Thursday, February 21, 2013

How To Avoid Tax Scams & Make The Most Of Credits

Source: http://minnesota.cbslocal.com/2013/02/20/how-to-avoid-tax-scams-make-the-most-of-credits/

MINNEAPOLIS (WCCO) – It may be hard to believe, but April 15 will be here before we know it.
That, of course, is when taxes are due.

It’s this time of year that Lynda Mohs works 14 hour days, six days a week. She’s the owner of family-run Mohs Tax Service. Over the past four decades, she’s gotten to know the IRS pretty well.

“The IRS does not contact anybody by email. So if you get an email, you can be assured that that’s a scam,” Mohs said.

Any letter that asks for your social security number or bank account information is also likely a scam. No matter how often that comes up this time of year, Mohs says some people still fall victim.

The IRS won’t ask for your social security number, Mohs says, because they already have it.

“If you would get a phone call or an email that would say, you know, we need to verify some things, give us your social security number and your birth date — that is definitely a scam, and you do not give that information over the phone,” Mohs said.

But one thing you do want to do is make sure you know about all possible write-offs.

For parents, Mohs says there are a lot of education credits that are missed every year.

They can write off things like school supplies, tennis shoes for gym, calculators, musical instruments, and even private lessons if they help with school music or dance.

A private tutor also counts as a write-off, but is often missed by parents.

“They don’t think about that. They just think ‘No, I just wanted to get them to graduate. Whatever it took.’ But when you’ve spent that extra money for the tutoring, that counts,” Mohs said.

Mohs also said the safest and quickest way to file is electronically with direct deposit.

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U.S. Quadruples Pipeline Tax Break Cost to $7 Billion

A tax break used by oil and gas pipeline companies such as Kinder Morgan Energy Partners LP (KMP) will cost the U.S. government $7 billion through 2016, about four times more than previously estimated, Congress’s tax scorekeepers said this month.

The nonpartisan Joint Committee on Taxation quadrupled its cost estimate for exempting the fast-growing “master limited partnerships” from corporate income tax in the year ended in September to $1.2 billion from $300 million. The annual cost will rise to $1.6 billion by fiscal 2016, the committee said.

The revision reflects the growth of tax-free publicly traded partnerships. They have taken over the U.S. pipeline business and are expanding into the rest of the oil and gas industry, partly by gobbling up dozens of tax-paying companies. With President Barack Obama and congressional Republicans calling for a tax overhaul, the higher cost estimate may make it harder for industry to protect the MLP subsidy, said John Buckley, a tax professor at Georgetown University Law Center.

“A bigger number always means it’s a bigger target,” said Buckley, who as a Democratic congressional aide helped draft the 1987 law that included the partnership exemption.

Canada ended a similar break in 2011, saving an estimated $500 million a year.

Wind, Solar

Lawmakers led by Senator Chris Coons, a Delaware Democrat, are pursuing a proposal to extend the MLP break to renewable energy companies such as wind and solar-power producers. Proponents in both chambers of Congress introduced bills last year that failed to win passage.

Coons plans to reintroduce the bill in March, said Ian Koski, a spokesman for the senator.

The estimate increased primarily because the latest data show MLP’s are generating more income than before, said Thomas Barthold, the chief of staff of the committee, in an e-mail.

The market value of the MLP industry has grown to about $370 billion, more than double its size as recently as 2009, according to data compiled by Bloomberg. Pretax income for about 90 MLP’s rose to a record $16.9 billion in 2011, Bloomberg News reported last month.

Last year, the committee estimated the cost of the MLP exemption at $1.4 billion for the four years ended in 2015. The new estimate pegs the cost during those same four years at about $5.4 billion.

Partnership Structure

MLP’s don’t pay corporate income taxes because they’re structured as partnerships, and they don’t distribute taxable dividends. Individual members pay personal income tax on any profits, offsetting to some extent the government’s loss of revenue.

In 1987, six years after large businesses started forming publicly traded partnerships, Congress passed a law requiring them to pay the same taxes as corporations, a rate that is currently 35 percent.

The law included an exception for industries involving oil and gas and other natural resources. Since then, the pipeline industry has mostly shifted to the partnership structure. Two of the biggest are Houston-based Kinder Morgan, run by billionaire Richard Kinder, and Enterprise Products Partners LP.

The law spurs investment in energy infrastructure that outweighs the cost of the lost tax revenue, said Mary Lyman, the executive director of the National Association of Publicly Traded Partnerships. She said MLP’s that transport and store oil and gas spent $113 billion on capital investment from 2007 to 2012.

Good Ratio

“You compare that to even the higher estimate. That seems like a good benefit to cost ratio,” Lyman said.
Corporate tax overhauls outlined by both Obama and Dave Camp, the Republican chairman of the House Ways and Means Committee, would lower the corporate tax rate while eliminating some breaks. Any reduction in the corporate rate would lower the cost of the subsidy for MLP’s, even if their special tax status is left in place, Buckley said.

Investor demand for MLP equity securities, known as partnership units, has led a variety of companies from outside of the pipeline business to convert to the form. New MLPs that went public in the past two years include CVR Partners LP (UAN), which uses refinery byproducts to make fertilizer, and Hi-Crush Partners LP (HCLP), which digs up the sand used in the hydraulic fracturing of oil and gas wells.

Congress expanded the break in 2008 to include companies that transport and store biofuels such as ethanol.

To contact the reporter on this story: Zachary Mider in New York at zmider1@bloomberg.net; Richard Rubin in Washington at rrubin12@bloomberg.net
 
To contact the editor responsible for this story: Daniel Golden in Boston at dlgolden@bloomberg.net

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Late law change leads to rejected tax returns

SALT LAKE CITY — Rejection. It’s not easy to deal with, especially if it’s from the Internal Revenue Service.
 
