Friday, February 29, 2008

IRS Releases Winter 2008 Statistics

IRS Issues Winter 2008 Statistics of Income Bulletin

WASHINGTON — The Internal Revenue Service today released the winter 2008 issue of the Statistics of Income Bulletin, featuring data from 134.4 million individual income tax returns filed for tax year 2005. Of those returns, 90.6 million were “taxable.” This means that they reported total income tax greater than zero. The number of taxable returns in tax year 2005 was up 1.7 percent from 2004.

Adjusted gross income on these 90.6 million returns totaled $6.857 trillion, an increase of 9.4 percent from 2004. Total income tax on these returns totaled $935 billion, up 12.4 percent from 2004. (Adjusted gross income is total income, as defined by the tax code, less statutory adjustments, which are primarily business, investment and certain other deductions.)

The average tax rate for taxable returns was 13.6 percent in tax year 2005, which was up 0.4 percentage points from 2004.

Taxpayers in the top 1 percent of adjusted gross income reported adjusted gross income of at least $364,657 in tax year 2005. This group accounted for 21.2 percent of all adjusted gross income reported, which was up 2.2 percent from the prior year. This group also accounted for 39.4 percent of total income tax reported, which was up 2.5 percent from 2004.

Taxpayers in the top 5 percent of adjusted gross income reported adjusted gross income of at least $145,283. This group accounted for 35.7 percent of all adjusted gross income reported and 59.7 percent of total income tax.

This edition of the quarterly Bulletin includes articles about the following:

The filing patterns of split-interest trusts were relatively stable between 2005 and 2006.
Charitable and other types of tax-exempt organizations reported unrelated business taxable income that totaled $1.3 billion in tax year 2004, up 65 percent from 2003. These organizations reported $364.6 million in unrelated business income tax, an increase of 66 percent since 2003.
The finances of charitable and other tax-exempt organizations have grown substantially in the 20 years from 1985 to 2004. For example, the aggregate book value of reported assets for public charities and private foundations totaled $2.5 trillion for tax year 2004, an increase of 222 percent over the 20-year period.
Another article explores patterns in individual income taxes since the modern income tax was introduced in 1913.

The Statistics of Income Bulletin is available from the Superintendent of Documents, U.S. Government Printing Office, P.O. Box 371954, Pittsburgh, PA 15250-7954. The annual subscription rate is $53 ($74.20 foreign), single issues cost $39 ($48.75 foreign).

For more information about these data, write the Director, Statistics of Income (SOI) Division, RAS:S, Internal Revenue Service, P.O. Box 2608, Washington, DC 20013-2608; call SOI's Statistical Information Services at (202) 874-0410; or fax, (202) 874-0964. To access an electronic version of the winter 2008 issue of the Bulletin, from the "SOI Bulletins" page described above, select "Winter 2008."

Related Items:

March Madness for Stimulus Letters

Special Economic Stimulus Letters Reach Mailboxes in March

WASHINGTON — More than 130 million American households will begin receiving Internal Revenue Service letters next week reminding them to file a 2007 tax return in order to receive a 2008 economic stimulus payment.

The mailings by the IRS will begin the first week in March and continue throughout the month. The informational notice, titled Economic Stimulus Payment Notice, alerts people that they may be eligible for a one-time stimulus payment of up to $600 ($1,200 married filing jointly) starting in May. There also is a $300 per child payment for qualifying children younger than 17.

“This special letters remind people that they won’t need to do anything more than file a 2007 tax return in order to put the stimulus payment process in motion,” Acting IRS Commissioner Linda Stiff said.

The notice is informational and does not seek any financial information. The main mailings, which will take place in three weekly batches, will go to taxpayers who filed a tax return last year.

“To receive a payment in 2008, individuals who qualify will not have to do anything more than file a 2007 tax return. The IRS will determine eligibility, figure the amount and send the payment,” the notice states. “This payment should not be confused with any 2007 income tax refund that is owed to you by the federal government. Income tax refunds for 2007 will be made separately from this one-time payment.”

However, some people must take an extra step this year to receive a stimulus payment. In late March, the IRS will send a special mailing to certain recipients of Social Security and Veterans Affairs benefits. Generally, those benefits are nontaxable and recipients do not file tax returns. In order to receive a stimulus payment, people in this group need to file a tax return if they have at least $3,000 from a combination of certain Social Security benefits, Veterans benefits and earned income. The minimum stimulus payment for these people is $300 ($600 for married filing jointly).

The IRS has created a sample of Form 1040A with information on how to fill out a few lines that will enable eligible people who do not normally file a tax return to receive the stimulus payment.

More details on the special mailings for recipients of Social Security and veterans benefits will be available soon.

Related Items:

Economic Stimulus Payment Notice

Wednesday, February 27, 2008

Tax Debt Help - Form 982 to the Rescue

Mortgage Workouts, Now Tax-Free for Many Homeowners; Claim Relief on Newly-Revised IRS Form

IR-2008-17, Feb. 12, 2008

WASHINGTON — Homeowners whose mortgage debt was partly or entirely forgiven during 2007 may be able to claim special tax relief by filling out newly-revised Form 982 and attaching it to their 2007 federal income tax return, according to the Internal Revenue Service.Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec. 20, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person filing a separate return. Details are on Form 982 and its instructions, available now on IRS.gov.

“The new law contains important provisions for struggling homeowners,” said Acting IRS Commissioner Linda Stiff. “We urge people with mortgage problems to take full advantage of the valuable tax relief available.”

