Eight Things to Know If You Receive an IRS Notice

Every year, the IRS sends millions of letters and notices to taxpayers. Many taxpayers will receive this correspondence during the late summer and fall. Here are eight things every taxpayer should know about IRS notices – just in case one shows up in your mailbox.

Don’t panic.

Many of these letters can be dealt with simply and painlessly.

There are number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.

Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.

If you receive a correction notice, you should review the correspondence and compare it with the information on your return.

If you agree with the correction to your account, usually no reply is necessary unless a payment is due.

If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.

It’s important that you keep copies of any correspondence with your records.

For more information about IRS notices and bills, see Publication 594, The IRS Collection Process. Information about penalties and interest charges is available in Publication 17, Your Federal Income Tax for Individuals. Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Publication 594, The IRS Collection Process
Publication 17, Your Federal Income Tax for Individuals

Ten Tips for Taxpayers Making Charitable Donations

Every year, millions of taxpayers itemize their deductions on their federal tax return. One of the most common itemized deductions is a donation made to a charitable organization.

Here are the top ten things the IRS wants every taxpayer to know before deducting charitable donations.

Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization and most will be able to tell you. You can also check IRS Publication 78, which lists most qualified organizations. IRS Publication 78 is available at IRS.gov.

Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.

You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.

If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.

Be sure to keep good records of any contribution you make, regardless of the amount. For any contribution made in cash, you must maintain a record of the contribution such as a bank record – including a cancelled check or a bank or credit card statement – a written record from the charity containing the date and amount of the contribution and the donor’s name, or a payroll deduction record.

Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, your deduction would be $200.
Include credit card charges and payments by check in the year they are given to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.

For any contribution of $250 or more, you must have written acknowledgment from the organization to substantiate your donation. This written proof must include the amount of cash and a description of any property you contributed, and whether the organization provided any goods or services in exchange for the gift.

To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attached the form to your return.
An appraisal generally must be obtained if you claim a deduction for a contribution of noncash property worth more than $5,000. In that case, you must also fill out Section B of Form 8283 and attach the form to your return.

For more information see IRS Publication 526, Charitable Contributions, and for information on determining value, refer to Publication 561, Determining the Value of Donated Property. These publications are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Form 8283, Noncash Charitable Contributions
Publication 526, Charitable Contributions

Employee vs. Independent Contractor - Ten Tips for Business Owners

If you are a small business owner, whether you hire people as independent contractors or as employees will impact how much taxes you pay and the amount of taxes you withhold from their paychecks. Additionally, it will affect how much additional cost your business must bear, what documents and information they must provide to you, and what tax documents you must give to them.

Here are the top ten things every business owner should know about hiring people as independent contractors versus hiring them as employees.

Three characteristics are used by the IRS to determine the relationship between businesses and workers: Behavioral Control, Financial Control, and the Type of Relationship.

Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.

Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.

The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.

If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.

If you can direct or control only the result of the work done -- and not the means and methods of accomplishing the result -- then your workers are probably independent contractors.

Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.

Workers can avoid higher tax bills and lost benefits if they know their proper status.
Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8 – Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding – with the IRS.

You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer's Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS Web site or by calling the IRS at 800-829-3676 (800-TAX-FORM).

Contractor vs. Employee
Publication 1779
Publication 15-A

Tax Amnesty 2009 for Individual Taxpayers

Maryland's Tax Amnesty program runs September 1 - October 30 and allows individual and business taxpayers to get a Tax Do Over on past liabilities for most tax types.

The amnesty application is available now, but payments will not be accepted until September 1.
Maryland's Tax Amnesty program covers liabilities for:

Individual income tax
Fiduciary income tax
Pass-through entity nonresident tax
Corporate income tax
Employer withholding tax
Sales and Use tax
Admission and Amusement tax

Taxpayers can take advantage of Maryland's programs for liabilities on returns due on or before December 31, 2008. Approved applicants will have all unpaid civil penalties, except previously assessed fraud penalties, and one-half any unpaid interest waived as part of the program.
Any taxpayer who took advantage of the 2001 Tax Amnesty is NOT eligible for the 2009 program for the same tax covered under the past amnesty initiative.

Determining Your Liability

The Comptroller's Office has made it easy to figure out how much you would owe if approved for amnesty.

If you have an existing liability, please refer to bills you received in the past. By September 1, you'll be able to click on the Amnesty BillPay icon and enter your notice number. With this program, your amnesty eligible liability will be calculated for you. You'll also be able to determine payment plan amounts based on the length of the plan and calculate interest using a separate amnesty calculator. Currently, you can calculate the interest using the interest table provided on the paper amnesty application.

If you have not filed a return recently or can't locate a past bill, email us at amnesty@comp.state.md.us or call us at 1-800-MD-TAXES to determine your liability.

Getting Your Tax Do Over

Getting your Tax Do Over is easy. Simply complete and file a separate application. Nonfilers need to also file an original or amended return for each tax type. Include full payment of the tax and one half the interest or include a payment of at least 10% of the amnesty amount due and indicate your preference for a payment plan.

Paying Up

As of September 1, you can make your payment by direct debit through Amnesty BillPay. You can also pay by credit card check or money order. If you choose to setup a payment plan, you MUST provide bank account information and agree to have your account debited each month for the duration of the plan. All payments plans must be completed by December 31, 2010.

For More Information

More detailed information on Maryland's Tax Amnesty program can be found in our frequently asked questions. The amnesty application is online, but payments will not be accepted until September 1. Call 1-800-MD-TAXES for more assistance or email us at amnesty@comp.state.md.us. In person assistance can also be obtained at any of the agency's 11 local offices.

Deadline Looms for NOL Carryback Election

Time is running out for many small businesses wishing to take advantage of the expanded business loss carryback option included in the American Recovery and Reinvestment Act of 2009. Eligible individuals have until October 15 to choose this expanded carryback option.

Eligible calendar-year corporations have until September 15.

Small businesses that had expenses exceeding their income for 2008 can choose to carry the resulting loss back three, four, or five years, instead of the usual two. This means that a business that had a net operating loss (NOL) in 2008 could carry that loss as far back as tax-year 2003.

The option is available for an eligible small business that has no more than an average of $15 million in gross receipts over a three-year period ending with the tax year of the NOL. This choice may be made for only one tax year.

Eight Important Questions for Hobbyists

Summer is a time many Americans take their fishing poles and gardening tools out of storage.

Hobbies – such as woodworking, stamp collecting and scrapbooking – are often done for pleasure, but can result in a profit.

If your favorite activity does make a profit every year or so, there may be tax implications. You must report income to the IRS from almost all sources, including hobbies.

Here are eight questions that will help determine if your activity is a hobby or a business.

• Is the purpose of your activity to make a profit? Generally, your activity is considered a business if it is carried on with the reasonable expectation of earning a profit.
  