Some earlier taxpayers who have filed electronically have had their returns rejected — and it wasn’t because of a mistake on their part.

When Congress finally approved the American Taxpayers Relief Act on Jan. 2, it forced the IRS to make changes to dozens of forms that many people use to file returns. Unfortunately, the IRS hasn’t corrected all the forms yet.

Salt Lake certified public accountant Jim Hoch with HEB Business Solutions is busy, as individuals and businesses are getting their 2012 income tax information together. He is working on returns every day and has many already completed. But sometimes when he tries to send in those forms, a screen pops up that says: “This return cannot be filed electronically.”

The problem goes back to the end of last year, when Congress was battling over the budget. When it was all over, tax laws got changed, which meant about 30 IRS tax forms needed to be corrected.

“And that caused the Internal Revenue Service to reprogram and to test certain forms that individuals will use when they file their 2012 tax return,” said IRS spokesman Bill Brunson.


Approximately 1,188,000 returns will be filed from Utah and more than a million will be filed electronically. He didn't know how many Utahns will be impacted by the delay.

“The individuals affected, generally speaking, file later in the year, later in the filing season and/or request an extension,” Brunson said.

Many of the forms have been updated already, but some are still in the process. This glitch primarily affects businesses, but individual taxpayers could get rejected too, especially if they are using forms regarding energy and clean fuel credits.

“So if you're expecting a credit for, say you put in an energy efficient appliance in your home, you may have to wait a couple of weeks in order to file,” Hoch said.

The IRS expects to have all the forms corrected by late February or early March. Updates are posted on its website IRS.gov.

The delay will mean some longer hours for accountants.

"I’ll have to fit a lot of work in that would have been done before today. I'll have to fit it in between now and April 15. Thank you Congress,” Hoch said with a laugh.
Keith McCord, Anchor/Reporter KSL 5 News Weekends
Keith McCord began working for KSL Television as an anchor in February 1981. He is currently an anchor on the weekend edition of KSL News. Keith also works as a reporter for KSL's Noon, 5:00, 6:00, 6:30 and 10 o'clock newscasts. Full Bio » 


 
 
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Many Investors Unaware of How Tax Changes Could Hurt Them

By

Affluent investors’ understanding of tax-advantaged investments, like annuities, life insurance and 401(k)'s, varies among demographic groups, according to a new poll.

Nationwide Financial reported Tuesday that the results of its recent online survey of 751 mass affluent investors, conducted by Harris Interactive, pointed to an opportunity for advisors to educate clients on the implications of new taxes.

“Our survey suggests that, while some may be very receptive to considering portfolio adjustments, others may need a little more proactive education from their advisor,” Eric Henderson, senior vice president of life insurance and annuities for Nationwide Financial, said in a statement.

The survey showed that women were less likely than men to expect a significant decrease in household income or asset value as a result of tax code changes. Only one in 20 women had met with a financial advisor to talk about how new taxes could affect their portfolio.

Fifty-two percent of female survey respondents said they were somewhat or very concerned that changes to the tax code would negatively affect their portfolio compared with 69% of male respondents who felt that way.

Women expressed less confidence than men that they completely understood the tax advantages of annuities, life insurance or 401(k) plans.

“Time will tell if the comparative optimism of female survey respondents is warranted,” Henderson said. “In the meantime, it’s critical for female investors and their advisors to discuss new taxes.”

He noted that for most married couples, the wife was likelier to outlive her income, making it is important for both spouses to be active in managing their portfolio.

“The lack of knowledge professed by women respondents may be attributed to what appears to be an underutilization of the financial advisor relationship,” Henderson said.  “However, our survey data suggests that women may be more receptive than men to learning more about tax-advantaged products.”

Survey respondents in the 35-to-54 age range were less likely than those older to say they completely or somewhat understood the tax advantages of annuities, but were twice as likely to consider purchasing another tax-deferred product.

These respondents were more likely than those 55 or older to want more education on annuities, life insurance or 401(k) plans. They were less resistant to making portfolio adjustments, with only about a third saying they would not make any portfolio adjustments as a result of new taxes compared with nearly half of respondents 55 or older.

Respondents with $150,000 to $249,000 in income appeared more optimistic and receptive to making portfolio adjustments, according to the survey. Fifty-two percent believed changes could be made to prepare their portfolio for tax code changes, compared with 36% of all survey respondents.

Half of respondents in this upper income range said they wanted more education on annuities, compared with 41% of the total survey population.

“According to our survey data, men and women ages 35–64 with income of $150,000–249,000 may represent the ripest sales opportunities for advisors,” Henderson said.

Still, although most mass affluent investors will be affected by the new tax environment, 60% of survey respondents expressed either unwillingness or uncertainty whether they would meet with a financial advisor to discuss taxes.

“It’s up to advisors to provide proactive counsel to help all their clients understand potential opportunities—even if certain clients may not currently acknowledge a need to have this conversation.”

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Wednesday, February 20, 2013

Revenue warns of scam emails offering tax refund

Beware emails claiming you are due a tax refund and asking for your bank details.

tax form 
 
The Revenue will never send messages about tax rebates by email. Photograph: Sarah Lee for the Guardian
Taxpayers are being warned to look out for scam emails claiming to be sent by HM Revenue & Customs, after almost 80,000 phishing messages about tax rebates were reported in 2012.

The emails state that HMRC has reviewed the recipient's tax return and found that they are in line for a rebate, then asks for personal details, including credit card or banking details, in order to make the refund.
However, HMRC will never email a taxpayer about a rebate, and posts out payment orders to those who are owed money. The Revenue lists examples of fake emails on its website, which consumers can check.

In 2012, HMRC took action to close down 522 illegal sites that had been sending out the messages, hosted in a number of countries including the US, Russia and Japan, as well as central and eastern Europe.