The late-December enactment means that reporting procedures for this law change were not incorporated into tax-preparation software or IRS forms. For that reason, people using tax software should check with their provider for updates that include the revised Form 982. Similarly, the IRS is now updating its systems and expects to begin accepting electronically-filed returns that include Form 982 by March 3. The paper Form 982 is now being accepted, but the IRS reminds affected taxpayers to consider filing electronically, which greatly reduces errors and speeds refunds.

The new law applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. In most cases, eligible homeowners only need to fill out a few lines on Form 982 (specifically, lines 1e, 2 and 10b).

The debt must have been used to buy, build or substantially improve the taxpayer's principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available. See Form 982 for details.

Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lender. For debt cancelled in 2007, the lender was required to provide this form to the borrower by Jan. 31, 2008. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.

The IRS urges borrowers to check the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. Borrowers should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for their home ( Box 7).

Tax Debt Help - Time Limit Strategies

The IRS has three years to give you a refund, three years to audit your tax return, and ten years to collect any tax due. Together, these laws are called the statute of limitations. They put time limits on various tax-related actions that you and the IRS can take.

You have 3 years to claim a tax refund.

This is measured from the original deadline of the tax return, plus three years. For example, your 2004 tax return was due on April 15th, 2005. 2005 plus 3 is 2008. You have until April 15th, 2008, to file your 2004 tax return and still get a tax refund. File your 2004 return after April 15th, 2008, and your refund "expires." It goes away forever. This is called the statute of limitations for claiming a refund.The tax code says that you have three years from the original filing deadline to claim a refund.

Please file your 2004 tax returns on or before April 15th, 2008, so that your refunds are not lost forever.

The IRS has 3 years to audit your tax return or to assess any additional tax liabilities.

This is measured from the day you actually filed your tax return. If you filed your taxes before the deadline, the time is measured from the April 15th deadline. For example, you filed your 2006 tax return on February 15th, 2007. The 3-year time period for an audit begins ticking from April 16th, 2007, (the filing deadline) and will stop ticking on April 16th, 2010. On April 17th, 2010, the IRS cannot audit your 2006 tax return unless there is a suspicion of tax fraud.

The IRS has 10 years to collect outstanding tax liabilities.

This is measured from the day a tax liability has been finalized. A tax liability can be finalized in a number of ways. It could be a balance due on a tax return, an assessment from an audit, or a proposed assessment that has become final. From that day, the IRS has ten years to collect the full amount, plus any penalties and interest. If the IRS doesn't collect the full amount in the 10-year period, then the remaining balance on the account disappears forever. The statute of limitations on collecting the tax has expired.

Example of the Statute of Limitations

Let's provide an example based on a real-life scenario. Mr. Smith wants to file 6 years of tax returns: 2001 through 2006. All years he has refunds. If he files by April 15th, 2007, Mr. Smith will receive refunds for his 2003, 2004, 2005, and 2006 tax returns. His refunds for 2001 and 2002, however, have expired.Let's change the example slightly. Mr. Smith wants to file 6 years of tax returns: 2001 through 2006. In 2001 and 2002, he could have received a refund. In 2003, 2004, and 2005, he owes. Mr. Smith cannot apply his 2001 or 2002 refunds as an estimated tax payment towards his 2003 taxes. His refunds have expired. For the 2003 to 2006 tax returns, the IRS has ten years to collect the full tax, plus penalties and interest, from the date Mr. Smith actually files the returns. If Mr. Smith has a refund for 2006, that refund will be used to pay off his tax debts.

Action Plan Item

It is in your best interest to file your tax returns at your earliest possible convenience. First, you can claim refunds. Second, it starts the clock ticking on the 3-year statute for audits and the 10-year statue for collections.

Tax Law References

Internal Revenue Code, Section 6501 (3-year audit statute),
Section 6502 (10-year debt collection statute), and
Section 6511 (3-year refund statute).

For more information on how the IRS manages these statute of limitations, see Internal Revenue Manual, 25.6.1, Statute of Limitations.

Internal Revenue Code References

IRC 6501 (3 Years to Audit)

IRC 6502 (10 Years to Collect Debt)

IRC 6511 (3 Years to Claim Refund)

Tax Debt Help - State Tax Amnesty Programs

State governments sometimes offer limited-time only programs to allow people to pay back taxes and to file late tax returns with reduced penalties.

Before You Apply for Tax Amnesty

Find out what tax amnesty is all about, especially the difference between limited-time-only amnesty programs and on-going voluntary disclosure initiatives. Get tax relief for those tax returns you haven't filed, or back taxes you are trying to pay off.

There is a great website that will provide you with links to all State governments. The site is called SisterStates Tax Directory. Check it out, it's a great resource for any state related taxing question you may have.

Arizona Voluntary Compliance Initiative
The Arizona Department of Revenue is offering a limited-time tax relief program for people and businesses who participated in tax shelters. Taxpayers may submit amended tax returns to disclose their participation in a tax shelter in exchange for relief from penalties. Program ended on April 1, 2005.

California Tax Amnesty
California's Franchise Tax Board is offering tax amnesty for people and businesses who haven't filed their tax returns, or who substantially understated their tax obligation. Ended March 31, 2005.

Connecticut Voluntary Disclosure Program
Connecticut's Department of Revenue Services offers tax relief for people and businesses who haven't filed their tax returns, who haven't paid their back taxes, or who have understated their tax obligations.

District of Columbia Voluntary Disclosure Program
Washington DC's Office of Tax and Revenue offers tax relief for people and businesses who haven't filed tax returns, who haven't paid their back taxes, or who have understated their tax obligation.

