JK Harris’ Top 10 Tax Tips for filing season

Who doesn’t love a great top ten list? With March rolling to a close, the deadline for filing your personal income tax returns is drawing near. Here is a compilation of JK Harris best tax tips to help you through the filing season.

10. Avoid delaying your refund (or timely processing of your tax return). Check your tax return for incorrect/missing Social Security numbers, misspellings and math errors. And, if you moved, make sure you report your new address to the IRS.

9. Did you earn income in 2009? Make sure you file for the new Making Work Pay Tax Credit by attaching Schedule M.

8. Choosing Direct Deposit for your tax refund is definitely the way to go to get a faster refund! Make sure you review the routing and account numbers for accuracy.

7. File your return electronically. There’s a reason snail mail is named snail mail – it takes longer to get there and longer to process. Electronic filing is fast, easy and in most cases free! There are so many easy to use software filing programs on the market now. The benefit of e-filing is a reduced number of errors on the return, quick confirmation your return was received by the IRS and in most cases, the state as well.

6. Don’t know whether to take standard or itemized deductions on your return? It depends on how much you spent on medical care, mortgage interest, taxes, charitable contributions, casualty losses, and miscellaneous deductions. If the total of those amounts is larger than the standard deduction, it is usually beneficial to file itemized deductions.

5. Have you heard about VITA? VITA is the IRS’ Volunteer Tax Assistance program. They assist the elderly and those with income less than $49,000. Over 12,000 free tax preparation sites are offered nationwide each year. To find a location near you, call the IRS at 1-800-906-9887.

4. Getting a large refund this year? You are probably having too much tax withheld. Try reducing the number of your exemptions and getting a little more money in each paycheck this year.

3. Like to gamble? Gambling income – which includes, but is not limited to – winnings from lotteries, horse or dog races, raffles, and casinos, as well as the fair market value of non-cash prizes, such as a car, house or trip is taxable. The full amount of your winnings must be reported on line 21 of Form 1040. Losses can be deductible, but you cannot deduct more gambling losses than winnings.

2. Get organized before you set out to complete your tax forms. If you get together all of your W-2s, 1099s (and any other statements you have received in the mail), as well as your tax return from last year, it will be much easier to start and finish the filing process. Being organized makes the process smoother and helps keep you from getting frustrated.

1. Make sure you get that return in the mail or filed no later than April 15. If you cannot get your tax returns completed by that date, file Form 4868. This will give you until October 15 to file your tax return. You still must pay any taxes due by the April 15th deadline.

It’s my hope these tips will help make tax filing a little easier and less painless.

Got any tax tips you’d like to share? Drop us a line!

- JK Harris

Tax refunds up thanks to Stimulus

The White House discussed one benefit to tax payers from last year’s Recovery Act, a 10% increase in the average tax refund. Below is the article from CNN Money. For more information on how you may benefit from the Recovery Act, read this IRS release.

NEW YORK (CNNMoney.com) — White House officials said Monday that tax credits launched under last year’s economic recovery bill have boosted the average refund by nearly 10% from the previous year.

The average tax refund for 2009 has reached $3,036, up $266 from a year ago, according to early data from the Internal Revenue Service.

Administration officials said the increase is largely due to tax benefits available under the $787 billion American Recovery and Reinvestment Act. The extra cash is a boon for the middle class and provides an important stimulus for the economy, officials said.

“The Recovery Act is a major factor behind these larger, record refunds,” said IRS Commissioner Doug Shulman. “About half of all Americans haven’t filed their taxes yet, so we urge them to look carefully at these Recovery provisions.”

Under the Recovery Act, which was implemented last year to combat the economic crisis, taxpayers can take advantage of over a dozen tax benefits.

Among the benefits are the making work pay credit, worth up to $800 for married couples filing jointly, the $8,000 first-time home buyer credit, and sales tax deductions on new car purchases.

In addition, the act includes credits for homeowners that make their homes more energy efficient. It also expanded eligibility for a $2,500 tax credit on college expenses and made the first $2,400 of unemployment benefits tax free.

Speaking at a news conference in Washington, Vice President Joe Biden said bigger refunds will help working families recover from one of the worst recessions on record and urged Americans to take full advantage of the credits.

“These Recovery Act tax credits not only provide some needed relief for working Americans, but also help them invest in their families’ futures,” Biden said.

Treasury Secretary Tim Geithner added that the nearly $300 billion in tax benefits will help the economy recover by encouraging Americans to spend, which will help business and ultimately stimulates job growth.