There was an increase in phishing emails after the HMRC deadline for self-assessment tax returns on January 31, 2012.

Gareth Lloyd, head of digital security for HMRC, urged customers to send on emails to phishing@hmrc.gsi.gov.uk so it could investigate them.

"HMRC do everything we can to ensure customers are safe online and we are working closely with other law enforcement agencies to target the criminals behind this serious crime," he said.

HMRC said anyone who had answered one of these emails should forward it and disclosed details to security.custcon@hmrc.gsi.gov.uk.

Source: http://www.guardian.co.uk/money/2013/feb/19/revenue-scam-emails-tax-refund

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Internal Revenue Service website overrun by taxpayers seeking refund information

WASHINGTON - The Internal Revenue Service has a message for taxpayers eager to learn the status of their tax refund: Please don't check the IRS website every five minutes -- once a day is enough.
 
The IRS says its "Where's my refund?" website and smartphone app are being overwhelmed by eager taxpayers. The agency says its systems are only updated once a day, usually overnight, and the same information is available on the website, the IRS2go smartphone app and IRS toll-free phone lines.

The IRS provides three updates: when the tax return is received, when the refund is approved and when the refund is sent. To avoid delays, the agency says the best time to check on refunds is evenings and weekends.
"I think what we're seeing is just part of the natural evolution in the refund process," said IRS spokesman Terry Lemons. "Twenty-five years ago, you desperately checked the mailbox every day."

Lemons said the number of inquiries is up over last year, probably because it is easier to check on smartphones and computer tablets.

Nine out of 10 taxpayers typically receive refunds in less than 21 days when they file returns online and get refunds deposited directly into bank accounts, the agency said.

The IRS is receiving more than 1 million returns a day and volume is expected to increase in the coming days, Lemons said. About 75 percent of individual filers get refunds. Last year they averaged $2,803.

"Every year our most common question is about people's refunds," Lemons said. "For a lot of folks this is the biggest check they will see all year."
 
 
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Tax Case Asks Whether IRS Flip-Flopped On Key Position

  Daniel Fisher
Daniel Fisher, Forbes Staff
I cover finance, the law, and how the two interact.

For decades, the Internal Revenue Service has asked courts to look past the fancy lawyering and examine the substance of a tax-avoidance scheme. Is this really a legitimate business transaction involving an Italian manufacturing subsidiary, two Caymans corporations and a licensing entity based in the Shetland Islands, or is it just a clever way to avoid paying U.S. taxes?

Now, in a case to be argued today at the U.S. Supreme Court, the IRS is taking exactly the opposite position. And while PPL Corp. vs. IRS involves two of the driest subjects imaginable — utilities and taxes — the implications could be much larger. The case asks the high court to make a clear decision on the perennial question dogging regulators in many fields: What’s more important, form or substance?

In tax cases, “usually the goverment argues substance, not form, because the taxpayer controls the form,” said Michael Knoll, the Theodore K. Warner professor of tax policy at the University of Pennsylvania Law School.

Holding to that standard, PPL vs. IRS would appear to be a clear win for PPL. Like a lot of other U.S. utilities, the Pennsylvania company bought a U.K. subsidiary in the 1980s as the Conservative government there privatized formerly state-owned utilities. When the Liberals came to power in 1997, they decided the utilities had been sold too cheap and imposed a one-time “windfall profits tax” calculated as 23% of the excess above nine times the average daily profits of the preceding four years.


The U.S., unlike most other countries, taxes corporate profits globally. But to avoid double taxation it also allows those corporations to write off most forms of foreign income taxes. PPL argued that whatever the form, the U.K. “windfall profits” tax was a tax on its income and thus deductible. The IRS denied the deduction and PPL sued in Tax Court along with another utility, winning in 2010. The government appealed and got two different results in two different circuits, with the Fifth Circuit ruling the tax was deductible and the Third Circuit ruling it wasn’t.

A perfect set-up for Supreme Court review. A group of economists argue the economic substance of the tax should drive the result, while a group of law professors argue the law should prevail.

The U.S. Chamber and other pro-business groups argue the IRS is trying to have it both ways, typically urging courts to look past the fancy lawyering to the substance of a deal — is it really possible a $200 million offshore profit can disappear in a welter of options transactions with a Caymans subsidiary based in a lawyer’s filing cabinet? — but in this case saying the U.K. tax was not a tax on income.

“The self-serving nature of the Commissioner’s current position is a ringing alarm that betrays the arbitrariness of the government’s shifting approach,” the Southeastern Legal Foundation, the U.S. Chambers and others say in a brief supporting PPL.

Law professors at Yale, Harvard, Columbia and other prestigious schools filed a brief in favor of the IRS, however, saying if PPL prevails U.S. corporations could deduct all manner of payments to foreign governments from their taxes, providing a “road map” for those foreign governments to pull subsidies from U.S. taxpayers. They could privatize government assets on the cheap, for example, with confidence they could recover the money later by nailing U.S. buyers with a one-time tax those companies could deduct from their U.S. tax bill.

The IRS doesn’t concede any flip-flopping, of course, saying the U.K. tax was based on the value of the utilities, using a method of computing value familiar to any commercial real estate appraiser: The income potential of the property. But the difference between the two is less than clear-cut, Knoll said.
“On form, it’s a tax on value,” he said. “In substance, it’s a tax on prior earnings over a base.”

The implications go beyond one-time taxes, however. Foreign governments frequently try to dress up their taxes in other forms to help U.S. companies claim deductions, Knoll said, with one example being oil and gas “taxes” that look suspiciously like royalties for pulling hydrocarbons from the ground. The IRS typically disallows large chunks of such deductions, he said.