Florida Voluntary Disclosure Program
Businesses that haven't filed or paid their taxes can get tax relief for their business and payroll taxes.

Idaho Forgot to File Program
People and businesses who haven't filed their tax returns may be eligible for tax relief from the state of Idaho. The State Tax Commission may waive penalties if you file and pay your taxes.

Indiana Tax Amnesty
Indiana's Department of Revenue is offering tax amnesty for people and businesses who haven't filed their tax returns, or who substantially understated their tax obligation. Ends November 15, 2005.

Indiana Voluntary Compliance Program
Indiana's Department of Revenue offers tax relief for people and businesses who haven't filed tax returns, who haven't paid their back taxes, or who have understated their tax obligation.

Minnesota Sales & Use Tax Voluntary Compliance Program
The Minnesota Department of Revenue offers tax relief for businesses that have not filed their sales and use tax returns.

Minnesota Tax Shelter Voluntary Compliance Program
The Minnesota Department of Revenue is offering a limited-time tax relief program for people and businesses who participated in tax shelters. Taxpayers may submit amended tax returns to disclose their participation in a tax shelter in exchange for relief from penalties. Program ends on January 31, 2006.

Mississippi Tax Amnesty
Mississippi is offering tax amnesty for people and businesses who haven't filed their tax returns, or who substantially understated their tax obligation. September through December 2004.

Missouri Voluntary Disclosure Program
The Missouri Department of Revenue offers tax relief to people and businesses who have not filed or paid their taxes.

North Carolina Voluntary Disclosure Program
North Carolina's Department of Revenue offers tax relief for people and businesses who haven't filed tax returns, who haven't paid their back taxes, or who have understated their tax obligation.

Pennsylvania Voluntary Disclosure Program
Pennsylvania's Department of Revenue offers tax relief for people and businesses who haven't filed tax returns, who haven't paid their back taxes, or who have understated their tax obligation.

Rhode Island Tax Amnesty
Rhode Island is offering tax amnesty for people and businesses who haven't filed their tax returns, or who substantially understated their tax obligation. Ends on September 30, 2006.

South Carolina Voluntary Disclosure Program
South Carolina's Department of Revenue offers tax relief to out-of-state businesses who have not filed or who have not paid their SC taxes.

South Dakota Voluntary Disclosure Program
South Dakota's Department of Revenue offers tax relief for businesses that have not filed or have not paid their sales and use tax, or contractor's excise tax.

Tennessee Voluntary Disclosure Program
Tennessee's Department of Revenue offers tax relief for businesses that have failed to file their sales, use, excise, or franchise taxes.

Utah Voluntary Disclosure Program
The Utah State Tax Commission offers tax relief to businesses that have failed to file or to pay taxes.

Vermont Voluntary Disclosure Program
Vermont's Department of Taxes offers tax relief for people and businesses who haven't filed tax returns, who haven't paid their back taxes, or who have understated their tax obligation.

Washington Voluntary Disclosure Program
The State of Washington is offering tax relief for business that have failed to file or failed to pay their taxes.

Wisconsin Voluntary Disclosure Program
Wisconsin's Department of Revenue offers tax relief for people and businesses who haven't filed tax returns. Offers partial relief from penalties.

Monday, February 25, 2008

Tax Debt Help - Making Those Estimated Tax Payments

If you received income where taxes weren't withheld — such as money from self-employment, investments or alimony — you're generally required to pay estimated taxes.
Use Form 1040-ES - Estimated Tax for Individuals to figure your estimated tax payments.
If you underpay your estimated taxes, you might be subject to a penalty.

What are estimated taxes?

You're required to pay estimated taxes if you receive income from which taxes aren't withheld , including money from self-employment, investments and alimony, and your tax (after subtracting credits and withholding) is expected to be $1,000 or more. Here are a few good things to know about estimated tax payments:

The payments are due April 15, June 16, Sept. 15 and Jan. 15.
If you fail to pay enough on each installment due date, you may be subject to the penalty for underpayment of estimated tax even if your return shows a refund.
If you pay in as much as your tax liability for the previous year, you can pay your balance due without penalty when you file your return, regardless of the amount. See below if your prior-year income was high.

How much do I pay?

As part of your year-end planning, compare your projected year-end tax payments with your expected tax liability. If your payments are expected to be less than 90% of current-year tax, you generally will have to increase your withholding or estimated tax payments.

However, if your payments are made timely and will be at least as much as your prior-year tax liability, you're probably safe from the penalty. But if your prior-year adjusted gross income was more than $150,000 ($75,000 if Married Filing Separately), you'll have to pay 110% of your prior year tax liability. Figure your estimated tax with Form 1040-ES - Estimated Tax for Individuals.

Overwitholding Taxes

Tax withheld from your paycheck is considered to be paid evenly throughout the year, which means overwithholding in November and December can make up for earlier underpayments. If you have a job, arrange with your employer to withhold extra amounts from the final paychecks of the year so you're not subject to the penalty when you file your return.

Underpayment of Estimated Taxes

If you do not make enough estimated tax payments and are subject to the penalty, don't automatically pay it. There are several exceptions to the penalty. Information can be found in the instructions for Form 2210.

Tax Help - Take Advantage of Job Search Expense Deductions

With the unemployment rising on a daily basis, here is another deduction that you should consider....................

Job search expenses can be deducted as miscellaneous itemized deductions if you look for a job in the same field at the same level as the one you left. The expenses are deductible — even if you don't get the job.

