April 15th, 2013…affectionately referred to as “tax day.”  Not only is today a Monday but it’s also the day we have to either file our tax returns or an extension. And for those of us who owe more taxes than we’ve already paid, today is the day we have to send our checks or so starts the interest clock. And for those of us who run our own businesses not only are we writing checks to the U.S. Treasury to cover our Federal tax obligation and the state to cover our state tax obligation…but we’re doing it twice because today is also the day payment for 2013 Q1 estimated taxes are due.  All in all…it’s been a lousy day.  What if we just threw up our arms and said, I’m not paying my taxes! read more »

I received my first 1099 for tax year 2012 last week.  And while the weather suggests “It’s beginning to look a lot like Christmas” it’s also a reminder that we’re only 3 months away from our mailboxes filling up with tax forms, including 1099s.  And while 1099 is normally reserved for non-employee income, like contractor work, it has an evil stepsister that many of you will or have already received…IRS Form 1099-C.

A 1099-C is sent by your credit card issuer.  It represents debt that they have forgiven, or a “cancelation of debt.”  It means you cut a deal with your credit card issuer and they accepted less than you really owed and considered the balance to be settled in full.  What, did you really think you were out of the woods when you settled that debt?  That debt settlement company you hired didn’t tell you that settling debt would create a taxable event for you? read more »

An audit of the Internal Revenue service regarding fraudulent tax returns was requested by U.S. Senator Bill Nelson, a Democrat from Florida. The investigation was conducted by the Treasury Department’s Inspector General, J. Russell George. According to this investigation, more than $5 billion in refund checks were delivered to identify thieves who filed fraudulent 2011 tax returns.  The Treasury Department estimated that $21 billion could be delivered to identity thieves in the next five years.

The Internal Revenue Service detected approximately 940,000 fraudulent tax returns for 2011, totaling $6.5 billion in refunds.  There were 1.5 million cases that weren’t detected; these thieves assumed the identity of a dead person, child, or someone who won’t normally file a return. Most of the cases (80 percent) used direct deposits, including pre-loaded debit cards. This payment is preferred by thieves because there is no address or photo identification needed to use the card. read more »

Will You Spend Your Tax Refund Like One-Third of Americans?

Since we are quickly approaching April 17, there are more studies on what Americans will do with their refund.  This is the second year Capital One hired Braun Research to conduct a Taxes and Savings Survey. The survey was conducted via landline or cell phone from February 18 to February 23, 2012.  The top usage of the refund is to spend it; and for this group, the most popular way to spend it is for everyday expenses.

Survey Highlights read more »

Should You Use Tax Relief Companies if You Owe Back Taxes?

Preview: Whenever one of my articles has the phrase “walk away” in it, you know where I’m headed.

Tax relief companies use the radio, television and the Internet to advertise help for taxpayers in distress. If you pay them an upfront fee, which can be thousands of dollars, these companies claim they can reduce or even eliminate your tax debts and stop back-tax collection by applying for legitimate Internal Revenue Service  (IRS) hardship programs.  According to the Federal Trade Commission (FTC), the truth is that most taxpayers don’t qualify for the programs these fraudsters hawk, their companies don’t settle the tax debt, and in many cases don’t even send the necessary paperwork to the Internal Revenue Service requesting participation in the programs that were mentioned. Adding insult to injury, some of these companies don’t provide refunds, and leave people even further in debt.

Some taxpayers who filed complaints with the Federal Trade Commission reported that, after signing up with some of these companies and paying thousands of dollars in upfront fees, the companies took even more of their money by making unauthorized charges to their credit cards or withdrawals from their bank accounts. read more »

I know you don’t want to think about filing your taxes already or possibly owing money.  You certainly don’t want to be subject to an audit.  If you don’t make at least one million dollars a year, you have a smaller chance of having this happen.