  
• Do you participate in your activity just for fun? Hobbies – also called not-for-profit activities – are those activities that are not pursued for profit.
  


• Do you depend on income from the activity? If so, your activity is likely considered a business.
  


• Have you changed methods of operation to improve profitability? If so, your hobby may actually be a business.
  


• Do you have the knowledge needed to carry on the activity as a successful business? People who carry out hobbies just for fun, often don’t have the business acumen to turn their not-for-profit activity into a profitable business venture.
  


• Have you made a profit in similar activities in the past? This may indicate your activity is a business rather than a not-for-profit hobby. An activity is presumed carried on for profit if it makes a profit in at least three of the last five tax years, including the current year – or at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.
  


• Does the activity make a profit in some years? Even if your activity does not make a profit every year, it still may be considered a business.
  


• Do you expect to make a profit in the future from the appreciation of assets used in the activity?

This indicates your activity may be a business rather than a hobby.

If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity. If you are conducting a trade or business you may deduct your ordinary and necessary expenses.

More information about not-for-profit activities is available in Publication 535, Business Expenses, available on the IRS.gov Web site or by calling 800-TAX-FORM (800-829-3676).
Link: IRS Publication 535, Business Expenses

Top Ten Tips for Taxpayers Deducting Casualty and Theft Losses

Taxpayers who find themselves the victim of a natural disaster or theft this summer should know the rules for deducting their casualty losses next year when they file their federal tax return. Generally, you may deduct losses to your home, household items and vehicles on your federal income tax return.

Here are ten things the IRS wants you to know about deducting casualty or theft losses.

You may not deduct casualty and theft losses covered by insurance unless you file a timely claim for reimbursement. You must reduce your loss by the amount of the reimbursement.

A casualty does not include normal wear and tear or progressive deterioration from age or termite damage.

The damage must be caused by a sudden, unexpected or unusual event like a car accident, fire, earthquake, flood or vandalism.

If your property is not completely destroyed or if it is personal-use property, the amount of your casualty or theft loss is the lesser of the adjusted basis of your property, or the decrease in fair market value of your property as a result of the casualty or theft, reduced by any insurance or other reimbursement you receive or expect to receive.

If business or income-producing property, such as rental property, is completely destroyed, the amount of your loss is your adjusted basis in the property minus any salvage value, and minus any insurance or other reimbursement you receive or expect to receive.

To claim a casualty or theft loss, you must complete Form 4684, Casualties and Thefts, and attach it to your return. Generally, you may claim casualty or theft loss of personal use property only if you itemize deductions on Form 1040, Schedule A. However, you can deduct a 2008 or 2009 net disaster loss from a federally-declared disaster even if you do not itemize your deductions.

If the property was held by you for personal use, you must further reduce your loss by $100. This $100 reduction for losses of personal-use property applies to each casualty or theft event that occurred during the year other than 2009. For 2009, individuals must reduce their casualty and theft losses for personal-use property by $500 instead of $100. This $500 reduction for losses of personal-use property applies to each casualty or theft event.

The total of all your casualty and theft losses of personal-use property usually must be further reduced by 10 percent of your adjusted gross income. The 10 percent AGI limitation does not apply to net disaster losses resulting from federally declared disasters in 2008 and 2009.

In figuring your loss, do not consider the loss of future profits or income due to the casualty.

Casualty losses are normally deductible only in the year the casualty occurred. But if you have a deductible loss from a federally declared disaster you can choose to deduct that loss on your tax return for the previous year. If you have already filed your return for the preceding year, you can claim the loss on the previous year tax return by filing an amended return.

For more information about casualty and theft losses and the special rules for net disaster losses see Publication 547, Casualties, Disasters and Thefts available on the IRS.gov Web site or by calling 800-TAX-FORM (800-829-3676).

Links:
Tax Relief in Disaster Situations
Publication 547, Casualties, Disasters and Thefts
Form 4684, Casualties and Thefts

A Tax Deduction ---for your "Pet"

Is this an idea whose time has come? A new bill in the U.S. House would allow pet owners to deduct up to $3,500 for "qualified pet-care expenses" for household pets, including vet bills.

Would the so-called HAPPY (Humanity and Pets Partnered Through the Years) Act give pet owners a break they deserve? Would it encourage more people to adopt abandoned or neglected pets? Would we finally be able to list some dependents on our income tax return? (Others have attempted -- unsuccessfully -- to use their pets as deductions.)

Bing: New tax deductions

Actually, the bill has some serious goals, according to PetWellbeing.com, including:

Making it more affordable for people to provide the care their pets need.

Making it less likely that pet owners are who suffering during the recession will abandon their pets.

"Qualified pet expenses" appears to include a wide variety of undefined things involved in providing care, with the exception of acquisition costs. Thus, the adoption fee at the pound would not be included. But would you get a tax break for the grooming session that includes nail polish for FiFi, or every can of Fancy Feast or each new toy? Or how about the little castle you buy for the fish tank?

The bill was introduced by Rep. Thaddeus McCotter, R-Mich., who has taken a ribbing. "You might also think that Mr. McCotter would have more important issues on his mind. For instance, the unemployment rate in his home state of Michigan is 15.2%," Howard Gleckman wrote at TaxVox.

The humorous "individual pet tax return" linked to at TaxVox suggests that pet owners also get a pet damage credit for things like dog throw-up or other deposits on the carpet, or mauled furniture.

Kathy at Blogging For Michigan also notes that people can deduct expenses for their own medical care only if those costs exceed 7.5% of adjusted gross income, so the bill would give your pet's medical bills better tax treatment than your own.

"I'm all for responsible pet ownership, but I also think people should maintain the brakes on their car so I don't have to worry about getting rear-ended while I'm stopped at a traffic light," Kathy wrote in a mocking tone. "Maybe we should give car owners tax deductions for repairs."

We love our dogs, but we think this is kind of silly. Sure, pets have gained more legal rights in the last decade or so, and aren't simply property that you can treat any way you want. Thank goodness for that. But a tax deduction? We can imagine all kinds of problems, including how this would be enforced.

Cindi, a reader of For the Love of the Dog Blog, also said she loves her dogs but "this legislation is ridiculous. A lot of our human citizens don't even have basic health insurance ...." (Certain tax breaks are available for people who have guide dogs or other service dogs and those who provide foster care for animals in collaboration with nonprofit groups.)

How about this idea? If you can't afford the real cost of pet ownership, don't get one.

The Pet Industry Joint Advisory Council supports the bill. On the other hand, the From the Dean blog at the Washington State University College of Veterinary Medicine said about the HAPPY Act:

I will mostly let this pass without comment, although in spite of the importance of our cats to my family, my recognition of the changing role of companion animals in society, and my involvement in this profession, I am still taking a bit of a sideways glance at this.

Related reading:

What your pet really costs you
13 ways to save big on pet care
Recession takes its toll on man's best friend

The Biggest Tax Cheats: Rich Folks (Who Would Have Thought!)