You can claim job-seeking expenses as long as the amount of all miscellaneous itemized deductions is more than 2% of your adjusted gross income (AGI). Job seeking deductions are also subject to the overall limitation on itemized deductions based on income threshold amounts. To figure your deduction, subtract 2% of your AGI from the total amount of these expenses.

Allowable Deductions

You may be eligible for the following deductions while you're searching for a job.

Employment agency fees: If in a later year your new employer repays your agency fees, you must include the amount in your income up to the amount of the deduction you claimed earlier. If your employer pays fees directly to the agency, you don't have to include them in your income.
Resume preparation: typing and printing, postage, long-distance charges, advertising, and photographs required for your resume.
Travel: airfare, mileage (some automobile expenses have been approved), lodging and meals (based on either actual expenses or standard federal per diem rates).
Legal fees protecting employment status.

Qualifications

To qualify for a deduction, your job search must be for a job in your current, or most recent, trade or business and should be at a similar level of responsibility with duties similar to those of your most recent job.

If you haven't held a job in that trade or business for an extended length of time, your job search will be considered for a new trade or business, and your deductions may not be allowed.
If you held a college internship or valid job while in college and your search is for a job in the same trade or business, you will be able to take the job search deductions.
If you're just out of school and had no paying jobs while in school that were related to your trade or business, your deductions won't be allowed.

To learn more about job-hunting deductions, contact a tax professional.

Tax Help - Utilizing the Saver's Credit

The Retirement Savings Contribution Credit, known as the Saver's Credit, allows you to get a credit for up to half of what you contribute to your IRA or other qualified retirement plan. Up to $2,000 of your annual contribution is eligible for the credit.

If you are Married Filing Jointly and you and your spouse make eligible contributions, both of you may claim the credit. Note: If you received a distribution from an IRA or other plan with contributions eligible for the credit, the distribution reduces the amount of your 2007 contributions that are eligible for the credit. For 2007, this applies to distributions you received during 2005, 2006 and 2007, and to distributions you will receive in 2008.

Saver's Credit Requirements

You qualify for the Saver's Credit if you are:

18 or older
not a full-time student
not claimed as a dependent on someone else's return, and
have an AGI that does not exceed $52,000 if Married Filing Jointly, $39,000 if Head of Household and $26,000 if Single or Married Filing Separately.

Your Maximum Saver's Credit Amount

The Saver's Credit is equal to a percentage of your eligible contributions. AGI and filing status determine the percentage — 10%, 20% or 50%. When calculating the Saver's Credit, AGI includes excluded foreign income. Here's how the income limitations break down according to filing status.

Married Filing Jointly

$0–$31,000, 50%
$31,001–$34,000, 20%
$34,001–$52,000, 10%

Head of Household

$0–$23,250, 50%
$23,251–$25,500, 20%
$25,501–$39,000, 10%

Single or Married Filing Separately

$0–$15,500, 50%
$15,501–$17,000, 20%
$17,001–$26,000, 10%

IRA Contribution Deadline

You have until April 15, 2008, to start or contribute to an IRA to claim the Saver's Credit on your 2007 tax return.

Tax Help - The Tax Advantages of Adoption

You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child.

First, check with your employer about assistance, because some companies offer a program to get back a portion of adoption expenses. The Adoption Credit is not available for any reimbursed expense, but certain amounts reimbursed by your employer for qualifying adoption expenses may be excluded from your gross income.

How does it work?

The Adoption Credit could reduce your tax liability by as much as $11,390 for any type of adoption. You may claim both a credit and an exclusion for the expenses of adopting an eligible child. In other words, you may be able to claim a credit of up to $11,390 and also exclude up to $11,390 from your income. However, you can't claim both a credit and an exclusion for the same expense.

To qualify for the full credit:

Your adjusted gross income must be less than $170,820.
The Adoption Credit or exclusion must be taken for a child who is a U.S. citizen or resident, unless the adoption of a foreign non-resident child becomes final.
You must adopt an eligible child.

The child must have special needs.
The child must be a U.S. citizen or resident.
A state has determined that the child can't or shouldn't be returned to their parents' home and probably won't be adopted unless assistance is provided.

The credit and exclusion are reduced if your modified adjusted gross income is between $170,820 and $210,820. You can't claim either the credit or the exclusion if your modified adjusted gross income is $210,820 or more.

If you're adopting a special needs child, you can claim the full credit regardless of the amount spent on adoption expenses.

Is my child eligible?

An eligible child is one who is either younger than 18 or physically or mentally incapable of self care. A special needs child must have been a U.S. citizen or resident at the time the adoption procedure began, a state must have determined that the child shouldn't be returned to his or her parents' home, and the state must have determined that the child will not be adopted without assistance from the state. States make this determination based on a variety of factors that include:

the child's ethnic background
the child's age
the child's minority status
whether the child has siblings
whether the child has a chronic medical condition
whether the child has an emotional or physical handicap

Which adoption expenses qualify?

Adoption expenses covered by the credit include:

all adoption fees
court costs
attorney fees
travel expenses (including meals and lodging while away from home)
other expenses directly related to the legal adoption of an eligible child

What expenses don't qualify?

There are several adoption-related expenses that are not eligible for the credit. Some of these include:

expenses that violate state or federal law
expenses associated with surrogate parenting arrangements
expenses associated with the adoption of your spouse's child
expenses paid with funds received from any government program
expenses allowed as a credit or deduction under any other federal income tax provision
expenses paid or reimbursed by an employer or someone else

When do I claim this credit?

