Ten Ways You Should be Using Quickbooks

Entrepreneurs use the accounting program QuickBooks accounting software more than any other. They use it whether they’re starting a new business or streamlining an existing one. Yet many of them barely scratch the surface of QuickBooks' functionality, here BusinessNewsDaily offers the following 10 tips to get more out of QuickBooks.

Get the most out of the existing reports.

Use accounts receivable aging for a snapshot of information such as who owes you money, how much they owe you, and how long they’ve owed you.
Use accounts payable aging for a snapshot of who you owe money to and to monitor cash flow better
Prepare reports with comparative balances to the prior year or period to analyze trends in income and expenses
Check out the preformatted and customizable reports that are available to analyze your business.  Most people aren’t aware of the options.

Use budgets.

Budgets provide a benchmark or target.  They represent what you thought you were going to be able to do for the year.  Comparing actual results to budgets provides a good management tool to see how you are performing in various areas of your business.

Export information to Excel.

This provides easy access to reports and data for users not knowledgeable in QuickBooks.  It also lets you sort data and prepare charts and graphs not available in QuickBooks.

Use classes.

Classes allow you to track income and expenses by department, location, separate properties, or any other meaningful breakdown of your business. This provides management with an additional tool to track the performance of different business areas.

Set it up right.

Take the time and use a knowledgeable person to set up QuickBooks from the start.  This helps ensure that you have a good chart of accounts and good foundation for entering your data.

Enter data properly and consistently.

This ensures that you get accurate and useful reports.  For example: Sales by Customer.  If you enter the customer as ‘Kaufman Rossin’ one time and ‘Kaufman Rossin & Co.’ another time, you now have two customers, not one.

Close periods using passwords.

Closing periods with passwords at month end dates prevents changes to prior periods that have already been reviewed and finalized.  This protects you from fraud and error.

Don't share logins.

Create separate users and passwords for each person to limit access to functions and reports.  This tracks activity and changes by user if needed for auditing changes to the books.

Reconcile cash at month end.

Reconciling confirms that cash is accurate.  If your cash is accurate than there is a better chance that the rest of your activities are reported accurately.

Understand and use adjusting journal entries.

The journal entries are a useful tool for entering transactions, correcting prior periods, etc.

Published by BusinessNewsDaily, a TechMediaNetwork company.

IRS Cannot Extend Three-Year Limitation Due to Overstatement of Basis

In a recent decision that considers the authority of the IRS to issue retroactive regulations, the Supreme Court ruled in United States v. Home Concrete that the IRS may not apply an extended six-year limitations period in certain tax shelter cases. The extended limitation period applies under IRC 6501(e) when a taxpayer "omits from gross income an amount properly includible" in excess of 25 percent of gross income. The court's decision in Home Concrete has reversed cases where the government won in lower courts.
 
In 2009, the IRS issued temporary and final regulations that reinterpreted the established precedent for IRC 6501(e), Colony Inc. v. Commissioner, where the court had ruled on the language of the Code. The IRS regulation claimed that an overstatement of basis in property was an "omission" of gross income under the statute. The regulation would apply to any taxpayer whose statute of limitations remained open at the time the regulation was issued. The IRS then used this regulation as the basis for challenges to certain taxpayers. The Supreme Court rejected the 2009 IRS interpretation and reaffirmed its ruling in Colony.
 
In a recent exchange with AccountingWEB, Todd Welty, a partner in the Tax Litigation practice of SNR Denton in Dallas, reviewed the facts of United States v. Home Concrete and discussed its significance for the IRS and accountants. In 2007 through 2009, Welty, along with Senior Managing Associate Laura Gavioli, achieved rare taxpayer victories under the IRS's six-year statute of limitations, including Grapevine Imports, Ltd. v. United States and MITA Partners v. Commissioner. These cases – like Home Concrete – test the boundaries of an agency's authority to issue retroactive regulations, and the consequences have broad-reaching effects beyond tax law.
 
Q: What were the facts of the Home Concrete case? What was the government's argument? What did the court conclude?
 
A: These cases began because the government alleged that the taxpayers had engaged in Son of Boss transactions, which the IRS has characterized as abusive tax shelters. Most taxpayers at issue disputed this characterization. Despite the IRS's claim that failing to audit these taxpayers would result in massive losses of government revenue, the IRS had failed to open examinations against these taxpayers within the normal three-year window for examination and assessment under IRC 6501. According to a Treasury Inspector General report, the IRS "deliberately delayed" examining these taxpayers and allowed the three-year statutes to lapse, citing a need for further issue development.
 
The IRS instead sought to rely on a statutory exception under IRC 6501(e), which gives the IRS six years to pursue taxpayers who "omit" items of income exceeding 25 percent of the amount shown on the return. According to the IRS, since the taxpayers substantially underreported their taxable income due to the alleged Son of Boss transactions, the taxpayers met the statutory test, and the IRS argued it was entitled to three additional years to audit them.
 
Q: What was the problem with this view?
 
A: The IRS's position was in direct conflict with the Supreme Court's interpretation of the predecessor statute to IRC 6501(e) in Colony Inc. v. Commissioner, 357 U.S. 28 (1958). In that case, the Supreme Court had examined the exact same language relied on by the IRS and reviewed the legislative history of the statute. The court concluded that the statute was designed to give the IRS additional time to examine returns not just because the amount at issue was large. Rather, the statute gave the IRS this additional time only when the taxpayers' reporting left the IRS at a "special disadvantage" in detecting errors. Thus, the focus was not on the size of the amount at issue, but on what the IRS could have known or should have known from looking at the return.
 
Consequently, the Supreme Court in the Colony case held that the term "omits" in the statute should have its plain meaning, that is, to "leave out" entirely. Since the taxpayer in the Colony case had adequately disclosed the disputed transaction and his tax position – even though that position disagreed with the IRS's view – the IRS had no recourse in the extended statute of limitations. At the end of Colony, the court noted that the predecessor statute had been recently replaced with the current IRC 6501(e) and that the court's result was "in harmony" with the current statute.
 
The present taxpayers further argued that Colony was directly on point because, like the taxpayer in Colony, all of the present taxpayers were alleged to have underreported their income due to an overstatement of their basis in property. In Colony, the property was a series of residential lots. In the present cases, the property usually was a short position in Treasury notes. Many of the taxpayers' disclosures on their returns met or exceeded the disclosures that the taxpayer had made in Colony.
 
In 2009, after the IRS had lost numerous high-profile cases on this issue, the IRS issued temporary and final regulations that purported to reinterpret IRC 6501(e) in a manner that directly conflicted with the central holding of Colony. The regulations explicitly held that an overstatement of basis in property was an "omission" of gross income under the statute. This regulation purported to apply to any taxpayer whose statute of limitations remained open at the time the regulation was issued. In other words, the regulation was intended to apply to any pending cases that had not become final following an appeal, even if the IRS had already litigated and lost these cases. Essentially, the regulation was meant to undo unfavorable judicial decisions that the IRS had received.
 
The Supreme Court decision in Home Concrete soundly refused to deviate from Colony. The regulation at issue was an act of overreaching on the government's part. In particular, the majority noted that it would be difficult to distinguish between the predecessor statute and IRC 6501(e) because they use identical language, the term "omits." Further, because the court in Colony found the language of IRC 6501(e) to be "unambiguous" on this issue, the court held that the IRS had no discretion to issue a regulation that contradicted a prior controlling interpretation from the court.
 
Q: On May 1, CCH published a list of cases: Supreme Court Docket: Cert Granted and Cases Remanded Due to Home Concrete. Does this mean that the cases are no longer before the court?
 
A: This means that the cases are no longer before the court and that the IRS has effectively lost all of the cases. The Supreme Court has reversed any cases where the government won in lower courts and has sent instructions to the lower courts to enter judgment for the taxpayers.
 
Q: How should accountants use this case in their practice?
 
A: This case has several important consequences for accountants. First, it is an important reminder that when the IRS intends to rely on an exception to the statute of limitations to audit your client beyond the normal three-year window, the IRS must have a sound argument for relying on that exception and must be able to back that up with solid proof. Accountants should seriously scrutinize any late-received audit notices and carefully consider whether to advise their clients to consent to extending any statutes of limitations in this situation.
 
Further, this case will have implications for the proper deference to give any Treasury Regulation or other administrative regulation. Under the court's decision last year in Mayo Foundation v. United States, 562 U.S. (2011), Treasury Regulations are generally entitled to heightened deference. However, Home Concrete shows that not all regulations are created equal and not all are infallible. A regulation issued much later than its originating statute (here, more than fifty years later) may be subject to greater scrutiny. Also, a regulation motivated by an improper purpose (here, interfering with unfavorable judicial decisions) may also be subject to challenge.

By Anne Rosivach for AccountingWEB

IRS Raises Limits for HSAs and HDHPs for 2013

In IRS Revenue Procedure 2012-26, the IRS has announced the new inflation-adjusted increases for Health Savings Account (HSA) contributions and high-deductible health plan (HDHP) deductibles.
 
To qualify for an HSA, you must have a high deductible health insurance plan and no other health insurance. Linda Wallace, CPA, CEBS, senior manager at Carmel, IN-based CPA firm Blue & Co., points out that, "Once you go on Medicare, you can't continue to fund your HSA," however, the HSA can be regarded as a long-term tax-free investment to be used to cover future medical expenses.
 
The contributions to an HSA are tax deductible, as an above-the-line deduction, in the year in which they are made. Withdrawals are tax free as long as they are used for qualified medical expenses.

These amounts apply to the 2013 calendar year:
 
The maximum annual contribution to a self-only HSA for HDHP coverage increases from $3,100 to $3,250 for 2013.
The maximum annual contribution to a family HSA for HDHP coverage increases from $6,250 to $6.450 for 2013.
The age 55 and over annual catch up contribution remains at a $1,000 for 2013.
The minimum self-only HDHP deductible increases from $1,200 to $1,250 for 2013.
The minimum family HDHP deductible increase from $2,400 to $2,500 for 2013.
The maximum self-only HDHP out-of-pocket expense amount (which includes deductibles and co-payments as well as other expenses) increases from $6,050 to $6,250 for 2013.
The maximum family HDHP out-of-pocket expense amount (which includes deductibles and co-payments as well as other expenses) increases from $12,100 to $12,500 for 2013.

Originally Posted by AccountingWEB

At Tight End, An Accountant.

The last time Les Brown caught a touchdown pass, he was a lanky all-state wide receiver in Salt Lake City.

After high school, Brown played basketball for three years at Utah’s Westminster College before he became buried by paperwork for two years as an accountant in a private equity firm. His memories of playing football faded.

Then, a little more than a week ago, the 24-year-old Brown, after months of intensive training and an eye-opening performance at Brigham Young’s pro day, found himself as perhaps the unlikeliest of the 64 players on the field as the Miami Dolphins opened voluntary workouts.

Brown has been out of football so long that his return does not really classify as a comeback; surely no one at the professional level had heard of him before March 29. On that day, Brown ran the 40-yard dash in 4.43 seconds and recorded a 39-inch vertical leap to draw the interest of a half-dozen teams, including the Super Bowl champion Giants.

“All I wanted coming out of the B.Y.U. pro day was a chance,” he said. “I know I have a lot of hard work to do. I’m ready. I just want to make the Dolphins look good.”

Brown’s return to football came about because he was trying to help his brother look good.

Chad Ikei, who runs a training center in Hawaii, met Brown last year when Brown was trying to find someone to work with his brother Braden, an offensive tackle for B.Y.U. with N.F.L. potential.

Ikei was impressed by the questions Brown asked and knew that when Brown was in high school, he had been approached by colleges that wanted him to play football. Ikei tried to persuade him to put his finance career on the sideline and follow an unlikely dream.

Brown was curious enough to meet with Ikei again last December when B.Y.U. played at Hawaii, and he soon decided to move to Oahu to train.

One of a dozen N.F.L. prospects who were working with Ikei, Brown had the furthest to go. After just two sprints on the first day, Brown ended up on the side of a hill in the fetal position, vomiting.

“I wanted to show everyone I meant business,” he said. “The first few reps I went 110 miles per hour. After that, I was gassed.

“That first day definitely opened my eyes.”

Brown had potential but had gone back to finish up his college degree and was recovering from shoulder surgery before he took Ikei’s challenge.

“His base starting point, it was, in the lightest way to put it, pathetic,” Ikei said. “He’s what we call a skinny fat kid. He didn’t have any muscle mass at the time.”

Three months later, Brown had gained 25 pounds, cut his 40 time by three-tenths of a second and trimmed his body fat in half — to 8 percent. He also tapped into the athletic ability and competitiveness that turned him into the defensive stopper for the Westminster College basketball team, which was ranked No. 1 in the N.A.I.A. for a time during Brown’s junior year.

“He responds to challenges,” Westminster Coach Adam Hiatt said. “He came into the program known for his offensive prowess and athletic ability. The challenge for him was to become the best defensive player in our league.

“He took that seriously.”

Brown is raw, but has the size (6 feet 4 inches, 238 pounds) and the athletic ability that teams are looking for as the tight end position evolves.

“The more multiple you can be with formations with certain body types on the field, you can create some advantages for you against the defense,” Joe Philbin, the new coach of the Dolphins, said. “The best-case scenario is he develops into a guy that’s got some versatility.

“He’s in what we call the infancy stage right now.”

So is Miami’s offense.

The team hired Philbin, the former offensive coordinator at Green Bay, and drafted Texas A&M quarterback Ryan Tannehill with the No. 8 pick in the draft to improve a passing offense ranked 23rd in 2011.

Philbin relied heavily on tight ends in Green Bay, using as many as four in certain formations. It remains to be seen whether Brown, one of six tight ends on the Dolphins’ roster, will have a role with the team.

Either way, his makeover from an out-of-shape accountant to N.F.L. hopeful has made him a YouTube sensation, with a video (http://www.youtube.com/watch?v=ODFCKVjkx4k) documenting his transformation drawing more than 1.3 million views.

Ikei has worked with roughly 200 N.F.L. players, including Larry Fitzgerald and Adrian Wilson of the Arizona Cardinals. He said he had received 100 e-mail messages about Brown, from 12-year-old football players looking for advice to a 300-pound woman inspired to stick with an exercise program.

“It’s unbelievable; he’s touching so many people’s lives,” Ikei said. “It made my year of 2012. Nothing can top it. I can’t wait to see what he’s going to do.”

The Dolphins signed Brown to a three-year deal. But Brown said he realized that in the coming months, as a former accountant with a basketball background, he was sure to be a target.

“I’m sure I’ll take my lumps,” he said. “I’m sure there will be some guys who want to knock the basketball guy out, so I’ll be keeping my head on a swivel. But at the same time, I want to get out there and put somebody on his butt, too.”

By Edgar Thompson, this article appeared in print on May 6, 2012, on page SP10 of the New York edition of The New York Times.

MasterCard Removes Global Payments From Approved Vendor List

In important news for businesses using the payment processor, GlobalPay, MasterCard Inc. (MA) removed Global Payments Inc. (GPN), the transaction processor involved in a data breach, from its list of approved service vendors, the card company said Wednesday.

The move follows Visa Inc.'s (V) decision to remove the transaction processor from a similar list it maintains stemming from a breach Global Payments disclosed in late March.

Global Payments said late Tuesday that multiple card brands had removed it from their list of PCI compliant-service providers. PCI refers to payment-card industry standards that Visa, MasterCard and other card networks require merchants and other companies handling sensitive card data to adhere to.

The Atlanta company, which processes card transactions for merchants and banks, disclosed the fact that more than one brand had removed it from their lists in an update to a website it set up about the breach. It didn't name which card brands had taken that step, but the company last month acknowledged that Visa had done so. Chairman and Chief Executive Officer Paul Garcia said at the time that it wouldn't be unexpected for MasterCard to do the same.

"As a result of the preliminary investigation findings regarding the breach, MasterCard has removed Global Payments from our list of PCI compliant service providers," a MasterCard spokesman said in an email Wednesday.

Global Payments spokeswoman Amy Corn declined to say whether other card networks had removed it from their lists late Tuesday, citing an ongoing investigation into the breach.

Representatives from American Express Co. (AXP) and Discover Financial Services (DFS), whose cards may also have been affected in the breach, didn't immediately respond to emails.

Global Payments is working to revalidate its systems to meet the standards, the update said.

"In the meantime, the decision doesn't impact our ability to process transactions, nor does it impact our merchants' or partners' PCI status," Corn said.

Global Payments said its processing system had suffered an intrusion that may have exposed up to 1.5 million cardholder accounts in North America after The Wall Street Journal reported the company was involved in a breach in late March.

Global Payments said it identified and self-reported the incident to law enforcement, which is investigating the matter. It continues to believe that fewer than 1.5 million card accounts were "exported," meaning "taken or stolen" from its network, the company's site said.

Information accessed included card numbers and other details that can be used to create counterfeit cards but didn't contain cardholder names, addresses or Social Security numbers.

Global Payments was the nation's seventh-largest "merchant acquirer" in the U.S. last year, according to the Nilson Report, a newsletter in Carpinteria, Calif., that tracks the payments industry. Global Payments handled $120.6 billion in Visa and MasterCard card volume last year, according to the newsletter.

By Andrew R. Johnson, Dow Jones Newswires

IRS Backlog has Stalled Responses to Offers in Compromise Requests

While the IRS has been successful in promoting the Offers in Compromise program that allows taxpayers to settle their tax bills for less than the full amount, the response has created a backlog.
 
The backup means taxpayers are waiting too long to hear back from the IRS on their offers, according to a new watchdog report. IRS promotion efforts and a poor economy have led to a 28 percent increase in Offer in Compromise requests between the fiscal years 2007 and 2011, according to a report released Thursday by the Treasury Inspector General for Tax Administration, or TIGTA.
 
The IRS made the forms simpler, more accessible and promoted the program through You Tube videos and other methods. Over the same time period, though, the number of IRS employees processing Offers in Compromise dropped by 10.
 
“Delays could impact financial and business decisions because taxpayers do not know if or when their tax liabilities will be resolved,” the report said, noting that the Offers in Compromise program is considered one of the most serious problems facing taxpayers.
 
After reviewing a statistically valid sample of offers, TIGTA concluded:
 

    In 74 percent of offers, taxpayers were not contacted by the date promised.
    As of October 25, 2011, 7,472 offers were on hold, awaiting assignment to a staff member.
    At one processing site, 37 percent of the offers were more than six months old. These offers were from self-employed taxpayers, and are typically more complicated and are assigned to more experienced staff.

The report said, “Because of the long wait for the offers to be processed, the varying timelines depending on the type of taxpayer, and the location where the offer is assigned, taxpayers are not always being treated equitably.”

TIGTA recommended the IRS put performance measures in place for its streamlined offer procedure. In those cases, IRS staff can make taxpayer contacts by phone rather than mail to expedite the Offer in Compromise request.
 
The IRS has agreed with the audit recommendations and will take the following actions:

    Better inform taxpayers by lengthening the time by which they will be contacted or issued an interim letter.
    Initiate reassignment of offers between IRS sites as needed.
    Apply most aspects of the streamlined process to the remainder of the Offer in Compromise cases.

Posted by AccountingWEB

Banks Slash Retailers' Debit Card Fees

With every swipe of a customer's debit card, small businesses and other retailers must pay transaction fees to the card issuer.

But those fees have been sliced almost in half, due to a government cap that was imposed last year, according to a Federal Reserve report released this week.

The fees Visa (V, Fortune 500), MasterCard (MA, Fortune 500), Discover (DFS, Fortune 500) and several smaller companies charge for each debit card transaction now average 24 cents, down from 43 cents in 2009, according to the Fed.

Before the cap was instituted as part of the Durbin Amendment, many small shops complained that transaction fees were excessive and cut into their revenues disproportionately. The amendment barely made it into the 2010 Dodd-Frank financial reforms after a bitter Congressional fight.

Retail and grocery industry trade groups said this week that the measure has largely helped businesses. The cap, which went into effect Oct. 1, has pushed down costs and revealed just what each card processing company charges on average.

"For the vast majority, this has been an improvement," said Mallory Duncan, a National Retail Federation lawyer who lobbied for the law's passage.

Unexpectedly, some shops selling low-cost items have been hurt, trade groups say. As part of a push in the last five years to get dollar stores, coffee shops and the like to add swipe machines, credit card companies agreed to charge them transaction fees lower than other retailers.

But those fees have more than doubled in recent months, reaching the 24 cent average like all other shops, Duncan said. So retailers selling 99-cent cups of coffee may now be paying almost a quarter in fees on a sale.

Card companies "followed the rule but not the spirit of what the Fed said," Duncan said.

Following the Fed's report, which was released Tuesday, the retail federation issued a statement saying debit fees haven't fallen far enough.

According to the Fed report, Visa and MasterCard are charging shops 24 cents on average, while Discover's rate is lower, at 17 cents. A dozen smaller companies fall into a similar range.

It's a sharp fall from what the big three were charging in 2009, when the average was 55 cents for each transaction.

Today, the cap is set at 21 cents, plus a percent of the sale amount.

In the age of plastic, the total amount buyers put on debit cards has grown. In 2009, $1.4 trillion was spent in 37.6 billion debit card transactions. Last year, $1.8 trillion was spent in 46.7 billion transactions.

It's still unclear whether the savings from lower fees are being passed on to consumers. It's even unknown whether most shops have seen the savings themselves.

Some have fallen victim to a legal loophole, according to Robert Day, managing partner of Merchant Relief Council, a Tustin, Calif., group which seeks to protect retailer profits.

His explanation involves credit card processing companies, which fill middleman roles between shops and banks.

"Debit card companies had to lower fees to processors, but there's no rule that says the processors have to pass that on to the merchants," he said. "They're pocketing that savings for themselves."

Retailers are also having a hard time determining what they're being charged per transaction because what they pay is sometimes bundled with other fees, according to Tom Wenning, a lobbyist with the National Grocers Association.

But it's better than the non-negotiable, unregulated rates grocers saw in the past, he said.

"While it's not everything we'd hoped for, it was at least a step in the right direction," Wenning said. "This put in place at least some transparency."

By Jose Pagliery for @CNNMoney

5 Ways Small Biz Can Attract Big Clients

Winning business from the Fortune 500 is a great way to put your company on the map.

1. Lighten the load

Tackle unsexy jobs that big companies find inconvenient or, if they face high labor costs, unprofitable to manage. At Standard Functional Foods Group in Nashville, CEO Jimmy Spradley (right) attracts food conglomerates by offering to make new or smaller brands of foods like granola bars, helping clients avoid small production runs. By consolidating orders from multiple firms, he's built a profitable business and expects sales of $150 million this year.