A new study based on unpublished Internal Revenue Service data shows the rich are different when it comes to paying taxes: They hide more of their income.

The previously unreported study estimates that taxpayers whose true income was between $500,000 and $1 million a year understated their adjusted gross incomes by 21% overall in 2001, compared with an 8% underreporting rate for Americans earning $50,000 to $100,000 and even lower rates for those earning less.

(The "net misreporting rate," as the IRS calls it, includes both underreported income and inflated deductions.)

In all, because of their higher noncompliance rates, those with true incomes of $200,000 or more received 25% of all income but accounted for 40% of net underreported income and 42% of underreported tax in 2001, according to the new analysis.

Talk back: Would you report a tax cheat?

The study was written by Joel Slemrod, an economics professor and the director of the Office of Tax Policy Research at the University of Michigan's business school, and Andrew Johns, an IRS researcher. It has not been officially endorsed or even released by the IRS, but it seems sure to add fuel to the election season debate over whether Americans earning $250,000 or more should pay higher tax rates, as Sen. Barack Obama, the Democratic presidential nominee, has proposed.

The Slemrod-Johns analysis uses unpublished data from special research audits the IRS conducted on a sample of 45,000 individual returns filed for 2001. It was the IRS' first such research effort since 1988, and it led the agency to estimate the 2001 gross "tax gap" at $345 billion.

Many of the world's wealthiest people have been suspected of tax evasion, but convictions for cheating the government out of revenue are relatively rare. Click here to see some of the richest recent tax dodgers.

Easier to hide money The main reason for the income-related disparity in cheating: Higher-income folks receive more of their income from sources that are easier to hide, including self-employment earnings; income from rents, partnerships and S corporations; and capital gains.
"The distribution of noncompliance lines up pretty closely with who gets income that's hard (for the IRS) to keep track of,'' Slemrod said. Still, he noted, the distribution of income by source doesn't explain all the increased noncompliance at higher income levels.

In its 2001 tax gap study, the IRS estimated that individuals underreported business income by 43% overall. Sole proprietors, who report self-employment income on schedule C of their tax returns, underreported their incomes by a stunning 57%.

More from MSN Money and Forbes.com
8 types of income the IRS can't touch
In pictures: America's most and least taxing towns
Billionaires feel the pinch, too
In pictures: Celebrity tax troubles
5 lessons the rich can teach you
In pictures: The world's top tax havens

By contrast, the IRS found, 99% of all wages were reported by individual tax filers. The obvious explanation is that workers have no choice: Their employers report their earnings to the IRS and withhold taxes on them.

Meanwhile, net capital gains for 2001 were underreported by 12%, the IRS estimated. The agency receives reports from brokers of taxpayers' gross sales of stocks and bonds but not of their initial costs and profits. Therefore, it has no way to easily check their reported capital gains. (Last month, as part of the $700 billion bailout bill, Congress mandated that brokers report the basis of any stocks bought in 2011 or later.)

Habits of the superrich

The new study seems to show that the really rich are more tax-compliant than the merely well-off, although not nearly as compliant as middle- and working-class wage slaves. Those earning $2 million-plus had an 11% underreporting rate. But Slemrod said he was "less comfortable" with that finding, noting that the very rich may have made use of techniques that IRS research audits didn't detect.

"I just don't know whether these audits were able to track down really sophisticated noncompliance or Swiss bank accounts. They may underestimate it (noncompliance) at the top,'' Slemrod said.

Who cheats the most
Net misreporting rate
True income
21% $500,000 to $1 million
20% $200,000 to $500,000
16% $1 million to $2 million
13% $100,000 to $200,000

See the full list on Forbes.com

Indeed, in the past several years, the IRS has collected billions in back taxes from wealthy taxpayers who had used dicey tax shelters to manufacture huge phony losses in the late 1990s, 2000 and 2001. But the IRS didn't get a handle on the nature or extent of these shelters until years later and relied on tax shelter promoters' customer lists and special self-disclosure programs, not audits, to find most of the taxpayers involved.

Currently, the government is suing UBS for the names of 18,000 wealthy Americans it believes may have had unreported Swiss bank accounts.

This article was reported and written by Janet Novack for Forbes.com.

The 9 Wackiest Tax Deductions

Check out this year's salute to taxpayer creativity -- and see which of the wildly imaginative attempts were OK'd by the IRS.

[Related content: taxes, deductions, IRS, donations, economy]
By Bankrate.com

Did you hear the one about the instant "nephew"? The $35,000 in dance lessons? The new definition of office paperwork?

That's right, it's time for the fourth installment of Bankrate's wackiest tax deductions, our homage to the endlessly creative ways some taxpayers try to limbo under the tax code.

In our first installment, taxpayers tried to write off everything from sperm donations to an arsonist's fee. Our second installment found clever filers trying to deduct a "love shack," doggie day care and a pimped-out Amish buggy. Round three featured otherwise law-abiding Americans trying to write off a $50,000 wedding as a business expense and claim New York City as a dependent.

This year's best cocktail stories -- culled from certified public accountants nationwide, some of whom requested to remain unidentified -- often come with a disclaimer: Do not try this at home. Or in the home office, for that matter.

Talk back: Have a wacky tax story to share?

As audacious as these stories might be, rest assured that the Internal Revenue Service is not amused when taxpayers fail to file, misfile, underreport income or otherwise attempt to avoid taxes.

Ready for some laughs? Behold Bankrate's wackiest tax write-offs, the 2009 edition.

1. Paper-thin home office deduction

CPAs sometimes feel they've opened a Pandora's box when they introduce newly self-employed clients to the wonderland of home office deductions: Give 'em an inch and . . . well, you wind up like one Arizona accountant whose client exhibited an unusual amount of tax swagger.

The client asked for a home office deduction for the toilet paper he bought for his house. No word on the nature of his business.

2. Hell hath no fury . . .

Walt Hatter, a CPA at Hatter & Associates in Fort Worth, Texas, has seen some generous taxpayers in his day, but none compares with the woman who gave it virtually all away.

The client, whose income was about $40,000, brought in noncash receipts from donations made to various charities. The donation total came to roughly the same dollar amount as her income.
Hatter was about to nominate her for sainthood -- until he heard the rest of the story.
"She had gotten a divorce; her husband had cheated on her and just never came back," Hatter says. "He called her up and said he would send a moving van to divide their assets. So, she loaded up everything he would want -- two or three sets of golf clubs and all the furniture, including some of his family antiques -- and took it all to Goodwill. She even had photos of all the stuff!"

It fell to Hatter to inform her that she could deduct only up to 50% of her adjusted gross income.
"We wound up with something like $15,000 in contributions," he says. "I just knew that that return was going to get audited, but it never did."

3. At least it wasn't 'travel and entertainment'

Sometimes business owners will try to slide a fast one by the IRS by classifying a business deduction in a category where the dollar signs might not raise an eyebrow.

