous  Brownstone, have faced numerous judgments and liens against them, with the number currently standing at over thirty, since 1990.

For Housewife Dina Manzo, excessive spending on the Real Housewives series apparently was just not good enough. Thomas Manzo, Dina Manzo’s hubby, was allegedly sued by American Express for $12,599, following the couples lavish wedding featured on VH1′s ‘My Big Fat Fabulous Wedding’ show.

Finally, housewife Jacqueline Laurita has demonstrated an inability ward off financial issues, too. Jacqueline and husband Chris have been unable to pay off their loans, recently filing  for liquidation under Chapter Seven in a U.S. Bankruptcy Court. Hey, at this rate, the court could be the wives’ all new hangout.

So, there you have it, five for five of the New Jersey housewives, famous for their extravagant and excessive lifestyles, may actually be less well off than the average Joe- or Josephine, if we are trying to stay in wife theme here. So what happens next? Perhaps the show will undergo a dramatic transformation and name change- The Real Workingwives of New Jersey? Doesn’t seem to have quite the ring to it. But who knows, anything seems to be possible with this bunch.

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While the application seems quite selective, companies that demonstrate true potential and need could be significantly rewarded. This means grants covering up to 50% of biomedical research, credits of up to $5 million per firm, and $1 billion overall, available and ready to be distributed to investments made in 2009 and 2010. The belief  is that the money could significantly improve US health potential and competitiveness while also creating jobs and interest.

So, exactly how selective is the application? While we already mentioned that the initiative is targeted towards small firms, less than 250 employees to be exact, there are several other standards revolving around the nature of medical research in which the firms partake that must be met. For example, firms must prove their potential to either; a) produce new therapies to treat or prevent diseases, b) reduce long term US health care costs, or c) considerably advance the goal of curing cancer within the next 30 years. The Department of Health and Human Services is set to evaluate each application on an individual basis for its likelihood to meet such requirements.

Think the Qualifying Therapeutic Discovery Project Program could benefit your company? Start the application ASAP, as claims must be postmarked by July 21, 2010- less than month away! Form 8942, Application for Certification of Qualified Investments Eligible for Credits and Grants Under the Qualifying Therapeutic Discovery Project Program, is now available, and can be found along with detailed instructions, on IRS website.

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Stage One of IRS Attack on Deadbeat Taxpayers – Letters in the Mail

If you skip filing your taxes for a few years, you’ll probably head to your mailbox one day and discover a letter asking what your problem is – although not in those exact words! The first and maybe the second letter you receive from the IRS will ask you about your debt and remind you that you owe income taxes. Soon after, you can expect to receive a FINAL NOTICE in the mail. This is the last notification you’ll receive from the IRS before they unleash the dogs and come after you for the money you owe. This would be a good time to make good on those debts!

Stage Two of IRS Attack on Deadbeat Taxpayers – IRS Levy

If the letters and FINAL NOTICE did not scare you into paying the money you owe, stay tuned for an IRS levy. A levy is when the IRS puts a hold on the funds in your bank accounts. You won’t be able to access the money in your bank account and if your check is being direct deposited, you can watch it disappear because you won’t have access to those either. Because an IRS levy is a federal lien on your bank account, there won’t be anything you – or the bank – can do to stop it.

Stage Three of IRS Attack on Deadbeat Taxpayers – Tax Lien

The IRS has the power to ruin your credit score for all of eternity. Well, at least through the end of your life. A tax lien can be placed on your credit, which means you won’t be able to apply for new credit. If you own a house, you might experience a tax lien placed on your home, which will make it impossible to renovate or sell. If you’re still standing by waiting to see what happens next and making no plans to pay the IRS owed taxes, you might see the tax liens turn into full blown “seizures”, where the IRS takes it upon themselves to sell your property to recover the tax debt you owe.

Stage Four of IRS Attack on Deadbeat Taxpayers – Wage Garnishment

If you were lucky enough not to have direct deposit of your paychecks when your bank was placed on hold, you can still lose your paycheck through wage garnishment. The IRS has the power to contact your employer and take up to 80% of your paycheck each pay period until your taxes are paid off.

Avoid Becoming a Deadbeat Taxpayer

Obviously, the solution to avoiding IRS attacks is to file your taxes and pay for any taxes owed. You don’t want to be on the receiving end of any of the above “attacks”; or put in jail with penalties up to $50,000 per year for not filing your income taxes. You can always file for extensions if you need more time, set up payment plans if you can’t afford to pay your taxes in full before they’re due, or use an agency designed to help individuals pay off back taxes.

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Filing late back taxes can be compared to the snowball effect; gradually growing and increasing over time before becoming destructive.  Unfortunately, so many individuals tend to overlook the consequences in unfiled back taxes along with the power of the IRS when making their tax filing decisions. Once one is late on filing back taxes, it becomes very easy to fall into the cycle of taking no action; however, taking the simple and proper measures to remedy the situation can save a lot of money, time, and stress.