“The more that individuals and families take advantage of these benefits, the more money is pushed back into the economy, helping all Americans as we grow our way out of this crisis,” Geithner said.

However, some critics argue that the bigger tax refunds could be due to factors other than the Recovery Act credits, including a larger number of Americans withholding more last year due to unemployment or other economic hardships.

Individuals who work into the year and get laid off typically over-withheld while they are working, said J.D. Foster, a senior fellow specializing in fiscal policy at the Heritage Foundation, a conservative research group. That over-withholding can lead to larger refunds.

“There are many reasons for refunds to be up and no reason at this point to believe the tax credits from the Recovery Act were a particularly important explanation,” Foster said.

Posted by JK Harris

IRS offers new flexibility with Offer in Compromise program

Recently, the IRS announced they would be making slight changes to the Offer in Compromise program, which stands to be of great benefit to taxpayers who are facing financial hardship due to unemployment, underemployment or other factors which have affected their income.

The IRS has permitted employees to consider a taxpayer’s present income and potential for future income when negotiating an offer in compromise. The normal procedure is to judge all offers based on the taxpayer’s earnings in years prior to the offer being made. This new procedure will allow for greater flexibility on the part of the IRS when considering offers in compromise from unemployed taxpayers. It is important to note that a taxpayer entering into such an offer will agree to pay more if their financial situation improves significantly after the offer is accepted by the IRS.

The IRS is offering other outreach efforts to assist the unemployed. Working and coordinating with state departments of revenue and state workforce agencies, the IRS is trying to help taxpayers having trouble meeting their tax liabilities due to unemployment or other financial issues. According to the IRS, these coordinated efforts may include opportunities for taxpayers to make payment arrangements and resolve both state and federal tax issues all in one place.

In addition to the changes the IRS is making with the OIC program, the IRS will begin holding hundreds of Saturday open houses to give struggling taxpayers more opportunities to work directly with IRS employees to resolve their back tax issues. The offices will be open on March 27 and three additional Saturdays in the spring and early summer. Dates, times and locations will be announced shortly.

During the expanded Saturday hours, taxpayers will be able to address economic hardship issues they may be facing or get help claiming any of the special tax breaks in last year’s American Recovery and Reinvestment Act, including the:

* Homebuyer tax credit
* American Opportunity Credit
* Making Work Pay credit
* Expanded Earned Income Tax Credit

As always, taxpayers can take advantage of toll-free telephone assistance and regularly scheduled hours at local Taxpayer Assistance Centers. Taxpayers can find the location, telephone number and business hours of the nearest assistance center by visiting the Contact My Local Office page on IRS.gov.

Lastly, taxpayers who are unemployed or struggling financially can find information on a new page on the IRS Web site, www.IRS.gov. This online tax center has numerous resources including links to information on tax assistance and relief to help struggling taxpayers.

Posted by JK Harris

Does an Extension to File Help You or Hurt You?

This past tax season, a lot of taxpayers applied for an extension to file. They either did this because there was no way they were going to get their taxes done by the deadline or because they knew they owed and were trying to delay the process. Whatever the reason, an extension to file is definitely better than not filing at all. Not filing can result in some very hefty penalties.

How is it an extension to file can help you?

• You can avoid the large IRS penalties that come with not filing your taxes. There are still penalties, but no where near what you would have to pay if you decided to completely forego the filing process.

• An extension to file is not an extension to pay. You must realize, if you do not pay your taxes when you file the extension, you will be facing penalties when you do file. If you have encountered a financial situation that has resulted in you not being able to afford your taxes, you have 6 months to rectify the situation so that you can at least pay via an installment agreement if you can’t pay the entire amount.

• If you need more time to get things together for your tax return, you are doing yourself a big favor by reducing your audit risk. You can eliminate paperwork errors, math errors, and ensure you do have everything you need to file your return. Some taxpayers get in a hurry and may estimate on deductions and other figures. In some situations, this can trigger an audit.

• The IRS will not contact you after you have been issued your “Declaration Control Number,” or DCN. This is the number that tells the IRS you have filed an extension; with this number they can’t touch you or impose failure to file penalties upon you.

• You significantly reduce your audit risk. During tax season, the IRS is extremely busy. They are so busy that their chance of making input errors in their computer is increased. When this happens, their errors could cause you to be audited. When you file an extension to file your return later, the IRS is a little less busy processing returns and their chances of making errors while processing your return is decreased. The amount of time it takes to process your return is also decreased.