One such fastball didn't pass the eyebrow test with this Oklahoma accountant, however.
"We were reviewing a business client's accounting entries and noted a check for over $2,000 written to a gynecologist. It was classified on the business books as 'repairs and maintenance.'"
MSN Money slide show

4. Bubble-bath credit

Taxpayers sometimes get into hot water by deducting their spas and swimming pools as medical deductions or, more boldly, as business expenses.

"We had a woman who tried to deduct her tricked-out Jacuzzi hot tub due to medical reasons," says Elizabeth Dittrick of Dittrick and Associates in Burton, Ohio. "That can be a legitimate expense -- but not the underwater speakers, the mood lighting and the in-tub stereo. So we ended up deducting a portion of it but removed the sound and light show. She did use it for medical reasons; she had arthritis and had a note from her doctor."

It was going to be a bit longer swim for one New Jersey accountant's client.
"A taxpayer wanted to write off a $100,000 swimming pool for medical reasons," says the accountant. "Swimming, he explained quite seriously, relaxed him so he could earn more money, which in turn would be taxable."
Uh . . . no.

5. Beautify your return

Ah, nature! So peaceful, so inspiring, so . . . deductible?

It can be, at least according to Allyson Baumeister, a CPA at Sanford, Baumeister & Frazier in Fort Worth.

"I had a lady client who didn't like some of her really mature trees, they didn't fit into her new landscaping theme," she says. "So, she dug them out and donated them to charity."

"She had to get somebody to appraise the value of the trees, but the IRS allowed it," Baumeister says.

6. Unmarried, filing weirdly

Common-law marriages can create tax complications, as Hatter found out when two young, single clients who had been living together for a number of years decided to file jointly as a married couple.

"You can do that in Texas by meeting certain criteria, living together for so long," Hatter says. "The problem is, when you decide that you don't want to live together anymore, it creates all sorts of problems with the IRS."

That's because once a couple files jointly, everything thereafter is keyed off the male partner's Social Security number.

"You don't have to go through a divorce per se; it just takes a little letter-writing campaign to the IRS to get it fixed," Hatter says.

7. Dancing with the IRS

Who doesn't get a little carried away with the grace and fluidity of ballroom dancing? But according to a Tucson, Ariz., CPA, some dance moves fail to charm the tax man.

The accountant's client was an elderly woman who had once been a university professor. When her doctor suggested she take up dancing to improve her arthritic hips, she enrolled at a dance studio.

"The first year, she brought in her tax data and wanted to deduct over $8,000 in dance lessons," the accountant says. "I got her to have her doctor write a letter, and I believe I did deduct it the first year."

Ah, but you know how infectious ballroom dancing can be.

"The second year, she brought in receipts totaling over $35,000 for dance lessons and another $18,000 for gowns and expenses to travel on cruises for herself and her 'instructor' from this dance studio; he was in his 20s and she was about 85 by this time," the accountant says. "I was appalled and obviously did not deduct these expenses as medical -- although I was tempted to call it a theft loss."

The accountant notified adult protective services, which launched an investigation of the situation. Her client died before it was completed.

8. Of guard cats and canine contractors

Taxpayers become pretty creative when it comes to devising ways to deduct their pets on their tax returns. In this series alone, we've featured one pet lover who claimed his dog as a dependent, another who attempted to write off the dog food for his "home security system" and yet another who claimed Fido as a landscaping subcontractor.

Ed Mendlowitz, a CPA at WithumSmith+Brown in New Brunswick, N.J., has heard it so much that he actually devised a tongue-in-cheek response:

"When I have a client ask me if they can deduct their cat or dog, I usually inquire in a very serious tone about their pet's age and whether the cat or dog is a full-time student. Parrots and other long-lived animals, by contrast, may qualify for elderly benefits."

9. Costly adoption

A Kissimmee, Fla., CPA inherited the case of a 65-year-old woman who took in a 20-something student renter and handyman. She liked the lad so much she decided to welcome him into her family -- at least on her taxes.

The woman's original accountant never questioned the deduction, which incidentally enabled the woman to not claim the rental income from her new "nephew."

"There are guidelines CPAs use to determine whether or not a relative by blood, marriage or adoption is considered a dependent," the Kissimmee CPA says. "In this case, the young man was none of the above. She was confusing emotional attachment with an actual factual definition."

Long story short: The IRS caught on three years later and slapped "Auntie" with $5,000 in back taxes and a $2,000 penalty for failing to disclose income.

Her CPA came to the rescue, filed amended returns and eventually reclaimed part of the excess taken by the IRS.

Ironically, because the renter had remodeled part of her home, "Auntie" could have offset that expense against the rental income and ended up with a larger and legitimate deduction than by claiming him as a dependent.

This article was reported by Jay MacDonald for Bankrate.com.

Celebrity Tax Debtors - No One Can Dodge the Rath of the IRS

Snoop Dogg Hit with Tax Lien
Rap singer and actor Snoop Dogg is facing a tax lien from the state of California, along with assault charges. His real name, Calvin Broadus Jr., shows up on a list of California tax scofflaws, alongside the likes of Burt Reynolds, Dionne Warwick and Sinbad. Read more

Pitcher Koosman to Plead Guilty to Tax Charges
Former baseball pitcher Jerry Koosman is expected to plead guilty later this month to charges stemming from his failure to file a tax return for 2002. Read more

MC Hammer Raps IRS over Tax Debts
August 13, 2009
Rap star MC Hammer claims the IRS is giving him a bad rap after the government filed three tax liens against him, including one in July for over $625,000.

Michael Jackson Doctor Faces Tax Lien
August 6, 2009
Dr. Conrad Murray, the doctor who attended Michael Jackson during his last days, is facing a $21,728 tax lien from the state of California.

Nicolas Cage Hit with $6.2 Million Tax Lien
August 3, 2009
Actor Nicolas Cage is facing a whopping tax lien of $6,257,005 from the Internal Revenue Service.

Henry Louis Gates’ Foundation to Revise Tax Return
July 28, 2009
A nonprofit foundation run by Harvard professor Henry Louis Gates Jr. is filing an amended 2007 tax return after it was found to have mischaracterized $11,000 in payments to officials as research grants.

‘Stone Cold’ Steve Austin Hit with Tax Lien
July 27, 2009
Actor and retired professional wrestler “Stone Cold” Steve Austin has been body-slammed by California tax authorities with a $22,000 tax lien.

Baldwin Brother Goes Bankrupt
July 22, 2009
Actor Stephen Baldwin and his wife have filed for Chapter 11 protection after incurring millions in debt, including a hefty sum owed to the IRS.

Tax Liens Filed Against Foxy Brown and Toni Braxton
July 20, 2009
Two high-profile singers, Foxy Brown and Toni Braxton, are facing large tax liens, according to recent reports.