Filing your late back taxes: The Process:

1. Gather the proper documents. These documents include:
   • Old W-2 forms from employer(s) (or form 4852 in their place)
   • 1099 Tax Documents
   • Bank statements
2. Find and prepare missed tax forms
   • Visit the IRS webpage or a local tax resolution firm to find the tax return form (1040 Form)
   • Separate each year’s documents with their corresponding tax form (you need one per every year missed)
   • Claim all deductions, exemptions, and credits (this will help in reducing your liabilities)
3. Seek assistance
   • If the process feels overwhelming, which is very well may be, do not hesitate to find help
   • There are numerous tax services that will make the process simple and easy for you. Tax professionals will guarantee a thorough and accurate job, while also working to solidify the best return for you.
   • Tax professionals can also significantly help with lowering your balance, by securing more deductions, reducing penalties, or working with the IRS to create a payment plan
4. Sign and complete your forms
   • Be sure to review your forms and information
   • Locate the sending address of your notice
   • Address the envelope and send the forms to your local IRS office with the payments included
   • If you cannot pay in full, pay as much as you can
   • If you cannot pay at all, it is important to still send the file
5. Work with your tax professional
   • Once you have sent in your returns, continue to work with your professional in settling the amount owed and filing your next return

Sill avoiding filing your late back taxes?  Let’s take a look at what the IRS can do to you.

1. First, penalties and interest will increasingly begin to grow on the amount owed
2. Next, The IRS may complete a “Substitute for Return,” which combines all missed years into one tax return, and therefore eliminates all chances of federal exemptions or expenses being taken from the amount
3. After that, the IRS will find you, eventually, no questions asked
4. When the IRS does find you, they will begin to take collections
5. Finally, the IRS may place a tax levy on your bank accounts, or even a federal tax lien on your personal property

Needless to say, it is a good idea to file your late back taxes as soon as you can. Realizing the consequences of waiting any longer, follow the aforementioned steps and begin the process now.

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Before appearing on Survivor, Hatch lived a modest lifestyle, holding jobs from car sales to bartending to pay off the bills. Hatch even served in the military for five years, but apparently his proclaimed self discipline and restraint skills only served him well for so long. Reportedly, The IRS filed a $1,742,711 tax lien against Hatch earlier this year, with tax debts reaching as far back as 2000; the very year he won the title of ‘Survivor.’

And this isn’t the first time. In January of 2005, the US Attorney’s Office filed a claim against the Survivor for failing to report his winnings received on the final show- perhaps he thought they missed that episode? As if this wasn’t bad enough, Hatch continued to inaccurately record even more post show earnings, such as the $321,000 he received from his appearance on the WQSX-FM radio show in Boston later that year.

Initial charges against Hatch were lenient, with agreements arranged after a guilty plea on his behalf.  However, Hatch shortly thereafter pulled out of the arrangement, only to stir up more trouble.

For some reason, I don’t think that the IRS will be so prone to allowing Hatch to run away with the money as his fellow contestants were, but I guess we’ll just have to wait and see.

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What Records do I need to keep?

This is one of the most common questions among taxpayers. Many people are in the habit of throwing out their tax documents as soon as they file. As you can imagine, this is a mistake for multiple reasons. In most cases, tax documents and records should be kept for three years. That being said, there are others that need to be held onto even longer. These documents include records related to the sale or purchase of a home, stock transactions, and rental property income.

Also, make sure to keep copies of all your tax returns. You never know when you will need to rely on this information for filing a future return, or amending a mistake that you made in the past.

Refund Information

If you are due a refund from the IRS you want to know as much about this process as possible. After all, there is nothing better than receiving money from the government – even though it is for nothing more than an overpayment.

Did you know that 72 hours after the IRS acknowledges receipt of your e-filed return that you can check the status on the IRS website? If you filed with a paper form, it takes three to four weeks to be able to check the status online.

To do this, make sure you have a copy of your return handy. You will need to know your social security number, the exact amount of your refund, and your filing status.

To check your refund, you can do one of the following:

1. Visit IRS.gov and click on the “Where’s My Refund” link.
2. Call 1-800-829-1954 during the hours outlined in your tax form instructions.
3. For automated refund information, call 1-800-829-4477 24 hours a day, 7 days a week.

Change of Address

Did you move after you filed your last tax return? If so, you should notify the IRS of this by filling out and sending Form 8822 – Change of Address.

Are you expecting to receive a refund in the mail? In this case, you should also file an address change with the United States Postal Service. This will ensure that you receive your refund as soon as possible.

Did you make a mistake on your Tax Return?

If you made an error on your tax return you should correct it right away by using Form 1040X, Amended U.S. Individual Income Tax Return. It is better to do this than hope that the IRS never catches the mistake – a very unlikely scenario.

While it is very important that you file your tax return, this is probably not the end of the process. Some people want to check on the status of their return; others need to change their address; and some even have to file an amended return.

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1. Amending A Tax Return – What To Know & Do
2. File Late Tax Returns to Take Control of Your Back Taxes
3. Are You Owed a Tax Refund from an Unfiled 2006 Return?