JK Harris presents… News from the Net

There is a lot going on with tax news and financial information right now, so I decided to do a news round up – something I have not done on the Tax Resolution blog before. There were several informative links I found and wanted to share with our readers this morning. The first link was provided by one of our blog readers, Ann.

Ann covered the topic of “5 Tips for determining the amount a bank will lend you to buy a home.” Her article is an informative one that may help many of our clients who are getting out of tax debt so they can buy a home of their own. Thank you to Ann for providing this link.

MarketWatch covered some of the best tax tips in their Tax Guide 2011. This web guide offers advice on everything taxes. While it may be too late for your 2010 tax return, this helpful article can give you ideas on tax planning for 2011.

And, according to CNNMoney.com, it looks like Congress will be getting right to work on repealing the much hated IRS ruling with regard to 1099s. The rule, as it currently stands would have required small businesses to issue a 1099 IRS form not only to contracted workers, but also to any individuals or corporations from which they buy more than $600 in goods or services in a year. This rule was slated to take effect in 2012 and was much maligned by small business due to the amount of additional work it would cause. (Many small businesses would have had to hire additional staff to keep up with the paperwork alone.)

And last, but not least – the IRS’ tax tip of the day recommends taxpayers choose direct deposit to receive your tax refund faster. Visit the IRS website to read the full article.

Ten Tax Benefits for Parents

From the IRS Newsroom

Did you know that your children may help you qualify for some tax benefits? Here are 10 tax benefits the IRS wants parents to consider when filing their tax returns this year.

1. Dependents In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

2. Child Tax Credit You may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. For more information see IRS Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit You may be able to claim the credit if you pay someone to care for your child under age 13 so that you can work or look for work. For more information see IRS Publication 503, Child and Dependent Care Expenses.

4. Earned Income Tax Credit The EITC is a benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.

5. Adoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. Taxpayers claiming the adoption credit must file a paper tax return because adoption-related documentation must be included. For more information see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6. Children with Earned Income If your child has income earned from working they may be required to file a tax return. For more information see IRS Publication 501.

7. Children with Investment Income Under certain circumstances a child’s investment income may be taxed at the parent’s tax rate. For more information see IRS Publication 929, Tax Rules for Children and Dependents.

8. Higher Education Credits Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar-for-dollar, unlike a deduction, which reduces your taxable income. For more information see IRS Publication 970, Tax Benefits for Education.

9. Student loan Interest You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions. For more information see IRS Publication 970.

10. Self-employed health insurance deduction If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage after March 29, 2010, for any child of yours who was under age 27 at the end of 2010, even if the child was not your dependent. For more information see the IRS website.

The forms and publications on these topics can be found at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Things to keep in mind when choosing a tax preparer

The IRS sent out its list today of what to look for when choosing a tax preparer. Remember, it is important to choose carefully when you decide to have your returns prepared by a professional. JK Harris offers tax preparation in conjunction with our tax representation services, small business services or as a stand alone service.

If you pay someone to prepare your tax return, the IRS urges you to choose that preparer wisely. Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. So, it is important to choose carefully when hiring an individual or firm to prepare your return. Most return preparers are professional, honest and provide excellent service to their clients.

Here are a few points to keep in mind when choosing someone else to prepare your return:

1. Ask if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.New regulations require all paid tax return preparers including attorneys, CPAs and enrolled agents to apply for a Preparer Tax Identification Number — even if they already have one — before preparing any federal tax returns in 2011.

2. Check on the preparer’s history. Check to see if the preparer has a questionable history with the Better Business Bureau and check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Professional Responsibility for enrolled agents.

3. Find out about their service fees. Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers.

4. Make sure the tax preparer is accessible. Make sure you will be able to contact the tax preparer after the return has been filed, even after the April due date, in case questions arise.

5. Provide all records and receipts needed to prepare your return. Most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items.

6. Never sign a blank return. Avoid tax preparers that ask you to sign a blank tax form.

7. Review the entire return before signing it. Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.

8. Make sure the preparer signs the form and includes their PTIN. A paid preparer must sign the return and include their PTIN as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return.The preparer must also give you a copy of the return.

Top Ten Reasons to visit the IRS website

If you have never visited the IRS’ website, it is well worth your time. The website is a comprehensive, educational tool for learning about and assisting you with filing your federal returns. You can find out everything you need to know about filing your income taxes, what to do if you receive a notice from the IRS or how to file an overdue tax return.