When you request an extension, you do not need to state a reason for the extension, nor do you have to justify why you need the extension. When you file an extension, it is much less painful to file the extension than to pay the late filing penalties that could result if you don’t file your taxes on time.

If you do not file an extension, you might have to pay a late-filing penalty, late-paying penalty and interest on the amount that you owe the IRS and these penalties can really add up. When all is said and done, you could be paying over 50% of the tax amount owed on penalties and interest. That is like paying one and a half times your income tax, which completely rules the thinking that not filing is saving you money. Even if you get by with it for a few years, the IRS will eventually catch up with you make you pay. In extreme cases, they could also give you prison time if you are found guilty of tax evasion.

All in all, an extension to file will help you more than it will hurt you. Remember, the IRS is offering you the chance to extend your filing time, you just need to file the extension on time. Keep that in mind next tax season when you are wondering what the best course of action for you to take is when filing your taxes.

Posted by JK Harris

Cash-Starved States Put Tax Scofflaws in Crosshairs

According to the Wall Street Journal, financially hard-hit states seeking revenues are taking aim at taxpayers who owe back taxes to their local government, putting state tax codes in the forefront. Below is the full article.

Financially strapped states are getting more aggressive with tax scofflaws, hoping that stepped-up enforcement and the posting of the names of delinquents online will push more people to pay up.

Oklahoma and Ohio are mining Internal Revenue Service data for leads and some tax collectors are cajoling other state agencies to share data about residents. Missouri’s tax agency has asked for the authority to garnish bank accounts to collect tax judgments. And Nebraska lawmakers are preparing to let the state post online the names of hundreds of taxpayers who owe $20,000 or more.

Such efforts are designed to augment states’ efforts to attack budget deficits that are projected to swell to a combined $55.5 billion for the fiscal year beginning July 1, according to the National Conference of State Legislatures. The collection efforts are likely to fill only a fraction of the gap, but state officials say every extra penny of revenue helps.

“When revenues are flush, sometimes—even though it shouldn’t matter—the pressure’s not quite on state taxing agencies to go after those [delinquent] accounts,” said Tony Mastin, Oklahoma’s tax commission administrator.

Across the U.S., individual income taxes and sales taxes account for large parts of state tax collections, so revenue departments tend to focus on those areas in the hunt for unpaid taxes.

The IRS estimated in a July report that about 84% of taxes it oversees are paid voluntarily. States often derive their estimates from the IRS figures. California, for example, says its annual tax gap—the difference between taxes owed and those paid—for individual and business income is about $6.5 billion.

The recession has caused a sharp drop in total state revenue. Although some economic data point to recovery, monthly revenue collections continue to miss scaled-back forecasts. All states but Vermont have at least a limited requirement to balance their budgets, and they have been cutting spending, increasing tax rates and adding fees to eliminate deficits.

The measures have been unpopular with voters, which could pose problems for politicians in a year when 37 governor’s seats are up for election. Collecting more of what taxpayers legally owe is fairer than raising taxes and fees on all residents, state tax commissioners say.

Confusion about state tax codes explains 15% of so-called nonfilers, said Vaughn Lombardo, executive administrator of the tax discovery division in the Ohio Department of Taxation. And a growing portion of delinquents simply can’t afford to pay because of job losses or other recession-related blows, Mr. Lombardo said.

Many of the new state tax-collection efforts involve legal changes that compel agencies to work together, as well as computer upgrades needed to sift through data.

In Georgia, several state legislators—including one campaigning for governor—introduced a bill last month that would require the state’s Department of Revenue to inform counties of businesses that have operating licenses but aren’t paying sales taxes. Proponents have said the measure would raise an extra $1 billion for state and local governments.

Five Facts You Need to Know about Suspicious E-mails

Nearly every time the IRS has sent out the following press release, JK Harris has blogged about it. This is to try to get out the word that the IRS does not contact any taxpayer by email to solicit any personal information. If the IRS needs information from you, they will contact you via regular mail to let you know. Please read the following information to protect your personal information – and to protect your computer from unwanted viruses or trojans. We feel this is very important information and worth repeating.

IRS Tax Tip 2010-49

There are many e-mail scams circulating that fraudulently use the Internal Revenue Service name or logo as a lure. The goal of the scam – known as phishing – is to trick you into revealing personal and financial information. The scammers can then use your personal information – such as your Social Security number, bank account or credit card numbers – to commit identity theft and steal your money.

Here are five things the IRS wants you to know about phishing scams.