2. Understand how they buy

Aria Systems, a San Francisco tech company, lost an early deal because its sales team didn't know that three departments of the target firm had to sign off. Founder Edward Sullivan (right) says that once his company created separate marketing materials for each group of "influencers" in prospective firms, it won deals from Disney and Ingersoll-Rand. Sullivan is using this approach at his latest startup, G2Link, which monitors customer creditworthiness.

3. Tap supplier diversity programs

If you're a minority-owned business, big companies will teach you how to work with them. Says George Gendron, a board member at Initiative for a Competitive Inner City, a Boston nonprofit: "They don't just help you find large customers but also help you make sure you have the capacity to deliver to them." A corporation that likes doing business with you may help you expand, offering free consulting services, says ICIC vice president Steven Pedigo.

4. Stand out

Aware that big companies keep track of what's said about them on sites like Twitter, Dyn, a 135-person tech company in Manchester, N.H., tweeted out wacky videos, like a musical pitch called "Dyn Loves Expedia," to that firm and five others. It's now talking with four of those potential customers. "It raised awareness about what we do and helped us get a conversation started," says Ryan O'Hara, business development team lead.

5. Stay focused

Avoid getting sidetracked by a big firm's requests to join time-devouring meetings and calls. Focus on numerical goals, like producing 1,000 new customers for the client -- and speak up if you're pulled away from your mission by new demands by executives. "Bring them back to their purpose for bringing you in," advises David Rich, CEO of ICC/Decision Services, a New York City consulting firm. If you deliver results, you'll win repeat business.

By Verne Harnish, contributor for Fortune Magazine

4 Tips to Stay in the Loop on your Finances

I recently read a blog post that talked about ‘the loop,’ which is essentially the browsing cycle we go through on the internet. This caused me to reflect upon my own habits on the web when I’m home relaxing in front of the computer. I found out that I have a regular routine of scanning the news, checking for any new sports information, seeing what my friends had for breakfast on social media and ensuring any emails are responded to promptly. I do this two or three times on an average night and as many as a dozen times on the weekends (please don’t judge me).

However, I’ve recently made it a point to expand the loop at least once daily to include checking my bank account and recent credit card spending, as well as my 401(k) and investment portfolio. Because as Jordan Amin, CPA, chair of the National CPA Financial Literacy Commission puts it, “the first rule of personal finance is be informed.”

According to a recent survey conducted for the AICPA by Harris Interactive in recognition of National Financial Literacy Month, just 17 percent of young adults check their bank accounts daily. And it’s not for lack of time, as more than half reported checking their social media accounts at least once a day, with 7.5 times being the average.

“It’s easier than ever to spend — and it’s just as easy to monitor your spending. In particular, young adults, who often have less in savings and large expenses as they begin careers and families, should check their bank accounts regularly to verify that transactions are processed correctly and ensure they’re on track to meet financial goals,” said Amin.

The good news? The National CPA Financial Literacy Commission has four tips to help everyone stay on top of their finances.

    Check your financial status. Make a deal with yourself, when checking your friends’ social media status, take the time to check your financial status as well.
    Plan “Financial Fridays.” Each Friday, stop by an ATM, log into your bank account or call your financial institution to verify your balances and the accuracy of your transactions. If you check in on the Internet, though, be sure to do so from your home – secured – network. And don’t save financial passwords on your computer or mobile device.
    Set up text alerts with banks and credit card companies. When your balances reach pre-determined thresholds, you’ll get an automatic reminder to check in.
    Set a recurring reminder. Use your calendar to remind you to check your retirement and other long-term financial planning accounts quarterly.

By James Schiavone, AICPA Staff at AICPA Insights

Study Finds the Odds Favor IRS in Supreme Court Tax Cases

The odds are stacked against corporations whose disputes with the IRS go all the way to the Supreme Court, according to a new study by Joshua Blank, faculty director of the graduate tax program at NYU law school, and Nancy Staudt, a tax scholar at the University of Southern California, Gould School of Law.
 
Their study, titled "Corporate Shams," found the government prevailed more than six times out of ten in high court cases where it argued that corporations actively abused the tax code.
 
"Judicial decision making in this area of the law is erratic and unpredictable," the study said, adding that the report sought to elucidate "where courts draw the line between legal and fraudulent behavior" involving a tax code that has gray areas. The study said its findings "can be exploited by both government and corporate attorneys."
 
Following are some of the study findings:   

The government won 61 percent of the 137 cases heard by the Supreme Court from 1909–2011 that involved allegations by the federal government of abusive tax-motivated transactions by corporations.
     
The government won 68 percent of the time in tax disputes with corporations in which the government alleged a misreading of the tax code rather than abuse.
     
The government's chances of winning cases of alleged abuse increase when there are discrepancies between a corporation's internal books and its returns filed to the IRS.
     
The government's chances of winning increase in instances when a corporation claims it is owed a refund but has not been audited or challenged by the IRS.
     
The presence of one of two factors appears to give corporations the upper hand: (1) third parties, such as partnerships that are directly involved in the economics of the disputed transactions; or (2) complex transactions that contain multiple financial steps.
     
The government's odds of winning go up to 50 percent when a corporation has both a third party and a multistep transaction, compared with when just one of the factors is present.
     
More than one in three of all corporate tax controversies that reached the Supreme Court from years 1909–2011 involved allegations by the IRS or Justice Department lawyers of abusive use of the tax code.
     
Of the 919 federal taxation disputes heard by the high court from 1909–2001, 137 cases of the total 364 cases that concerned corporations involved abusive or highly questionable tax shelters and similar structures.

The sixty-nine-page study, parsing more than a century of public data, will be published in the New York University Law Review in December, a spokeswoman for the NYU law school said.

How Green Initiatives Can Boost Your Bottom Line

For Amber Rambo, president of A.G. Artisan Finishes of West Reading, Pa., going green in her painting and finishing business was an easy choice to make once she and her business partner heard about the possible health benefits.

"We've always been about trying to help people," she said. "This was much bigger."

Rambo co-owns the company with Gary Laity and their work has been featured on television shows like "Extreme Makeover: Home Edition" on ABC and "Construction Intervention" on the Discovery Channel.

After Rambo attended a Feng Shui conference and learned how American Clay paint and plaster helps filter the air and dehumidify a room, she began using the environmentally safe brand in her business's work.

"It's a natural product," Rambo said. "That in itself has opened up so much business for us."

Businesses don't have to switch their business models like A.G. Artisan Finishes to help the environment. Even implementing simple steps can have a big impact.

By making small adjustments in the way a business is run, you too can turn your business into a green company and boost your bottom line at the same time.

Companies are required to hit environmental standards by law, but green businesses are those that go above and beyond what is required. To become a green business, a company pinpoints where it impacts the environment most and how it can change to reduce that impact.

A company can see myriad potential benefits of a company going green. Efficiency and streamlined operations save money with reduced costs for power, water and less trash hauling (which is a result of increasing recycling). Here are some small steps you can take in your workplace that will not only help the environment, but save you money:

1. Go as paperless as possible

Forward emails instead of printing them. Even taking measures like using both sides of paper to make copies and use single spacing rather than double spacing can have a huge impact. Mentor Graphics in Wilsonville, Ore. implemented a policy that all copies be double-sided unless specifically ordered as single-side copies. The company decreased its use of copy paper by 35 percent in one year–an estimated savings of $15,000 in paper costs, according to the Portland Office of Sustainable Development.

2. Buy green office products

Environmentally friends cleaning products, items that are made of recycled material and energy-saving light bulbs are all examples of easy things to incorporate into your office shopping list. Energy saving light bulbs use about 75 percent less energy than traditional bulbs and can last up to 10 times longer. Depending on the brand, recycled paper is about 10 to 20 percent cheaper than regular copy paper, said Focus.com.

3. Power down to conserve energy

The U.S. Small Business Administration estimated that businesses can cut utility costs between 10 to 30 percent a year without compromising service, quality or employee comfort. Other ways to conserve energy in the workplace include maintaining the HVAC systems and installing energy-efficient windows and lighting. Many of these improvements are eligible for SBA loans. If a company spends $10,000 a year on utility costs, the potential savings could be between $1,000 and $3,000.

4. Start a composting program

Restaurants in particular, can save money and reduce the amount of garbage generated by joining food composting programs, Rambo said. Instead of leftover food being thrown away, it gets turned over to the composting programs and the restaurants save money on the number of trash bins they have to pay to have hauled away.

Companies can also tap into the marketing power behind being a green company and tout their status to customers and potential clients. Customers have sought A.G. Artisan Finishes out simply because the company uses environmentally friendly products as much as possible in its work, Rambo says.

Companies looking to boost their bottom lines can also tap into trends that have global reach, says Glenn Croston. For example, as fuel gets more expensive, car sharing and ride sharing will increase, as will interest in hybrid or electric cars as alternatives to gas-guzzling vehicles.

Companies can implement car- and ride-sharing programs among their employees–offering incentives to those who join in–and boost their financials by inviting other companies to participate for a fee.

Even if it's in small steps, going beyond mandatory recycling can make a big impact on the environment and on your business's financials.

By Linda Doell for Contently.com via OPEN Forum.

Why It's So Hard to Write Off Your Home Office

Work from home sometimes? Of course you do. About half of all U.S. businesses are based at home, U.S. Census data show, and most professionals toil from their private domains at least some of the time. So it’s only right, then, that you should get a tax break for ceding part of your domicile over to your job. Right?

Not so fast. The IRS doesn’t think you deserve a write-off for reading your BlackBerry in the bathroom. For those who legitimately have separate spaces in their homes used “exclusively and regularly” for work, the taxman offers some relief, but it’s not easy to claim. Instructions for the home office deduction run 34 pages, and only about a third of eligible taxpayers take it.

The convoluted history of this corner of the tax code reveals how, over a generation or two, “work” escaped the office and factory floor to invade every inch and hour of what used to be called “life.” A 2010 article in the Baltimore Law Review (PDF) recounts the tale in grim detail.

What counts as a legit home office has been murky from the start. Before 1976, the tax code had no specific home office provision, but employees who were required to work from home could write off some associated costs. George Newi, a TV ad salesman who spent three hours a night working from his converted den, helped loosen the standard in 1969. The Tax Court ruled that Newi could deduct a quarter of his rent, even though he worked after hours by choice when he could have returned to the office.

That loose, fuzzy standard invited generous interpretation by the likes of Stephen Bodzin. Himself an attorney for the IRS, Bodzin tried to write off part of his rent because he did some work at home in the evenings and on weekends. In 1975 (eight years after the tax return in question), Bodzin lost his case against the agency he worked for when an appeals court found that his home wasn’t his place of business. Rather, “he sometimes, by choice, did some of his reading and writing at home.”

The following year, Congress passed a tax reform law that narrowed the home office definition to prevent taxpayers from abusing the deduction. Confusion reigned, however.

In one case, musicians for the Metropolitan Opera who spent 30 hours a week practicing in their homes were initially denied the break because a court ruled that their place of work was Lincoln Center; they won on appeal. An anesthesiologist who did paperwork at home because he had no hospital office was denied his write-off by the Supreme Court in 1993. “The facts in each case will vary, making it difficult to develop a bright line test,” the high court said. In 1997, Congress passed the Taxpayer Relief Act to explicitly include home offices used for administration in businesses that have no other fixed location, which would give the anesthesiologist his tax break.

For the past decade, advocates for the home-based workforce have sought to give taxpayers the option to check a box for a standard $1,500 home office write-off. That would save them the tricky business of calculating what percentage of the home is dedicated to business—and therefore what share of rent, insurance, utilities, and maintenance costs can be deducted. Various versions of the proposal have languished in Congress for at least eight years, says Kristie Arslan, president of the National Association for the Self-Employed.

Unlike employees’ wages, business income and deductions can’t be easily verified by the IRS. In one analysis, 57 percent of sole proprietors misreported income, compared to one percent of employees. So the IRS doesn’t have much of an interest in making it easier to take the home office deduction, for fear that it could be easily abused to short-change Uncle Sam.

That leaves a headache for those trying, legitimately, to write off the cost of a workspace that happens to be in the same place that they sleep. Arslan’s question: “Why is it that if the same business person was to simply rent an office, it would be so much easier for them to take their deductions?”

By John Tozzi for Bloomberg Businessweek

Fatal Car Wrecks Jump on Tax Day

The odds of getting into a fatal crash increase by 6% on tax filing day, according to a study published Wednesday in the Journal of the American Medical Association.

"Tax days are associated with an increase in fatal crash risk, which is similar in magnitude to the increase in crashes on Super Bowl Sunday," wrote study authors Dr. Donald Redelmeier and Christopher Yarnell of the University of Toronto.

The study focused on the 6,783 people who died in car crashes in the U.S. over the last 30 years on April 15, compared to the week preceding tax day and the week that comes after. The results found a nationwide average increase of 13 fatalities on tax day, which is a 6% increase. This year, taxes are due on April 17.

"One explanation is that stressful deadlines lead to driver distraction and worsen short-term human error," Dr. Redelmeier told CNNMoney.

He said that sleep deprivation, greater use of alcohol, lower tolerance for other drivers, and the "unwanted distraction" of filing taxes could all contribute to a jump in accidents.

Redelmeier added that the heightened risk does not just apply to late filers, emphasizing that everyone is at risk throughout the day.

"Even if you file early, it does not mean that you are immune to the phenomenon, because of the shared nature of most roadway crashes," said Dr. Redelmeier. "You are surrounded by other drivers, any one of whom could change your life forever."

Surprisingly, the emergence of electronic filing in recent years has not curbed the number of fatal crashes, he said, possibly because it gives taxpayers the impression that they can wait until the last minute.

By Aaron Smith for @CNNMoney

AICPA Survey: Technology Has Made It Easier to Spend, Not Save

All those songs, games, apps, mobile connections, and movie downloads are taking a toll on Americans' wallets, with more than half of US adults saying technology has made it easier to spend money and only 3 percent saying it has made it easier to save, according to a survey conducted for the American Institute of CPAs (AICPA) by Harris Interactive for National Financial Literacy Month.
 
The national phone poll of 1,005 adults found that Americans who subscribe to digital services spend an average of $166 each month for cable TV, home Internet access, mobile phone service, and digital subscriptions like satellite radio and streaming video – the equivalent of 17 percent of their monthly rent or mortgage payment. Those who download songs, apps, and other products spend an additional $38 per month, on average.
 
Given those expenses, it's no wonder that 56 percent of Americans believe that technology has made it easier to spend money, and only three out of 100 say it has made it easier to save. Thirty-seven percent are split on the issue, saying technology has made it easier to both spend and save.

"Our gadgets and connections can bring benefits like mobility and efficiency," said Jordan Amin, chairman of the National CPA Financial Literacy Commission. "But they can also bring financial challenges, taking money that could go to savings, for instance, or contributing to credit card debt. We have to mind these expenses and budget for them to ensure the benefits outweigh the costs."
 
Here are three tips from the National CPA Financial Literacy Commission on managing digital expenses:
 
1. Set a budget. Decide how much you're willing to spend each month on digital services, apps, and content. Not sure where to start? Look at how much you've spent on technology purchases in previous months and how that compares with your overall spending and saving. Too much? Just right? That will give you a baseline for determining an ideal budget for such purchases.
 
2. Set up an account. Since many digital purchases are automatically drafted from bank accounts or charged to credit cards, it can be difficult to keep track of spending. To help, set up a separate checking account or credit card account – with a low limit – for your digital purchases. Set e-mail or text message alerts to let you know when your balance is near your budgeted threshold. If you use a credit card, be sure to pay off the balance each month.
 
3. Evaluate. Regularly evaluate your spending on digital products – especially subscription services with recurring fees. Are you using the services enough to justify the expense? At least yearly, you should also look at spending on technology infrastructure, such as cell phones and Internet connections. Are there new features, bundles, or technologies that could lower your total bill?
 
The CPA profession has a comprehensive financial literacy program – 360 Degrees of Financial Literacy – to help Americans build budgets, boost savings, and achieve long-term financial success. The 360 Degrees of Financial Literacy website is the centerpiece of the program, offering tools, tips, and advice to help Americans manage their financial needs during ten life stages, from childhood to retirement.
 
Since 2007, the AICPA has conducted an annual survey of Americans to determine their top financial concerns and assess their financial well-being.

Source: AICPA Press Release

How Much Money Do You Need to Be Happy?

It turns out, money might buy happiness after all. And, it might not cost as much as you think. According to a new poll, an annual household income of $50,000 is enough to increase the likelihood of people feeling an overall sense of happiness and satisfaction in life.

To arrive at that number, the researchers at Marist Institute for Public Opinion at Marist College, which conducted the survey, asked people to rate their level of satisfaction in the following areas of their lives: family, neighborhood safety, housing situation, spiritual life, health, friends, work or how days are spent, free time, finances and community involvement. They then asked them to identify their annual household income. The research found that an annual salary of $50,000 represented a significant tipping point in determining happiness and personal satisfaction.

Households with annual incomes of less than $50,000 were less happy than those with an annual household income of more than $50,000. Some of the largest disparities between the two income levels occurred in satisfaction with housing, relationships with friends and overall satisfaction with life.

It turns out, money might buy happiness after all. And, it might not cost as much as you think. According to a new poll, an annual household income of $50,000 is enough to increase the likelihood of people feeling an overall sense of happiness and satisfaction in life.

To arrive at that number, the researchers at Marist Institute for Public Opinion at Marist College, which conducted the survey, asked people to rate their level of satisfaction in the following areas of their lives: family, neighborhood safety, housing situation, spiritual life, health, friends, work or how days are spent, free time, finances and community involvement. They then asked them to identify their annual household income. The research found that an annual salary of $50,000 represented a significant tipping point in determining happiness and personal satisfaction.

Households with annual incomes of less than $50,000 were less happy than those with an annual household income of more than $50,000. Some of the largest disparities between the two income levels occurred in satisfaction with housing, relationships with friends and overall satisfaction with life.

[The Great Myth of Work-Life Balance]

Regardless of income level, the survey also found that 64 percent of Americans have experienced a financial hardship in the past year. The survey also found that in the past year:

    57 percent cut back on spending
    26 percent considered delaying retirement
    17 percent had trouble paying for medical care
    14 percent had trouble paying their mortgage
    12 percent had trouble paying for prescription drugs

"Money may not directly buy happiness, but our study clearly shows that it is an important factor in satisfaction with quality of life," Paul Hogan, chairman and founder of Home Instead Senior Care, a company that provides in-home care for seniors and commissioned the survey.  "The important take-away is not only the extent to which income shapes perspective on life but how difficult the recent economic downturn has been for many."  

The survey was based on the responses of 1,235 Americans in a telephone survey.

By: David Mielach, BusinessNewsDaily Staff Writer

5 Emergency Last-Minute Tax Tips

The deadline to file your income taxes is right around the corner, but if you’re forgetful or just a dedicated procrastinator, don’t start hyperventilating just yet. Since April 15 falls on a Sunday, and the 16th is a local holiday in Washington, D.C., you get until Tuesday the 17th this year. Here’s how to get your taxes done pronto, perhaps even with hours (OK, minutes) to spare.

1. Hit the Internet. Last-second filers can crunch their numbers and e-file as late as midnight Eastern time on the 17th. If your income is below $57,000, you can file via the IRS website for free, thanks to arrangements the agency has with tax prep software providers. Commercial tax prep software like TaxACT and TurboTax let you do your taxes with software you download onto your computer or directly online, then you can e-file your return. National tax preparation chains H&R Block and Jackson Hewitt Tax Service also have downloadable software for DIYers (or for people who waited too long to make an appointment with a tax preparer). Typically with these services, filing a simple federal return is free, though you’ll be charged for more complicated processes and state filings.

2. Double-check post office details. The minority of people still using paper forms have to get to the post office. Some facilities, primarily in larger cities, stay open late on tax day to accommodate procrastinators, but not all do. Check the USPS website to make sure yours will be open when you get there. Rather than dropping the envelope in a mailbox, “Go to the post office or use some other service like FedEx,” says Jackie Perlman, tax analyst at the H&R Block Tax Institute. “You want some proof that you mailed that.” You can request a return receipt or use certified mail for proof that you got your return in under the wire.

3. File for an extension. If you just can’t pull your paperwork together by Tuesday night, file for an extension by midnight on the 17th, which buys you until October 15 to get your return in. It’s IRS form number 4868, and you can either mail in a paper form or e-file it. But there is kind of a catch. “Remember that filing an extension doesn’t give you extra time to pay your taxes,” says Dana Levit, owner of Paragon Financial Advisors. If your payment isn’t sent by the 17th, you’ll have to pay a late payment penalty. Of course, to figure out if you owe and how much, you basically have to do all of the math involved in actually doing your taxes.

4. File, then amend. You’re allowed to file a 1040, 1040A or 1040EZ return, then go back and file an amendment with IRS form 1040X. “File online with an estimate and go back and amend” later, says Mark Steber, chief tax officer at Jackson Hewitt Tax Service. “Amending is great.” This is different from getting an extension. The big benefit of an amendment is that you can claim deductions or credits you only realized you were entitled to after the fact. Amendments have to be filed within three years of filing the original return. As with an extension, though, you have to pay any taxes you owe by the 17th. If your income and expenses are the same as last year, you might be able to guess correctly, but if your back-of-the-envelope math turns out to be wrong, you could be hit with that late payment penalty. Finally, you’ll have to use a paper form and mail it in; there’s no mechanism for filing an amendment online.

5. Don’t do this again. Yes, you can probably squeak by with an on-time filing this year, but start earlier next year and save yourself the headache. Tax experts say a lot of the foot-dragging can be chalked up to worry. “Identify the fear or reason for procrastinating,” Levit says. Maybe you’re afraid of making mistakes or owing a lot of money. If so, start tackling the root causes: Find a pro to help you or start early so you have plenty of time to familiarize yourself with the process of filling out the forms. Start a savings account for next year’s taxes so a huge bill won’t catch you by surprise. If you’re hopelessly disorganized, create a folder — in a file cabinet, on your computer or both — where you can store your records and paperwork as you accumulate them.