Here is the IRS’ own Top Ten list of reasons why you should visit their website:

Don’t wait in line, go online. Point and click your way through the tax season. All you need is a computer and Internet access because the IRS website has a wealth of free information and online tax support. Here are the top 10 reasons to visit http://www.irs.gov.

1. If you find yourself working on your tax return over the weekend, there’s no need to wait to get a form or an answer to a question – visit the IRS website anytime. The website is accessible all day, every day.

2. Use Free File: Let Free File do the hard work for you with brand-name tax software or online fillable forms. It’s exclusively at http://www.irs.gov. Everyone can find an option to prepare their tax return and e-file it for free. If you made $58,000 or less, you qualify for free tax software that is offered through a private-public partnership with manufacturers. If you made more or are comfortable preparing your own tax return, there’s Free File Fillable Forms, the electronic versions of IRS paper forms. Visit http://www.irs.gov/freefile to review your options.

3. Try IRS e-file: After 21 years, IRS e-file has become the safe, easy and most common way to file a tax return. Last year, 70 percent of taxpayers – 99 million people – used IRS e-file. Starting in 2011, many tax preparers will be required to use e-file and will explain your filing options to you. This is your chance to give it a try. IRS e-file is approaching 1 billion returns processed safely and securely. If you owe taxes, you have payment options to file immediately and pay by the tax deadline. Best of all, combine e-file with direct deposit and you get your refund in as few as 10 days. More information about e-file is available at http://www.irs.gov.

4. Check the status of your tax refund. Whether you chose direct deposit or asked the IRS to mail you a check, you can check the status of your refund through Where’s My Refund?

5. Find out how to make payments electronically. You can authorize an electronic funds withdrawal, use a credit or debit card, or enroll in the U.S. Treasury’s Electronic Federal Tax Payment System to pay your federal taxes. Electronic payment options are a convenient, safe and secure way to pay taxes.

6. Find out if you qualify for the Earned Income Tax Credit. EITC is a tax credit for many people who earned less than $49,000. Find out if you are eligible by answering some questions and providing basic income information using the EITC Assistant.

7. Get tax forms and publications. You can view and download tax forms and publications any hour of the day or night.

8. Calculate the right amount of withholding on your W-4. The IRS Withholding Calculator will help you ensure that you don’t have too much or too little income tax withheld from your pay.

9. Request a payment agreement. Paying your taxes in full and on time avoids unnecessary penalties and interest. However, if you cannot pay your balance in full you may be eligible to use the Online Payment Agreement Application to request an installment agreement.

10. Get information about the latest tax law changes. Learn about tax law changes that may affect your tax return. Special sections of the website highlight changes that affect individual or business taxpayers.

Remember the address of the official IRS website is http://www.irs.gov. Don’t be confused by Internet sites that end in .com, .net, .org or other designations instead of .gov.

Notice CP03A – First Time Homebuyers may be surprised to find repayment due

by Bryan Miller, Tax Analyst

Taxpayers who took advantage of the IRS First Time Homebuyer Credit between April 8th, 2008 and May 1st, 2010 are not all the same. The credit aided individuals and couples who purchased a first home as a primary residence, and was initially meant as temporary stimulus for the economy. As time progressed, the credit changed and was treated very differently in tax years 2009 and 2010. Unfortunately, these subsequent changes did not grandfather in those taxpayers that took the credit in 2008 as many surprised taxpayers may find this year; however, for those who purchased a home in 2008 and have not taken the credit, you still have options. The breakdown is as follows:

Those who purchased a home between April 8th and December 31st, 2008 and took the credit on their 2008 tax return had the stipulation of a 15-year payback requirement beginning this year on the 2010 tax return. In essence, the credit took the form of an interest-free loan in the amount of $7,500.00. Beginning on the 2010 return, adding an additional tax of $500 to each return using Form 5405 for 15 years will pay the credit back until 2025.

For homes purchased and closed between January 1st 2009 and November 7th 2009, the credit increased to a maximum of $8,000.00 and did not need to be repaid. This version of the credit only applied to new homeowners who had not owned a home in the prior three years. After November 7th 2009 and through May 1st 2010, the credit included both the $8,000.00 as applied to 2009 buyers, as well as a new version to include long-time residents (current homeowners as opposed to homebuyers) up to a maximum of $6,500.00. This variation did not have to be repaid either.