Hatch Turned Down for Survivor Samoa Trip
July 14, 2009
Richard Hatch, the first-season winner of “Survivor,” has requested an early release from his in-home jail sentence for tax evasion so he can rejoin the show and win enough to pay back the IRS, but the judge said no.

Former QB Kosar Files for Bankruptcy
June 22, 2009
Former NFL quarterback Bernie Kosar has filed for bankruptcy, listing debts to the IRS and Broward County, Fla., along with debts arising from the collapse of the Florida real estate market.

Last Charge Dismissed for Indy 500 Champ Castroneves
May 26, 2009
The final charge against race car driver Helio Castroneves in his tax case was dismissed just two days before he went on to win the Indianapolis 500 for the third time.

Feds Sue Mike Tyson’s Ex, Robin Givens, over Tax Bill
May 8, 2009
Federal authorities have sued actress Robin Givens, ex-wife of heavyweight boxer Mike Tyson, for nearly $300,000 in unpaid taxes, interest and penalties stretching back 13 years.

Shooting for the stars
April 19, 2009
The Internal Revenue Service now has a new interest in sports and entertainment - and not just as a spectator.

CPA Sued for Martha Stewart's Daughter's Taxes
April 15, 2009
Wants $334,000 for alleged mistakes.

Stars Make California List of Tax Scofflaws
April 14, 2009
Burt Reynolds, Sinbad and Dionne Warwick get named and shamed.

Video: Joe the Plumber Takes on the IRS
April 6, 2009
Joe the Plumber has made his next mission the abolition of the Internal Revenue Service.

HHS Nominee Pays $7,040 in Back Taxes
April 1, 2009
Secretary of Health and Human Services nominee Kathleen Sebelius became the latest prospective Cabinet member to run afoul of the Tax Code after she admitted to recently paying $7,040 in back taxes and $878 in interest.

U.S. Trade Rep Nominee to Pay Back Taxes
March 3, 2009
Ron Kirk, the Obama administration's nominee for U.S. Trade Representative, has agreed to pay $9,975 in back taxes he owed on $37,750 in speaking fees.

Obama Budget Includes Tax Increases on Wealthy
February 26, 2009
President Barack Obama presented his budget for fiscal 2010, including about $318 billion in tax increases mainly targeted at the wealthy.

Palin Owes Taxes on Per Diem Payments
February 20, 2009
Alaska Governor Sarah Palin will have to pay taxes on $16,951 in travel allowances that she billed the state for days she worked from home in Wasilla.

Pro Golfer Thorpe Charged with $1.6M in Back Taxes
February 12, 2009
The Internal Revenue Service has charged PGA champion golfer Jim Thorpe with income tax evasion for failing to pay $1.6 million in back taxes.

Tips on Tax Compliance for Cabinet Nominees
February 11, 2009
The Association of Chartered Certified Accountants has some advice for Obama administration officials and erstwhile nominees who have run afoul of the Tax Code, as well as regular taxpayers.

Labor Secretary Nominee Has Tax Problems Too
February 6, 2009
In the latest sign of tax trouble in the Obama cabinet, Labor Secretary-designate Hilda Solis' husband had tax liens filed against him.

Judge Denies Dismissal of Helio Castoneves' Tax Charges
February 6, 2009
Race car driver and "Dancing with the Stars" champion Helio Castroneves will be facing the music after a judge denied a motion to dismiss some of the counts in his upcoming tax evasion trial.

'Girls Gone Wild' Founder Won't Go Wild Anymore
February 5, 2009
Girls Gone Wild founder Joe Francis was arrested after he showed up five hours late to a court hearing in his tax evasion case.

Heavy Metal Rocker Cheated by Accountant
February 3, 2009
Rock guitarist Yngwie Malmsteen has won $820,000 in damages from his former accountant.

Daschle Bows Out After Tax Problems
February 3, 2009
Tom Daschle, President Obama's pick to lead the Department of Health of Human Services, has withdrawn his nomination amid revelations that he recently owed more than $140,000 in taxes and interest.

Daschle Apologizes for Unpaid Taxes
February 2, 2009
President Obama's pick to lead the Department of Health and Human Services, former Senate Majority Leader Tom Daschle, apologized for owing $140,000 in back taxes and interest.

Geithner Admits Back Tax Problems
January 14, 2009
Treasury Secretary-designate Timothy Geithner admitted owing more than $34,000 in self-employment taxes between 2001 and 2004.

Kerik Pleads Not Guilty to Tax Charges
January 5, 2009
Former New York City Police Commissioner Bernard Kerik pleaded not guilty last week to tax fraud charges.

NBA Athlete Charities Not Playing for Keeps
December 30, 2008
An analysis of charitable foundations set up by professional basketball players found that many of them spend only a fraction of their money on charitable activities.

IRS Raps Doug E. Fresh with Tax Lien
December 22, 2008
Rap singer Doug E. Fresh is facing tax liens from the federal and state government, along with foreclosure of three homes.

Magic Johnson Scores with Jackson Hewitt
November 17, 2008
Pro basketball legend Earvin "Magic" Johnson has signed a deal with Jackson Hewitt Tax Service to become the company's spokesman in a new advertising campaign.

Ex-NFL Lineman Gets Three Years for Tax Evasion
November 11, 2008
Former NFL player Ben Coleman was sentenced to three years in jail on charges of federal tax evasion, identity theft and the filing of false loan applications.

Melissa Etheridge Plans Tax Protest
November 10, 2008
Singer Melissa Etheridge said she will stop paying her California state taxes after voters there approved a ballot measure banning gay marriages.

Obama Presidency Could Worry Tax Clients
November 7, 2008
A tax attorney predicts that small businesses and high-net-worth individuals will need tax-planning advice to help protect their assets from anticipated changes in tax law.

Pro Baseball Players May Avoid Obama Tax Hike
November 6, 2008
Major League Baseball players and their agents are already looking for ways to skirt a steep income tax hike after President-elect Barack Obama takes office.

PKF North American Uses Second City
October 31, 2008

One Too Many Emperors
October 28, 2008
Let me tell you a tale about a modern day emperor with the initials H.P.

Cindy McCain Releases 2007 Tax Information
October 21, 2008
Cindy McCain has released the summary pages of her recently filed 2007 federal tax return.

Abba's Bjorn Wins $11.5M in Swedish Tax Appeal
October 16, 2008
Former Abba band member Bjorn Ulvaeus has won a legal case against the Swedish tax authorities that will return to him the equivalent of $11.5 million in taxes that he has already paid.

Dear Dustin Hoffman: It's No Longer "Plastic"
October 7, 2008
Some thirty-plus years later, let's understand that Benjamin Braddock, Dustin's character, is now a Baby Boomer.

Palin Releases Tax Returns
October 7, 2008
Republican vice presidential candidate Gov. Sarah Palin has released her 2006 and 2007 tax returns.