The form-vs-substance battle also rages over popular tax strategies like paying stiff intellectual-property licenses to foreign subsidiaries that also happen to siphon away all the profits of an otherwise lucrative business.

“Those issues have become much more important because of the importance of intellectual property in the modern economy,” Knoll said.

And hovering over this obscure tax fight is the larger question of U.S. corporate income tax policy. Even the Obama administration has conceded that U.S. corporate taxes may be too high, and while the U.S. theoretically taxes global profits that policy is easily evaded by setting up wholly owned, but legally separate, foreign units. Apple and other U.S. corporations have piled up tens of billions of dollars in foreign profits in those units that they are loathe to bring home and subject to U.S. taxes.

“Most other foreign countries don’t even attempt to tax worldwide earnings,” Knoll said. The U.S. effectively doesn’t either, given the ease of stashing profits indefinitely overseas. The court’s ruling in PPL vs. IRS won’t change that policy, but it could provide more guidance on whether tax strategies stand or fall on the letter of the law, or the laws of economics.
 
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Tuesday, February 19, 2013

Internal Revenue Service adding 3,000 staffers to combat identity thieves filing fraudulent returns

Source: http://www.thedenverchannel.com/news/front-range/denver/internal-revenue-service-adding-staffers-to-deal-with-fast-growing-crime

 Marc Stewart

DENVER - Taxpayers across Colorado and the country are discovering they are now the victims of identity thieves.

According to tax accountants, criminals are using other people's social security numbers to file fake returns.
They are then taking the refund.

The problem is so big that the Internal Revenue Service is adding 3,000 staffers to combat identity thieves.
Dave Ryan discovered he was the victim while preparing his taxes last year.  "We were attempting to file electronically and the IRS told us we had already filed," said Ryan.

Someone stole his wife's social security number and fraudulently filed their taxes electronically. The criminal likely got a refund, based on a false claim.

"We had quite a bit of anxiety. We wanted to know who had actually done this, and how much more had they done?" said Ryan.

Ryan is not alone.  According to the IRS, investigators reviewed 898 ID-theft cases in 2012.  That's triple the amount of cases from 2011.
   
"In the last 10 or 15 years, I don't know I've ever had a case," said certified public accountant Sarah Knight.

Knight says she's noticed a surge of identity theft cases since the popularity of electronic filing.

"We had half a dozen clients last year," she said.

As far as protection, 7NEWS has learned the IRS is beefing up its screening process. The agency claims to have stopped $20 billion in fake returns last year.
           
"In me at any rate, (it) raised an awareness of the information that people have out there, how it can be used to potentially  hurt you in some way," said Ryan.

Experts say people need to try to protect their social security number.  They add the IRS will never contact taxpayers by email or social media.

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Tax Increases? Why Facebook's Billion Dollar Income isn't Taxed (at all) by IRS

Source: http://www.forbes.com/sites/robertwood/2013/02/19/tax-increases-why-facebooks-billion-dollar-income-isnt-taxed-at-all-by-irs/


Image representing Facebook as depicted in Cru...
Image via CrunchBase
Mark Zuckerberg commands attention even if Facebook’s much hyped IPO was lackluster. As a visionary billionaire, when Mr. Zuckerberg speaks, people listen. Having $1.1 billion in profits must feel pretty good. Paying no taxes to the IRS and even to revenue starved California? Priceless. See Facebook Paid No Income Taxes In 2012.

Facebook’s first Form 10-K filed with the SEC since its face-plant public offering shows $1.1 billion in profits and a complete pass on federal and state income taxes. In fact, Facebook says it is getting back tax refunds of $429 million. Facebook Gets a Multibillion-Dollar Tax BreakIs this legal, you might ask?

Yes, under current law it is, as Facebook is want to point out. Facebook can legitimately deduct stock options given to execs. That tax break reduced Facebook’s federal and state income taxes by $1,033 million in 2012, including refunds of earlier years’ taxes of $451 million. Here’s Why Facebook Is Getting A Refund On Its Income-Tax BillsGone are the questions for shareholders about which gains could be taxed as capital gain rather than ordinary income. See Top Tax Tips From Zuckerberg’s Facebook Bonanza.

Mr. Zuckerberg can’t score points by advising to buy low and sell high or to make an 83(b) election. But Mr. Zuckerberg quietly caused Facebook to pay off $1.9 billion in federal taxes related to restricted stock units. Why Facebook Is Paying the Tax Tab on Employee CompensationFacebook announced it planned to use cash to pay off the tax debt. The taxes arise out of restricted stock units issued to Facebook employees.

Facebook “net settled” the units by withholding taxes. Since the units themselves don’t involve cash, Facebook had to come up with almost $2 billion. But one key is the tax deduction Facebook receives when employees must include the value of their stock compensation in their income. For Facebook, it is treated as paid in cash so yields whopping tax deductions. Those deductions became controversial.

“Due to the stock option loophole, Facebook may not pay any corporate income taxes on its profits for a generation,” said Senator Carl Levin, the Michigan Democrat who proposed changing it. And that is exactly what happened. Facebook’s Multi-Billion Dollar Tax Break: Executive-Pay Tax Break Slashes Income Taxes on Facebook– and Other Fortune 500 Companies.

Robert W. Wood practices law with Wood LLP, in San Francisco. The author of more than 30 books, including Taxation of Damage Awards & Settlement Payments (4th Ed. 2009 with 2012 Supplement, Tax Institute), he can be reached at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

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The 7 Tax Deductions You Shouldn't Overlook

Source: http://abcnews.go.com/Business/tax-deductions-overlook/story?id=18516669

Use these tips to get a great tax return!
The good thing about taxes is they're only filed once a year. The bad thing is it's almost impossible to remember which tax deductions you qualify for each year.