Note: The 2009 and 2010 credits had a conditional versus mandatory repayment mandate. The credits would have to be repaid if the qualifications of the program changed. The home had to be a first time purchase, as defined above, and resided in (not sold) by the buyer for the next three years.

Fortunately, if you are a 2008 homebuyer and candidate for the credit, yet have not claimed the credit, you may amend your return to claim the credit using Form 1040X with the December 2009 or 2010 Form 5405. Certain additional documentation may be required when filing a claim for the credit with your 2009 or 2010 return or amended return.

There are exceptions to the 2008 repayment rule. Exceptions may apply to individuals who claimed the credit in 2008 and are now deceased, those who sold the home without realizing a gain to a non-related party (including foreclosure), or those whose home was condemned or destroyed. Also, if a spouse dies after claiming the credit on a joint return in 2008, the obligation becomes only 50%, or $250.00 per year for 15 years, for the surviving spouse. See First-Time Homebuyer Credit Questions and Answers: Claiming the Credit on Your Tax Return or First-Time Homebuyer Credit questions and Answers: Basic Information for further details.

Honest Dialogue

By Antonia Martin, Tax Consultant, JK Harris and Company

Some clients just don’t believe that the IRS can and will enforce collections against them if they ignore the collection letters that keep coming in the mail.

I had one client who had not filed tax returns for a dozen years. The IRS had done a Substitute for Return* for several of the years the client did not file. (The IRS will do a Substitute for Return for you if you have not filed your tax returns. Instead of giving you the deductions or credits you may be entitled to, the IRS will file a return single with the least ideal tax situation you want to be in.) The client came to the appointment he set up with me with a letter showing he had a tax liability of $54,000. He also had a garnishment letter from his employer. I showed him on the table that comes with the garnishment notice how much of his income the IRS would “allow” him to keep and how much of this paycheck the IRS was going to intercept each week – this amounted to the client getting $179, and the IRS getting $2000.

He scoffed at me and said there was no way that would happen, that it could not be that bad. He said I was crazy to ask the amount of money we needed to do all of his past due tax returns and to get a levy release on his wages. He left the office disgusted with me and disbelieving the IRS would take that much of his income.

The very next week, he called me in a panic because his employer had garnished his wages exactly as I had informed him they would. He immediately decided to hire JK Harris to help him get all of his tax returns filed and to get the wage levy released.

* Important note about substitute for returns – it is very important for you to go back and file for any years the IRS may have filed SFRs for you. In some cases, our clients have found they owed very little back taxes – in other cases they owed nothing.

IRS sends out 2011 Top ten tax tips

IRS Tax Tips 2011-01:

It’s that time of the year again, the income tax filing season has begun and important tax documents should be arriving in the mail. Even though your return is not due until April, getting an early start will make filing easier. Here are the Internal Revenue Service’s top 10 tips that will help your tax filing process run smoother than ever this year.

1. Start gathering your records Round up any documents or forms you’ll need when filing your taxes: receipts, canceled checks and other documents that support income or deductions you’re claiming on your return.

2. Be on the lookout W-2s and 1099s will be coming soon; you’ll need these to file your tax return.

3. Use Free File: Let Free File do the hard work for you with brand-name tax software or online fillable forms. It’s available exclusively at http://www.irs.gov. Everyone can find an option to prepare their tax return and e-file it for free. If you made $58,000 or less, you qualify for free tax software that is offered through a private-public partnership with manufacturers. If you made more or are comfortable preparing your own tax return, there’s Free File Fillable Forms, the electronic versions of IRS paper forms. Visit http://www.irs.gov/freefile to review your options.

4. Try IRS e-file: After 21 years, IRS e-file has become the safe, easy and most common way to file a tax return. Last year, 70 percent of taxpayers – 99 million people – used IRS e-file. Starting in 2011, many tax preparers will be required to use e-file and will explain your filing options to you. This is your chance to give it a try. IRS e-file is approaching 1 billion returns processed safely and securely. If you owe taxes, you have payment options to file immediately and pay by the tax deadline. Best of all, combine e-file with direct deposit and you get your refund in as few as 10 days.