Individuals audited

The Internal Revenue Service (IRS) released data on audits of 2011 tax returns.  They audited one percent of individuals earning less than $200,000, four percent of those earning between $200,000 and $999,999 and 12.5 percent of those earning one million and more. In the previous tax year, 12 percent of millionaires were audited, which was a four percent increase.  In the period from 2004 to 2009 the proportion of millionaires audited ranged from five to seven percent. The Internal Revenue Service audited approximately 1.6 million of the 141 million individual tax returns filled for 2011; this is 1.1 percent of the tax returns overall.  read more »

How did consumers use the extra two percent they received in their paychecks in 2011?  The National Foundation for Credit Counseling (NFCC) conducted an online poll of 1,800 in January 2012 to determine if the objective of the tax cut is being realized.  It is sad that 66 percent were unaware that their paychecks were larger in 2011.

“Even if the dollar increase is small, consumers should be aware of it,” said Gail Cunningham, spokesperson for the NFCC. “Not recognizing that the paycheck was larger begs the question of how the additional money was spent. Knowing how much you make and consciously determining how to spend it are basic building blocks of financial stability. This poll provides another example of the need for increased financial education.” read more »

This is the last year tax filers will be able to get a refund anticipation loan (RAL) offered by banks.  As of 2012, the Internal Revenue Service (IRS) will no longer provide tax preparers, banks or lenders with the “debt indicator”, which lists any outstanding debts that will be deducted from the refund, such as delinquent student loans and child support. This information was the basis used to approve refund anticipation loans.   Because of a lawsuit, only one bank, Republic Bank and Trust Company of Louisville, Kentucky can offer these loans until April 15, 2012.  After that, no bank will be able to offer this loan.

What are Refund anticipation loans?

These loans are right up there (or down there) on my list with prepaid debit cards…they’re poor choices.  These loans are secured by the taxpayer’s expected tax refund. These loans are offered by one bank now through a few tax preparers.  The loan is usually for a short period of 7 to 14 days, until the Internal Revenue Service pays the refund. The tax payer is charged very high Interest rates and additional fees.  Since this loan is offered through a tax preparer, there is a tax preparation fee, interest on the loan and fee to open a temporary bank account. There may be additional fees such as application, administrative, e-filing, transmission, or “processing.” read more »

If you are unemployed or have a significant loss in income, you may qualify for tax relief from the Internal Revenue Service (IRS).  In addition, they are relaxing installment payment caps and terms.

Who qualifies?

Taxpayers, who have been unemployed for at least 30 consecutive days during 2011 or during 2012 up to the April 17, 2012 filing deadline, qualify for the relief. Self-employed taxpayers whose business income dropped 25 percent or more due to the economy also qualify.  There are income restrictions for both groups. Income has to be below $200,000 for married taxpayers who file jointly; and below $100,000 for taxpayers filing as single or head of household.  Those eligible are required to complete Form 1127A.

Penalties waived

Taxpayers who qualify will have a six-month grace period on “failure-to-pay” penalties. These penalties are assessed each month a taxpayer is late paying their taxes and the penalty fee increases with each month.  The penalty starts at 0.5 percent of the taxes due and can reach up to a maximum of 25 percent. With this relief offered, the taxpayer won’t pay any penalty fees until October 15, 2012.  However, interest will still accrue on the amount owed, which averages three percent annually. read more »

In part one of this blog on the top twelve scams or the “Dirty Dozen” identified by the Internal Revenue Service (IRS),  I talked about the first six -  identity theft, phishing,  return preparer fraud, hiding income offshore, “free money” and Social Security scams, and false/inflated income and expenses. This blog discusses the next six scams: false form 1099 refund claims, frivolous arguments, falsely claiming zero wages, abuse of charitable organizations and deductions, disguised corporate ownership, and misuse of trusts.

7. False Form 1099 Refund Claims – The taxpayer files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return. They believe that the federal government maintains secret accounts for U.S. citizens and taxpayers can gain access by using this form. read more »