1. The IRS does not send unsolicited e-mails about a person’s tax account or ask for detailed personal and financial information via e-mail.

2. The IRS never asks taxpayers for their PIN numbers, passwords or similar secret access information for their credit card, bank or other financial accounts.

3. If you receive an e-mail from someone claiming to be the IRS or directing you to an IRS site,

* Do not reply to the message.
* Do not open any attachments. Attachments may contain malicious code that will infect your computer.
* Do not click on any links. If you clicked on links in a suspicious e-mail or phishing Web site and entered confidential information, visit IRS.gov and enter the search term ‘identity theft’ for more information and resources to help.

4. You can help shut down these schemes and prevent others from being victimized. If you receive a suspicious e-mail that claims to come from the IRS, you can forward that e-mail to a special IRS mailbox, phishing@irs.gov. You can forward the message as received or provide the Internet header of the e-mail. The Internet header has additional information to help us locate the sender.

5. Remember, the official IRS Web site is http://www.irs.gov/. Do not be confused or misled by sites claiming to be the IRS but end in .com, .net, .org or other designations instead of .gov.

Link: Suspicious e-Mails and Identity Theft

IRS posts most recent changes to Collection Financial Standards

The IRS recently issued a notice for updated Collection Financial Standards, effective March 1, 2010. These standards are for the purpose of federal tax administration and are used for calculating the repayment of back taxes. At JK Harris, our tax team uses this information to help determine how much our clients have left over out of their income to begin repaying their tax liability.

Collection Financial Standards are used to help determine a taxpayer’s ability to pay a delinquent tax liability. The IRS has set up allowable living expenses, and these allowances are for anyone working to repay the taxes they owe.. These are expenses that meet the necessary expense test. What this means is the expenses are necessary to provide for a taxpayer’s (and his or her family’s) health and welfare, and/or production of income.

The National Standards for food, clothing and other items are applied nationwide. Taxpayers are allowed to use the total National Standards amount for their family size, without asking for detailed receipts on what was actually spent on these items. Standards have also been set for out-of-pocket health care expenses. Taxpayers and their family members are allowed the standard amount on a per person basis. The out-of-pocket expenses include things such as medical services, prescription drugs, and medical supplies.

The standards that are variable are the allowances for housing and utilities and transportation – these are known as Location Standards and the amounts vary depending on the taxpayer’s location. Generally, the taxpayer is allowed the amount actually spent on these expenses, or the location standard, whichever is less.

Our licensed taxpayer representatives at JK Harris are aware of these changes when they happen. This gives them the right tools and information to properly advocate for our clients before the IRS. If you would like to read more about these changes, visit the IRS website at http://www.irs.gov/individuals/article/0,,id=96543,00.html.

First-time Filers Should Use Free File to Prepare, e-File Returns

The IRS is recommending “Free File”, an IRS hub which lists free tax preparation companies that can provide service free of charge to those making less than $57,000. Instead of hoping to find a reliable tax prep company, the IRS does the vetting for you. Read on to find out more.

The Internal Revenue Service today offered a tax tip to college students and first-time filers: use IRS Free File to prepare and file their federal tax return. This and other suggestions can help new tax filers avoid the April 15 rush and maybe even get any refund due within 10 days.

Filing a federal return may seem like a daunting task for a first-time filer but it is made much easier with tax software such as Free File, a service offered by the IRS and private-sector partners that allows everyone to prepare and electronically file their federal tax return for free.

New taxpayers can check out Free File at www.irs.gov/freefile where they can review about 20 software options. Each participating tax preparation software company sets its own eligibility but anyone making $57,000 or less can find at least one option. The software follows an easy-to-use format that asks questions and completes the appropriate tax form based on answers.

An online tool, Help Me Find a Free File Company, will help identify those companies that match the taxpayer’s criteria. Want to know more? There’s a new how-to video available at www.freefile.irs.gov. Also, each Free File software company has links to the 20 states that offer their versions of Free File.

There are two formats to federal Free File: Traditional Free File, which is the step-by-step software offered by participating companies, and Free File Fillable Forms, which is the electronic version of IRS paper forms that do simple math. There is no income limitation for Free File Fillable Forms but it is the best option for people comfortable doing their own tax return. Either format is free and allows for free electronic filing.

(To read more…)

“Long, hard road” ends in affordable resolution for JK Harris client

Gina Anton, Director of Corporate Communications

When our clients come to us they are stressed out and feel burdened by any number of back tax issues. Often times they are looking for short-term answers or quick solutions to a problem that did not develop overnight. This is one of the hardest notions to get across to our clients – the road to tax resolution is typically not a short or easy one, but with time and patience, the results are worth the wait.