If you're adopting a U.S. child, you claim the tax credit in the year after you incur the expense or the year the adoption becomes final, whichever comes first. For example, if you pay for a home study in 2006 but your adoption isn't finalized until 2007, you claim the Adoption Credit in 2007. The credit for expenses you pay in a year after the adoption is final is claimed in the year the expenses were paid.

In the case of a U.S. child, you can claim the credit even if your adoption of the child fails. However, if your adoption involves a foreign child, you can take the credit only if the adoption is completed.

You may claim the credit for more than 1 year. For example, assume you spent $500 in 2005 for a home study to adopt a U.S. child, then an additional $3,000 in court costs and adoption agency fees in 2006. If the adoption wasn't finalized until 2007, you would claim a $500 credit in 2006 and a $3,000 Adoption Credit in 2007. If the adoption became final in 2006, you would have taken the entire $3,500 credit in 2006. But again, for foreign children, no credit may be taken until, and only if, the adoption is finalized

Tax Debt Help - With a Personal Touch

Effectur Becomes National Customer Satisfaction Leader

S. Raines, Sr. Financial Advisor/Tax Preparer

www.effectur.com

Tax Debt Help - Let Your "Ex" Pay for Their Mistakes

This year more than ever, I have assisted married and separated taxpayers with filing innocent/injured spouse forms so that at least one spouse in the household can get a refund without the IRS taking everything. And that everything can be from failure to pay back taxes, student loans and child support. And in some cases, the ex-spouse has deliberately failed to report income or even gone so far as to defraud the government.

Relieving one spouse from the mistakes of another seems to have escalated within the last couple of years and more and more folks are trying to find ways to opt out of meeting their responsibilities not realizing that sooner or late, those responsibilities will catch up with you....and his name is "Uncle Sam".

I have written previous articles on this topic but now that we are midway through the tax filing season, this is one of the areas that I feel needs to be in the spotlight.

Generally, we trust our spouses with our many financial assets and responsibilities: bank accounts, credit accounts, and mortgages.

A joint tax return, though, can cause more headaches and heartaches than any other shared financial responsibility. This is because the IRS can hold you liable for costly mistakes made by your spouse on a joint return.So what happens when you discover you owe taxes even though it wasn’t you who made the mistake in the first place? If your ex-spouse under-reported income or over-reported exemptions, should you have to pay the price? Rest assured, the IRS does offer a way out for taxpayers in this situation.If you find yourself in this unfair and unfortunate situation, you have the following choices:1) pay;2) do nothing;

3) seek relief from the IRS.
I love them, so I’ll pay for their mistake?

If your ex-spouse is unable or unwilling to help and you can easily afford to pay the past-due amount, this is probably the best way to get out of the situation.

It is the quickest and easiest way to stop having to deal with the IRS. Another benefit is that your compliance will be put down on record, which can be helpful if you ever run into federal tax troubles in the future.

However, you will be paying money that you may not actually owe, so you will need to use your own judgment, consider the amount of the debt, and weigh other factors (such as your relationship with your ex-spouse) before making your decision.

Think about what happens if you don’t pay?

Unfortunately, your ex-spouse may not be available or held accountable for the past joint return, so you must take action before the IRS does.

If a tax account is delinquent, the IRS is authorized to take severe measures to collect the debt. It can order a federal levy of your bank accounts, wages, or other valuable assets to satisfy the tax debt.

The IRS can also place a lien on your home. This means the IRS will be the first to receive payment if you sell your house. Liens are typically reported to the credit reporting agencies and can be damaging to a person’s credit rating.

Wage garnishment is another possible consequence of tax delinquency. The IRS may contact your employer and a portion of your earnings could be collected by the IRS until your tax debt is fully paid.

In addition to these actions, the IRS may add to your tax debt by charging penalty fees and interest, which can add up quickly and will only make it more difficult to satisfy your tax debt.

Can anyone provide me with solutions?

In some cases, you may feel that you should not be held accountable for the back taxes at all and that the responsibility falls entirely on your ex-spouse. You may be able to file for Injured Spouse Relief or Innocent Spouse Relief, depending on your circumstances. These tax relief options are offered by the IRS for people who find themselves in this and similar situations.

If your ex made false reports or mistakes on your joint return, and if you can prove you had no knowledge of the error, you may qualify for Innocent Spouse Relief. In this case, you may obtain Form 8857 from the IRS website, complete the form, and send it to the IRS.

You are typically required to prove that you filed a joint return with your spouse and that you were not aware at the time of signing the return that your spouse was misreporting income or deduction items.

You may be eligible for Injured Spouse Relief if you are denied a refund because your joint return’s refund was held back to pay your ex’s back taxes or other federal or state debt, such as child support, spousal support, or student loans. In this case, acquire Form 8379, also found on the IRS website, and allocate income, adjustments, deductions, and credits between yourself and your spouse in Part 2. Send the IRS an individual tax return with the form to receive credit.

These relief procedures are provided by the IRS to recognize that, in some cases, you may not be held accountable for a spouse’s mistakes or personal obligations. You can fill out the paperwork and file for these measures yourself, or you can get help from CPA’s and other authorized tax professionals. If you are seeking help to remedy a situation after divorce, however, you may want to contact a tax resolution company. These agencies aim to assist clients in mitigating or absolving tax liabilities and typically have much more experience in settling these types of problems (as opposed to a tax preparation company, which mainly helps taxpayers file returns).

Taxes are often complicated, and running into difficult situations just adds to the problem. But one thing is certain: if you wait too long, the IRS can enforce collections with levies, wage garnishment, and other methods. You can stop these actions by working with the IRS to resolve the problem – and the sooner, the better.