By Martha C. White for Time Magazine Moneyland

Still Haven't Filed? Last-Minute Tips to Meet the Tax Filing Deadline

There are only a few days left until one of my favorite days of the year: Tax Day! With this year's deadline on April 17, 2012, last-minute tax filers have two extra days to submit their 2011 tax returns. Even though the majority of taxpayers have already filed, there are still millions who will file in these final hours. If you are filing in these final days before the deadline, keeping the following tips in mind may make the process easier and may help you avoid making some common mistakes. The key takeaway is that even if you are reading this article on the last day, there is still time to get your taxes done correctly with the biggest refund, or lowest tax liability, possible.

My first tip is that technology is your friend -- even when it comes to taxes. Taxes today are simply too complex, with too many rules and considerations to be left to paper forms and manual computations. Whether using a tax professional or doing your taxes yourself, make sure current tax software, computer technology, and available online resources are being used. With regard to online resources, the good news is that there are many available now from the Internal Revenue Service (IRS), tax preparation companies, and other resources, from finding a local professional in your area through a zip code search, to letting you prepare and file your taxes online from your own home. There are also online tools to help you determine and organize what you need to file a return, to estimate your tax refund or balance due, and even to let you track your refund status after you have filed.

As time runs out on the filing deadline, it is important to make sure that you consider all tax benefits available to you, so that you do not leave money on the table. There are literally thousands of tax credits, deductions, and benefits available, but you need to know where to look to claim them. Take some time to think about changes in your life that occurred during 2011. Did you start to care for an elderly parent as a dependent? Did you take a new job? Did you buy a home? All of these situations -- and many others -- can add up to more dollars on a tax refund, if you are eligible.

When it comes time to actually file your tax return, be sure to do what almost 80 percent of taxpayers now do: electronically file your tax return, regardless of whether you self-prepare or use a professional preparer. But remember, "e-filing" (IRS e-file) is not simply preparing your tax return on a computer. It means actually sending your tax return to the IRS electronically. With time running out, not only is e-filing faster than mailing a paper return, but it's also more accurate and includes a confirmation from the IRS that your return has been received. Plus, you can get your refund in as little as eight to 15 days when combining e-filing with direct deposit. It's a win-win situation, and it is typically free with paid preparation at most tax companies and included with tax preparation software, so be sure to check.

Finally, if you find yourself in a crunch with time, you may consider filing an extension, which gives you until October 15, 2012 to file your return. However, people are always surprised to learn that an extension of time to file is not an extension of time to pay. Requesting an extension only allows you more time with the paperwork. If you owe, you still must pay all or most of your taxes by April 17, 2012, or work with the IRS to establish a payment plan. In most cases, taxpayers have what they need and can just file without an extension, so why wait? Tackle those taxes now!

By Mark Steber for Huff Post Money

Last-Minute Tax Tips for Procrastinators

Getting an extra two days to file taxes beyond the usual April 15 tax filing deadline isn't likely to cure a nation of procrastinators this year.

Tens of millions of us routinely wait until just before the deadline to file returns. More than 30 percent of taxpayers filed the week before Tax Day or later via extensions in 2011, and Internal Revenue Service statistics show the pace is similar this year.

Perhaps working under deadline pressure helps you focus better on the task at hand. But procrastinating may come at a price.

"The amount of work that's going to need to be done at the last minute is no less just because you've waited, and the potential for errors is greater," says Suzanne Shier, a tax strategist at Northern Trust Bank in Chicago. "There's not really an upside to waiting."

So you probably should dive into your tax return without waiting any longer.

Either way, there's little time left to round up records and research the details of any tax code changes from last year.

Here are some points for end-of-season tax filers to keep in mind:

THE PRICE OF RUSHING

It's easy to miss possible deductions that will lower your taxes if you're in a hurry. With the clock ticking down, you might not try as hard to look for them.

Along with simple math errors, late filers also are prone to transposing Social Security numbers or birthdates on their returns. Not only can such snags delay your refund, you might not even be allowed to file your return online if all the numbers of you and your dependents don't match up properly with the records. That might be an issue if the 11:59 p.m. Tuesday deadline is looming and you can't quickly figure out what the problem is and how to fix it.

Don't use estimates because you're short on time. H&R Block sees a lot of instances in which taxpayers guess on their adjusted gross income from the previous filing year as well as their e-file pin number, says Elaine Smith, master tax adviser for the tax preparation giant.

Round-figure estimates don't help your chances of avoiding an audit, either.

DEDUCTIONS TO REMEMBER

There's only about one action you can take at this late date to reduce your 2011 taxes, according to Mark Luscombe, principal federal tax analyst for the CCH consulting firm in Riverwoods, Ill.: Contributing to an individual retirement account for 2011. Taxpayers have until Tax Day to contribute to an IRA and get a deduction.

Aside from IRAs, make sure you claim all eligible deductions for moves you made last year.

Charitable contributions are high on any list of deductions often missed. Diligently go through your checking account and credit card accounts to check for specifics of that $300, $500 or $800 you recall giving to your church or favorite qualified charity.

Another one that's frequently overlooked is for heavy medical expenses. If your health expenditures shot up last year, be aware that you may deduct the amount by which your total medical care expenses for the year exceeded 7.5 percent of your adjusted gross income.

A lot of taxpayers also fail to take deductions for eligible gambling losses. Just as gambling winnings are fully taxable and must be reported, losses from horse races, casinos and other legal wagers may be deducted. Sorry, losses from your March Madness office pool don't count.

GETTING HELP

If you're comfortable going it alone and didn't have any significant changes from the previous year, it should be easy to file online. You can do it right up until midnight Tuesday. Do-it-yourself tax preparation software should walk you through trouble spots, and online help is plentiful.

If you've had a life change such as a move, new job, baby or withdrawn money from a retirement account, that might be the trigger to see a professional tax preparer. H&R Block, TurboTax and others offer their customers free advice via phone, online chat or video conference if you get hung up.

EASY EXTENSIONS

Those who think they may miss the deadline should ask the IRS for more time to file. You can do so by submitting form 4868. Six-month extensions are granted automatically; you'll have until Oct. 15 to file taxes.

Filing for an extension will enable you to avoid a late-filing penalty, normally 5 percent per month based on the unpaid balance. And you can reduce or eliminate interest and late-payment penalties if you send in a payment by the deadline. The current interest rate is 3 percent per year, compounded daily, and the late-payment penalty is normally 0.5 percent per month.

The IRS received 10.5 million extension forms last year, 4 million of them electronically. You can do so at http://www.irs.gov , just as you can request an extension online for your state tax return.

DON'T JUST SIT THERE, PAY SOMETHING

If you owe taxes, you still have to pay by April 17. The extension is just to get your filing in.

There are options if you can afford to pay. You can request to pay in installments by filling out form 9465, Installment Agreement Request. It will cost you a fee ranging from $43 to $105 plus interest, but payment won't be delinquent.

Whatever you do, don't give in to any temptation to skip the process. Not filing a return when required is considered income tax evasion with penalties that include paying back taxes, interest and possible fines, and possibly even serving a prison sentence in the most serious cases.

By Dave Carpenter for The Associated Press

Five Good Reasons to Obtain a Filing Extension

As you're nearing the tax return finish line, you probably have some clients who are stragglers or haven't "checked in" yet. Fortunately, you can still rely on the automatic tax filing extension to bail procrastinators out of a jam. Here's some valuable information to pass along to your clients.
 
The due date for filing 2011 federal income tax returns is April 17, 2012, but that deadline isn't etched in stone. You can buy yourself more time by filing Form 4868, Application for Automatic Extension of Time to File US Individual Income Tax Return, by April 17. This provides an automatic extension for filing your return for six months until October 15, 2012 – with absolutely no questions asked by the IRS!
 
Of course, an extension to file is NOT an extension to pay the tax that's due. You still have to pay estimated tax in a timely manner to avoid penalties and interest charges.

Why would you need a filing extension? Typically, it's used by taxpayers who simply couldn't get their act together in time. But here are few other common reasons for seeking an extension:
 
1. You don't have all the information you need for your return or it's been lost or misplaced. For instance, delays may be caused if you haven't received a K-1 stating income received in 2011 from a pass-through business entity.
 
"Frequently, an extension is needed because the business or partnership hasn't completed its own return," says Chris Hesse, a partner in CliftonLarsonAllen's federal tax resource group in Minneapolis, Minnesota. "This has become common because pass-throughs are being used to avoid the double taxation issue. The client must make a payment based on a reasonable estimate."
 
2. Circumstances dictate a delay. Even if you fully intended to file your tax return by April 17, sometimes life gets in the way. If there's been an unexpected illness or death in the family, you might not able to file on time. Similarly, a natural disaster can cause interruptions, although the IRS usually offers relief to those in harm's way.
 
3. You don't have the cash on hand for a retirement plan contribution. If you're self-employed, you might be using a Keogh plan or SEP to save for retirement. The annual contributions reduce your tax liability, but only if the deposits are made on time, notes Hesse. He says that filing for an extension effectively gives you an extra six months to come up with the money.
 
4. Obtaining an extension might reduce your tax liability. For example, if you converted a traditional IRA to a Roth in 2011, you must pay tax on the entire account balance at the time of conversion. But the value of the account may have declined since then. By recharacterizing your Roth back into a traditional IRA before you file your tax return, you can avoid an unnecessary tax "overpayment."
 
5. You're concerned about tax audits. There's a school of thought that filing for an extension reduces your chances of being audited. Here's why: Normally, IRS auditors examine a certain percentage of returns to randomly check for tax cheats. If you obtain an extension, you might sidestep this auditing procedure entirely, thereby reducing your overall exposure to an audit.
 
In any event, if you don't pay the requisite amount of tax by the April 17 deadline, the IRS will impose a penalty of one-half percent each month on the amount of tax owed. And, if you fail to file a return by the October 15 extension date, the IRS will ramp up the penalty to 5 percent per month, up to a maximum of 25 percent.
 
As with your regular tax return, you can e-file your filing extension request or send it by snail mail. If you're going to a US Post Office, we recommend using certified mail so you can prove to the IRS that you requested the extension on time.
 
How do you know how much you have to pay with the filing extension application? It's not an exact science. Hesse says that his firm refers to figures in prior returns to help arrive at a reasonable amount. Contact your CPA immediately for guidance.

By Ken Berry for AccountingWEB

Does Mortgage Principal Reduction Work?

The world will only have to wait a few more weeks to find out whether Fannie Mae and Freddie Mac will allow principal reductions on mortgages they back.

The Federal Housing Finance Agency will decide this month whether Fannie and Freddie should allow write downs on the balances of borrowers who owe more than their homes are worth, said Ed DeMarco, acting director for the agency.

Fannie and Freddie have been at the center of a tug-of-war over fixing the housing market. They have long resisted calls to write down the balances on the loans in their portfolio, saying it would be too costly for taxpayers.

But the pressure has been building, especially in the wake of the $26 billion mortgage settlement that will reduce principal for 1 million borrowers whose loans aren't backed by Fannie and Freddie.

The agency, which regulates the government-controlled companies, had decided against allowing principal reduction after internal studies showed that alternatives such as adjusting monthly payments or forbearing principal were more cost effective.

DeMarco has said his agency is charged with protecting taxpayers' interests, and principal reduction would amount to an expensive taxpayer bailout of troubled homeowners.

Since then, however, the Obama administration has sweetened the pot. It tripled the incentives it will pay to Fannie and Freddie for reducing principal under the Home Affordable Mortgage Program, or HAMP. This has prompted the agency and the companies to redo their analysis.

But will it even matter if Fannie and Freddie start allowing principal reduction?

How many are eligible?

Together, Fannie and Freddie have about 3 million loans that are seriously underwater, according to company filings. But three-quarters of these homeowners are current on their payments and may not qualify.

"These borrowers are demonstrating a continued willingness to meet their mortgage obligations," said DeMarco in a recent speech. "This should be recognized and encouraged, not dampened with incentives for people to not continue paying."

In the end, the number of eligible underwater Fannie and Freddie loans could range from a few hundred thousand up to 750,000, according to estimates. That's not that much considering there are 11 million underwater borrowers in the U.S., just over a quarter of whom are behind in their payments.

Is it effective?

"The scheme would still be a useful way to tackle the foreclosure problem," said Paul Diggle, property economist at Capital Economics. "And it certainly wouldn't do any harm to the housing recovery."

But experts still fear that allowing principal reduction will open a new wave of strategic defaults, where homeowners decide to stop paying their mortgages in order to benefit from modification programs. This so-called moral hazard has been one of the main concerns that has kept principal reductions at bay.

"Principal reduction will prevent more foreclosures for some borrowers who are delinquent," said Susan Wachter, real estate professor at the University of Pennsylvania's Wharton School. "But there is a potential for it to undermine borrowers' incentive to keep current on their mortgages."

How much will it cost?

Though part of that would be covered by the Obama administration, it's still ultimately taxpayer money whether it comes from HAMP or from the open line of bailouts Treasury provides to Fannie and Freddie.

Not everyone is convinced that the benefits are worth the price.

"The question is at what cost will it have an effect?" said Ted Gayer, co-director of economic studies at the Brookings Institution.

By Tami Luhby for @CNNMoney

The IRS is on Twitter!

As the final stretch of the 2012 tax filing season unfolds, the Internal Revenue Service reminds taxpayers that they can get valuable last-minute tips by following the IRS on Twitter.

The IRS Twitter news feed, @IRSnews, provides the latest federal tax news and information for taxpayers. The focus of the IRS Twitter messages is on easy-to-use information, including tax tips, tax law changes, and important IRS programs such as e-file, getting a filing extension and “Where’s My Refund."

The IRS plans a special series of tweets in English and Spanish as the April 17 tax deadline approaches.

Anyone with a Twitter account can follow @IRSnews by going to http://twitter.com/IRSnews. Taxpayers can also follow the IRS Twitter news feed using IRS2Go, a free smartphone application available for Apple and Android devices.

The IRS also tweets tax news and information in Spanish at @IRSenEspanol. Follow this Twitter feed by going to http://twitter.com/IRSenEspanol.

Another IRS Twitter feed, @IRStaxpros, is designed for the tax professional community. Follow @IRStaxpros by going to http://twitter.com/IRStaxpros.

In addition to Twitter, the IRS provides additional social media tools, including YouTube videos, to help taxpayers before the tax deadline.

Virtual Tax Audits Coming Soon?

The dreaded process of getting an audit could soon take place over a computer screen in the comfort of your living room.

In what could be an indication of things to come, the IRS launched a pilot program at the end of last year that allows taxpayers to use two-way video conferencing for assistance with tax questions and problems.

The Taxpayer Advocate Service, an independent watchdog arm of the IRS, is already calling for the agency to expand to virtual audits. The IRS says it needs to evaluate the success of the pilot program before making a decision.

The pilot program is currently being tested in 12 locations, where taxpayers needing assistance can log into a computer enabled with video-conferencing. They can then talk to an IRS agent who pops up on the screen to discuss whatever issues they're having -- whether it's help preparing a tax form or a question about a refund.

TAS is also piloting a virtual assistance program. And Nina Olson, the head of TAS, wrote in a blog post this week that this technology has the potential to "radically transform" the current audit process -- eventually allowing taxpayers to use their personal computers to video conference with an IRS examiner.

To schedule an audit, the IRS would send a taxpayer a sign-in code so they could then log in to the meeting from a home or office computer. Documents could be transmitted by simply scanning them with a computer's built-in camera.

This could one day replace the need for correspondence audits, which are the letters the IRS currently sends taxpayers in the mail asking questions or requesting more information.

To save costs, the IRS has become increasingly reliant on correspondence audits instead of summoning taxpayers for in-person meetings. But TAS says that these audits receive fewer responses and that many of the taxpayers dealt with these audits don't understand how they work, default on payments and get hit with penalties.

Plus, with correspondence audits a specific representative typically isn't assigned to a case, leaving many taxpayers without a point person to ask questions or to contact with concerns.

Virtual audits could eliminate the confusing paperwork and recreate a face-to-face meeting via computer.

Doing this would also help taxpayers better understand why they are being audited and what additional information is needed, said Olson. It would also help the IRS obtain the accurate information it needs and help the agency view taxpayers as more than just tax returns, she said.

The IRS's virtual assistance pilot program is scheduled to continue through the 2012 filing season and end in May. Office locations include Colorado Springs, Colo., Fresno, Calif. and Utica, N.Y.

Once the program is completed, the IRS will evaluate its performance. So far, it said the pilot has allowed it "to maximize our current resources, by expanding hours of service in remote locations and balancing the workload in high-traffic areas." But it wouldn't say whether it is considering using this same technology for audits.

"The initial focus of virtual delivery is on taxpayer service. We're still in the middle of the pilot and still assessing the results," the IRS said in a statement. "It's premature to speculate about future steps."

Top Tax Deductions for Your Small Business

It's simple: The more tax deductions your business can legitimately take, the lower its taxable profit will be. Also, in addition to putting more money into your pocket at the end of the year, the tax code provisions that govern deductions can also yield a personal benefit: a nice car to drive at a small cost, or a combination business trip and vacation. It all depends on paying careful attention to IRS rules on just what is -- and isn't -- deductible.

When you're totaling up your business's expenses at the end of the year, don't overlook these important business tax deductions.

1. Auto Expenses

If you use your car for business, or your business owns its own vehicle, you can deduct some of the costs of keeping it on the road. Mastering the rules of car expense deductions can be tricky, but well worth your while.

There are two methods of claiming expenses:

    Actual expense method. You keep track of and deduct all of your actual business-related expenses.
    Standard mileage rate method. You deduct a certain amount (the standard mileage rate) for each mile driven, plus all business-related tolls and parking fees. In 2012, the standard mileage rate is 55.5 cents per business mile driven, the same rate that was in effect for the second half of 2011.

As a rule, if you use a newer car primarily for business, the actual expense method provides a larger deduction at tax time. If you use the actual expense method, you can also deduct depreciation on the vehicle. To qualify for the standard mileage rate, you must use it the first year you use a car for your business activity. Moreover, you can't use the standard mileage rate if you have claimed accelerated depreciation deductions in prior years, or have taken a Section 179 deduction for the vehicle. (For more on Section 179, see "New Equipment," below.)

If your auto is used for both business and pleasure, only the business portion produces a tax deduction. That means you must keep track of how often you use the vehicle for business and add it all up at the end of the year. Certainly, if you own just one car or truck, no IRS auditor will let you get away with claiming that 100% of its use is related to your business.

2. Expenses of Going Into Business

Top Tax Deductions for Your Small Business

Once you're running a business, expenses such as advertising, utilities, office supplies, and repairs can be deducted as current business expenses -- but not before you open your doors for business. The costs of getting a business started are capital expenses, and you may deduct $5,000 ($10,000 in 2010 only) the first year you're in business; any remainder must be deducted in equal amounts over the next 15 years.

Tip: If you expect your business to make a profit immediately, you may be able to work around this rule by delaying paying some bills until after you're in business, or by doing a small amount of business just to officially start. However, if, like many businesses, you will suffer losses during the first few years of operation, you might be better off taking the deduction over five years, so you'll have some profits to offset.

3. Books and Legal and Professional Fees

Business books, including those that help you do without legal and tax professionals, are fully deductible as a cost of doing business.

Fees that you pay to lawyers, tax professionals, or consultants generally can be deducted in the year incurred. However, if the work clearly relates to future years, they must be deducted over the life of the benefit you get from the lawyer or other professional.

4. Bad Debts

If someone stiffs your business, the bad debt may or may not be deductible -- it depends on the kind of product your business sells.

    Goods. If your business sells goods, you can deduct the cost of goods that you sell but aren't paid for.
    Services. If, however, your business provides services, no deduction is allowed for time you devoted to a client or customer who doesn't pay.

5. Business Entertaining

If you pick up the tab for entertaining present or prospective customers, you may deduct 50% of the cost if it is either:

    directly related to the business and business is discussed at the event -- for example, a catered meeting at your office; or
    associated with the business, and the entertainment takes place immediately before or after a business discussion.

Tip: Make notes. On the receipt or bill, always make a note of the specific business purpose -- for example, "Lunch with Joyce Slater of Ace Manufacturing Co. to discuss widget contract."

6. Travel

When you travel for business, you can deduct many expenses, including the cost of plane fare, costs of operating your car, taxis, lodging, meals, shipping business materials, cleaning clothes, telephone calls, faxes, and tips.

What about combining business and pleasure? It's okay, as long as business is the primary purpose of the trip. However, if you take your family along, you can deduct only your own expenses.
7. Interest

If you use credit to finance business purchases, the interest and carrying charges are fully tax-deductible. The same is true if you take out a personal loan and use the proceeds for your business. Be sure to keep good records demonstrating that the money was used for your business.

8. New Equipment

Some small businesses can write off the full cost of some assets in the year they buy them, rather than capitalizing them -- deducting their cost over a number of years. (See Nolo's article Current vs. Capital Expenses for information on expenses that must be capitalized.)

Section 179 of the Internal Revenue Code allows you to deduct up to $125,000 of the cost of new equipment or other assets in 2012. This is subject to a phase-out if you place more than $500,000 of equipment in service. Some assets don't qualify for this Section 179 deduction, including real estate, inventory bought for resale, and property bought from a close relative. The annual deduction amount in effect for 2010 and 2011 was $500,000.

There is also a first-year bonus depreciation deduction in effect for 2010 through 2012. This special deduction allows taxpayers to depreciate an additional 50% or 100% of the adjusted basis of qualified property during the first year the property is placed in service. This deduction can be taken in addition to the Section 179 deduction and offers tremendous tax savings. For calendar year 2012 (and January 1, 2010 through September 8, 2010), the first-year bonus depreciation amount is 50%. For September 9, 2010 through the end of calendar year 2011, the first-year bonus depreciation was 100%.

9. Moving Expenses

If you move because of your business or job, you may be able to deduct certain moving costs that would otherwise be non-deductible personal living expenses. To qualify, you must have moved in connection with your business (or job, if you're an employee of your own corporation or someone else's business). The new workplace must be at least 50 miles farther from your old home than your old workplace was. (Technically, moving expenses aren't business expenses; there's a special place to list them on your Form 1040 tax return.)

10. Software

As a general rule, software bought for business use must be depreciated over a 36-month period, but there are some important exceptions:

    Computer software placed in service from January 1, 2003 to December 31, 2010 is eligible for a Section 179 deduction, which means that 100% of the cost of software can be deducted in the year purchased. Starting in 2011, you will no longer be able to use Section 179 to deduct off-the-shelf software.
    When software comes with a computer, and its cost is not separately stated, it's treated as part of the hardware and is depreciated over five years. However, under Section 179, you can write off a whole computer system (including bundled software) in the first year if the total cost is within the Section 179 annual deduction amount (see Section 179 discussion above). See IRS Publication 946, How to Depreciate Property.