'Dancing with the Stars' Winner Stepped on by IRS
October 6, 2008
Race car driver Helio Castroneves, who has won the Indianapolis 500 twice, as well as "Dancing with the Stars," couldn't speed away from tax evasion charges after a grand jury indicted him Thursday.

Too Many Emperors and Empires for Transparency
September 30, 2008
Sleight-of-hand and spin is what got us into this severe and long-lasting financial crisis.

Nicolas Cage Pays $666,000+ to Settle with IRS
September 9, 2008
Actor Nicolas Cage, whose movie Bangkok Dangerous topped the weekend box office numbers, has settled his tax debts with the Internal Revenue Service for $666,000, plus interest.

IRS Places Tax Lien on Ruben Studdard
August 26, 2008
American Idol winner Ruben Studdard is facing tax liens from the Internal Revenue Service and the state of Alabama for failing to pay more than $193,000 in back taxes.

Tax Bill Bankrupts U.K. Pop Star
August 25, 2008
British singer and reality TV star Kerry Katona has been forced into bankruptcy after trying to pay off her tax bill.

IRS Celebrity Snoop Gets Three Years' Probation
August 21, 2008
An Internal Revenue Service employee who improperly accessed the financial information of 200 celebrities and sports figures was sentenced to three years' probation, 60 hours of community service and a $1,000 penalty.

Hammertime Being "Hammered" by the IRS

Rap star MC Hammer claims the IRS is giving him a bad rap after the government filed three tax liens against him, including one in July for over $625,000.
The singer, whose real name is Stanley Burrell, said the back taxes he allegedly owes are from 15 years ago, and he is disputing the sum with the IRS.

“I paid the IRS 100 percent of their claim,” said Hammer in a statement. “In the past year or so, they decided — wrongly — that I owed them additional taxes from 15 years ago. I am contesting this claim through my tax attorneys and my case is making its way through the IRS appeal process. I hope to be successful.”

The singer, whose hits have included “U Can’t Touch This,” “Turn This Mutha Out,” and “Pray,” said that the alleged past due amount of approximately $625,000 is not related to his current successful business ventures and have no impact on them. Hammer went bankrupt in 1996, but now owns or works on several businesses including Dance Jam, his own record label, production company, and musical appearances, as well as other ventures.

Hammer is currently featured on “Hammertime,” a television show on the A&E network. He also noted that he has more 1.2 million followers on Twitter at http://twitter.com/Mchammer. He was affected by the recent outage of Twitter.

Hammer claimed that news reports incorrectly give the impression that he is facing new financial issues, but he insisted that is not the case.

“I think the IRS claim is wrong and unfair,” he said. “When there was a sum of $7 million available, the IRS took the amount they said was due them. Now they want to come back for more now that it's 15 years later? That’s just not right and I’m fighting that nonsense.”

Home Office Deduction Facts

With technology making it easier than ever for people to operate a business out of their house, many taxpayers may be able to take a home office deduction when filing their 2009 federal tax return next year.

Here are five important things the IRS wants you to know about claiming the home office deduction.

1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:

As your principal place of business, or

As a place to meet or deal with patients, clients or customers in the normal course of your business, or

In the case of a separate structure which is not attached to your home, it must be used in connection with your trade or business

For certain storage use, rental use or daycare-facility use, you are required to use the property regularly but not exclusively.

2. Generally, the amount you can deduct depends on the percentage of your home that you used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

3. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

4. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home, to figure your home office deduction. Report the deduction on line 30 of Schedule C, Form 1040.

5. Different rules apply to claiming the home office deduction if you are an employee. For example, the regular and exclusive business use must be for the convenience of your employer.

For more information see IRS Publication 587, Business Use of Your Home, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Publication 587, Business Use of Your Home

Eight Tips for Taxpayers Who Owe Money to the IRS

The vast majority of Americans get a tax refund from the IRS each spring, but what do you do if you are one of those who received a tax bill? Here are eight tips for taxpayers who owe money to the IRS.

1. If you get a bill this summer for late taxes, you are expected to promptly pay the tax owed including any additional penalties and interest. If you are unable to pay the amount due, it is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS.

2. You can also pay the bill with your credit card. To pay by credit card contact either Official Payments Corporation at 800-2PAYTAX (also http://www.officialpayments.com/) or Link2Gov at 888-PAY-1040 (also http://www.pay1040.com/).

3. The interest rate on a credit card or bank loan may be lower than the combination of interest and penalties imposed by the Internal Revenue Code.

4. You can also pay the balance owed by electronic funds transfer, check, money order, cashier’s check or cash. To pay using electronic funds transfer you can take advantage of the Electronic Federal Tax Payment System by calling 800-555-4477 or 800-945-8400 or online at http://www.eftps.gov/.

5. An installment agreement may be requested if you cannot pay the liability in full. This is an agreement between you and the IRS for the collection of the amount due in monthly installment payments. To be eligible for an installment agreement, you must first file all returns that are required and be current with estimated tax payments.

6. If you owe $25,000 or less in combined tax, penalties and interest, you can request an installment agreement using the web-based application called Online Payment Agreement found at IRS.gov.

7. You can also complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill in the envelope that you have received from the IRS. The IRS will inform you usually within 30 days whether your request is approved, denied, or if additional information is needed. If the amount you owe is $25,000 or less, provide the monthly amount you wish to pay with your request. At a minimum, the monthly amount you will be allowed to pay without completing a Collection Information Statement, Form 433, is an amount that will full pay the total balance owed within 60 months.

You may still qualify for an installment agreement if you owe more than $25,000, but a Form 433F, Collection Information Statement, is required to be completed before an installment agreement can be considered. If your balance is over $25,000, consider your financial situation and propose the highest amount possible, as that is how the IRS will arrive at your payment amount based upon your financial information.

8. If an agreement is approved, a one-time user fee will be charged. The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account. For eligible individuals with incomes at or below certain levels, a reduced fee of $43 will be charged, and is automatically figured based on your income.

For more information about installment agreements and other payment options visit the IRS Web site at IRS.gov. IRS Publications 594, The IRS Collection Process and 966, Electronic Choices to Pay All Your Federal Taxes also provide additional information regarding your payment options. These publications and Form 9465 can be obtained on the IRS.gov Web site or by calling 800-TAX-FORM (800-829-3676).

Form 433-F, Collection Information Statement
IRS Publication 594, What You Should Know About The IRS Collection Process
IRS Publication 966, Electronic Choices to Pay All Your Federal Taxes

Cash Flow - The Pulse of Your Business

Many small business owners do not fully understand their cash flow statement, This is a shocking fact considering that all businesses essentially run on cash, and cash flow is the life-blood of your business.

Some business experts go so far as to say a healthy cash flow is even more important than your business's ability to deliver its goods and services! You may find that perspective hard to swallow, but consider this - if you fail to satisfy a customer and lose that customer's business, you can always work harder to please the next customer. But if you fail to have enough cash to pay your suppliers, creditors, or your employees, you're out of business!