S. Raines, Sr. Financial Advisor/Tax Preparer

Sunday, February 24, 2008

Forrest says..."Stupid is as stupid does!"

We are all guilty of doing "stupid" things with money, whether it's buying something we know that we absolutely can't afford or don't need, or "assuming" that we have the money in our checking account when we don't (cha-ching hear those bank fees soring).

I was browsing through some tax related websites and found one that absolutely made me go "what the *&^% were they thinking!".

Dave Ramsey has a website which has short snipit stories of the stupid things that people do with money. It's called "STUPID TAX - Tell Us Your Story". He invites folks to write in and give their stories. Makes you wonder who would voluntarily want to admit to some of these "oops moments".

He also provides some great resources to help you "not" make stupid mistakes with money. Here's a suggestion, use some of that money to get budget or credit counseling.

I highly recommend that you take a minute and read a few of these stories and see how you rate on the "STUPID MONEY SCALE". You might be better off than you think!.

Remember my favorite saying, "It's better to be proactive than reactive!"

S. Raines, Sr. Financial Advisor/Tax Preparer

Wednesday, February 20, 2008

Tax Debt Help - Ways to Prevent Foreclosure

The real estate market is an area that I have never completely understood except for the tax implications. But there is a lady who can give you the "411" on any aspect of real estate and that is Elizabeth Weintraub, financial writer for About.com .

Elizabeth has written a very in depth article on all the ways you can prevent foreclosures. This article opened my eyes to alot of things that I didn't know. The article was so good that I want to present it here to you and to also give you a link to where you can subscribe to her newsletter.

This is well worth the read. The following is her latest article on the foreclosure process:

Ways to Stop Foreclosures

Home owners who are facing foreclosure often dread dealing with the facts that got them to that place. If they think back to when they first bought that home, losing the home was probably the furthest thing from their mind. Few home owners actually plan to go into foreclosure.

Reasons For Pending Foreclosure

Apart from those who knowingly participate in mortgage fraud -- with the intention of never making a single payment -- most homeowners face sudden extenuating circumstances that force them to stop making timely mortgage payments. Here are a few of those reasons:

Job loss / unexpected unemployment
Sudden illness or medical emergency
Death in the family
Divorce / loss of second income
Excessive debt obligations
Job demotion or promotion denials
Inability to pay an adjustable interest rate that increases
Unexpected major home maintenance expense

Ways to Avoid Foreclosure

The best way to avoid foreclosure is to prevent the filing of a Notice of Default.

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Lenders do not want to foreclose but will file a Notice of Default to protect their interests, if necessary. If you know you are unlikely to meet your mortgage obligation, the first thing you should do is call your lender.

Don't put it off, be embarrassed or ignore letters from your lender because those responses will make the situation worse, not better. Depending on your particular situation and hardship circumstances, here are some options your lender might propose to you:

Time to make up your payments.
Lenders might agree to wait before taking legal action against you and let you work out a repayment plan that is affordable for you. This is called forbearance.
Forgiving a payment.
If you can agree on a way that you will be current after missing a payment or two (without the means to pay it back), the lender might give you a break and waive your obligation. This is called debt forgiveness, and it rarely happens.
Spread out the missed payments over a longer term.
For example, if your payment is, say, $1,200 a month, the lender might let you add $100 a month to each payment for a year until you are caught up. This is called a repayment plan.
Changing the terms of your loan.
If your mortgage is an adjustable loan, the lender might freeze the interest rate before it increases or change the interest rate to a more manageable rate for you. A lender might also extend the amortization period. This is called a note modification.
Add the back payments to your loan balance.
If you have sufficient equity and meet the lender's lending guidelines, the lender might increase your loan balance to include the back payments and re-amortize the loan. This is called a refinance.
Make a separate loan to you.
Certain government loans contain provisions that let borrowers who meet specific criteria apply for another loan, which will pay back the missed payments. This is called a partial claim.

Ways to Stop Foreclosure

When the lender files a Notice of Default, your options are limited. That is why it is better for you to call your lender before falling behind on your payments, because lenders are often reluctant to work out repayment schedules after foreclosure proceedings have been commenced.

You will be given a certain time period to bring the payments current, pay the costs of filing the foreclosure and stop the foreclosure. This is called reinstatement of your loan. If you cannot make up the missed payments and the lender will not work with you, here are a few other options to stop foreclosure:

Sell Your Home.
Interview real estate agents to get an opinion of market value and average DOM to sell your home. You might be tempted to hire a discount broker, but many sellers feel they need the exposure and marketing that full-service brokers offer. Compare both to determine which best meets your needs and time frame.
Consider a Short Sale.
If your home is worth less than the amount you owe, you might be a candidate for a short sale. A short sale affects credit but it's not as bad as a foreclosure. You or your agent will need to negotiate with your lender to find out if the lender will cooperate on a short sale. This is called a pre-foreclosure redeemed.
Sign a Deed-in-Lieu of Foreclosure
This is called deeding the home back to the lender. The homeowner give the lender a properly prepared and notarized deed, and the lender forgives the mortgage, effectively canceling the foreclosure action. Lenders tell me that deeds-in-lieu of foreclosure affect credit the same as a foreclosure.The lender might also work an arrangement where a home owner can remain in the home until finding a place to move into. Owners in default should negotiate the right to retain occupancy, arguing that if the lender followed through on the foreclosure, an owner would still enjoy the right of possession during that procedure.

Tuesday, February 19, 2008

Tax Debt Help - Relief for Foreclosures

Tax Relief for Foreclosures

People who have lost their homes through foreclosure or who have restructured their mortgage loans may qualify for tax relief. Normally, debts that are canceled by a lender are considered taxable income. But a change in the tax law makes mortgages on a main home exempt from the tax on canceled debts.