11. Charitable Contributions

If your business is a partnership, a limited liability company, or an S corporation (a corporation that has chosen to be taxed like a partnership), your business can make a charitable contribution and pass the deduction through to you, to claim on your individual tax return. If you own a regular (C) corporation, the corporation can deduct the charitable contributions.

Tip: If you've got some old computers or office furniture, giving it to a school or nonprofit organization can yield goodwill plus a tax benefit. However, if the equipment has been fully depreciated (written off), you can't claim a deduction.

12. Taxes

Taxes incurred in operating your business are generally deductible. How and when they are deducted depends on the type of tax:

    Sales tax on items you buy for your business's day-to-day operations is deductible as part of the cost of the items; it's not deducted separately. However, tax on a big business asset, such as a car, must be added to the car's cost basis; it isn't deductible entirely in the year the car was bought.
    Excise and fuel taxes are separately deductible expenses.
    If your business pays employment taxes, the employer's share is deductible as a business expense. Self-employment tax is paid by individuals, not their businesses, and so isn't a business expense.
    Federal income tax paid on business income is never deductible. State income tax can be deducted on your federal return as an itemized deduction, not as a business expense.
    Real estate tax on property used for business is deductible, along with any special local assessments for repairs or maintenance. If the assessment is for an improvement -- for example, to build a sidewalk -- it isn't immediately deductible; instead, it is deducted over a period of years.

13. Education Expenses

You can deduct education expenses if they are related to your current business, trade, or occupation. The expense must be to maintain or improve skills required in your present employment. (The cost of education that qualifies you for a new job isn't deductible.)

14. Advertising and Promotion

The cost of ordinary advertising of your goods or services -- business cards, yellow page ads, and so on -- is deductible as a current expense. Promotional costs that create business goodwill -- for example, sponsoring a peewee football team -- are also deductible as long as there is a clear connection between the sponsorship and your business. For example, naming the team the "Southwest Auto Parts Blues" or listing the business name in the program is evidence of the promotion effort.

Adapted from Deduct It! "Lower Your Small Business Taxes" by Stephen Fishman (Nolo.com).

Your Tax Bill: 107 Days of Work to Pay Off

More than three months of your hard-earned wages are going straight to your tax bill this year.

Americans will spend an average of 29% of their income on federal, state and local taxes in 2012, the Tax Foundation announced Monday. That's more than the average family spends on food, clothing and housing combined, the organization said.

And it means that most Americans are going to need to work 107 days just to be able to earn enough money to pay their taxes.

"Tax Freedom Day," as the Tax Foundation calls the date that the average American is finally free of its tax burdens, arrives on April 17 this year, coincidentally the same day taxes are due. That's four days later than last year.

The day has been arriving later in recent years, thanks to rising incomes -- and therefore higher tax liabilities and tax collection.

"As the economic recovery continues, the growth in individual incomes and corporate profits will increase tax revenues and push Tax Freedom Day ever later in the year," the Tax Foundation said in a statement.

This year's Tax Freedom Day is still about a couple of weeks earlier than the latest one on record, which occurred on May 1, 2000. During that time, the economy was booming and Americans paid 33% of their total income in taxes.

The Tax Foundation, a research group that favors lower taxes, calculates Tax Freedom Day each year based on income, Social Security, sales, property and other taxes.

But not everyone agrees with the organization's methodology. The left-leaning Center on Budget and Policy Priorities, for example, argues every year that the report overstates the share of income that average households spend on taxes.

Chuck Marr, the Center on Budget and Policy Priorities' director of Federal Tax Policy, said in a statement that this year's Tax Freedom Day report "leaves a strikingly misleading impression of tax burdens."

He said the 29% share of income that the Tax Foundation cites as the 'average' tax burden is higher than what 80% of American families actually pay.

State-by-state: In addition to a national Tax Freedom Day, the Tax Foundation calculates a Tax Freedom Day for each state, based on individual state taxes.

The day has already arrived in Tennessee, Louisiana and Mississippi, where average incomes and state taxes are lower. Tennessee taxpayers celebrated Tax Freedom Day the earliest -- on March 31 -- and the holiday fell on April 1 in Louisiana and Mississippi.

South Carolina and South Dakota will celebrate soon afterward, on April 3 and April 4, respectively.

States with higher average incomes will be last to celebrate. Connecticut residents won't be free of their tax burdens until May 5, and those who live in New Jersey and New York won't welcome Tax Freedom Day until May 1.

By Blake Ellis for @CNNMoney

IRS Ends Tax Rule Unpopular with Small Businesses

The IRS has eliminated an unpopular rule relating to how credit card and debit card payments are accounted for on tax returns, prompting relief from small business owners.
 
The new process, which was set to go into effect next year, would have mandated that companies explain the differences between numbers on 1099-K forms and their internal records. This rule was termed an "onerous and unnecessary extra step" by the National Federation of Independent Business (NFIB).
 
The NFIB explained the situation this way: "Section 6050W of the Internal Revenue Code, added by Section 3091 of the Housing and Economic Recovery Act of 2008, requires information returns (Form 1099-K) to be made regarding annual gross receipts reimbursements to settle merchant card transactions. Recently, the IRS added a Line 1a-e on business tax returns requiring business taxpayers to reconcile their actual gross receipts with the aggregate gross receipts amounts from Form 1099-K."
 
The IRS announced it would not go forward with Line1a-e on business tax returns. The NFIB had protested the rule, saying that a company's internal record of gross receipts would "rarely match" the amount payments processors report on 1099-K forms. That figure on the forms could include cash refunds, sales tax, tips, and other fees that merchants would not consider part of gross receipts, CFO magazine reported.
 
The IRS said in its letter to the NFIB, "There will be no reconciliation required on the 2012 form, nor do we intend to require reconciliation in future years." The reporting of gross receipts and sales on the 2012 income tax forms will be modeled on the 2010 income tax forms.
 
"The many complications in our country's tax code often put the small business owner at a disadvantage with government compliance," NFIB CEO Dan Danner said in a statement. "For this reason, NFIB fought so hard to have this provision eliminated and we count this as a small, but important, step in the direction of simplifying the tax code overall." Small businesses spend more than $74 per hour on meeting their tax compliance obligations, the NFIB says.
 
Lewis Taub, tax director at McGladrey & Pullen LLP, told CFO magazine that business groups might want to change their record keeping. Payment processes must continue to submit 1099-K forms, and a difference between the numbers on the forms and the gross receipts on the merchant's tax returns could trigger an audit.

Originally Posted by AccountingWEB

Taxpayers Get More Time to Contribute to IRAs in 2012

You have two extra days this year to make contributions to your Individual Retirement Arrangements. That’s because April 15 falls on a weekend and Emancipation Day, a legal holiday in the District of Columbia, will be observed on Monday, April 16. That means the due date for filing your tax return and making contributions to your 2011 IRA is Tuesday, April 17.

Here are the top 10 things the IRS wants you to know about setting aside retirementmoney in a traditional IRA.

1. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit, formally known as the Retirement Savings Contributions Credit.

2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means you must make contributions for 2011 by April 17, 2012. If you contribute between Jan. 1 and April 17, you should designate the year targeted for the contribution.

3. The funds in your IRA are generally not taxed until you receive distributions from it.

4. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for your IRA contributions.

5. For 2011, the most you can contribute to your traditional IRA is generally the smaller of the following amounts: $5,000 for most taxpayers, $6,000 for taxpayers who were 50 or older at the end of 2011 or the amount of your taxable compensation for the year.

6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.

7. You must use either Form 1040A or Form 1040 to deduct your IRA contribution or claim the Credit for Qualified Retirement Savings Contributions.

8. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.

9. To contribute to an IRA, you must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment. If you file a joint return, generally only one spouse needs to have taxable compensation. However, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements, for additional rules.

10. Refer to IRS Publication 590 for more information on contributing to your IRA account.

Tax Tip: Employee Business Expenses

Some employees may be able to deduct certain work-related expenses. The following facts from the IRS can help you determine which expenses are deductible as an employee business expense. You must be itemizing deductions on IRS Schedule A to qualify.

Expenses that qualify for an itemized deduction generally include:

• Business travel away from home
• Business use of your car
• Business meals and entertainment  
• Travel
• Use of your home
• Education
• Supplies
• Tools
• Miscellaneous expenses

You must keep records to prove the business expenses you deduct.

If your employer reimburses you under an accountable plan, you should not include the payments in your gross income, and you may not deduct any of the reimbursed amounts.

An accountable plan must meet three requirements:

1. You must have paid or incurred expenses that are deductible while performing services as an employee.

2. You must adequately account to your employer for these expenses within a reasonable time period.

3. You must return any excess reimbursement or allowance within a reasonable time period.

If the plan under which you are reimbursed by your employer is non-accountable, the payments you receive should be included in the wages shown on your Form W-2. You must report the income and itemize your deductions to deduct these expenses.

IRS Provides Penalty Relief to Farmers Affected by MF Global Bankruptcy

The Internal Revenue Service announced today that it will provide penalty relief to farmers who incur estimated tax penalties because they did not timely receive Forms 1099 from MF Global or its court appointed trustee, and were unable to file their 2011 calendar year tax return by March 1, 2012. The IRS also today provided the affected farmers with instructions on how to apply for this penalty relief.

Generally, farmers can avoid an estimated tax penalty if they file their returns and pay the full amount of tax shown on their return by March 1, 2012. An individual is a farmer for these purposes if two-thirds of the individual’s total gross income for the taxable year or the preceding taxable year is from farming. This rule and the relief being provided also apply for fishermen.

MF Global filed for bankruptcy on Oct. 31, 2011, after revealing that hundreds of millions of dollars in customer money was missing. While the court appointed trustees are working to untangle MF Global’s financial records, the IRS understands that the magnitude of the records and the associated untangling delayed the issuance of Forms 1099 in a timely manner. Many former customers of MF Global did not receive their Forms 1099 by March 1, 2012.

While the IRS has been advised that former customers have recently received their 1099s, the delay in mailing the Forms 1099 may have affected the ability of many farmers to file their 2011 calendar year return by March 1, 2012.   

If a taxpayer has an underpayment of estimated tax, all or part of the penalty for the underpayment may be waived if the IRS determines that the underpayment was due to a casualty, disaster or other unusual circumstance and it would be inequitable to impose the penalty.

America's Silliest Taxes

Simple flat tax?  Don’t expect anything like that from our busy legislators, who have loaded up the state and federal statute books with all manner of curious taxes, surtaxes, credits, exemptions, deductions, depletion allowances and gotchas.

Herewith, to give you a break from your Form 1040, is a catalog of the country’s looniest taxes.

Arkansas: Body Piercing Tax

The state spells out which services are subject to the 6% state sales tax. Among them: body piercing, gutter cleaning and pet grooming

California: Deals for Ottoman Empire Victims

If you were persecuted between 1915 and 1923, you get a tax exemption. If your troubles came in 1924 or later, however, there’s no break.

Hawaii: Deductions Grow On Trees

Grab a $3,000 deduction if your tree was approved by an arborist advisory committee and you get the right notarial stamp.

Maryland: Oyster Break

Maybe the clam and mussel people didn’t make sufficient campaign donations? The aquaculture float credit is available for people harvesting oysters, but not other shellfish.

Minnesota: Toke Tax

Before lighting a joint, you’re supposed to pick up a tax stamp: $3.50 per gram. Lots of other states have marijuana taxes, but not a whole lot of money is collected.

New Jersey: Helping Families

You get a break if you spend more than $35.64 on family leave insurance. A $37 outlay on this worthy cause, for example, would land you $1.36.

New Mexico: If you Are Old and Dependent…

…you don’t do well here. The tax exemption for those 100 and older is explicitly denied to people who can be claimed as dependents.

New York: Haunted House Tax

Musical comedies, operas and chamber music are exempt from the sales tax. But not a Halloween show with music, if the admission charge exceeds 10 cents.

Oregon: Single Amputees Need Not Apply

Some legislator wanted to help the disabled. What a guy! The resulting statute gives a $50 credit to double amputees.

Seattle: Death Tax

If you die in Seattle, you owe the city $50. And if you don’t pay, something bad could happen to you.

South Carolina: Aid for Deceased Deer

You get $50 off your taxes if your deer carcass helps the needy.

U.S.: A Special Deal for Employees

The IRS gives you a break on employee expenses, and here’s the simple version of the form, 2106-EZ. The catch: You have to figure out the instructions, which include this Orwellian line: “An expense does not have to be required to be considered necessary.”

U.S.: Take That, Sewer Pipe Lobbyists!

People mining sagger clay (used in pottery) get the same generous 14% federal depletion allowance accorded to people extracting clam shells, oyster shells and spodumene (never mind what that is). But if your clay shows up in sewer pipes, then you get only 7-1/2%.

By William Baldwin from the Forbes Magazine Staff

IRS Seeks Volunteers for Taxpayer Advocacy Panel

The Internal Revenue Service seeks civic-minded volunteers to serve on the Taxpayer Advocacy Panel (TAP), a federal advisory committee that listens to taxpayers, identifies key issues, and makes recommendations for improving IRS service.

"TAP members give the IRS insights from every corner of our nation, helping the agency in its continuous effort to improve tax administration,” said IRS Commissioner Doug Shulman.

The TAP provides a forum for taxpayers from all 50 states, the District of Columbia and Puerto Rico to raise concerns about IRS service and offer suggestions for improvement.  The TAP reports annually to the Secretary of the Treasury, the IRS Commissioner and the National Taxpayer Advocate. The Office of the Taxpayer Advocate, an independent organization within the IRS, provides oversight of the TAP.

“In trying to comply with an increasingly complex tax system, taxpayers may find they need different services than the IRS is currently providing,” said Nina E. Olson, National Taxpayer Advocate. “The TAP is vital because it provides the IRS with the taxpayers’ perspective as well as recommendations for improvement. This will help the IRS deliver the best possible service to assist taxpayers in meeting their tax obligations.”

To be a member of the TAP you must be a U.S. citizen, current with your federal tax obligations, able to commit 300 to 500 hours during the year and able to pass an FBI criminal background check.  New TAP members will serve a three-year term starting in December 2012.  If you’re chosen as an alternate member, you’ll be considered to fill any vacancies that open in your area during the next three years.

Applications for the TAP will be accepted through April 27, 2012. Applications are available online at www.improveirs.org.  For additional information about the TAP or the application process, please call toll-free 888-912-1227.

More Americans Plan to Save, Not Spend, Their Tax Refund

Americans are going to be a lot more tightfisted with their tax refunds this year, with more people planning to save the cash they get back from Uncle Sam instead of spending it.

Of those expecting a refund, 44% said they plan to stash some of it in savings, up from 42% last year, according to a survey of more than 8,700 consumers by the National Retail Federation. That marks the highest percentage in the survey's nine-year history.

"After a rocky few years, consumers are now more vigilant about how they spend their money and the importance of preparing for future financial stability," NRF President and CEO Matthew Shay said in a statement.

About two-thirds of taxpayers are expecting a refund this year, the NRF said. Last year, the average refund was more than $3,000.

Nearly 40% said they will use some of the money to pay down debt and 28.7% will spend it on everyday expenses. Just 12% said their refund would go toward a major splurge like a new television, down from 13% last year. Only 11% plan to spend the money on a vacation, which was also down from a year earlier.

"I will never use my tax refund as spending cash again," said Celeste Simmons, 39, a single mother in Kennesaw, Ga. "I realized I was behind so I started saving 100% of it four years ago and now I've accumulated enough for a down payment on a house."

Simmons, who said she typically receives $8,000 to $10,000 back from the government, said tax time is her only opportunity during the year to make a big contribution to a savings account. "There is no other time of year that I have to get ahead," she said.

And most taxpayers, like Simmons, are also eager to get a jump on their savings. This year, 64.4% of Americans will have filed their taxes by the end of February, the highest percentage since 2006, the survey said. Only 14% said they will wait until the last minute.

More taxpayers are also filing their taxes themselves this year and fewer are planning to use an accountant or tax preparation service than in previous years.

In a separate survey by TD Ameritrade, an even larger percentage of respondents -- 63% -- said they plan to save or invest at least part of the money they get back. About half, of the more than 1,000 respondents polled said they will use some of the money to pay down debt, while 48% said it will go toward necessities like food or utility bills. Similarly, just 14% of those surveyed said they would use the money to splurge on a big-ticket item or trip.

Tax season is a good time to check your financial health, said Lule Demmissie, managing director of retirement at TD Ameritrade.

"Coming into a large chunk of change at a time when you are gathering important information about yourself becomes an opportunity to sit down and see whether you are meeting your financial goals," she said.

Demmissie recommends stashing those refunds in a tax-deferred savings account like an IRA or Roth IRA.

By Jessica Dickler for @CNNMoney

IRS Encourages Small Employers to Check Out Small Business Health Care Tax Credit

With business tax-filing deadlines fast approaching, the Internal Revenue Service today encouraged small employers that provide health insurance coverage to their employees to check out the small business health care tax credit and then claim it if they qualify.

The recently-revamped Small Business Health Care Tax Credit page on IRS.gov is packed with information and resources designed to help small employers see if they qualify for the credit and then figure it correctly. These include a step-by-step guide for determining eligibility, examples of typical tax savings under various scenarios, answers to frequently-asked questions, a YouTube video and a webinar.

The small business health care tax credit was included in the Affordable Care Act enacted two years ago. Small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for this credit. The credit is specifically targeted to help small businesses and tax-exempt organizations provide health insurance for their employees.

Depending upon how they are structured, eligible small employers are likely subject to one of the following three tax-filing deadlines, which fall in coming weeks:

March 15: Corporations that file on a calendar year basis.
April 17: Individuals have until April 17 to complete and file their returns on Form 1040. This includes Sole proprietors, as well as people who have business income reported to them on Schedules K-1—partners in partnerships, S corporation shareholders and beneficiaries of estates and trusts.
May 15: Tax-exempt organizations that file on a calendar year basis.

Taxpayers needing more time to determine eligibility should consider obtaining an automatic tax-filing extension, usually for six months. See Form 4868 for individuals, Form 7004 and its instructions for businesses and Form 8868 for tax-exempt organizations.

Businesses that have already filed and later find that they qualified in 2010 or 2011 can still claim the credit by filing an amended return for one or both years. Corporations use Form 1120X, individuals use Form 1040X and tax-exempt organizations use Form 990-T.

Some businesses and tax-exempt organizations that already locked into health insurance plan structures and contributions may not have had the opportunity to make any needed adjustments to qualify for the credit for 2010 or 2011. These employers can still make the necessary changes to their health insurance plans so they qualify to claim the credit on 2012 returns or in years beyond. Eligible small employers can claim the credit for 2010 through 2013 and for two additional years beginning in 2014.

States’ Drive to Collect Taxes on Internet Sales Is a Blow to Marketers

It is hardly surprising that states are taking it upon themselves to increase their sales tax income. Residents are supposed to declare and pay sales tax on goods they buy from out-of-state retailers, but few do, which deprives states of tax revenue and gives Internet retailers an advantage over physical stores. California hoped to collect some $200 million the first year after passing an affiliate nexus tax, and the large brick-and-mortar retailers that support nexus bills hope that the bills will level the playing field with Internet competitors.

But these laws have collateral damage. Caught in the crossfire of the nationwide fight — New York and other states have also passed nexus laws — are a large but rarely examined part of the Internet economy, affiliate marketers.

These third-party Web sites, which contract with retailers to advertise their wares, come in many forms. There are coupon clearinghouses with multimillion-dollar revenues, like FatWallet and Ebates, which some online shoppers visit religiously to track down daily bargains, and there are tiny mom-and-pop blogs that run affiliate marketing ads related to their content — a pet blog, for example, might carry advertising for pet shops.

The advertisements the affiliates run contain embedded codes indicating which affiliate is sending traffic to the retailer, and when a click leads to a sale, the affiliate receives a commission. According to a report from Forrester Research, spending on affiliate marketing is expected to rise to $4 billion in 2014, from $1.9 billion in 2009. Scot Wingo, chief executive of ChannelAdvisor, a retail consulting firm and software company in Morrisville, N.C., said that about 5 percent of all Internet commerce runs through affiliate marketers.

The field is not without controversy. Some affiliates have been caught rigging the system by posting fake ads or buying Web ads that purport to be directly from the retailers they are advertising. And retailers often wonder if the sales they get from affiliates are sales they would have gotten even without them.

Mr. Wingo notes that his retail clients say that only about 5 percent of affiliate marketers have sites with content that adds value and increases sales. “Many retailers are decreasing the number of affiliates,” Mr. Wingo said. “There’s a lot of fraud. And some create channel conflict. They may buy search terms and compete with you.”

Still, that 5 percent constitutes a hardy industry, and while it is impossible to know exactly how many affiliate marketers and other businesses have been affected by the nexus laws, it is clear that the fight has had an impact.

Year-over-year revenue growth for affiliate marketing at ValueClick, the parent company of Commission Junction, one of the giant middlemen that manage transactions between hundreds of retailers and their affiliates, fell to 9 percent from 17 percent from the first quarter to the third quarter of 2011 in large part because of the California nexus law, according to Colin Sebastian, a stock analyst who covers ValueClick for Robert W. Baird & Company.

Thousands of marketers in the affected states have been cut off by Amazon and other retailers. Others, like FatWallet, have had to move.

But the big losers of this battle are small affiliates that cannot afford to move, many of them one- or two-person shops that support a family. Each time a state passes a nexus law, said Scott Allan, vice president for marketing at LinkShare, another of the companies that serve as middlemen between retailers and affiliate marketers, retailers sever relations with thousands of affiliates to avoid having to collect sales tax.

Mr. Wingo of ChannelAdvisor said, “It shows the huge gap behind the government thinking and small-business thinking.”

When Gov. Jerry Brown of California signed nexus tax legislation into law last June, Amazon terminated its relationship with some 10,000 California affiliates. One of them was MyBargainBuddy.com, a 12-year-old affiliate-marketing-based shopping portal based in Murrieta, Calif., owned by Karen Hoxmeier, 38. As a result, more than 60 percent of the 3,000 or so retailers whose products Ms. Hoxmeier advertised decided to drop her, leaving Ms. Hoxmeier to post links only to the small group of retailers with physical stores or other operations in the state. “My sales immediately went down by about 50 percent,” she said.