What Is Cash Flow?

Cash flow, simply defined, is the movement of money in and out of your business; these movements are called inflow and outflow respectively. Inflows for your business primarily come from the sale of goods or services to your customers. The inflow only occurs when you make a cash sale or collect on receivables, however. Remember, it is the cash that counts! Other examples of cash inflows are borrowed funds, income derived from sales of assets, and investment income from interest.

Outflows for your business are generally the result of paying expenses. Examples of cash outflows include paying employee wages, purchasing inventory or raw materials, purchasing fixed assets, operating costs, paying back loans, and paying taxes.

Note: An accountant is the best person to help you learn how your cash flow statement works.

Please contact us and we can prepare, if needed, and explain where the numbers come from in your cash flow statement.

Cash Flow Verses Profit

Profit and Cash flow are two entirely different concepts, each with entirely different results. The concept of profit is somewhat broad and only looks at income and expenses over a certain period of time, say a fiscal quarter. Profit is a useful figure for calculating your taxes and reporting to the IRS.

Cash flow, on the other hand, is a more dynamic tool focusing on the day-to-day operations of a business owner. It is concerned with the movement of money in and out of a business. But more importantly, it is concerned with the times at which the movement of the money takes place.

Theoretically even profitable companies can go bankrupt. It would take a lot of negligence and total disregard for cash flow, but it is possible. Consider how the difference between profit and cash flow relate to your business.

Example: If your retail business bought a $1,000 item and turned around to sell it for $2,000, then you have made a $1,000 profit. But what if the buyer of the item is slow to pay his or her bill, and six months pass before you collect on the account? Your retail business may still show a profit, but what about the bills it has to pay during that six-month period? You may not have the cash to pay the bills despite the profits you earned on the sale. Furthermore, this cash flow gap may cause you to miss other profit opportunities, damage your credit rating, and force you to take out loans and create debt. If this mistake is repeated enough times you may even go bankrupt!

Analyzing Your Cash Flow

The sooner you learn how to manage your cash flow, the better your chances for survival will be. Furthermore, you will be able to protect your company's short-term reputation as well as position it for long-term success.

The first step towards taking control of, and properly managing your company's cash flow is to analyze the components that affect the timing of your cash inflows and outflows. A thorough analysis of these components will reveal problem areas that lead to cash flow gaps in your business. Narrowing, or even closing, these gaps is the key to cash flow management.

Some of the more important components to examine are:

Accounts Receivable.

Accounts receivable represent sales that have not yet been collected in the form of cash. An accounts receivable is created when you sell something to a customer in return for his or her promise to pay at a later date. The longer it takes for your customers to pay on their accounts, the more negative affects there will be on your cash flow.

Credit terms.

Credit terms are the time limits you set for your customers' promise to pay for the merchandise or services purchased from your business. Credit terms affect the timing of your cash inflows. One of the simplest ways to improve cash flow is to get customers to pay their bills more quickly.
Credit policy. A credit policy is the blueprint you use when deciding to extend credit to a customer. The correct credit policy is necessary to ensure that your cash flow doesn't fall victim to a credit policy that is too strict or to one that is too generous.

Inventory.

Inventory describes the extra merchandise or supplies your business keeps on hand to meet the demands of customers. An excessive amount of inventory hurts your cash flow by using up money that could be used for other cash outflows. Too many business owners buy inventory based on hopes and dreams instead of what they can realistically sell. Keep your inventory as low as possible.

Accounts payable and cash flow.

Accounts payable are amounts you owe to your suppliers that are payable sometime within the near future, "near" meaning 30 to 90 days. Without payables and trade credit you'd have to pay for all goods and services at the time you purchase them. For optimum cash flow management, you'll need to examine your payables schedule.

Some cash flow gaps are created intentionally. That is, a business will sometimes purposefully spend more cash to achieve some other financial results. For example, a business may purchase extra inventory to take advantage of quantity discounts, accelerate cash outflows to take advantage of significant trade discounts, or spend extra cash to expand its line of business.

For other businesses, cash flow gaps are unavoidable. Take, for example, a company that experiences seasonal fluctuations in its line of business. This business may normally have cash flow gaps during its slow season and then later fill the gaps with cash surpluses from the peak part of its season. Cash flow gaps are often filled by external financing sources. Revolving lines of credit, bank loans, and trade credit are just a few of the external financing options available that you may want to discuss with us.

Monitoring and managing your cash flow is an important task to perform in order to ensure the vitality of your business. The first signs of financial woe will appear in your cash flow statement, giving you time to recognize a forthcoming problem and plan a strategy to deal with it.

Furthermore, with periodic cash flow analysis, you can head off those unpleasant financial glitches by recognizing which aspects of your business have the potential to cause cash flow gaps. With cash flow management and analysis, you will be able to plan on how you're going to direct your cash surplus with assurance that you will have adequate funds to cover day-to-day expenses.

Credit Reports and What You Should Know

How do lenders determine who is approved for a credit card, mortgage, or car loan? Why are some individuals flooded with credit card offers while others get turned down routinely? Because creditors keep their evaluation standards secret, it is difficult to know just how to improve your credit rating.

It is important, however, to understand the factors and to review your credit report periodically for any irregularities, omissions or errors. Reviewing your credit report annually can help you protect your credit rating from fraud and ensure its accuracy.

Credit Evaluation Factors

There are many factors that go into determining your credit. The following list includes of some of the major factors considered:

Age
Residence
"Authorized User" Payment History
Checking And Savings Accounts
Bankruptcy
Charge-Offs
Child Support
Closed Accounts And Inactive Accounts
Jobs
Payment History
Recent Loans
Collection Accounts And Charge-Offs
Cosigning An Account
Credit Limits
Credit Reports
Debt/Income Ratios
Department Store Accounts
Payment History/Late Payments
Finance Company Credit Cards
Income/Income Per Dependant
Mortgages
Revolving Credit
Name/Alias
Number Of Credit Accounts
Fraud
Inquiries

These factors may be used, and weighted, in determining credit decisions. Credit reports contain much of this information.

Obtaining Your Credit Reports

Credit reports are records of consumers' bill-paying habits collected, stored and sold by credit bureaus.

Credit reports are also called credit records, credit files, and credit histories. Under Federal law, you are allowed access to free credit reports. There are three major credit bureaus and thousands of smaller ones where you can obtain a credit report.

These credit bureaus offer the free credit reports and monthly credit reports and services for a fee.

Experian Credit Bureau: 888-397-3742 (Cost: Free or $14.95 monthly)
Equifax Credit Bureau: 800-685-1111
Trans Union: 877-322-8228 (Cost: $11.95 monthly)

If you have been denied credit, you can request that the credit bureau involved provide you with a free copy of your credit report, but you must request it promptly. Otherwise each of the bureaus will provide you a copy of the report for a fee. You can request a copy from their web sites (see links above) or 800 numbers (also listed above).