"Credits come and go. It's hard to remember," says Bob Wheeler, a certified public accountant in Santa Monica, Calif.

While the IRS does all it can to help taxpayers determine which itemized deductions to apply to their taxes, there are enough possible tax deductions that it's easy to miss some, experts say.

The good news is that for most people who haven't had major life changes -- having a child, losing a job, buying a house, getting married, etc. -- filing taxes shouldn't be too hard, says Mark Steber, chief tax officer at Jackson Hewitt Tax Service.

"The bottom line for most taxpayers is that 2012 should mostly represent 2011, because there weren't many tax law changes," Steber says.

Here are some of the tax deductions you don't want to overlook:

Medical costs
These include health insurance premiums, dental care, glasses, counseling, therapy, and miles driven to medical appointments, Wheeler says. The medical expenses must add up to more than 7.5% of your adjusted gross income (AGI) for 2012 taxes. In 2013, that figure rises to 10% of AGI, he says. Long-term care insurance is deductible, subject to specific dollar amounts depending on age, says Gail Rosen, a CPA in Martinsville, N.J. Weight-loss programs are deductible if undertaken as treatment for a disease diagnosed by a physician, she says.

Housing
Deducting mortgage interest is a no-brainer, but other costs when buying a house can be deducted from taxes, including private mortgage insurance, points paid on an original mortgage, and energy credits. "Once you get past a mortgage and a W-2, it just gets a whole lot more complicated," says Wheeler.

Education
Student loan interest is commonly missed, Steber says. Parents contributing to a child's college education can choose to take a tuition and fee deduction of up to $4,000, or can take tax credits, he says. The American Opportunity Tax Credit is for up to $2,500 per student for the first three years of college, and the Lifetime Learning Credit is for up to $2,000 per family for every additional year of college or graduate school, Rosen says.

Non-cash charitable contributions
Deducting a cash contribution to a charity is easy enough, but too often people don't accurately value non-cash contributions such as clothes, Steber says. Determine fair-market value and don't value them for less than they're worth, he recommends. Other charitable deductions include expenses paid of behalf of a charity, and donating appreciated stock, Rosen says.


Job hunting Qualifying expenses are deductible even if they didn't result in a new job being offered or accepted, Rosen says. These costs include resumes, postage, job counseling, employment agency fees, telephone charges, and travel for interviews that isn't reimbursed by the prospective employer. They must exceed 2% of your AGI. To be deductible, you must be looking for work in the same trade or business that you've been in, she says, adding that job hunting expenses when looking for a job in a new field aren't deductible.

Bad debt
Ever loan someone money and not get repaid? You could qualify for the non-business bad debt tax deduction for individuals, says Anisha Bailey of A.C. Bailey Tax Solutions in Beavercreek, Ohio. Individuals and married couples can claim the deduction and get a loss of up to $3,000 per year when they loan someone money and aren't repaid, Bailey says. "This non-business bad debt loss is deducted as a short-term capital loss and they can carry forward any amounts they are not able to claim in the current year and reduce their taxable income in future years," she wrote in an email.

Keep in mind that you should send you return securely, whether it's by e-filing or through the mail. However you prepare your tax returns --- with a computer program, hired professional or by yourself --- it's important not to rush through the process, Rosen says.

"So many people just drop off their stuff at an accountant," she says. "Just like anything, taxes take a lot of time --- whether it's a professional or you're doing it yourself."

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Friday, February 15, 2013

IRS Asks Preparers and Taxpayers to Limit Use of ‘Where’s My Refund’ Tool

The Internal Revenue Service posted an alert on its Web site Thursday to tell taxpayers and the tax community that it is experiencing high traffic on its online “Where's My Refund?” tool as more tax returns arrive.
 
The IRS delayed tax season until Jan. 30 this year and was not able to process a number of important forms until this week (see Two Major Tax Forms Ready for Filing Soon). The heavy volume of refund inquiries means that the IRS anticipates both "Where's My Refund?" on IRS.gov and the refund feature on the IRS2go phone app will have limited availability during busier periods.

“Due to the large number of inquiries and to avoid service disruptions, the IRS strongly urges taxpayers to only check on their refunds once a day,” said the IRS. “IRS systems are only updated once a day, usually overnight, and the same information is available whether on the Internet, IRS2go smartphone app or on IRS toll-free lines. While 'Where's My Refund?' is updated nightly, your account will not change that frequently.”

The IRS added that it is seeing a “good start” to the filing season, with tax refunds being issued on a timely basis. Nine out of 10 taxpayers typically receive refunds in less than 21 days when they use e-file with direct deposit, the IRS noted.

Last tax season, there were a number of delays due to new identity theft filters (see IRS Fraud Detection System Leads to Refund Delays). Late last month, when it launched tax season, the IRS promised improvements in the "Where's My Refund?" tool to provide taxpayers with a personalized tax refund date, along with improved identity theft filters (see IRS Promises Better Service as it Kicks off Tax Season).

The IRS said it expects to see the number of tax returns—and related refund inquiries—steadily increase around the President's Day holiday week.

The IRS offered the following tips to help taxpayers with their refund questions:
• Have the right tax information ready before using any of the IRS refund tools. This includes Social Security number, filing status and refund amount.
• You don't need to check “Where's My Refund?” more than once a day as your information will not change.
• To avoid system delays, the best time to check on refunds is evening and weekends.
• There is no need to call the IRS about your refund; the telephone service has the same information that is available on “Where’s My Refund?”.
 
 
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Dude, Where's my refund? IRS website overrun

The Internal Revenue Service has a message for taxpayers eager to learn the status of their tax refund: Please don't check the IRS website every five minutes - once a day is enough.
 
WASHINGTON — 

The Internal Revenue Service has a message for taxpayers eager to learn the status of their tax refund: Please don't check the IRS website every five minutes - once a day is enough.