Related information:

How to Stop Foreclosures [About Home Buying]
Home Sellers Might Owe the IRS on a Foreclosure or Short Sale [About Home Buying]
New IRS tax form helps homeowners with mortgage relief [Accounting Web]

A special thanks goes to Wm. Perez, Financial Advisor for About.com for the great information and links.

S. Raines, Sr. Financial Advisor/Tax Preparer

Tax Help - You Must File for 2007 to Get 2008 Tax Rebate!

William Perez, Tax Advisor for About.com has some great information on the stimulus package and some very valuable links for more detailed information. This is must read information for those who have been thoroughly confused over how the package will work.

President Bush signed into law the Economic Stimulus Act, the legislation that provides taxpayers with a mid-year tax rebate. And the Internal Revenue Service has outlined its plans for how to process and to distribute those rebates.The basic plan is that taxpayers will need to file their 2007 tax returns before they can receive their rebate checks. Even though the rebates are technically for 2008, the IRS will calculate the rebates using income information from the 2007 return.

Some people, however, normally don't need to file a tax return because they earn less than the filing requirement. And many retired people living solely on Social Security or veterans' disability pensions usually don't need to file at all since their benefits are non-taxable. This year, however, pensioners and disabled veterans will need to file a return, even if they don't have a dollar of taxable income. The IRS will need individuals to file a return and indicate that they are receiving income that qualifies them for the 2008 tax rebate.

More information about the rebates:

Basic Overview of the 2008 Tax Rebates
The Skinny on the Stimulus Plan [from the Wall Street Journal]

Detailed instructions from the IRS:

Monday, February 18, 2008

Tax Help - The Stimulus Package - More Details

The Internal Revenue Service released additional information today about the upcoming economic stimulus payments in a specially designed section for taxpayers on IRS.gov.The new information includes an extensive set of Frequently Asked Questions about the stimulus payments, with a special emphasis on recipients of Social Security and certain veterans’ benefits. Millions of people in this group who normally don’t file a tax return will need to do so this year in order to receive a stimulus payment.

For recipients of Social Security and certain veterans’ benefits and low-income workers who don’t normally need to file, the IRS also released a special version of a Form 1040A that highlights the simple, specific sections of the return that can be filled out by people in these categories to qualify for a stimulus payment.

“Most taxpayers just need to file a 2007 tax return in order to automatically receive the stimulus payment,” said Acting IRS Commissioner Linda Stiff. “But we are especially concerned about recipients of Social Security and veterans’ benefits who may need to take special steps this year to file a tax return in order to obtain a stimulus payment. IRS.gov will help taxpayers get what they need.”

The Frequently Asked Questions section – accessible through the front page of IRS.gov -- includes an extensive set of information for all taxpayers with questions about the stimulus payments, commonly referred to as rebates. The questions and answers include important information for low-income workers and certain recipients of Social Security, Railroad Retirement benefits and veterans’ benefits.

The special IRS.gov section also features extensive examples of how much taxpayers can expect to receive in stimulus payments. The page includes more than two-dozen payment scenarios affecting different types of taxpayers.

IRS.gov will be updated frequently to provide taxpayers with all they need to understand the stimulus payments.

The IRS will begin sending taxpayers their economic stimulus payments in early May after the current tax season concludes. In most cases, the payment will equal the amount of tax liability on the tax return, with a maximum amount of $600 for individuals ($1,200 for married couples who file a joint return). Payments to more than 130 million households will continue over several weeks during the spring and summer. A payment schedule for taxpayers will be announced in the near future on IRS.gov.

The IRS reminds taxpayers when they file their 2007 tax return to use direct deposit, which is the fastest way to get both regular refunds and stimulus payments. However, taxpayers who use Refund Anticipation Loans (RALs) or enter into any other loan or financial agreement with their tax professional cannot receive their stimulus payments by direct deposit and instead will get a paper check.

The only way to receive a stimulus payment in 2008 is to file a 2007 tax return. The vast majority of taxpayers must take no extra steps to receive their stimulus payment beyond the routine filing of their tax return. No other action, extra form or call is necessary.

Special Guidelines for Recipients of Certain Social Security, Veterans and Railroad Benefits

Certain people who normally are not required to file but who are eligible for the stimulus payment will have to file a 2007 tax return. This includes low-income workers or those who receive Social Security benefits or veterans’ disability compensation, pension or survivors’ benefits from the Department of Veterans Affairs in 2007. These taxpayers will be eligible to receive a payment of $300 ($600 on a joint return) if they had at least $3,000 of qualifying income.

Qualifying income includes Social Security benefits, certain Railroad Retirement benefits, certain veterans’ benefits and earned income, such as income from wages, salaries, tips and self-employment. For taxpayers filing joint tax returns, only a total of $3,000 of qualifying income from both spouses is required to be eligible for a payment.

The special version of the Form 1040A unveiled today on IRS.gov shows taxpayers in these groups the specific sections of the form they need to fill out to qualify for the stimulus payment. The mock-up is designed to be used as a guide for filling out an actual Form 1040A.

“People who don’t normally need to file have a roadmap on how to fill out the Form 1040A quickly and easily,” Stiff said. “We encourage recipients of Social Security and veterans’ benefits who don’t normally need to file a tax return to use this mock-up of the form as a guide to help them get their stimulus payment.”