Disputing Errors In Your Credit File

The Fair Credit Reporting Act (FCRA) protects consumers in the case of inaccurate or incomplete information in credit files. The FCRA requires credit bureaus to investigate and correct any errors in your file.

Tip: If you find any incorrect or incomplete information in your file, write to the credit bureau and ask them to investigate the information. Under the FCRA, they have about thirty days to contact the creditor and find out whether the information is correct. If not, it will be deleted.

Be aware that credit bureaus are not obligated to include all of your credit accounts in your report. If, for example, the credit union that holds your credit card account is not a paying subscriber of the credit bureau, the bureau is not obligated to add that reference to your file. Some may do so, however, for a small fee.

Fair Credit Reporting Act (FCRA)

This federal law was passed in 1970 to give consumers easier access to, and more information about, their credit files. The Fair Credit Reporting Act gives you the right to find out the information in your credit file, to dispute information you believe inaccurate or incomplete, and to find out who has seen your credit report in the past six months.

Understanding Your Credit Report

Credit reports contain symbols and codes that are abstract to the average consumer. Every credit bureau report also includes a key that explains each code. Some of these keys decipher the information, while others just cause more confusion.

Read your report carefully, making a note of anything you do not understand. The credit bureau is required by law to provide trained personnel to explain it to you. If accounts are identified by code number, or if there is a creditor listed on the report that you do not recognize, ask the credit bureau to supply you with the name and location of the creditor so you can ascertain if you do indeed hold an account with that creditor.

If the report includes accounts that you do not believe are yours, it is extremely important to find out why they are listed on your report. It is possible they are the accounts of a relative or someone with a name similar to yours. Less likely, but more importantly, someone may have used your credit information to apply for credit in your name. This type of fraud can cause a great deal of damage to your credit report, so investigate the unknown account as thoroughly as possible.

Note: An annual review of your credit report is recommended.

It is vital that you understand every piece of information on your credit report in order that you be able to identify possible errors or omissions.

Paying Off Debt the Smart Way

Being in debt isn't necessarily a terrible thing. Most people are in debt between mortgages and car loans and credit cards and student loans. Being debt-free should always be a goal, but you should focus on the management of it, not the presence of it. It'll likely be there for most of your life, and if you handle it wisely, it won't feel so much like an albatross around your neck.

There are alternatives to shelling out your hard-earned money for exorbitant interest rates, and to always feeling like you're running behind and on the verge of bankruptcy. You can pay off debt the smart way, while at the same time saving money to pay it off faster.

Know Where You Are

First, assess the depth of your debt. Write it down, using pencil and paper or computer software like Microsoft Excel or Quicken. Include every financial situation where a company has given you something in advance of payment, including your mortgage, car payment(s), credit cards, tax liens, student loans, and payments on electronics or other household items through a store.

Record the day the debt began and will end (where possible), the interest rate you're paying, and what your payments typically are. Add it all up, painful as that might be. Try not to be discouraged; you're going to break this down into manageable chunks while finding extra money to help pay it down.

Identify High-Cost Debt

Yes, some debts are more expensive than others. Unless you're getting payday loans (which you shouldn't be), the worst offenders are probably your credit cards. Here's how to deal with them.
Don't use them. Don't cut them up, but put them in a drawer and only access them in an emergency.

Identify the card with the highest interest and pile on as much extra money as you can every month. Pay minimums on the others. When that one's paid off, work on the card with the next highest rate.

Don't close existing cards or open any new ones as it won't help your credit rating.

Pay on time, absolutely every time. One late payment these days can lower your FICO score.

Go over your credit-card statements with a fine-tooth comb. Are you still being charged for that travel club that you've never used? Looks for line items you don't need.

Call your credit card companies and ask them nicely if they would lower your interest rates. It works sometimes!

Save, save, save

Do whatever you're able to do to retire debt. If you take a second job, earmark that money strictly for higher payments on your financial obligations. Substitute free family activities for high-cost ones. Sell high-value items that you can live without.

Bag Unnecessary Items to Reduce Debt Load

Do you really need the 800-channel cable option or that dish on your roof? You'll be surprised at what you don't miss. How about magazine subscriptions? They're not terribly expensive, but every penny accounts. It's nice to have a library of books, but consider visiting the public library or half-price bookstores until your debt is under control.

Don't ever, ever miss a payment

You're not only retiring debt, but you're also building a stellar credit rating. If you ever decide to move or buy another car, you'll want to get the lowest rate possible. A blemish-free payment record will help with that. Besides, credit card companies can be quick to raise interest rates because of one late payment. A completely missed one is even more serious.

Do Not Increase Debt Load

If you don't have the cash for it, you probably don't need it. You'll feel better about what you do have if you know it's owned free and clear.

Shop Wisely, and Put the Savings on Your Debt

If your family in large enough to warrant it, invest $30 or $40 and join a store like Sam's or Costco. And use it. Shop there first, then at the grocery store. Change brands if you have to and swallow your pride: Use coupons religiously. Calculate the money you're saving and slap in on your debt.

Each of these steps, taken alone, probably doesn't seem like much, but learn to adopt as many of them as you can and you'll be able to watch your debt decrease every month.

Tax Benefits for Job Seekers

Many taxpayers spend time during the summer months polishing their resume and attending career fairs. If you are searching for a job this summer, you may be able to deduct some of your expenses on your tax return.

Here are six things you need to know about deducting costs related to your job search.

In order to deduct job search costs, the expenses must be spent on a job search in your current occupation. You may not deduct expenses incurred while looking for a job in a new occupation.

You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.

You can deduct amounts you spend for preparing and mailing copies of a resume to prospective employers as long as you are looking for a new job in your present occupation.

If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.

You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.

You cannot deduct job search expenses if you are looking for a job for the first time.

Have You Filed Your 2008 Return?

The failure to file a federal tax return can be costly - whether you end up owing more or missing out on a refund.

There are several reasons taxpayers don't file their taxes. Perhaps you didn't know you were required to file. Maybe, you just kept putting it off and simply forgot. Whatever the reason, it's best to file your return as soon as possible. If you need help, even with a late return, the IRS is ready to assist you.

Here are some things to consider:

Failure to File Penalty.

If you owe taxes, a delay in filing may result in a "failure to file" penalty, also known as the "late filing" penalty, and interest charges. The longer you delay, the larger these charges grow.

Losing Your Refund.

There is no penalty for failure to file if you are due a refund. However, you cannot obtain a refund without filing a tax return. If you wait too long to file, you may risk losing the refund altogether.

The deadline for claiming refunds is three years after the return due date.
EITC. Individuals who are entitled to the Earned Income Tax Credit must file their return to claim the credit even if they are not otherwise required to file.

Whether or not you must file a tax return will depend upon a number of factors, including your filing status, age, and gross income.