In Colorado, Invisible Shoes, a two-year-old maker of huarache-style running sandals based in Boulder, lost out two ways in a similar sales tax battle. Because of a Colorado nexus law passed in 2010, Amazon canceled the company’s affiliate account, which meant Invisible Shoes could not run affiliate advertising for the third-party products like books and creams that it sold to its shoe customers. That cost Invisible Shoes several thousand dollars a month, said Steven Sashen, its founder and chief executive. But the law’s larger effect was to stifle the company’s growth plans.

Mr. Sashen, who expects the company to surpass $1 million in sales this year, had created an in-store kiosk that would allow shoppers to custom-design running sandals inside client stores. That way the client stores could offer custom shoes without carrying inventory. But Mr. Sashen’s accountant told him that the kiosk would constitute a nexus that could force Invisible Shoes to collect and pay sales tax in states where it had client stores.

“Given the size of our company, the accounting cost alone makes this prohibitive,” said Mr. Sashen, 49, who shelved the kiosk plans. “It’s not collecting sales tax that’s the hard part; paying taxes in the jurisdictions is an accounting nightmare.”

National legislation could save affiliate marketers and retailers like Mr. Sashen. Twenty-four states have signed on to the Streamlined Sales and Use Tax Agreement, a plan to simplify sales taxes. Congress is currently considering three federal bills that would give states that simplify their sales tax systems the right to make out-of-state retailers collect taxes.

While the national bills are far from becoming law, affiliate marketers are breathing a little easier, at least in California. Since September, when Governor Brown signed a compromise law that gave Internet retailers a one-year reprieve on sales tax collection, Ms. Hoxmeier’s MyBargainBuddy site has bounced back to 2,500 advertisers.

From the Business Day section of The New York Times, written by Ian Mount.

IRS Offers New Penalty Relief and Expanded Installment Agreements to Taxpayers

The Internal Revenue Service today announced a major expansion of its “Fresh Start” initiative to help struggling taxpayers by taking steps to provide new penalty relief to the unemployed and making Installment Agreements available to more people.

Under the new Fresh Start provisions, part of a broader effort started at the IRS in 2008, certain taxpayers who have been unemployed for 30 days or longer will be able to avoid failure-to-pay penalties. In addition, the IRS is doubling the dollar threshold for taxpayers eligible for Installment Agreements to help more people qualify for the program.

“We have an obligation to work with taxpayers who are struggling to make ends meet," said IRS Commissioner Doug Shulman. ”This new approach makes sense for taxpayers and for the nation’s tax system, and it’s part of a wider effort we have underway to help struggling taxpayers."

Penalty Relief

The IRS announced plans for new penalty relief for the unemployed on failure-to-pay penalties, which are one of the biggest factors a financially distressed taxpayer faces on a tax bill.

To assist those most in need, a six-month grace period on failure-to-pay penalties will be made available to certain wage earners and self-employed individuals. The request for an extension of time to pay will result in relief from the failure to pay penalty for tax year 2011 only if the tax, interest and any other penalties are fully paid by Oct. 15, 2012.

The penalty relief will be available to two categories of taxpayers:

Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for filing a federal tax return this year.
Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.

This penalty relief is subject to income limits. A taxpayer’s income must not exceed $200,000 if he or she files as married filing jointly or not exceed $100,000 if he or she files as single or head of household. This penalty relief is also restricted to taxpayers whose calendar year 2011 balance due does not exceed $50,000.

Taxpayers meeting the eligibility criteria will need to complete a new Form 1127A to seek the 2011 penalty relief. The new form is available on IRS.gov.

The failure-to-pay penalty is generally half of 1 percent per month with an upper limit of 25 percent. Under this new relief, taxpayers can avoid that penalty until Oct. 15, 2012, which is six months beyond this year’s filing deadline. However, the IRS is still legally required to charge interest on unpaid back taxes and does not have the authority to waive this charge, which is currently 3 percent on an annual basis.

Even with the new penalty relief becoming available, the IRS strongly encourages taxpayers to file their returns on time by April 17 or file for an extension. Failure-to-file penalties applied to unpaid taxes remain in effect and are generally 5 percent per month, also with a 25 percent cap.

Installment Agreements

The Fresh Start provisions also mean that more taxpayers will have the ability to use streamlined installment agreements to catch up on back taxes.

The IRS announced today that, effective immediately, the threshold for using an installment agreement without having to supply the IRS with a financial statement has been raised from $25,000 to $50,000. This is a significant reduction in taxpayer burden.

Taxpayers who owe up to $50,000 in back taxes will now be able to enter into a streamlined agreement with the IRS that stretches the payment out over a series of months or years. The maximum term for streamlined installment agreements has also been raised to 72 months from the current 60-month maximum.

Taxpayers seeking installment agreements exceeding $50,000 will still need to supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F). Taxpayers may also pay down their balance due to $50,000 or less to take advantage of this payment option.

An installment agreement is an option for those who cannot pay their entire tax bills by the due date. Penalties are reduced, although interest continues to accrue on the outstanding balance. In order to qualify for the new expanded streamlined installment agreement, a taxpayer must agree to monthly direct debit payments.

Taxpayers can set up an installment agreement with the IRS by going to the On-line Payment Agreement (OPA) page on IRS.gov and following the instructions.
These changes supplement a number of efforts to help struggling taxpayers, including the “Fresh Start” program announced last year. The initiative includes a variety of changes to help individuals and businesses pay back taxes more easily and with less burden, including the issuance of fewer tax liens.

“Our goal is to help people meet their obligations and get back on their feet financially,” Shulman said.

Input from the Internal Revenue Service Advisory Council and the IRS National Taxpayer Advocate’s office contributed to the formulation of Fresh Start.

Offers in Compromise

Under the first round of Fresh Start, the IRS expanded a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers. An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.

The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place more common-sense changes to the OIC program to more closely reflect real-world situations.

For example, the IRS has more flexibility with financial analysis for determining reasonable collection potential for distressed taxpayers.

Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.

IRS Offers Relief to Unemployed Taxpayers

The IRS is offering some relief to taxpayers struggling to pay their taxes due to unemployment or a significant loss of income.

The agency said Wednesday it will give certain taxpayers a six-month grace period on "failure-to-pay" penalties, which are typically assessed each month a taxpayer is late paying their taxes.

Without the grace period, a taxpayer who is late paying their taxes initially incurs a fee of 0.5% of their tax bill. That fee may increase the later they become -- with a cap of 25%. But now some taxpayers won't incur any fees until Oct. 15.

Even though taxpayers won't get hit with the penalty, they will still accrue interest during the six-month period. Over the course of a year, that amounts to about 3% of the annual tax bill.

Taxpayers who qualify for this grace period must have been unemployed for 30 consecutive days or longer during 2011 or 2012 -- up to the April 17 filing deadline this year. Self-employed taxpayers who saw their business income drop 25% or more due to the economy are also eligible.

There is an income limitation, however. Married taxpayers who file jointly cannot claim income that exceeds $200,000, while a taxpayer who files as single or head of household must not exceed $100,000 in income. Those who are still eligible for the relief will need to complete Form 1127A, available on the IRS website.

"We have an obligation to work with taxpayers who are struggling to make ends meet," said IRS Commissioner Doug Shulman.

In addition to the penalty relief, the IRS is also allowing more taxpayers to spread out payments on their tax bills. Taxpayers with bills as high as $50,000 are now eligible for installment payments -- up from a previous cap of $25,000. And these taxpayers aren't required to file a financial statement to do so.

Taxpayers who owe more than $50,000, however, still need to fill out a Collection Information Statement in order to qualify.

The IRS also boosted the maximum installment term to 72 months, up from 60 months. Taxpayers entering these new installment agreements are required to sign up for monthly direct debit payments. And interest is still charged on the outstanding balance.

The new efforts announced Wednesday are an expansion of an ongoing effort started in 2008 aimed at helping taxpayers who are struggling to pay their taxes.

"Our goal is to help people meet their obligations and get back on their feet financially," Shulman said.

By Blake Ellis for @CNNMoney

The $13,000 Adoption Tax Credit is Back

An adoption tax credit that brought huge refunds to many unsuspecting families last year is back.

Taxpayers can claim up to $13,360 for each child they have adopted in the past six years on their 2011 tax returns this year -- an increase of $190 from last year.

The credit has been around since 1997, but up until the 2010 tax year, it was always a non-refundable credit -- meaning it would offset any taxes owed, and anything that remained was carried over to the next tax year.

President Obama's Affordable Care Act of 2010 made the credit refundable so the money would go directly into the taxpayer's pocket rather than being applied to future taxes owed.

But, unless Congress extends the credit by the end of this year, the 2011 tax year will be the last year that taxpayers can cash in on the credit.

A 'godsend': The newly refundable credit has been especially helpful for families adopting "special needs" children. While families adopting children who do not qualify as special needs are typically eligible to get a refund for their adoption expenses, families adopting kids who do qualify can get the entire $13,360 refund no matter how much they paid to adopt a child -- even if they had no expenses.

Generally, a child with special needs is someone who the state determines wouldn't be adopted without its assistance. Special needs qualifications vary by state and are determined by such factors as medical or physical impairments, genetic conditions, minority status, number of siblings or age.

Deborah Schwinger, from Hamburg, Pa. received a $24,300 refund last year thanks to the adoption tax credit. In 2009, she adopted Matthew and Lizzy. The children, who had moved between foster homes, have speech problems and a "long list of behavioral problems" after being severely neglected by their birth mom, Schwinger said.

"The money was a godsend," she said. "The kids got new bikes from Walmart and I got a grill, I set up [bank] accounts for the children, I'm working to get us a bigger house, I no longer live paycheck-to-paycheck and have little debt. We have everything we need and we get a few things we want."

Other families received even bigger windfalls. The Wards,a family of 12 from North Carolina, received a $54,000 refund last year. Going into the tax season, the Wards said they were completely unaware of the credit. In fact, they thought they would owe money.

Watch out!: Since this is the biggest refundable tax credit available, the IRS isn't going to give it out to just anyone.

Taxpayers seeking the credit should expect long waits and the possibility of an audit, said Amy Miller, director of the Tax Institute of H&R Block.

Schwinger said she had to send in her paperwork twice last year. After a number of fruitless phone calls to the IRS, she was told that no more information was required, and to wait 45 days for her refund. After 45 days, she was told she needed to send in additional documents. It wasn't until June -- about four months after she filed her taxes -- that she finally received her full refund.

She wasn't alone. In a report examining how the IRS handled adoption tax credit claims last year, the Government Accountability Office found that there were "considerable" delays due to the high level of audits the agency conducted.

The GAO said 68% of the nearly 100,000 returns claiming adoption tax credits were audited last year, but the IRS only ended up requiring those taxpayers to pay more in taxes about 17% of the time. In all, $1.2 billion in adoption tax credits were claimed last year, the GAO found.

Many taxpayers received the portion of their tax refund that didn't include the adoption tax credit while they waited. Schwinger, for example, received $4,350 of her refund in March that was separate from the adoption tax credit. She didn't receive the money she was owed from the adoption credit until about four months later.

The IRS acknowledged the delays, and said it has updated the information on its website this year so that the required documentation is easier for taxpayers to understand.

Typically, it should take three weeks for taxpayers to receive a refund if a complete and accurate paper return is submitted and correct documentation is attached. But if the IRS doesn't receive the right documentation, it will spend extra time ensuring that the claim isn't fraudulent, said IRS spokesman Terry Lemons.

"When you have a credit of this size it's really important for us to make sure we have the documentation so we get it only to the people who qualify," he said.

Given the huge amounts of money being claimed, Miller said that even if everything is submitted correctly, taxpayers claiming this credit will likely have to wait a couple of months or more to receive their refunds.

What to know: To make sure you get your refund as quickly as possible, check the IRS website for a list of all necessary documentation.

Taxpayers are required to submit a paper return when claiming this credit. Special needs adoptions that qualify for the full $13,360 credit, regardless of expense, must occur within the United States. Those who adopt children overseas may only claim qualifying expenses. Also, the refund phases out for taxpayers making more than $185,210, and families with income of more than $225,210 aren't eligible for the credit.

"It's a great credit if you qualify, but there are certainly hoops you have to jump through and you have to dot all your 'i's and cross your 't's in terms of documentation," said James Toto, CPA and partner at accounting firm WeiserMazars.

But while waiting was grueling at the time, Schwinger said she is just thankful that the adoption of special needs children is being encouraged.

"There are so many children in the system that need families," said Schwinger. "I think many families do not adopt because they can't afford the costs. There is help for them."

By Blake Ellis for @CNNMoney

IRS Warns of New Tax Scam

The Internal Revenue Service warned taxpayers Friday about an emerging tax scam that tempts the elderly, working families and church members into filing fraudulent tax returns that claim bogus refunds.

The scheme promises big refunds to low-income people, many of whom earn too little to have a tax filing requirement.

IRS officials said promoters of the scam tell victims they are eligible for refunds, based on payments they are owed under a college tax credit law called the American Opportunity Tax Credit.

“This is a disgraceful effort by scam artists to take advantage of people by giving them false hopes of a nonexistent refund,” IRS Commissioner Doug Shulman said in a statement.

The scammers claim their victims are eligible for refunds even if they went to college decades ago. IRS officials said they are also seeing a variation on the scheme that claims college credit is available to compensate people for paying taxes on groceries.

The agency said it already has stopped thousands of these claims, but in many cases it was not before victims paid high fees to promoters promising to file their fraudulent claims.

The IRS is reminding taxpayers that they are legally responsible for the accuracy of their returns.

The IRS said taxpayers should be aware of any of the following:

Fictitious claims for refunds or rebates based on false information that someone is eligible for a tax credit.

Unfamiliar for-profit tax services selling these credits to members of local churches.

Internet solicitations directing people to toll-free numbers and asking for Social Security numbers.

Homemade fliers and brochures advertising the scheme.

Offers of free money with no documentation required.

Unsolicited offers to prepare a return and split the refund.

Promises of refunds for “Low Income — No Documents Tax Returns.”

Claims for the expired Economic Recovery Credit Program or for economic stimulus payments.

By Lisa Rein via the Washington Post

Payroll Tax Cut Extended to the End of 2012; Revised Payroll Tax Form Now Available to Employers

The Internal Revenue Service today released revised Form 941 enabling employers to properly report the newly-extended payroll tax cut benefiting nearly 160 million workers.

Under the Middle Class Tax Relief and Job Creation Act of 2012, enacted yesterday, workers will continue to receive larger paychecks for the rest of this year based on a lower social security tax withholding rate of 4.2 percent, which is two percentage points less than the 6.2 percent rate in effect prior to 2011. This reduced rate, originally in effect for all of 2011, was extended through the end of February by the Temporary Payroll Tax Cut Continuation Act of 2011, enacted Dec. 23.

No action is required by workers to continue receiving the payroll tax cut. As before, the lower rate will have no effect on workers’ future Social Security benefits.  The reduction in revenues to the Social Security Trust Fund will be made up by transfers from the General Fund.

Self-employed individuals will also benefit from a comparable rate reduction in the social security portion of the self-employment tax from 12.4 percent to 10.4 percent. For 2012, the social security tax applies to the first $110,100 of wages and net self-employment income received by an individual.

The new law also repeals the two-percent recapture tax included in the December legislation that effectively capped at $18,350 the amount of wages eligible for the payroll tax cut. As a result, the now repealed recapture tax does not apply.

The IRS will issue additional guidance, as needed, to implement the newly-extended payroll tax cut, and any further updates will be posted on IRS.gov.

5 Tricky Tax Challenges

With the Bush tax cuts slated to expire at the end of this election year, consider this filing season the calm before the tax storm: You'll face few new rules, tax rates are the same as last year, and popular deductions are still in place.

But preparing your income taxes remains as tricky as ever.

Here's how to make sure you don't get tripped up by five common filing challenges -- and how to set yourself up for tax savings on next year's return and beyond.

New capital gains rules

Filing challenge: When it comes to paying taxes on investment gains, what's new this year is a key reporting rule: For any stocks you bought on or after Jan. 1, 2011, you no longer get to set your cost basis (that's the cost of your investment for tax purposes).

Your broker will do it for you, based on the accounting method you chose -- your broker should have sent you a notice -- or the firm's default, what's called first-in, first-out, or FIFO, which assumes you sold your oldest shares.

Check 1099s against your records and have your broker fix any errors. "We'll see a lot of revisions on the 1099s," says Roman Ciosek, a partner at HighTower's Strata Wealth Management, who's advising clients not to rush to file. You can't, however, change your cost-basis method once you've sold -- no matter whether it was your choice or your broker's.

Otherwise, the rules are the same. You can offset your capital gains with capital losses (new and lingering). First match long-term gains (on assets held more than one year and taxed at 15%) with long-term losses, and short-term gains (held one year or less and taxed as ordinary income) with short-term losses. Then match long-term against short-term. If you have extra losses, you can deduct up to $3,000 from your income, and roll over the rest to trim your taxes next year.

How to plan: Going forward, you can switch methods any time, and options include last-in, first-out and specific-share identification. What's best depends on many factors.

If you've invested in a stock over time and have your biggest gains on the first batch you got, for instance, you might want to identify specific shares to sell rather than use FIFO. But if you have ample capital losses to offset gains, this might be a good year to reap big profits. Frequent traders (or anyone who has bought a lot of a stock over time) can run the numbers using NetBasis software (netbasis.com; $20 and up).

The rules extend to mutual funds, most exchange-traded funds, and dividend-reinvestment plans in 2012, then bonds in 2013. Chances are your fund companies have already written to ask what method you want to use (the typical default is average cost). Don't ignore this paperwork.

Retirement plans

Filing challenge: You have until tax day to fund a traditional or Roth IRA for 2011 (April 17, this year), assuming you can. With a traditional deductible IRA, your contributions are in pretax dollars, and your withdrawals are taxable. With a Roth, you pay the taxes upfront, but neither you nor your heirs will owe income taxes on withdrawals. For most, the Roth has the edge over the long term.

Since 2010, everyone has been able to convert a traditional IRA to a Roth, regardless of income. That's great news -- unless it means an unexpectedly high tax bill. This year you owe taxes on 2011 conversions.

Plus, if you converted in 2010 and spread your tax payments over two years -- a special break for 2010 only -- you owe half those taxes now. In a real pinch? You have until filing day to undo a 2011 conversion.

How to plan: You can open an IRA for 2012 now too, as well as move an old IRA into a Roth. Converting is especially advantageous if you'll face a higher tax rate in retirement than you do now, which is hard to predict. But for anyone considering it, this is a good year to pull the trigger. You know you'll pay no more than 35% on the rollover, while the expiration of the Bush tax cuts could usher in higher rates.

Selling your home -- at a loss

Filing challenge: When you hit the jackpot with your home, you owe capital gains taxes on any profits above $500,000 for marrieds ($250,000 for singles).

What if, like many homeowners today, you sell at a loss? You're out of luck. You can't take a deduction for the hit you took on your primary residence.

You may be entitled, though, to a tax break if your mortgage was reduced through a restructuring, the bank agreed to a short sale, or you lost your home to foreclosure. Typically this kind of relief is considered income since you no longer have to repay the debt. Under a tax break put in place during the real estate crisis, you can exclude up to $2 million in forgiven debt from your income.

How to plan: This exclusion expires at the end of the year. If you need a break, don't wait to act.

Education write-offs

Filing challenge: Sorting through education tax perks isn't easy. Valuable options include the tuition and fees deduction ($4,000 max), the lifetime learning credit ($2,000 per return), and the American opportunity credit ($2,500 per student, for undergraduate work only), but you can take only one per student in a single tax year.

In general, a credit is more valuable than a deduction since it directly cuts your taxes, while a deduction merely trims how much income is taxed. In the 28% tax bracket, a $2,000 credit trumps a $4,000 deduction, which lowers your federal tax bill by just $1,120.

"If you qualify for the American opportunity credit, that's the biggest bang for your buck," says Justin Ransome, a partner in Grant Thornton's national tax office. Income limits apply to all, but the AOC's is the highest (adjusted gross income of $180,000 for married couples, $90,000 for singles).

How to plan: Your choice may be simpler next year: The tuition deduction expired at the end of 2011. The American opportunity credit is due to run out this year.

Health care spending

Filing challenge: The bar for deducting health care costs is high -- you can write off only those expenses that exceed 7.5% of your AGI. But rising health care costs may bring it within reach. "If your medical expenses went up significantly or your income was reduced dramatically, pull out the shoebox of receipts," says Allison Shipley, a principal at PricewaterhouseCoopers' personal financial services practice.

The definition of allowable expenses is broad: doctors' and dentists' bills, prescriptions, glasses, hearing aids, wheelchairs, transportation to doctors' appointments, nursing-home fees, and certain insurance costs (Medicare B and D, but not Part A, for example).

How to plan: The threshold jumps to 10% of your AGI in 2013, so consider moving up some medical expenses this year if you think you'll be close to qualifying in 2012.

By Amy Feldman at @CNNMoney

IRS Has $1 Billion for People Who Have Not Filed a 2008 Income Tax Return

Refunds totaling more than $1 billion may be waiting for one million people who did not file a federal income tax return for 2008, the Internal Revenue Service announced today. However, to collect the money, a return for 2008 must be filed with the IRS no later than Tuesday, April 17, 2012.

The IRS estimates that half of these potential 2008 refunds are $637 or more.

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 a refund within three years, the money becomes property of the U.S. Treasury.

For 2008 returns, the window closes on April 17, 2012. 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.

The IRS reminds taxpayers seeking a 2008 refund that their checks may be held if they have not filed tax returns for 2009 and 2010. In addition, the refund will be applied to any amounts still owed to the IRS, and may be used to offset 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 2008. Some people, especially those who did not receive an economic stimulus payment in 2008, may qualify for the Recovery Rebate Credit. 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.

IRS on Autopilot

The IRS is discovering vastly more mistakes on tax returns than it used to.

In 2010, it flagged 10.6 million math and clerical errors, up from 4 million in 2005, according to a government report from National Taxpayer Advocate Nina Olson released Wednesday.

The reason: The IRS has greatly increased its use of automated systems to ferret out mismatches between what an individual reports on his return and the third-party data the IRS receives for that person, such as pay information from employers or data from the Social Security Administration.

Sometimes that can work to the taxpayer's advantage, the IRS said in response to Olson's report.

That's what happened with Making Work Pay, a refundable tax credit that was part of the Recovery Act. The IRS said the "vast majority" of the errors it discovered in relation to that credit "increased the credit for the taxpayer."