The Form 1040A illustration on IRS.gov shows the limited number of lines that will need to be filled out for recipients of Social Security, certain Railroad Retirement and certain veterans’ benefits. A key line is reporting their 2007 benefits on Line 14a of Form 1040A. The IRS reminds taxpayers they can also use Line 20a on Form 1040 to report these same benefits.

In addition, taxpayers in these groups should write the words “Stimulus Payment” at the top of the 1040A or 1040.

For now, taxpayers in this group filing a tax return can only file a paper copy of the Form 1040 or Form 1040A. The IRS is working to update its systems to accept electronic versions of these limited-information returns for taxpayers who otherwise have no need to file a tax return. The IRS is also working with the software community to handle these returns electronically at a future date.

The IRS also reminded taxpayers with Social Security, Railroad Retirement or veterans’ benefits who have already filed but did not report their qualifying benefits on either Line 14a of Form 1040A or Line 20a of Form 1040 that they may need to file an amended return in some situations to receive a larger stimulus payment.

Taxpayers who already have filed but did not report these benefits can file an amended return by using Form 1040X, which can only be filed with a paper form.

The IRS reminded taxpayers who don’t have any other requirement to file a tax return that submitting a tax return to qualify for the economic stimulus payments does not create any additional tax or trigger a tax bill. In addition, the stimulus payments will not have any effect on eligibility for federal benefits.

The IRS is working with the Social Security Administration and Department of Veterans Affairs and other organizations to ensure that recipients are aware of the need to file a tax return to receive their stimulus payment in 2008.

Tax Help - Understanding Your W-4

Claim 1 allowance on your W-4 if you're single, work 1 job and no one can claim you as a dependent.
You're exempt from withholding if you didn't have any federal tax liability last year, don't expect to have any this year, your total income is $850 or less and you don't expect to receive more than $300 of unearned income.If you're working more than 1 part-time job or a full-time job and a part-time job, you may need to withhold more tax on each W-4.
If you have taxable income other than wages, adjust your withholding to cover the tax on the extra income.

W-4 Allowances

If you're being claimed as a dependent by someone else, working more than 1 job or receiving unearned income, the number of allowances you may claim when filing your W-4 will be affected. Generally, if you're single, work 1 job, and no one can claim you as a dependent, you can claim Single with 1 allowance. The status (Single or Married) is indicated on line 3 of Form W-4. The number of allowances you claim is entered on line 5.

Am I exempt from withholding?

You can claim exemption from withholding if you didn't have a federal income tax liability last year and don't expect to have one this year. You can't claim exemption from withholding if:

you can be claimed as a dependent by another person.
your total income is expected to be more than $900 and is expected to include more than $300 of unearned income (for example, interest and dividends).

Note: Being a student doesn't automatically qualify you to be exempt from withholding. You still must meet the other requirements. If you meet the requirements to file exempt, simply write the word "exempt" on line 7 of Form W-4 and file it with your employer.

Someone Claims You as a Dependent

Your parents or someone else can claim you as a dependent if you didn't provide more than half your support for the year. If someone else will claim you as a dependent, then you're not entitled to claim an allowance on line A of the personal allowances worksheet on Form W-4.

Withholding When Working More Than 1 Job

If you're working more than 1 part-time job or a full-time job and a part-time job, you may need to compensate for the extra job by altering your withholding. Tax is withheld from your income from any job based only on the income from that job. The income from the part-time job is commonly low enough that the amount withheld will not be enough to cover the tax on that income. If this is the case,be sure to increase your withholdings at your primary job to compensate.

If you have more than one job or you're married and both you and your spouse are working, complete the Two Earner/Multiple Jobs Worksheet on page 2 of Form W-4 to compute what to claim for each job. This can help you avoid a balance due at tax time.

Income Other Than Wages

Perhaps you receive a taxable scholarship, income from investments your grandmother gave you, you won a prize, or you're doing some self-employment work on the side. Your tax liability will include all of these items, so you should factor that in when completing your W-4. For example: You determine that claiming 1 allowance will cover the money you earn from your wages, but some extra income is going to add $200 to your tax liability. The simplest way to compensate for that extra income is have an additional amount withheld from each paycheck. You get paid every other week, and $200 over 26 weeks makes an additional $8 each pay period. Enter $8 on line 6 to cover the tax on that extra income.

The worksheets provided with Form W-4 are designed to help you compute the exact amount of withholding you require. Be sure to use them to verify you are on the right track with your withholding. Check with a tax professional for help with your W-4 if you have questions.

S. Raines, Sr. Financial Advisor/Tax Preparer

Saturday, February 16, 2008

Adoption Credits

Claim the Adoption Credit or exclude up to $11,390 for qualifying adoption expenses.
Qualified expenses include adoption fees, court costs, attorney fees and travel expenses.
Claim the credit the year after you pay expenses or the year the adoption is final, whichever comes first.

You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. First, check with your employer about assistance, because some companies offer a program to get back a portion of adoption expenses. The Adoption Credit is not available for any reimbursed expense, but certain amounts reimbursed by your employer for qualifying adoption expenses may be excluded from your gross income.

How does it work?

To qualify for the full credit:

Your adjusted gross income must be less than $170,820.
The Adoption Credit or exclusion must be taken for a child who is a U.S. citizen or resident, unless the adoption of a foreign non-resident child becomes final.
You must adopt an eligible child.

The child must have special needs.
The child must be a U.S. citizen or resident.
A state has determined that the child can't or shouldn't be returned to their parents' home and probably won't be adopted unless assistance is provided.

If you're adopting a special needs child, you can claim the full credit regardless of the amount spent on adoption expenses.