5. Consider other filing options There are many different options for filing your tax return.You can prepare it yourself or go to a tax preparer.You may be eligible for free face-to-face help at an IRS office or volunteer site.Give yourself time to weigh all the different options and find the one that best suits your needs.

6. Consider Direct Deposit If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a paper check.

7. Visit the IRS website again and again The official IRS website is a great place to find everything you’ll need to file your tax return: forms, publications, tips, answers to frequently asked questions and updates on tax law changes.

8. Remember this number: 17 Check out IRS Publication 17, Your Federal Income Tax on the IRS website. It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return.

9. Review! Review! Review!Don’t rush. We all make mistakes when we rush. Mistakes will slow down the processing of your return. Be sure to double-check all the Social Security Numbers and math calculations on your return as these are the most common errors made by taxpayers.

10. Don’t panic! If you run into a problem, remember the IRS is here to help. Try http://www.irs.gov or call toll-free at 800-829-1040.

IRS Announces Expanded Use of Twitter Feeds to Inform Taxpayers

The IRS is all a-twitter about its presence on Twitter. Earlier this week, the IRS announced it would be expanding its use of the popular social media networking tool Twitter, in an effort to share timely information with both taxpayers and tax professionals. The IRS will have two useful feeds to follow – @IRSnews and @IRStaxpros.

@IRSnews currently provides the latest in federal tax news and information for the general user. The messages on this Twitter feed will include easy to use information, tax tips, tax law changes and important IRS programs. If you currently have a Twitter account, you can follow @IRSnews by going to http://twitter.com/IRSnews.

@IRStaxpros is designed for any tax professionals looking to stay on top of current IRS news. Follow this feed at http://twitter.com/IRStaxpros. Spanish tax information can be found at http://twitter.com/IRSenEspanol.

If you don’t care to follow the IRS on Twitter, you can get your IRS news by going to the IRS website at www.irs.gov.

If you’d like to join JK Harris and Company on twitter, you can find us at http://twitter.com/jkharris. We tweet about tax topics, tax news, our clients’ success stories and more. We would love to hear from you – contact us on the blog or at twitter with your tax questions or back tax issues.

Former New York Legislator Pleads Guilty to Tax Evasion

On this blog, we have often discussed the importance of filing your tax returns each year and filing them on time. We should also mention it is equally important to file complete and accurate returns. Falsifying your tax returns is something the IRS and the government does not look kindly on.

Former Republican State Senator Vincent Leibell pleaded guilty in court this morning to filing false tax returns for 2003 through 2006. He also admitted trying to influence a grand jury investigating corruption in Putnam County, New York.

Leibell resigned last Thursday, about a month before his eighth term as Senator was set to end. After spending 28 years in the Senate and Assembly, Leibell was elected to serve as the Putnam County Executive.

More details on this story at: http://www.lohud.com/article/20101204/NEWS01/12040336/Source-Leibell-s-charges-include-obstruction-of-justice-tax-evasion.

‘Tis the season…. To prepare for tax season!

It’s never too early to start preparing for the next tax season. You may find that you can still squeeze in some last minute tax strategies to help save you money on your 2010 return. It’s a little trickier this year than most, since tax rates are scheduled to change for 2011. With the uncertainty about next year’s tax rates, some taxpayers are looking to accelerate their income into 2010 at the known tax rate rather than waiting to see what 2011 holds. For now, here are some tried and true ways to save on your taxes:

*Max out your 401(K) or other employer sponsored retirement plan. Contributions to a 401(K) or 403(b) have to be made by the end of the year, so now is the perfect time to lower your taxable income while padding your retirement account.

*Make your charitable contributions by December 31st to be able to claim them on your 2010 tax return.

*Giving any large cash gifts? You are allowed to gift up to $13,000 (for 2009 and 2010) per person, to any number of people without having to file a gift return. Of course, if you give a check, the recipient must cash the check by the end of the year.

*Pay your property taxes by the end of the year in order to deduct them on your 2010 return.

*Sell of any stocks or investments that have fallen in value. You can take the losses in 2010, if you sell before the end of the year.

*The energy efficient home improvement credit is set to expire at the end of 2010. If you are thinking of making some home improvements (new insulation, more efficient windows, doors or HVAC system), act now to take advantage of this credit.

*Previously, a computer counted as a qualified expense for section 529 college savings plans. This will expire at the end of 2010.