The IRS says its "Where's my refund?" website and smartphone app are being overwhelmed by eager taxpayers. The agency says its systems are only updated once a day, usually overnight, and the same information is available on the website, the IRS2go smartphone app and IRS toll-free phone lines.

The IRS provides three updates: when the tax return is received, when the refund is approved and when the refund is sent. To avoid delays, the agency says the best time to check on refunds is evenings and weekends.
"I think what we're seeing is just part of the natural evolution in the refund process," said IRS spokesman Terry Lemons. "Twenty-five years ago, you desperately checked the mailbox every day."

Lemons said the number of inquiries is up over last year, probably because it is easier to check on smartphones and computer tablets.

Nine out of 10 taxpayers typically receive refunds in less than 21 days when they file returns online and get refunds deposited directly into bank accounts, the agency said.

The IRS is receiving more than 1 million returns a day and volume is expected to increase in the coming days, Lemons said. About 75 percent of individual filers get refunds. Last year they averaged $2,803.

"Every year our most common question is about people's refunds," Lemons said. "For a lot of folks this is the biggest check they will see all year."
 
 
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Thursday, February 14, 2013

Interagency offers virtual help with taxes

Residents needing help on their federal tax returns can have a virtual face to face conversation with an IRS employee at Interagency Council.

The so-called Virtual Service Delivery offered by the Internal Revenue Service opened for business Tuesday at the nonprofit’s 1940 Mesquite Ave. office. It’s part of a newer effort from the IRS to offer service to taxpayers in areas that previously had limited service or no service. The service will be open year-round and is available to anyone who needs help.

“It’s a cold start (Tuesday),” said Kim Anderson, Interagency program coordinator. “We’re up and able to run.”

Other than providing a room for the new IRS service, Interagency has nearly nothing to do with the IRS offering at its location. However, if there are technical problems, Anderson would be responsible for trying to get the system back online. It was that technical training that was needed that delayed the office from opening sooner, Interagency officials have said.

“This is very exciting,” Anderson said. “We’re hoping that people understand that (Interagency employees and volunteers) aren’t tax people. We don’t want them to get mad at us.”

When someone comes in to get free help from the IRS, they’ll be directed to an individual room where the IRS operation is set up. That room includes a monitor with a tiny camera attached on top for the two-way conversation. There’s a scanner off to the side for the taxpayer to scan a document that he wants the IRS employee to view.

For the past six months, Interagency has worked to get the IRS operation set up inside the nonprofit, Anderson said.

This is the second year of an IRS effort to partner with community groups to offer the virtual assistance.
In 2012, 14,000 taxpayers received assistance at 13 virtual service locations, according to an email response from the IRS. Thanks to the strong response to the program, the IRS is rolling out 14 new sites this year including the Interagency location.

With the one in Interagency opening, there are three virtual service locations in Arizona, including offices in Prescott and Flagstaff.

For more details and a list of the 27 available virtual service locations, visit irs.gov.

Virtual Service Delivery will be available at the Interagency office from 9:30 a.m. to 4 p.m. Monday through Friday. On March 11, the free service will be available an hour earlier, starting at 8:30 a.m.

You may contact the reporter at gmoberly@havasunews.com.
 
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Two Lesser-Known Tax Changes Are Brutal For The Upper Middle Class


couple

Two of the lesser known and least understood provisions of the fiscal cliff legislation will raise taxes on high-income taxpayers by phasing out personal exemptions and the amount of itemized deductions wealthy taxpayers are allowed in 2013.

The set of rules, dubbed personal exemption phase-out (PEP) and Pease (named after former Congressman Donald Pease, who helped create it), were originally passed in the early 1990s, and remained in place until the Bush-era tax cuts of 2001 gradually eliminated them. The new fiscal cliff bill restores the limitations in 2013*. By limiting the number of exemptions and deductions a high-income taxpayer is allowed, the taxes effectively raise a filer’s taxable income.

RELATED: Who Pays More Under the Fiscal Cliff Deal?

The fiscal cliff deal raised federal income taxes on married households who earn more than $450,000, or single filers who earn more than $400,000, but the new PEP and Pease limits on the value of personal exemptions and itemized deductions apply for married taxpayers who earn $300,000 or $250,000 for single filers.

“It’s a sneaky rate increase once you get above the thresholds,” says Matthew LePley, a tax manager at Brighton Jones LLC.

While taxpayers will not have to deal with the tax changes this filing season, experts recommend planning ahead, as a number of tax-saving strategies can be put into action now.

PEP 

Beginning in 2013, the personal exemption phaseout limits the value of personal exemptions for taxpayers who earn more than $300,000 (married filing jointly), or $250,000 (single) by 2 percent for each $2,500 earned above the thresholds.

The personal exemption, or the amount of income the IRS designates as “exempt” from being taxed at the federal level, is indexed for inflation, so the personal exemption amount is $3,800 for 2012, and rises to $3,900 in 2013.

On their 2013 tax return, for example, a married couple with two children earning $425,000, or $125,000 over the threshold, would lose 100 percent of their personal deductions ($125,000/$2,500 = 50 and 50x.02 = 1, for a 100 percent loss). Assuming one spouse doesn’t work, the household would lose all four personal exemptions of $3,900 per person, adding up to a $15,600 increase in taxable income for the 2013 tax year.
Using that same scenario, a family of four who earns $375,000, or $75,000 over the threshold, would lose only 60 percent of their allowable personal exemptions, or $9,360, leaving the family with a deduction of $6,240.

“If you make that kind of money, you will not be allowed to take all of your itemized deductions and your personal exemptions also will be reduced,” said Harvey Frutkin, senior counsel at Frutkin Law Firm Pc. “The impact will be pretty significant.”