And the Making Work Pay credit accounted for more than half of the 10.6 million errors flagged in 2010, the IRS said.

But the reliance on automated systems can yield errors of its own.

Sometimes those IRS errors are discovered and corrected.

For instance, the IRS dinged 300,000 returns in 2010 for supposed math errors related to the exemption taxpayers can take for dependent children -- and then reversed its decision to disallow that exemption for 55% of those cases, Olson said in her annual report to Congress.

But trying to get a correction made can be a time-consuming, frustrating experience for taxpayers, whose refunds are likely to be delayed, if not also reduced, as a result.

When an error pops up in the IRS system, a letter is sent to the tax filer. But those letters don't always explain the problem clearly, said Olson, a government official whose job is to highlight the most serious problems facing taxpayers.

So some taxpayers may not respond to the IRS because they don't know what they're being asked, she said.

The IRS disputes that its letters aren't clear, noting that it uses plain language and includes line numbers from the tax form to help the taxpayer find the error the agency is flagging.

According to Olson, when taxpayers do respond to the IRS letter, the agency is late in responding about 40% of the time. Phoning the agency isn't a big help, either. Only about three-quarters of calls are answered, and when they are the issue is rarely resolved.

What's more, Olson said, these automated procedures are not considered real audits by the IRS, so the usual taxpayer rights in an audit don't apply. One is the right to avoid repetitive examinations of the same return. And taxpayers have less time to respond to the letter before losing their right to appeal the IRS's decision than they would in a real audit.

If a taxpayer disputes a claim in the time given, the IRS will automatically reverse its decision. But that reversal may be temporary because the agency may then conduct a formal audit on the return.

Olson notes there are several things the IRS can do to improve its automated error-finding missions, such as using only the most reliable third-party data, doing a better job explaining the discrepancies and making it easier for taxpayers to communicate with the agency.

Tempting though it may be to cuss out the IRS for making it harder on some filers to get the refunds they deserve, a little compassion might be in order.

The agency is being asked to do more and more without being funded commensurately. In fact, IRS funding is being cut by $305 million for fiscal year 2012.

Among the items on the IRS to-do list: Ferret our identity thieves, catch more tax cheats at home and abroad, and turn on a dime to administer complex, temporary tax breaks Congress frequently passes at the last minute.

In fact, by Olson's count, Congress has added an average of more than one change a day to the tax code over the past decade, with 579 of those changes in 2010 alone.

Indeed, she said, "the most serious problem facing U.S. taxpayers is the combination of the IRS's expanding workload and the limited resources available to the IRS to handle it."

By Jeanne Sahadi at @CNNMoney

IRS Moving Expense Deductions

Federal tax laws allow you to deduct your moving expenses if your relocation relates to starting a new job or a transfer to a new location for your present employer. To qualify for the deduction, your new work location must be a sufficient distance from your old home and you must begin working shortly after you arrive.

Distance test requirements

The costs you incur for moves within the same town do not qualify for the deduction. The distance between your new job and your former home must be at least 50 miles farther than your previous employer is from that home. For example, if your previous commute to work was five miles each way, then the distance from your new job location to your old home must be at least 55 miles. When evaluating whether you satisfy the distance test, the IRS requires you to use the shortest commutable routes between two locations.

Time test requirements

You must work full-time for a minimum of 39 weeks during the initial 12-month period that starts on the day you arrive in the new location. You can still satisfy this requirement when the 39 weeks are not consecutive and even when it's for multiple employers. The IRS does not specify the number of days or hours you must work each week to be a full-time employee; instead, it defers to your industry’s commonly-accepted standard.

Deductible moving expenses

The deduction covers the reasonable expenses you incur to transport your personal effects and household items to your new home. You can even include the cost of renting a storage unit for up to 30 days if you are unable to move into your new home immediately after leaving your former home.

You can also include the cost of traveling to the new location for yourself and other members of your household. If you drive to the new location in a personal vehicle, you can include the actual cost of oil, gasoline, parking fees and highway tolls. In lieu of using the actual cost of gasoline and oil, the IRS permits you to calculate those costs using the standard mileage rate. For long-distance moves, you can deduct the cost of airline and train tickets.

Claiming the moving expenses deduction

The moving expense deduction is one of the few tax deductions you can claim before knowing whether you satisfy the requirements. As a result of the time test’s 12-month period, most taxpayers cannot satisfy the time test until the following tax year. However, the IRS allows you to claim the deduction in the year you move.

To claim the deduction, you must report all relocation expenses on IRS Form 3903 and attach it to the personal tax return that covers the year of your move. In the event you do not satisfy all requirements at the conclusion of the 12-month period, you must reverse the deduction. You will either include the original deduction amount in “other income” on your next tax return or amend the original return to calculate your tax without the moving expense deduction.

Which Credit Card Rewards Does the IRS Care About?

Citigroup's Citibank recently sent recipients of a special frequent flier mile promotion an unwelcome surprise: a 1099 tax form indicating those bonus miles have been reported to the IRS as income.

Even if you weren't part of that promotion, it's reasonable to wonder whether the frequent flier miles or other credit card rewards you collect are going to cost you, too, come tax time.

The answer appears to be no. The two scenarios are different:

In the taxable promotion, Citibank was seeking new customers and those who opened new accounts received 25,000 miles as a reward.
In contrast, the regular miles and rewards that we accumulate over time are due to our using our debit or credit cards.

In other words, the former is more akin to a financial gift, while the latter is considered a rebate earned by the customer.

This issue is only recently rearing its ugly head because sign-up prizes haven't generally been big enough to trigger reporting. Recent banking reforms, though, have caused banks to see the revenue they were used to collecting from hefty fees for overdrafts, late payments, and debit-card swipes shrink. As a result, they've been shifting their focus and are now competing aggressively for new customers.

In the case of Citibank's rewards, it valued each mile as worth 2.5 cents, so a 25,000-mile reward was worth $625, and therefore the bank deemed it reportable as taxable income. Thus, Citibank was simply following the IRS' rules, which require the reporting of prizes or awards valued at $600 or more.

The concept of gifts being taxable isn't a new one. In an article at CreditCards.com, Connie Prater offered the famous example of Oprah Winfrey giving those in the audience at one of her show's tapings a free car. That was a thrilling surprise windfall for the lucky attendees, but it caused problems for some, too, as the value of the cars was considered taxable income. If you suddenly receive a $25,000 car, you might find that you have to cough up $6,000 in taxes. You'll still come out ahead, but you'll face a cash crisis if your bank account isn't flush.

Rewards the IRS Usually Ignores

While sizable gifts from banks can indeed be considered taxable income, the rewards that banks give you based on your credit or debit card usage are generally not taxable -- and generally don't even need to be reported to the IRS.

Citibank spokeswoman Emily Collins has explained, "Rewards and airline miles that are provided in connection with a purchase on a credit card are routinely not subject to individual income tax reporting."

Getting a reward for opening a new account can still be a non-event, tax-wise, if the reward isn't worth $600 or more. A Wells Fargo (WFC) spokeswoman noted that her company's recent giveaway for new accounts was a stuffed animal.

The Big Picture

It's important not only to understand what is and isn't taxable, but also to remember that the world of tax rules is a fluid one. Rules change over time. Indeed, already, Sen. Sherrod Brown (D-Ohio) has called on Citibank to stop treating the frequent flier miles as income. Whether the bank will stop -- or even whether it can, given IRS rules -- remains to be seen.

When it comes to IRS regulations, it's best to follow them -- they're not optional. One area in which Citibank does seem to have some discretion is in how it values its miles. If it valued each mile at $0.02 instead of $0.025, the value of 25,000 miles would have been $500, not $625, and wouldn't have crossed the $600 threshold.

Until further notice, taxpayers who collect rewards for credit- or debit-card use should follow the rules, resting easy about their purchase-related rewards and preparing to report any sizable gifts from banks.

By Selena Maranjian for Aol.

Average Tax Refund Slips to $2,913 in 2011

The IRS not only doled out fewer tax refunds last year, but it also cut smaller checks with the average refund slipping by nearly $100.

Taxpayers received tax refunds averaging $2,913 in 2011, down 3% from the average refund of $3,003 in the prior year, according to the latest filing statistics released by the IRS.

The agency delivered a total of 109.3 million refunds during the year, adding up to a total of $318.5 billion. That's down slightly from 2010, when 109.4 million refunds were given out, totaling $328.4 billion.

Direct deposit was the most popular way for taxpayers to receive refunds last year, with more than 79 million refunds deposited into accounts -- up 6% from 2010.

More than 75% of taxpayers filed returns using the agency's free online e-filing system, an increase of nearly 14% from the previous year. While the majority of e-filers hired tax professionals to submit their taxes, the number of taxpayers preparing their own taxes jumped by 14%.

For those who think you're owed a refund but haven't gotten any money back yet, it could still be out there. In late November, the IRS said it is holding onto tens of millions of dollars in tax refunds that it hasn't been able to deliver to consumers due to mailing address errors.

To find out what happened to your refund, check the status by using the "Where's My Refund?" tool on the IRS website.

By Blake Ellis from @CNNMoney

Key Tax Deductions Left Hanging

It may be a new year, but when Congress returns from its winter break it will be all old business that lawmakers failed to finish before Christmas.

The fight over a temporary extension of the payroll tax cut and long-term federal unemployment benefits sucked up all the oxygen on Capitol Hill. And it will suck up more between now and the end of February, when the two-month extension Congress managed to pass expires.

In the meantime, lawmakers left more than 50 expiring business and individual tax breaks hanging in the balance, along with an expanded mass transit break for workers.

Officially, of course, they expired on Dec. 31. But like Lazarus, they may be risen from the dead by Congress, which could choose to extend them and make the breaks retroactive to the start of this year. That way they'll be in effect before taxpayers have to fill out their federal returns for this tax year in early 2013.

The value of keeping the so-called tax extenders on the books is debatable. Tax experts argue that many should be ditched.

But the everlasting question mark punctuating these and other tax breaks is a source of frustration for anyone who takes tax and financial planning seriously.

"Taxpayers are very unhappy because they don't know what's going to happen; they can't plan," said David Mellem, who is certified to represent taxpayers before the IRS.

Expanded mass transit break: For three years, workers whose employers subsidized their commuting costs were entitled to receive the same amount of money whether they took mass transit or drove to work and paid for parking.

The parity in the benefits, which are tax-free to workers, meant mass transit commuters got more than they had in previous years.

But now Congress has let the mass transit expansion expire. As a result, those who take mass transit may only receive up to $125 a month tax-free, whereas those who drive to work can receive $240 a month.

State and local sales tax deductions: Taxpayers are allowed to deduct their state and local income tax on their federal return. But in recent years, lawmakers gave them a choice: They either could deduct their income tax or the state and local sales taxes they paid in a given year.

The choice benefits residents of the nine states that don't actually have an income tax.

As of now, those residents won't have that choice for this tax year.

Mortgage insurance deduction: In addition to deducting the interest they pay on their mortgage, taxpayers whose adjusted gross income doesn't exceed $110,000 have been allowed to treat the premiums they pay for mortgage insurance as deductible interest too.

But that may not be an option for tax year 2012.

School teacher tax deduction: Many K-12 teachers pony up their own money to buy supplies and equipment for their classrooms. Unless Congress acts, they will no longer be able to deduct up to $250 a year for those expenses.

Higher education tuition deduction: For tax year 2011, taxpayers are allowed to deduct qualified tuition and related expenses paid on behalf of anyone in their household to a college or university. The deduction is available regardless of whether one chooses to itemize or not.

The deduction is worth up to $4,000 for someone whose adjusted gross income doesn't exceed $65,000 if single ($130,000 if married filing jointly). Those making between $60,000 and $80,000 ($130,000 to $160,000 if married), however, may only claim up to $2,000.

Tax year 2012 may be a different story. But look on the bright side. While the tax break hasn't been renewed, it means one less complicated deduction for taxpayers to figure out.

Larger AMT exemption amounts: To protect more than 20 million middle class households from having to pay the Alternative Minimum Tax, Congress typically passes an AMT "patch" every year.

They have yet to do so for 2012, but because most Americans don't have to file their returns until early 2013, lawmakers could pass a patch at any point this year and have it apply in time for the 2013 filing season.

The AMT was intended primarily for high-income taxpayers. But in recent years, it has threatened to engulf the less affluent because the income thresholds determining who must pay the tax were never adjusted for inflation.

The patch increases the amount of income tax filers may exempt from consideration when calculating whether they need to pay the AMT.

Without the AMT patch, tax filers would only be able to exempt $33,750 in income if single or $45,000 if married filing a jointly, according to CCH, a tax information publisher. That is considerably less than the $48,450 that single filers and $74,450 joint filers may claim on their 2011 returns.

By Jeanne Sahadi from @CNNMoney

IRS Unveils New Version of Smartphone App; IRS2Go 2.0 Offers Videos, Tax Help

The Internal Revenue Service announced today the availability of IRS2Go 2.0, an expanded version of its smartphone application designed to provide taxpayers easier access to practical tools and information.

The new app, available on the Apple and Android platforms, adds a new YouTube feature, news feed and tax transcript service in addition to existing tools, such as checking on the status of a tax refund.

“The new smartphone app provides an easy way for people to get helpful information about their taxes,” said IRS Commissioner Doug Shulman. “IRS2Go reflects a wider commitment at the IRS to find innovative ways to serve taxpayers in a rapidly changing world.”

The IRS released the first version of IRS2Go in 2011, and had more than 350,000 downloads. The phone app offers taxpayers a number of safe and secure ways to access information and keep current on practical tax information. The 2.0 version of the phone app includes three new tools:

Watch Us.
People can view IRS YouTube videos on their smartphones. The videos provide short, informative features on a variety of tax topics. The channel ranks as the fourth most viewed channel among more than 125 federal government YouTube channels. IRS also has YouTube channels available in multilingual and American Sign Language.  
Get the Latest News.
With this tool, users can have the latest IRS news releases delivered to their phones as it becomes available.   
Get My Tax Record.
Taxpayers can now order their tax return transcript from the IRS2Go app. The transcript will be delivered via the U.S. Postal Service to their address of record.

The free IRS2Go app will continue giving taxpayers access to the tools offered last year:

Get Your Refund Status.
Taxpayers can check the status of their federal tax refund through the phone app with a few basic pieces of information. An updated refund status is available about three days after the IRS acknowledges receipt of an e-filed return, or four weeks after mailing a paper return.
Get Tax Updates.
Phone app users enter their e-mail address to automatically receive simple, straightforward tips and reminders to help with tax planning and preparation. Tax Tips are issued daily during the filing season and periodically throughout the rest of the year.
Follow the IRS.
Taxpayers can sign up to follow the IRS Twitter newsfeed, @IRSnews, which provides easy-to-use information, including updates on tax law changes and important IRS programs.

Apple users can update or download the free IRS2Go application by visiting the Apple App Store. Android users can visit the Android Marketplace to download the free IRS2Go app.

Treasury, IRS Issue Proposed Regulations for FATCA Implementation

The Treasury Department and the Internal Revenue Service today issued proposed regulations for the next major phase of implementing the Foreign Account Tax Compliance Act (FATCA).

Enacted by Congress in 2010, the law targets non-compliance by U.S. taxpayers using foreign accounts.

The regulations lay out a step-by-step process for U.S. account identification, information reporting, and withholding requirements for foreign financial institutions (FFIs), other foreign entities, and U.S. withholding agents.

“FATCA strengthens U.S. efforts to combat offshore noncompliance. In doing so, we understand it creates a significant undertaking for financial institutions." said IRS Commissioner Doug Shulman. "Today's proposed regulations reflect our commitment to take into account the implementation challenges of affected financial institutions while allowing for a smooth and timely roll-out of the law."

The proposed regulations implement FATCA’s obligations in stages to minimize burdens and costs consistent with achieving the statute’s compliance objectives. The rules and implementation schedule are also adjusted to allow time for resolving local law limitations to which some FFIs may be subject.

FATCA was enacted in 2010 by Congress as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA requires FFIs to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

In order to avoid being withheld upon under FATCA, a participating FFI will have to enter into an agreement with the IRS to:

1. Identify U.S. accounts
2. Report certain information to the IRS regarding U.S. accounts
3. Verify its compliance with its obligations pursuant to the agreement, and

4. Ensure that a 30-percent tax on certain payments of U.S. source income is withheld when paid to non-participating FFIs and account holders who are unwilling to provide the required information.

Registration will take place through an online system which will become available by Jan. 1, 2013. FFIs that do not register and enter into an agreement with the IRS will be subject to withholding on certain types of payments relating to U.S. investments.

Treasury and IRS will continue to work closely with businesses and foreign governments to implement FATCA effectively. Updates and further information on FATCA can be found by visiting the FATCA page or asking your CPA.

Identity Theft Crackdown Sweeps Across the Nation; More than 200 Actions Taken in Past Week in 23 St

The Internal Revenue Service and the Justice Department today announced the results of a massive national sweep cracking down on suspected identity theft perpetrators as part of a stepped-up effort against refund fraud and identity theft.

Working with the Justice Department’s Tax Division and local U.S. Attorneys’ offices, the nationwide effort targeted 105 people in 23 states. The coast-to-coast effort took place over the last week and included indictments, arrests and the execution of search warrants involving the potential theft of thousands of identities and taxpayer refunds. In all, 939 criminal charges are included in the 69 indictments and informations related to identity theft.

In addition, IRS auditors and investigators conducted extensive compliance visits to money service businesses in nine locations across the country in the past week. The approximately 150 visits occurred to help ensure these check-cashing facilities aren’t facilitating refund fraud and identity theft.

“This unprecedented effort against identity theft sends a strong, unmistakable message to anyone considering participating in a refund fraud scheme this tax season,” said IRS Commissioner Doug Shulman. “We are aggressively pursuing cases across the nation with the Justice Department, and people will be going to jail. This is part of a much wider effort underway at the IRS to help protect taxpayers.”

“The Justice Department is working closely with the IRS to investigate, prosecute, and punish tax refund crimes committed through the theft of identities,” said Principal Deputy Assistant Attorney General John A. DiCicco of the Tax Division. “Now, more than ever, we must remain vigilant against the unauthorized use of identification information to defraud the U.S. government.”

The national effort is part of a comprehensive identity theft strategy the IRS has embarked on that is focused on preventing, detecting and resolving identity theft cases as soon as possible. In addition to the law-enforcement crackdown, the IRS has stepped up its internal reviews to spot false tax returns before tax refunds are issued as well as working to help victims of the identity theft refund schemes.

The law-enforcement sweep started last week across the country, reflecting investigative efforts stretching back months and even years.

The nationwide effort by the Justice Department and the IRS led to actions taking place in 23 locations across the country with 105 individuals. The actions included 80 complaints/indictments and informations, 58 arrests, 19 search warrants, 10 guilty pleas and four sentencings. A map of the locations and additional details on the actions are available on IRS.gov, the IRS Civil and Criminal Actions page and the Department of Justice Tax Division page.

Beyond the criminal actions, the IRS enforcement personnel conducted a special sweep last week and on Monday to visit 150 money services businesses to help make sure these businesses are not knowingly or unknowingly facilitating identity theft or refund fraud. The visits occurred in nine high-risk places identified by the IRS covering areas in and surrounding Atlanta, Birmingham, Ala., Chicago, Los Angeles, Miami, New York, Phoenix, Tampa and Washington, D.C.

In addition, the IRS has more than 250 check-cashing operations under audit across the country and will be looking for indicators of identity theft as part of the exam effort.

The information from these audits and compliance visits will be used to assist continuing IRS investigations into refund fraud and identity theft.

The IRS also is taking a number of additional steps this tax season to prevent identity theft and detect refund fraud before it occurs. These efforts includes designing new identity theft screening filters that will improve the IRS’s ability to spot false returns before they are processed and before a refund is issued, as well as expanded efforts to place identity theft indicators on taxpayer accounts to track and manage identity theft incidents.

To help taxpayers, the IRS earlier this month created a new, special section on IRS.gov dedicated to identity theft matters, including YouTube videos, tips for taxpayers and a special guide to assistance. The information includes how to contact the IRS Identity Protection Specialized Unit and tips to protect against “phishing” schemes that can lead to identity theft.

Identity theft occurs when someone uses another’s personal information without their permission to commit fraud or other crimes using the victim’s name, Social Security number or other identifying information. When it comes to federal taxes, taxpayers may not be aware they have become victims of identity theft until they receive a letter from the IRS stating more than one tax return was filed with their information or that IRS records show wages from an employer the taxpayer has not worked for in the past.

If a taxpayer receives a notice from the IRS indicating identity theft, they should follow the instructions in that notice. A taxpayer who believes they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. The taxpayer should contact the IRS Identity Protection Specialized Unit at 800-908-4490. The taxpayer will be asked to complete the IRS Identity Theft Affidavit, Form 14039, and follow the instructions on the back of the form based on their situation.

Taxpayers looking for additional information can consult the Taxpayer Guide to Identity Theft or the IRS Identity Theft Protection page on the IRS website.

Fraudulent Tax Returns Surge 181%

The number of taxpayers trying to bamboozle the IRS and collect bigger refunds has shot up this filing season.

The IRS identified 335,341 tax returns claiming $1.9 billion in fraudulent refunds as of March 4, 2011, according to the findings of an audit conducted by the Treasury Inspector General for Tax Administration. That's a whopping 181% increase from the same period last year.

While the IRS has become more effective in its screening process, a weak economy has also driven more people to cut corners, said Tim Gagnon, assistant academic specialist of Accounting at Northeastern University.

"When the economy gets really bad, people get more touchy about how much they're paying in taxes and look at where they think they can push the envelope a little more," said Gagnon. "100 extra dollars really makes a difference to people now."

Many taxpayers tried to boost their refunds or reduce their tax liability by claiming deductions and credits they didn't qualify for, TIGTA found.

For example, the Earned Income Tax Credit, aimed at helping lower-income taxpayers, has been a large source of fraud, with people falsely lowering their income to qualify or claiming children they don't have. The IRS estimates that 23% to 28% of EITC credits are wrongfully paid to Americans every year, totaling $11 to $13 billion.

Child tax credits have also been abused, with more taxpayers unable to provide legitimate social security numbers for their children.

The adoption credit, which grants qualifying adoptive parents refunds of up to $13,170 for each child, also appears to be attracting fraud. TIGTA has identified 1,081 individuals who claimed the credit in excess of the limit -- amounting to $3.9 million in erroneous refunds.