One of the other things our clients often do not understand is the IRS’ unrelenting need for paperwork – and lots of it. Many clients complain online about the reams of paperwork they send to us and often accuse JK Harris of losing these documents. The truth is, the IRS is not going to easily roll over and negotiate an IRS debt. They want solid, hard facts that the taxpayer is financially strapped and unable to pay the tax debt they owe. This is why JK Harris has to continually demand paperwork from our clients. We simply must have it to effectively advocate on behalf of our clients.

I could not say it any better than client, Ms. C. Vagelatos. She realized it took time, lots of patience and “hundreds” of documents to work on her case. The IRS wanted her to make enormous payments on her Installment Agreement – payments that were larger than she could comfortably afford. Ms. Vagelatos tried to negotiate her payment amount on her own, but the IRS would not work with her. That is when she turned to JK Harris.

“It was a long, hard trip – almost two years to resolve my difficult tax problem with the IRS. I am so deeply grateful to my Case Specialist for working with me and the IRS to come to an installment agreement that I could afford to pay back. The IRS was asking for a huge monthly payment I could not afford. My case specialist fought for me, hard – as I gave them all the money I had and waited for an answer. The IRS would not give in and my Case Specialist continued to plead my case.

“Hundreds of documents were asked of me and I know endless hours were spent by my Case Specialist to work on my behalf. I cannot express how relieved I was when she called to advise me that they, the IRS came to a comfortable agreement for me.

“My deep appreciation and thanks goes to my Case Specialist. The final end to my tax problem was also due to my LTR (Licensed Taxpayer Representative), who did an outstanding job with the Tax Advocate department at the IRS.

“My trust was placed with your company completely and all I had was many prayers and (time spent) waiting.

“Again, thank you for helping me through such a bad time in my life. Now my life is easier to cope with. Happy New Year to all of you at JK Harris.”

We are all glad you were able to reach a payment agreement you could afford.

IRS Has $1.3 Billion for People Who Have Not Filed a 2006 Tax Return

The IRS issued a release discussing the refund many Americans will receive if they file their tax return, from 2006. If, however, taxpayers do not file their late return before April 15, the refunds become property of the US treasury. This release has some very interesting IRS need-to-knows.

Washington — Unclaimed refunds totaling more than $1.3 billion are awaiting nearly 1.4 million people who did not file a federal income tax return for 2006, the Internal Revenue Service announced today. However, to collect the money, a return for 2006 must be filed with the IRS no later than Thursday, April 15, 2010.

The IRS estimates that the median unclaimed refund for tax-year 2006 is $604.

Some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim the refund within three years, the money becomes property of the U.S. Treasury.

For 2006 returns, the window closes on April 15, 2010. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund. Though back-year tax returns cannot be filed electronically, taxpayers can still speed up their refunds by choosing to have them deposited directly into a checking or savings account.

The IRS reminds taxpayers seeking a 2006 refund that their checks will be held if they have not filed tax returns for 2007 or 2008. In addition, the refund will be applied to any amounts still owed to the IRS and may be used to satisfy unpaid child support or past due federal debts such as student loans.

By failing to file a return, people stand to lose more than refunds of taxes withheld or paid during 2006. For example, most telephone customers, including most cell-phone users, qualify for the one-time telephone excise tax refund. Available only on the 2006 return, this special payment applies to long-distance excise taxes paid on phone service billed from March 2003 through July 2006. The government offers a standard refund amount of $30 to $60, or taxpayers can base their refund request on the actual amount of tax paid. For details, see the Telephone Excise Tax Refund page on IRS.gov.

In addition, many low-and-moderate income workers may not have claimed the Earned Income Tax Credit (EITC). The EITC helps individuals and families whose incomes are below certain thresholds, which in 2006 were $38,348 for those with two or more children, $34,001 for people with one child and $14,120 for those with no children. For more information, visit the EITC Home Page.

Current and prior year tax forms and instructions are available on the Forms and Publications page of IRS.gov or by calling toll-free 1-800-TAX-FORM (1-800-829-3676). Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for 2006, 2007 or 2008 should request copies from their employer, bank or other payer. If these efforts are unsuccessful, taxpayers can get a free transcript showing information from these year-end documents by calling 1-800-829-1040, or by filing Form 4506-T, Request for Transcript of Tax Return, with the IRS. Click here to read more.

Posted by JK Harris