PEASE

For the 2013 tax year, the Pease Limitations  cap deductions on everything from state taxes to mortgage interest to charitable deductions for tax filers who earn more than $250,000 (single) or $300,000 (married, filing jointly). A recent JPMorgan Chase & Co. note to clients estimated this rule will result in a tax hike of about 1.2 percent for taxpayers who live in states with high income taxes.

The restored limits reduce allowable deductions and can by calculated two ways: (1) 3 percent of adjusted gross income above the threshold, or (2) 80 percent of the amount of the itemized deductions allowable for the taxable year – whichever calculation lets a taxpayer deduct a higher amount is the one they’ll want to use. For most high-income earners, the 3 percent calculation gives them the highest deduction.

For example, assume a married couple has an adjusted gross income of $500,000 ($200,000 over the limit) and total itemized deductions of $45,000. The deductions are broken down as follows:
Mortgage interest deduction: $10,000
Charitable deduction: $20,000
State income tax deduction: $10,000
Property tax deduction: $5,000
By using the three percent deduction calculation (3% x 200,000), the couple’s itemized deductions would be reduced by $6,000, leaving a total deduction of $39,000.

On the other hand, using the calculation of 80 percent of the total itemized deductions would reduce the couple’s itemized deductions by $36,000, leaving a deduction of only $9,000.

Since the first option is the lesser of the two limitations, the couple’s deductions would be reduced to $39,000, rather than $45,000.

HOW TO PREPARE

To lessen the pain, LePley says most high-income taxpayers will want to maximize tax deductions, including charitable donations, but warns that both the PEP and Pease limitations are difficult to avoid, and should be considered with a comprehensive wealth management strategy. 

Shauna Wekherlien, owner of Tax Goddess Business Services Pc, says high income taxpayers may want to bundle medical expenses in 2013 because they must exceed 10 percent of adjusted gross income to qualify. “Taxpayers that are considering elective medical procedures will want try to schedule them all in one year to maximize the value of the deductions,” she said.

LePley suggests that high-income households consider taking advantage of the federal estate and gift tax exemption of up to $5.25 million over a lifetime. Taxpayers who used the full exemption in 2012 still have another $130,000 to gift tax-free this year due to inflation adjustments.

A recent JPMorgan Chase & Co. paper from a team of wealth advisors and investment specialists recommends that wealthy taxpayers who own several homes also may want to consider switching their main domicile to the home in the state with the lowest state income tax burden.

The report also suggests tax-advantaged investment strategies such as purchasing tax-exempt municipal bonds, annuities and life insurance policies.

“There are certainly esoteric investments out there such as structured notes and private equity, but those tend to be fraught with risk,” says Karen Kruse, president of First Tennessee Advisory services.

Kruse said dividend-paying stocks and solid blue chips should be held in a tax-advantaged account, such as an IRA. “Outside of your tax-exempt accounts, you would tend to go towards growth-oriented stocks that typically don’t throw off income,” she said. “You buy and hold them, and your gains become long-term gains.”

She is not advising clients to invest in long-term bonds: “You might want to invest in municipal bonds, but you’d really want to stay short,” she said. “I think the market is waiting for the first sign of inflation,” Kruse recommends investing in assets that will rise with inflation such as real estate investment trusts, real estate, utilities and commodities.

According to LePley, retirees will be in the best position to save, since they have more flexibility with their annual distributions. “Most working people are not going to be able to manage what they make,” he said. “But, for retirees, that’s where we can manage a little better.”

Taxpayers over the age of 70.5 can also rollover up to $100,000 per year from individual retirement accounts to qualified charities in 2012 and 2013 only. These rollovers meet both minimum distribution requirements and limit taxable income.

A QUICK GUIDE TO DEDUCTIONS
The big three:
  • Charitable deductions : Contributions to charitable organizations may be deducted up to 50 percent of adjusted gross income. Contributions to certain private foundations, veterans organizations, fraternal societies, and cemetery organizations are limited to 30 percent adjusted gross income.
  • Mortgage interest : Any interest on a mortgage is deductible, but filers can’t deduct interest on mortgages that exceed $1 million. If you have a second loan or a home equity line of credit, the filer can only deduct interest on loans up to $100,000.  
  • State, local and property taxes : There are a handful of states with no state income tax, but for filers in high-income tax states, this deduction prevents residents from being taxed twice.
Other misc. deductions:
  • Gambling: Gambling winnings are fully taxable and must be reported on a tax return, however taxpayers can limit the amount of winnings taxed by deducting their gambling losses.
  • Investment and advisory fees: Certain investment management and advisory fees also are deductible.
  • Alimony: All payments that qualify as alimony are also deductible under the U.S. tax code. However, child support, noncash property settlements, and use of a filer’s property do not qualify.
  • Job-related moving expenses: If you moved due to a new job, you may be able to deduct your moving expenses. The new workplace must be at least 50 miles farther from your old home and the job must be full-time.
*While the 2013 tax changes are said to be “permanent” and not set to expire, there are many fiscal and tax issues still being discussed in Congress, and future amendments could be made to the tax code. Be sure to consult your accountant or tax professional to discuss your wealth and tax strategies.
 
This story was originally published by  The Fiscal Times.
 
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Payroll tax changes result in $3 billion surplus in January

WASHINGTON | Tue Feb 12, 2013 2:44pm EST

(Reuters) - The budget posted a surprise surplus in January for the first time in five years, as the Treasury likely benefited from a windfall when payroll tax cuts expired.

The budget registered a $3 billion surplus, the first time there had been a surplus in January since 2008, Treasury Department data showed on Tuesday. Economists had been looking for a $2 billion gap. The surplus compared with a $27 billion deficit in January 2012.