Another problem: returns claiming the first-time homebuyer tax credit -- which grants new home owners credits of up to $8,000 -- for home purchases with ineligible purchase dates.

And taxpayers also claimed vehicle credits, like the qualified plug-in electric drive motor vehicle credit, for cars that didn't qualify.

IRS Crackdown

Another reason for the huge increase is ramped up enforcement efforts on the part of the IRS.

Prisoners were of particular interest this filing season. As of March 4, the IRS had selected 63,501 tax returns filed by prisoners to screen. That's up 88% from the same period last filing season, TIGTA found.

In a previous review of the IRS, TIGTA reported that most tax returns filed by prisoners were not being screened, making the group a prime target for enforcement, said Gagnon.

"You somewhat have to question what a person in prison has for income -- and plus, a big question is, what's their biggest risk when filing their taxes? Fraud? They're already in jail," he said.

Gagnon thinks the surge in fraudulent returns mean a surge in audits is also on the way. And following the trend of recent years, he expects most of these audits to be conducted by mail to save the IRS resources.

The IRS is also getting more efficient at reviewing tax returns and identifying errors or false information, thanks to the increase in electronic filing. The number of e-filed returns surged to a record high this year, topping 100 million for the first time in history -- a nearly 9% increase from last year, according to the IRS.

When taxpayers file their taxes electronically, it's much easier for the IRS to analyze them, said Gagnon.

Many messy returns

Not all of the so-called "fraudulent" returns are a result of taxpayers trying to scam the system, said Gagnon.

Many taxpayers were in such a pinch financially last year that they were less likely to hire a professional to prepare their taxes -- often resulting in more incorrect claims, outdated deductions and other common errors.

For example, if you were laid off from your job and became self-employed, you were subject to a whole new set of rules you may not know about, and more likely to make a mistake.

Plus, the tax code changed in December -- and the final touches were agreed upon so late in the year that many taxpayers had already begun preparing their returns and may not have been informed of the new guidelines.

TIGTA plans to publish the final results of its review later this year.

By Blake Ellis at CNNMoney

IRS e-file Launches; Most Taxpayers Can File Immediately

The Internal Revenue Service opened the 2012 electronic tax return filing season today with a reminder to taxpayers that e-file remains the best way to get fast refunds and ensure accurate tax returns.

IRS e-file has surpassed the milestone of 1 billion returns processed. The electronic transmission system revolutionized the way the IRS processes tax returns and made speedy refunds possible. More than 112 million income tax returns were e-filed last year, or 77 percent of all individual returns filed.

"E-file is the best option for taxpayers. E-file enables taxpayers to file more accurate returns and receive their refunds quickly and safely," said IRS Commissioner Doug Shulman.

In general, for people concerned about security, e-file has proven itself year in and year out as a safe and secure method of filing a tax return. E-file has a proven track record. Software vendors and paid tax return preparers use the latest encryption technology. Plus, within 48 hours, an electronic acknowledgement is issued that the return has been received by the IRS and either accepted or rejected.

With most people receiving a refund, the fastest way to get a refund is by e-filing and using direct deposit. Taxpayers can get their money automatically in as few as 10 days. Last year, more than 79 million refunds were electronically deposited into taxpayers’ accounts, saving them a trip to the bank.

For people who owe taxes, e-file offers payment alternatives such as filing now and scheduling payment on the April tax deadline. Taxpayers who still want to pay by check can do so by e-filing and then mailing a payment voucher.

Taxpayers can e-file their tax returns through a tax return preparer. The IRS does not charge for e-file. Many tax return preparers and software products also offer free e-filing with their services.

Starting this filing season, any paid preparer who prepares and files more than 10 returns for clients generally must file the returns electronically. Taxpayers are encouraged to use tax return preparers who offer IRS e-file.

Taxpayers should also only use paid preparers who sign the returns they prepare and enter their Preparer Tax Identification Numbers (PTINs). Preparers are required to sign the returns they prepare and include their PTINs. Although paid preparers sign returns, taxpayers are legally responsible for the accuracy of every item on their return. Preparers are also required to give taxpayers a copy of their returns.

When using e-file, you also use an e-signature and an electronic filing PIN. When using a paid preparer, you can still use the self-select PIN method or the practitioner PIN method. The Electronic Filing PIN is a temporary PIN used by the IRS to verify your identity when you e-file.

Fed to Keep Rates Low Until 2014

The economy is improving, the Federal Reserve said Wednesday, but not enough to warrant higher interest rates for at least two-and-a-half more years.

The central bank indicated that it expects to keep the federal funds rate near historic lows until late 2014 -- an extension from the Fed's original pledge to keep rates low through mid 2013.

"[T]he economy has been expanding moderately, notwithstanding some slowing in global growth," the Fed said in a statement Wednesday. Meanwhile, the program known as Operation Twist remains in place.

More details will come at 2 p.m. ET, when the Fed will release forecasts for the federal funds rate for the first time ever.

The Fed's main tool for stimulating the economy, the federal funds rate is the interest rate banks charge one another for overnight loans. Keeping it at historic lows as the Fed has done since 2008, is meant to stimulate spending by lowering interest rates on everything from mortgages to car and student loans.

Immediately, the Fed's announcement sent U.S. bond yields falling. The 10-year Treasury yield fell to 1.94%. That's down from a 2.06% yield just a day earlier.

As markets reacted strongly to the news, economists cautioned that the Fed's 2014 forecast is not a concrete promise. Should economic growth pick up more quickly, the Fed could raise interest rates sooner.

"It's not a vow or a commitment," said Michael Gregory, senior economist with BMO Capital Markets. "If the outlook changes on the unemployment or inflation, the Fed retains the right to change its mind."

The statement follows a two-day policymaking meeting, at which the central bank shuffled its voting members as it does at the beginning of every year.

The rotation brings four new regional Fed presidents into voting roles: Jeffrey Lacker of Richmond, Sandra Pianalto of Cleveland, Dennis Lockhart of Atlanta and John Williams of San Francisco.

All but Lacker are considered either moderates or inflation doves, meaning they're more likely to favor stimulative policies that promote economic growth, even at the risk of higher inflation.

Lacker was the sole Fed member to dissent against the policy decision Wednesday. He would have preferred the central bank not to release an actual timeframe for "exceptionally low" rates.

Besides the roster change, the Fed's first meeting of the year is also noteworthy because it marks the first time the central bank will release forecasts, estimating where the federal funds rate will stand over the next few years.

While the Fed already alluded to those forecasts in its statement, the projections from each of its members are scheduled to be released later Wednesday, along with projections on economic growth, inflation and unemployment.

By Annalyn Censky from @CNNMoney

Four Tax Tips Regarding Tip Income

If your pay from work involves compensation through tips, then the IRS would like you to be aware of a few facts about tip income. Here are four key points to keep in mind:

1. Tips are taxable Tips are subject to federal income, Social Security and Medicare taxes.  The value of non-cash tips, such as tickets, passes or other items of value, is also considered income and subject to tax.

2. Include tips on your tax return You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip-splitting arrangement with fellow employees.

3. Report tips to your employer If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.

4. Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee's Daily Record of Tips and Report to Employer, to record your tip income.

IRS Audited 1 in 8 Millionaires

The IRS audited one out of every 8 millionaires last year, the third year in a row the agency has ramped up its enforcement of the nation's top earners.

About 12.5% of all taxpayers earnings one million dollars or more were dealt audits during fiscal 2011-- the highest enforcement rate since at least 2004, according to IRS enforcement statistics released Thursday. That's up from a rate of 8.4% in 2010 and 6.4% in 2009.

The IRS has been cracking down on offshore tax evaders over the past few years, many of which are high-income taxpayers, said Michelle Eldridge, spokeswoman for the IRS. So this ongoing push can be attributed to the big jump in audits of millionaires this year, she said.

This year, the agency offered taxpayers a reduction in penalties and no jail time for a limited window of time if they fessed up to having offshore accounts.

Taxpayers making more than $200,000 a year were also at a higher risk of audit last year. One in 25 of these high income earners were audited in 2011, compared to about one in 32 in 2010, according to the IRS.

But the odds of getting audited were significantly slimmer for people reporting less than $200,000 in income, with only one in 98 of these taxpayers going through the audit process last year.

A total of 1.6 million 2010 returns were audited during 2011, with 75% of those conducted by mail instead of in-person, the IRS said. Even though there was a significant increase in the number of millionaires audited, the IRS's enforcement revenue still slipped 4% to $55 billion last year.

Original article by Blake Ellis for @CNNMoney.

What You Need to Know for Your 2011 Tax Filing and What’s New for 2012

Tax season is here again! While the filing deadline might be a couple of months away, this month you will receive all required third-party reporting documents: W2s, 1099s for interest and dividends, 1099s for nonemployee compensation if you are an independent contractor, 1099-Bs from your broker reporting proceeds from the sale of stocks and bonds, 1098s from your mortgage holder, K-1s from partnerships, S Corps, estates, and trusts. Hopefully, you’ve set up a file to store all these documents to make data gathering for tax preparation a snap. If not, now’s the time to create one.

Note that the due date for filing this year is April 17. If a tax due date falls on a weekend or a holiday, the next business day becomes the due date. This year April 15 is a Sunday and Monday, April 16 is a federal holiday so the due date falls on Tuesday, April 17. If you are unable to file by the deadline, you may obtain an extension to Oct. 15. Bear in mind that the extension is for filing, not paying. All taxes must be paid by April 17 otherwise you may suffer penalties and interest.

If you pay estimated tax payments throughout the year, the due date for your next quarterly installment for prepayment of 2011 income taxes is Tuesday, Jan. 17. Estimated tax payments for 2012 will be due on April 17, June 15, Sept. 17 and Jan. 15, 2013.

Beginning in 2011, brokerage firms are required to report to the IRS not only proceeds from sales of stocks and mutual funds, but also the cost basis of the investments that are sold. The IRS has designed a new Form 8949 for reporting capital gains and losses. A summary of the information listed on this form is carried over Schedule D. A couple of new columns are added to Form 8949 reporting – one for adjustments to basis (in case your broker has an incorrect figure) and one for coding the transaction to identify the type of sale.

Business mileage rates for 2011 were changed mid-year, so when calculating your mileage for 2011 use the rate of 51 cents per mile for miles driven up to June 30, 2011 and 55 ½ cents per mile from July 1 to Dec. 31.

Mileage rates for 2012 are as follows: 55 ½ cents per mile for business, 23 cents per mile for moving and medical, and 14 cents per mile for charitable purposes.

The temporary payroll tax cut has been extended to Feb. 29; employees will enjoy a continued savings of 2% of wages withheld for Social Security – from 6.2% to 4.2%. The Social Security wage base for 2012 is $110,100 up from $106,800 in 2011. Once your wages exceed this amount, Social Security will not be withheld but Medicare will continue to be withheld.

The self-employment health insurance deduction no longer offsets the self-employment tax. In 2010 only, self-employed workers were able to reduce the amount subject to self-employment tax on Schedule SE by the amounts paid for health insurance premiums. You can still take the deduction on Form 1040 as an adjustment to income.

Foreign financial assets are reported on a new Form 8938. The foreign asset disclosure form is separate and different from the foreign bank account report. Taxpayers with foreign assets may need to file both documents.

The first-time home buyer’s credit is now only available to members of the military or Foreign Service. If you are repaying the first-time home buyer’s credit, you may not need to complete and attach Form 5405.

Also gone for 2011 is the Making Work Pay Credit. For the past few years we enjoyed $400 per year single and $800 married filing joint credit against our tax liabilities.

Written by Bonnie Liee for Fox Business.

When Can I Expect My Refund?

The Internal Revenue Service reminds taxpayers to keep in mind that many variables can affect the speed of a tax refund. Using e-file with direct deposit remains the fastest option for taxpayers.

Following technology improvements, the IRS will issue refunds to more taxpayers in as few as 10 days this year for those who e-file and select direct deposit. Overall, the IRS issues the vast majority (more than 9 out of 10) of all refunds — whether filed electronically or on paper — in 21 days or less.

Although refund speed will generally increase overall, the IRS emphasizes these are “best-case scenarios,” where tax returns are filed accurately and no corrections or review are required.

In addition, the IRS also cautions taxpayers it is increasing scrutiny of tax returns for signs of fraud. This means some tax refunds will face additional screening and review before being released, which will add time before the refund is delivered.

There are some simple ways for people to help ensure they receive their refund quickly.

E-file remains the best way to ensure an error-free return.

Taxpayers can help ensure their refund arrives as expected by submitting an error free return. Use the correct Social Security number or taxpayer identification number, the correct address, and the correct bank and routing number if electing direct deposit.

You don’t need to wait on the phone to check on the status of your refund. The fastest and best way to get information on your refund is through the “Where's My Refund?” tool on IRS.gov and the IRS2Go phone app. Information about refund status is available about three days after the IRS acknowledges receipt of your e-filed return, or four weeks after mailing a paper return.

The free IRS2Go application is available at the Apple App Store and the Android Marketplace.

FASB Awaits Decision on Private Company Accounting Changes

Financial Accounting Standards Board chair Leslie Seidman has been reviewing the suggestions that have been coming in about the proposed Private Company Standards Improvement Council while awaiting a decision on how much authority her board will have over the new council.

FASB and its parent organization, the Financial Accounting Foundation, are holding a series of roundtable meetings with private company representatives around the country to talk about the FAF’s proposal for the creation of the new council (see FAF Proposes New Council for Private Company Accounting Standards).

“The FAF has scheduled four roundtables in different cities around the country to provide an opportunity for the FAF board of trustees to have a dialogue with interested individuals to discuss the comments that they’ve made in response to the FAF proposal to put in place a new council to focus on private company issues,” Seidman said in an interview with Accounting Today staff on Friday. “The FAF has received over 6,500 letters at this point in time expressing quite a wide range of views. Many of them include very specific suggestions. Whether you’re in support of the proposal or not in support of the proposal, I think the FAF is very interested in continuing the dialogue with stakeholders so they can make an informed decision.”

The FAF is expected to issue a decision on the structure of the new council after the last roundtable meeting occurs on March 1, probably in the second quarter of the year. The comment period ends on Saturday, Jan. 14. FASB has been paying attention to the comments the FAF has received.

“Each of us has been reading the letters as they come in, but we actually have assigned staff people to do an analysis of the letters for us,” said Seidman. “One thing that I have learned reading the letters is that some people are not aware of some of the things that we are already doing, so at a minimum we have an opportunity to communicate more broadly about those efforts. But the other things that we have been working on in the meantime, irrespective of any structural change that may take place, have to do with the development of a framework for deciding when there are unique private company issues that would warrant a different accounting or disclosure approach, so we’ve been working with a resource group to develop modules on particular topics such as disclosure, effective date, transition, etc. Our goal is to put together a draft framework that we would expose for public comment, irrespective of any decision on this other front, but then probably pause until there is a decision made on that front because it’s so important to have the buy-in of that group so that we can move forward with a common understanding.”

Seidman noted that FASB is also working on what is the appropriate definition of a private company. She said there were six different definitions for private companies in the FASB Accounting Standards Codification because every time the board approached the issue it had a different objective in mind.

“We’re planning to come up with a more coherent approach to that because it will be extremely important in determining who would qualify for any differences that are ultimately agreed upon,” said Seidman.

In looking through the comments and evaluating the feedback from the roundtables so far, FASB has also been looking for any actions it can take in the meantime to make some simplifications for private companies before a decision is made on the structure of the proposed council.

Seidman noted that FASB has recently added a project on fair value disclosures to determine whether there is a way for the board to streamline such disclosures for private companies. FASB also issued a standard last year on goodwill impairment in response to feedback from private companies; the new standard also applies to public companies.

Seidman noted that the proposed structure for the PCSIC would have several advantages over the Private Company Financial Reporting Committee, which it will replace. She praised the members of the PCFRC for “doing a great job on a volunteer basis, for bringing us excellent and timely feedback on our proposals. They’ve responded to almost every single proposal that we’ve issued since they were formed and their feedback has been greatly valuable.”

But the proposed council would have a number of advantages, including staff resources from FASB and a greater level of interaction with the board.

“We would anticipate full FASB staff support for the PCSIC,” she said. “That means that our staff would be preparing the analysis, the memos, everything that group needs to make decisions. That is not the case with PCFRC. Each of them relies on their own support at their own firms to do whatever analysis is necessary for them to then come together and advise us on a particular matter. So, in other words, they would have much more support in the process and the exact same materials that the board members would use to make a decision.”

FASB board members would also participate in the PCSIC meetings in order to have an ongoing dialogue as the issues are being debated, Seidman added.

“In the early days of the PCFRC, I never met a PCFRC member until, I think, the organization had been running for two or three years,” she said. “It was almost by design set up to be an independent organization, whereas this is very much intended to be an integrated organization so that there is a free flow of ideas and the board members can hear firsthand what the PCSIC members are saying and vice versa, which I think puts you in the best possible position to come to a consistent answer when it’s appropriate to have a consistent answer.”

She noted that the PCFRC does not vote, but only provides recommendations to the board. She said the PCSIC would have a significantly higher level of authority. Instead of being overseen by FASB, as the PCFRC is, the PCSIC would be overseen by the FAF. The PCSIC would also be able to vote on recommending differences in standards for private companies. Also unlike the PCFRC, the PCSIC would operate with a framework for when it is appropriate to establish differences for private companies.

“To me, that is essential to the path forward regardless of whether there is a structural change,” said Seidman. “But in the event that a PCSIC is set up, or a separate board is set up, I think it’s essential to have a framework that’s agreed upon as to when differences are warranted. Otherwise, I’m concerned that history is going to repeat itself.”

The American Institute of CPAs has been pushing for a separate board for private company standards overseen by the FAF, but independent of FASB, and it has been encouraging CPAs to write to the FAF with comments supporting a more independent board. Under the FAF proposal, the PCSIC would be chaired by a FASB board member, and FASB would be able to accept or reject any of the PCSIC’s recommendations. Many of the comment letters that have come to the FAF about the new council have objected to FASB’s ability to reject the PCSIC’s recommendations.

“It is a common point being commented upon in the letters coming in to the FAF,” Seidman acknowledged. “As it applies to all of the elements of that proposal, people are making suggestions, they are raising issues with various aspects of it and making suggestions for how to improve it, and I know that’s one of them.”

Seidman also discussed the status of FASB’s convergence efforts with the International Accounting Standards Board, and acknowledged that a number of projects had been delayed. She noted that the leasing standards, for example, would not be finalized until 2013. Financial instrument impairment probably would not be ready until early next year as well, even though FASB and the IASB have recently agreed upon at least the “skeleton” of an “expected losses” model as opposed to “incurred losses.” But they still need another meeting to flesh out that model. She believes that the projects for investment properties, investment companies, and consolidations should be resolved by the end of 2012. Revenue recognition could feasibly be finalized in 2012. The two boards are still far apart on the insurance contract project, and Seidman said a final standard would probably not be ready until 2013 at the earliest.

She hopes to avoid the arrangement that the two boards made with the recent offsetting standards in which financial statement preparers were advised to add disclosures to help investors bridge the gap between U.S. GAAP and International Financial Reporting Standards (see FASB, IASB Make Progress on Netting, Leasing and Impairment Standards).

“My priority at this point in time is to try and reach the same conclusions with the IASB,” she said. “We are not finished on the priority projects at this point in time. Revenue recognition we are converged, leasing we are converged, impairment we are converged. And it’s my intention to do everything I can to end up converged on insurance. I think it’s premature to talk about a disclosure solution for anything that we are actively working on.”

Top Ten Small Business Trends for 2012

The overall economic outlook is for continued moderate growth with U.S. GDP increasing 2.5%-3.0% with the expectation of hiring and the job market to improve, but unemployment will remain high and finish the year around 8%.

Social Trends

1.  Being Human:  A trend that has rippled through our research the past couple of years - and especially in 2011 - is the growing dissatisfaction with our de-humanized world.  Corporate employees tell us they are tired of being cogs in the enterprise machine.  Independent workers tell us they highly value the work/life flexibility and control independence provides. Consumers tell us they are looking for authenticity and honesty from the companies they buy from.  People in general tell us they are focusing more (or would like to focus more) on human relationships with their families, friends, business associates and communities.

Because of their size, scale and customer intimacy, small businesses are able to offer employees, business partners and customers stronger human-based relationships than large corporations.  2012 will see more small businesses recognize and take advantage of this key competitive advantage.

2.  One is No Longer the Loneliest Number:  The Internet, online distributed work tools, social media and the growth of coworking are eliminating the loneliness and lack of social and business contact traditionally associated with working independently.  Telecommuters, home-based business people, road warriors and independent workers are increasingly using these tools and resources to “work alone together”.  This growing ability to network, collaborate and socialize is making independent work more attractive, and 2012 will see the trend towards independent work continue to grow.

3.  Senior Independents:   Also driving the growth of independent workers is the increasing number of mature workers (those aged 55+) becoming independent (freelancers, consultants, temps, etc.).  Most of these older workers will choose independence because of the stimulation, freedom and flexibility it provides.  Others will become independent because they have no other job options, and/or financial pressure to continue working beyond traditional retirement age.

4.  Loyalty Meets Daily Deals:  There’s a lot of debate about the merits of daily deals.  We think 2012 will see daily deals morph beyond shotgun-style attempts to bring in new business to more targeted methods and systems designed to attract, retain and reward loyal customers.  Part of this is simply the maturation of daily deal business processes and technology.  But a bigger part is the growing recognition by both deal companies and their small business customers that repeat business, not new business, is the key objective.

Technology Trends

5.  Smartphones, Tablets and the Cloud Oh My!:  Smartphones, the Cloud and mobile computing have been on our top 10 lists in one form or another for years.  2012 is no exception and we expect mobile computing devices (smartphones and tablets) to substantially outsell traditional computers.  These cloud-supported devices are changing the way business is done and creating vast, new demand for apps, online video and audio, games, ebooks, magazines, newspapers, social networking – the list goes on and on.   2012 will see a growing number of small businesses embracing and leveraging these technologies.

6.  The Empire Strikes Back with Big Data:  The rise of the Internet and ever cheaper information technology enabled even the smallest of businesses to look, act and compete like a large company.  Big Data – the collection, manipulation and analysis of large datasets – allows large companies to look, act and compete like a small business by using data and analytics to provide personalized products and services.  It also increases their ability to aggressively compete on price.  Amazon’s controversial smartphone-based Price Check app is just the beginning of larger corporations using data, analytics and mobile computing to attack small business markets.

