Former Wesley Snipes Tax Advisor Sentenced to Prison

By JK Harris

Wesley Snipes began serving a three-year prison term for tax evasion in December 2010. On March 3, 2011, one of Snipes’ former tax advisors, Kenneth I. Starr, was sentenced to more than seven years in prison after pleading guilty to wire fraud, money laundering, and fraud by an investment advisor.

Snipes has claimed that his failure to pay income tax was because he followed the advice of advisors such as Starr who turned out to be scammers. He claims to be an innocent victim.

My point in writing about this doesn’t have anything to do with whether Snipes was actually duped or thought he could get away without paying his taxes. My point is this that there are a lot of scammers out there who are taking advantage of genuinely innocent people and giving them really bad advice about their tax strategies. It’s good to see justice for at least one of them.

The average taxpayer who takes a bogus deduction or credit isn’t likely to end up in prison. What will probably happen is that the deduction will be disallowed, interest and penalties will be tacked on to the debt, and the taxpayer will end up paying many times more than what he thought he was going to save.

If you file your tax return yourself, be sure you thoroughly understand and follow the rules for the deductions and credits you take. If you use the services of a professional tax preparer, be sure to check that person out to make sure he or she really knows the tax code and is going to give you appropriate and legal guidance. Should you take advantage of every tax break available to you? Absolutely. But don’t let yourself fall victim to bad advice or even a scam that will cost you much more in the future than you might save today.

JK Harris presents – Top ten reasons for back tax debt

by Andy Thompson, JK Harris Tax Consultant

While I cannot speak for the rest of the team of tax consultants here at JK Harris & Company, I am providing this list based on my own personal experience. Here are the top ten reasons (or causes) clients make an appointment to see me for back tax debt.

1. Earned income tax credit – Just because you claim a child on your return does not mean you qualify for the EITC. Don’t claim the EITC unless you know you are entitled to it. Be sure to do your homework and use the IRS’ EITC calculator.

2. Raising your exemptions – on your W-4 to have less taxes withheld. If you think money is tight now, how will you pay a large bill at tax time?

3. Withdrawing retirements funds – The 10% penalty paid is not equivalent to the taxes due. Making this withdrawal may put you in a different tax bracket.

4. Is your spouse forgetful? Double check that your spouse really did submit the tax returns.

5. Self employed or not? Review what it means to be self employed, as there are requirements to meet. If you are, be sure to pay your estimated taxes on a quarterly basis.

6. Got supporting docs? You must have supporting documents for all claimed expenses. Estimating your expenses will not hold up should you get audited.

7. Larger refund than usual? If the local guy all your buddies go to gets everyone large refunds, he may be setting you up for an audit and tax problems. When the IRS system sees a pattern emerge, all of that tax preparers returns may be audited.

8. Did you inherit a windfall? If your inheritance is from a retirement account, taxes are due upon withdrawing the money.

9. Did you default on an installment agreement? If you agree to an installment agreement or IRS payment plan, you must pay it. I have seen clients who set this up with the IRS on their own but were nervous about dealing with the IRS. Often times, they committed to a payment above their means, then end up unable to make the monthly payments.

10. Submit your returns, even when you cannot pay. By filing your tax returns, you will avoid larger penalties. If you do not file your return, you are penalized with the failure to file and failure to pay fines. Filing your return and paying what you can will help reduce the amount you are penalized.

How to Increase Your Employees’ Take-Home Pay

Would you like to increase your employees’ take-home pay without actually increasing their salaries? One way to do that is to tell them about a valuable tax credit that could put up to $5,600 in their pockets.

Employees who earned less than $48,000 in 2010 may qualify for the Earned income Tax Credit, or EITC. The IRS estimates that up to one in four qualifying individuals will fail to claim and receive the credit. At JK Harris, we believe that no one should pay more in taxes than they are required to by law and that every taxpayer should take advantage of all the deductions and tax credits to which they are legally entitled.

The Earned Income Tax Credit or the EITC is a refundable federal income tax credit for low to moderate income working individuals and families. Congress originally approved the tax credit legislation in 1975 in part to offset the burden of social security taxes and to provide an incentive to work. When EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. In other words, some individuals can pay zero in taxes and still get a check from the government for the EITC. In addition, many states offer a similar credit; click here for a list of states with an EITC.

To qualify for the EITC, taxpayers must meet certain requirements and file a tax return, even if they would not otherwise be required to file.

Use your company communication channels to let your employees know they may be eligible for this tax credit. Include notices with their paychecks and W-2 forms; put posters up in employee break rooms; post information about the EITC on your company intranet site; write an article for your company newsletter; send an email blast to all employees; and include information about the EITC in your new employee orientations.

Don’t let your employees pay more in taxes than they should. Tell them about the EITC today.