It appeared the Treasury got a boost from the expiration of a payroll tax reduction on January 1 following the last-minute "fiscal cliff" deal. In its estimate last week, the Congressional Budget Office said the Treasury got an extra $9 billion in taxes from the expiry.

The January surplus means the government's cumulative deficit for the fiscal year, which starts in October, is $290 billion, 17 percent lower than the comparable first four months of fiscal 2012.

During fiscal 2012 which ended September 30, the budget deficit totaled $1.089 trillion.

Growth in receipts outpaced rising spending, narrowing the deficit. Receipts grew to $272 billion from $234 billion in the same month last year while outlays rose to $269 billion in January of this year from $262 billion in January 2012. So far in the first four months of fiscal 2013, receipts are $98 billion higher compared to the same period a year ago.

The extra fiscal space should leave the Treasury with plenty of room to stave off default after a debt-limit extension expires on May 19.

Congress on January 31 passed a measure that allows Treasury to borrow sufficiently to meet federal obligations until May 19, at which time another increase in the federal debt limit will be needed.

But even if no increase is granted, Treasury will be able to stave off a final day of reckoning until late July or early August by redeploying emergency cash management measures which allow it to claw back about $220 billion worth of borrowing capacity.

(Reporting by Anna Yukhananov; Editing by Andrea Ricci and James Dalgleish
Source: http://www.reuters.com/article/2013/02/12/us-budget-surplus-idUSBRE91B1E520130212
 
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Trends In Tax Planning From The New Tax Law

Steve Parrish
Steve Parrish, Contributor
Using my experience to help save business owners a headache or two.
 
We’ve had over a month to digest the American Tax Relief Act of 2012 (ATRA). The law is starting to take shape, and planners are devising strategies to leverage the good provisions and avoid the costly ones. Naturally, those of us who deal with these things each time they come around are being asked to make predictions about where this law will take us.

Predictions can be dangerous. What we take for prescience when the prediction is made may end up as being, well, foolish when the facts are all in. In the 19th century, the U.S. Geological Survey announced there was little or no chance of oil being discovered in California. In the 20th century, Neville Chamberlain famously declared peace for our time after signing the non-aggression pact with Nazi Germany. And, in the 21st century, the words mission accomplished come to mind.

Even with something as mundane as tax law, I’m hesitant to make predictions. I confess to past predictions such as ROTH conversions will be big and Congress will not let the estate tax expire in 2010. Time proved me wrong.  So, instead of predictions I offer tax trends.  These are my expectations for what may happen with tax planning as a result of the passage of ATRA.
  1. Income tax planning will take on an increased importance in business planning. With a slower economy translating to both lower earnings and lower yields, the incremental cost of increased income taxes will represent a larger potential drag on gains. Further, even though many individual income tax provisions have been made permanent, most of the business income tax provisions are temporary in nature. This may cause businesses to leverage business tax savings while they are available. Section 179 expensing, bonus depreciation and research & development (R&D) tax benefits are temporary at best, and businesses will take a hard look at enjoying these provisions before they expire.
  2. Tax diversification will have new meaning to business owners. In the Great Recession many business owners learned they couldn’t have all of their eggs in one basket — their businesses. Asset diversification is already a trend, but with increased taxes, there will also be a movement towards tax diversification. Business owners will, of course, look to qualified plans for immediate tax deductions, but they will consider tax advantaged products such as life insurance and annuities. The question is not just income tax deferral, but the nature of the income once it comes out. For example: accumulation-oriented life insurance policies will become more popular. That’s because they offer death protection and tax deferral during accumulation, plus tax-favored distributions where the owner can control the amount and timing of the income stream.
  3. Pass-through tax status will no longer be the only choice for smaller businesses. While electing S Corp or LLC (taxed as a pass-through) status will continue to be the default assumption for many closely-held businesses, tax planners are blowing the dust off of C Corporation (C Corp) law and giving it another look. One reason is tax brackets. The top C Corp tax bracket is 35%, while the top personal bracket is 39.6%. Further, C Corps offer tax favored benefits that are not equally available with pass-through entities. Group term life insurance, disability income plans and to an extent, health insurance, all enjoy preferred tax status for business owners when offered through a C Corp. Deferred compensation plans can truly defer some of an owner’s wages when structured through a C Corp tax status. Speaking of deferring compensation ….
  4. Deferred compensation plans will be very popular. With the passage of ATRA, top tax rates have gone up, and there is little reason NOT to defer tax if and where possible. Additionally, there will be tax points where the marginal cost of additional tax can be significant. For example: a couple may be well advised to keep its income below $250,000 in order to avoid the 3.8% Medicare surtax. Or, they may want to keep income below $300,000 to avoid the wasting away of their personal exemptions and itemized deductions. Many wage-earning taxpayers will seek to model these tax points in advance and, using deferred compensation plans from their companies, push off the sting of additional taxes until later.
  5. Estate planning will be noticeably different, depending on the estate side. With the exclusion from estate tax at the $5.25 million level ($10.5 for a couple), there are some interesting planning challenges. In many states, this means business owners won’t have to worry about the liquidity challenge of state or federal estate taxes in their planning.  However, in other states, although safe from the Feds, they will have to consider local taxes. Another complicating factor is that once the estate exceeds the exclusion, the taxes are large and the planning opportunities are even larger. The 40% rate that applies above the exclusion is onerous, but the law allows many opportunities to avoid it. Consequently, we will likely see a very different set of estate planning approaches, depending on the projected size of the estate at the time of death.
  6. Nothing is so certain as change. From the conversations I’ve had with business owners and their advisors, many are not buying that we’ve seen the last of tax law changes in the near future. We have so many deficit and budget issues to wrestle with in the coming weeks and months, many believe that Congress may be forced to revisit taxes sooner rather than later. Of course, I don’t mean this as a prediction. 
Source
 
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