7.  Big Data Gets Small:  2012 will also see growing small business use of powerful yet inexpensive cloud-based data and analytical tools.  These tools will enable small businesses to organize, mine and analyze their data to improve their results.  In particular, the small business use of software and systems that combines and analyzes data from websites, customer purchases, marketing campaigns and social media activity will grow and greatly improve small business efficiency.

Economic Trends

8.  The Rental Economy Expands:  We’ve long covered the growing use of variable cost business models.  Also called Collaborative Consumption, the concept behind the rental economy is to increase the efficiency of goods by providing them on a variable cost basis (sharing their use).

Obviously this is not a new trend.  But the Rental Economy is rapidly expanding because the Internet, the Cloud and advanced analytics are enabling cost effective renting/sharing of a growing array of goods and services historically available primarily through ownership.

9.  Location, Location, Location:  A range of trends that have been building for a long time are converging to make location a key small business issue in 2012.  These include the growing power of the buy local movement, the increasing use of location in social media, a continued focus on sustainability and local food, and the growing use of cell phone and cloud enabled location-based services.  We used to think the Internet made location less important.  It also makes location more important.

10.  It’s the Best of Times and the Worst of Times for Startups:    The maturation of the Internet and other technologies (genomics, clean tech, robotics, Big Data, etc.) is creating vast new opportunities. It’s also cheaper than ever to start and grow a company, venture funding is available, valuations are high, large companies are in acquisition mode and the IPO market is opening up.  In many ways, it’s never been as easy or rewarding to be a startup than it will be in 2012.

But 2012 will also be a year of reckoning for many startups.  The last couple of years have produced almost a frenzy of new tech companies.  Many of these firms will need additional funding in 2012, and those not able to show strong customer traction will not be able to find it.

This information is provided by Small Business Labs at smallbizlabs.com.

IRS Kicks Off 2012 Tax Season with Deadline Extended to April 17

The Internal Revenue Service today opened the 2012 tax filing season by announcing that taxpayers have until April 17 to file their tax returns. The IRS encourages taxpayers to e-file as it is the best way to ensure accurate tax returns and get faster refunds.

The IRS also announced a number of improvements to help make this tax season easy for taxpayers. This includes new navigation features and helpful information on IRS.gov and a new pilot to allow taxpayers to use interactive video to get help with tax issues.

“At the IRS, we’re working hard to make the process of filing your taxes as quick and easy as possible,” said IRS Commissioner Doug Shulman. “Providing quality service is one of our top priorities. It not only reduces the burden on taxpayers, but also helps in filing an accurate return right from the start.”

Taxpayers will have until Tuesday, April 17, to file their 2011 tax returns and pay any tax due because April 15 falls on a Sunday, and Emancipation Day, a holiday observed in the District of Columbia, falls this year on Monday, April 16. According to federal law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have two extra days to file this year. Taxpayers requesting an extension will have until Oct. 15 to file their 2012 tax returns.

The IRS expects to receive more than 144 million individual tax returns this year, with most of those being filed by the April 17 deadline.

The IRS will begin accepting e-file and Free File returns on Jan. 17, 2012. Additional details about e-file and Free File will be announced later this month. IRS Free File provides options for free brand-name tax software or online fillable forms plus free electronic filing. Everyone can use Free File to prepare a federal tax return. Taxpayers who make $57,000 or less can choose from approximately 20 commercial software providers. There’s no income limit for Free File Fillable Forms, the electronic version of IRS paper forms, which also includes free e-filing.

The IRS also reminds paid tax return preparers they must have and include a Preparer Tax Identification Number (PTIN) on all returns they prepare. All PTINs must be renewed for 2011. Tax return preparers can obtain or renew PTINs online.

Assistance Options

The IRS continues to focus on taxpayer service. The best way for taxpayers to get answers to their questions is by visiting the IRS website at IRS.gov. The IRS has updated the front page of the IRS website to make it easier for taxpayers to get key forms, information and file tax returns. The front page also has links to taxpayer-friendly videos on the IRS YouTube channel. More improvements are planned for IRS.gov in the months ahead.  

Last year, the IRS unveiled IRS2Go, its first smartphone application that lets taxpayers check on the status of their tax refund and obtain helpful tax information. The IRS reminds Apple users that they can download the free IRS2Go application by visiting the Apple App Store and Android users can visit the Android Marketplace to download the free IRS2Go app.

Individuals making $50,000 or less can use the Volunteer Income Tax Assistance program for free tax preparation and, in many cases, free electronic filing. Individuals age 60 and older can take advantage of free tax counseling and basic income tax preparation through Tax Counseling for the Elderly. Information on these programs can be found at IRS.gov.

For tax law questions or account inquiries, taxpayers can also call our toll-free number (7 a.m. to 7 p.m. local time) or visit a taxpayer assistance center, the locations of which are listed on IRS.gov.

Virtual Service

The IRS has begun a new pilot program where taxpayers can get assistance through two-way video conferencing.  The IRS is conducting a limited roll out of this new video conferencing technology at 10 IRS offices and two other sites, and may expand to further sites in the future. A list of locations is available on IRS.gov.

Check for a Refund

Once taxpayers file their federal return, they can track the status of their refunds by using the “Where's My Refund?” tool, which taxpayers can get to using the IRS2Go phone app or from the front page of www.IRS.gov.  By providing their Taxpayer Identification Numbers, filing status, and the exact whole dollar amount of their anticipated refund taxpayers can generally get information about their refund 72 hours after the IRS acknowledges receipt of their e-filed returns, or three to four weeks after mailing a paper return.

More Innocent Spouses Qualify for Relief Under New IRS Guidelines

The Internal Revenue Service today released new proposed guidelines designed to provide relief to more innocent spouses requesting equitable relief from income tax liability.

A Notice proposing a new revenue procedure, posted today on IRS.gov, revises the threshold requirements for requesting equitable relief and revises the factors used by the IRS in evaluating these requests. The factors have been revised to ensure that requests for innocent spouse relief are granted under section 6015(f) when the facts and circumstances warrant and that, when appropriate, requests are granted in the initial stage of the administrative process. The new guidelines are available immediately and will remain available until the finalized revenue procedure is published. The IRS will immediately begin using these new guidelines when evaluating equitable relief requests.

"The IRS is significantly changing the way we determine innocent spouse relief," said IRS Commissioner Doug Shulman. "These improvements should dramatically enhance our process to make it fairer for victimized taxpayers facing difficult situations.”

This is the second major change made to the innocent spouse program. In July, the IRS extended help to more innocent spouses by eliminating the two-year time limit that previously applied to requests seeking equitable relief.

Taxpayer Advocacy Panel Members Selected

The Internal Revenue Service (IRS) today announced the selection of 26 new members to serve on the nationwide Taxpayer Advocacy Panel (TAP). The TAP is a federal advisory committee charged with providing direct taxpayer feedback to the IRS.

The new TAP members will join 56 returning members to round out the panel of 82 volunteers for 2012. The new members were selected from more than 400 interested individuals from across the country who applied during an open recruitment period last spring.

“TAP members play an important role for the nation’s taxpayers,” said IRS Commissioner Doug Shulman. “The panelists provide the IRS with insights that help make the tax administration process better for all taxpayers.”
 
The TAP listens to taxpayers, identifies issues and makes suggestions for improving IRS service and customer satisfaction. Oversight and program support for the TAP are provided by the Taxpayer Advocate Service, an independent organization within the IRS that helps resolve taxpayer problems and make recommendations to avoid future problems.

“It is extremely important that the IRS consider the needs and preferences of America’s taxpayers,” said Nina E. Olson, National Taxpayer Advocate. “The vital work of these citizen volunteers helps the IRS provide all taxpayers with the top quality service they deserve."

TAP members work with IRS executives on priority topics, primarily those involving the Wage & Investment and Small Business/Self-Employed operating divisions. Members also serve as a conduit for bringing grassroots concerns raised by the taxpaying public to the attention of the IRS.

TAP members are U.S. citizens who volunteer to serve a three-year appointment and are expected to devote 300 to 500 hours per year to panel activities. TAP members are demographically and geographically diverse, providing balanced representation from all 50 states, the District of Columbia and Puerto Rico.

Taxpayers can contact the TAP representative for their geographic area by calling 888-912-1227 (a toll-free call) or via the Internet at www.improveirs.org. Taxpayers can also send written correspondence to the TAP at the following address:

Taxpayer Advocacy Panel (TAP)
TA: TAP, Room 1314
1111 Constitution Avenue, NW
Washington, D.C.  20224

Individuals interested in volunteering to serve on the TAP for 2013 may submit an application via the website www.improveirs.org during the next open recruiting period, which will begin in March 2012.

Three Stealth Tax Traps

Congressional gridlock over whether to cut or raise income taxes is obscuring a different threat to six-figure earners: a host of stealth taxes implemented in the name of deficit reduction. Many of the provisions, as with the dreaded alternative minimum tax, have never been adjusted for inflation. As a result, they have morphed into tax traps for upper-middle-income earners. Here are three of the most glaring examples.

Two of the new stealth taxes were created by last year's landmark health care reform bill. First, the Medicare payroll tax is going up. The tax is now 2.9% on all wages; employers and employees each pay 1.45%. Starting in 2013, individuals making more than $200,000 (and couples making more than $250,000) will have to kick in an additional 0.9% on wages above that amount.

A second, much heftier increase also takes effect in 2013, in the form of an unprecedented new 3.8% Medicare tax on investment income. It will strike filers whose "modified adjusted gross income" -- roughly speaking, wages plus investment income -- tops $200,000 for individuals or $250,000 for couples. (The tax will apply to whichever is less: investment income or the amount by which modified adjusted gross income exceeds the income threshold.) Investment income will include taxable capital gains, dividends, interest income, annuities, royalties, and rents. The thresholds for both of the new Medicare taxes will not be indexed for inflation. So they'll snag an increasing number of taxpayers over time.

Finally there's the taxation of Social Security benefits. In 1984, when the Social Security system faced a funding crisis, Congress enacted a law to make the wealthiest recipients pay income taxes on their benefits. Specifically, up to 50% of Social Security benefits became taxable when half of these benefits, plus a retiree's other income -- including retirement plan payouts and investment income -- exceeded $25,000 a year ($32,000 for couples). Back then, only about 10% of retirees had incomes that topped that level. In 1994 a second layer of tax was put in place: 85% of your Social Security benefits became taxable if half of your Social Security benefit plus your "other" income topped $34,000, or $44,000 as a couple.

Once again, none of those crucial thresholds were indexed to inflation; today the Social Security tax still kicks in at $25,000. As a result, about a third of retirees are now paying federal income tax on their Social Security benefits. A decade from now, an estimated 45% will owe the tax.

Don't expect relief from the government on any of those stealth taxes. Your best bet is to generate as much income as possible from sources that don't trigger them. One way to accomplish that is to put your retirement savings into a Roth IRA or Roth 401(k), where contributions are made with after-tax dollars, and all future investment gains and withdrawals are tax-free. At the end of the day, you may never be able to shield yourself completely from stealth taxes. But you can at least minimize the bite.

Virginia Proposes Tax Credits For Space 'Burials'

A bill has been introduced in Virginia’s state legislature to provide for an individual income tax deduction for those taxpayers who agree to be cremated and then have their remains sent into space.

A Republican state lawmaker, Terry Kilgore, has filed legislation that provides that, for tax years beginning on or after January 1, 2013, but before January 1, 2021, a deduction would be allowed on the amount of a prepaid contract entered into with the Virginia Commercial Space Flight Authority to place the taxpayer's cremated remains in earth or lunar orbit.

The total amount deducted by any individual would be limited to a total of USD8,000 per person. The amount deducted on any individual income tax return in any taxable year would be limited to USD2,500, but, if the purchase price of a prepaid contract exceeds USD2,500, any amount in excess of USD2,500 may be carried forward and subtracted in future taxable years, until the lesser of the purchase price or USD8,000 per person has been fully deducted.

However, any deduction taken would be subject to recapture in the taxable year in which either of the taxpayer terminates the prepaid contract or the contract is amended to provide for the launch of the taxpayer’s human cremated remains from a spaceport facility other than one operated by the Virginia Commercial Space Flight Authority.

It is suggested that the tax break is being offered as part of a package of measures aimed at boosting the profile of the Virginia spaceport, in competition with those in other states. There would also be benefits, it is felt, to other businesses, and therefore additional jobs created, in the state, from the spending of the family and friends of the deceased arriving to witness the take-off.

Payroll Tax Cut Temporarily Extended into 2012

Nearly 160 million workers will benefit from the extension of the reduced payroll tax rate that has been in effect for 2011. The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits.

Employers should implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31, 2012. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.

Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action.

Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).   

This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS will closely monitor the situation in case future legislation changes the recapture provision.

The IRS will issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision. For most employers, the quarterly employment tax return for the quarter ending March 31, 2012, is due April 30, 2012.

Your Social Security Check Is NOT in the Mail!

Do you still receive their Social Security checks in the mail? Mail carriers won't be dropping them in your mailbox in the near future. The government has announced it will no longer be issuing paper checks, so recipients will have to access their funds electronically. You'll have until March 1, 2013, to make the switch.
 
This change already affects older baby boomers who recently retired. As of May 1, 2011, new retirees are required to choose one of two electronic payment methods. Approximately 80 percent of Social Security recipients currently receive their payments electronically.
 
A retiree making the switch can have Social Security payments deposited directly into a bank or credit union or loaded on a prepaid debit card. To use direct deposit, the routing transit number and account number for the bank or credit union must be provided. You can sign up at GoDirect.org. Alternatively, you can also call the U.S. Treasury Electronic Payment Solution Center at (800) 333-1795 or ask about the direct deposit feature at a local banking institution.

Social Security recipients who don't choose an electronic payment option by March 1, 2013, will receive their payments via a Direct Express Debit MasterCard account. More than 1.5 million individuals have signed up for these prepaid debit cards since they first became available in 2008.
 
As with a bank account, fees may be charged for certain debit card transactions. For example, individuals may make purchases at retail locations, receive cash back with a purchase, and take one withdrawal per month at one of the in-network ATMs – which include Comerica Bank, Charter One, Privileged Status, Alliance One, PNC Bank, MasterCard ATM Alliance, and MoneyPass – completely free of charge. However, if someone makes more than one ATM withdrawal per month at an in-network ATM, it costs 90 cents per withdrawal. Additional fees, which can be as much as $3, also apply to withdrawals at out-of-network ATMs. Receiving a paper statement in the mail will cost another 75 cents per month.
 
By eliminating printing and postage costs for Social Security checks, the government expects to save $1 billion over the next ten years.

Six Year-End Tips to Reduce 2011 Taxes

The IRS wants to remind all taxpayers that with the New Year fast approaching, there is still time for you to take steps that can lower your 2011 taxes. However, you usually need to take action no later than Dec. 31 in order to claim certain tax benefits. Here are six tax-saving tips for you to consider before the calendar turns to 2012:

1. Make Charitable Contributions – If you itemize deductions, your donations must be made to qualified charities no later than Dec. 31 to be deductible for 2011. You must have a canceled check, a bank statement, credit card statement or a written statement from the charity, showing the name of the charity and the date and amount of the contribution for all cash donations. Donations charged to a credit card by Dec. 31 are deductible for 2011, even if the bill isn't paid until 2012. If you donate clothing or household items, they must be in good used condition or better to be deductible.

2. Install Energy-Efficient Home Improvements – You still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits. Installing energy efficient improvements such as insulation, new windows and water heaters to your main home can provide up to $500 in tax savings. Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment. The credit equals 30 percent of the cost of qualifying solar, wind, geothermal, or heat pump property. For details see Special Edition Tax Tip 2011-08, Home Energy Credits Still Available for 2011 on the IRS.gov website.

3. Consider a Portfolio Adjustment – Check your investments for gains and losses and consider sales by Dec. 31. You may normally deduct capital losses up to the amount of capital gains, plus $3,000 from other income. If your net capital losses are more than $3,000, the excess can be carried forward and deducted in future years.

4. Contribute the Maximum to Retirement Accounts – Elective deferrals you make to employer-sponsored 401(k) plans or similar workplace retirement programs for 2011 must be made by Dec. 31. However, you have until April 17, 2012, to set up a new IRA or add money to an existing IRA and still have it count for 2011. You normally can contribute up to $5,000 to a traditional or Roth IRA, and up to $6,000 if age 50 or over. The Saver’s Credit, also known as the Retirement Savings Contribution Credit, is also available to low- and moderate-income workers who voluntarily contribute to an IRA or workplace retirement plan. The maximum Saver’s Credit is $1,000, and $2,000 for married couples, but the amount allowed could be reduced or eliminated for some taxpayers in part because of the impact of other deductions and credits.

5. Make a Qualified Charitable Distribution – If you are age 70½ or over, the qualified charitable distribution (QCD) allows you to make a distribution paid directly from your individual retirement account to a qualified charity, and exclude the amount from gross income. The maximum annual exclusion for QCDs is $100,000. The excluded amount can be used to satisfy any required minimum distributions that the individual must otherwise receive from their IRAs in 2011. This benefit is available even if you do not itemize deductions.

6. Don't Overlook the Small Business Health Care Tax Credit – If you are a small employer who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 35 percent of the premiums paid. An employer with fewer than 25 full-time employees who pays an average wage of less than $50,000 a year may qualify. For more information see the Small Business Health Care Tax Credit page on IRS.gov.

And here is one final tip to remember: you should always save receipts and records related to your taxes. Good recordkeeping is a must because you need records to prepare your tax return, and it will help you to file quickly and accurately next year.

Wrangling Continues over the Payroll Tax Cut

Time is running out before the payroll tax rate automatically increases in two weeks, and the dispute over how to fund it continues.
 
The tax measure at issue would maintain the payroll tax rate at 4.2 percent for the year 2012 instead of allowing it to revert to 6.2 percent January 1. It's a tax cut worth about $1,000 to families earning $50,000 a year. The payroll tax bill also would renew benefits for the long-term unemployed and prevent a cut in Medicare benefits for seniors.
 
This morning (December 19), the Associated Press reported that "Boehner spoke after a chaotic weekend in which Senate leaders first failed to agree on a full-year bill, then coalesced around the two-month extension that passed overwhelmingly, only to spark a revolt among GOP conservatives in the House."
 
Here's a summary of what's been happening:
 
While the GOP-led House passed a bill on December 14 extending the tax cut, the legislation relied on a pay freeze and increased pension contributions for civilian federal employees. In addition, it raised Medicare premiums for seniors, and it raised a fee that's charged to banks with mortgages guaranteed by Fannie Mae and Freddie Mac. The bill didn't have the votes to pass the Senate.
 
On Friday, December 16, Senate leaders reached an agreement to pass a two-month extension on the payroll tax cut, keeping the 4.2 percent rate through February. The agreement requires the administration to decide within 60 days if the controversial 1,700-mile Keystone XL pipeline is in the nation's best interests. Some environmental groups oppose the project, but several unions support it.
 
Senate Republican Leader, Mitch McConnell, said Keystone XL would create about 20,000 jobs. Critics say the figure would be fewer than 3,500, including fewer than 1,000 that would be permanent.
 
House Speaker, John Boehner, said Friday that his chamber will not sign off on an extension of the payroll tax cut without including a provision to force a quick decision on the pipeline construction.
 
Obama would prefer to postpone the controversial matter, and he threatened to veto any bill that forces a decision. Because the project crosses international borders, it requires White House approval. The administration complained that House Republicans are injecting "ideological issues into what should be a simple debate about cutting taxes for the middle class."

Plan Now to Get Full Benefit of Saver’s Credit

Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2011 and the years ahead, according to the Internal Revenue Service.

The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and to 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.

Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2011 tax return. People have until April 17, 2012, to set up a new individual retirement arrangement or add money to an existing IRA and still get credit for 2011. However, elective deferrals must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2012 contributions soon so their employer can begin withholding them in January.

The saver’s credit can be claimed by:

    Married couples filing jointly with incomes up to $56,500 in 2011 or $57,500 in 2012;
    Heads of Household with incomes up to $42,375 in 2011 or $43,125 in 2012; and
    Married individuals filing separately and singles with incomes up to $28,250 in 2011 or $28,750 in 2012.

Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000, $2,000 for married couples, the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.

A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.

In tax-year 2009, the most recent year for which complete figures are available, saver’s credits totaling just over $1 billion were claimed on just over 6.25 million individual income tax returns. Saver’s credits claimed on these returns averaged $202 for joint filers, $159 for heads of household and $121 for single filers.

The saver’s credit supplements other tax benefits available to people who set money aside for retirement. For example, most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.

Other special rules that apply to the saver’s credit include the following:

    Eligible taxpayers must be at least 18 years of age.

    Anyone claimed as a dependent on someone else’s return cannot take the credit.

    A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.

    Certain retirement plan distributions reduce the contribution amount used to figure the credit. For 2011, this rule applies to distributions received after 2008 and before the due date, including extensions, of the 2011 return.

Begun in 2002 as a temporary provision, the saver’s credit was made a permanent part of the tax code in legislation enacted in 2006. To help preserve the value of the credit, income limits are now adjusted annually to keep pace with inflation. More information about the credit is on IRS.gov.

IRS Announces 2012 Standard Mileage Rates

The Internal Revenue Service issued the 2012 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

    55.5 cents per mile for business miles driven
    23 cents per mile driven for medical or moving purposes
    14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in Rev. Proc. 2010-51.

Notice 2012-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

IRS Offers Tips for Year-End Giving

Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years. Some of these changes include the following:

Special Charitable Contributions for Certain IRA Owners

This provision, currently scheduled to expire at the end of 2011, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer.

Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.

Rules for Clothing and Household Items

To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.

Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

Congress Salutes Veterans with New Hiring Tax Credits

President Obama signed new legislation providing a tax credit to employers who hire military veterans. The VOW to Hire Heroes Act is a small piece of a much larger jobs bill that has stalled in Congress.
 
According to White House data, approximately 240,000 veterans of the wars in Iraq and Afghanistan remain unemployed, while a total of 850,000 veterans overall are out of work. To compound the problem, the Obama administration reports that 1 million other service members are expected to return to civilian life by 2016. "No veteran who fought for our nation should have to fight for a job when they come home," said the president.
 
The new law allows a company to claim a tax credit of up to $2,400 if it hires veterans who have been looking for work for at least one month. The maximum credit is increased to $5,600 for hiring veterans who have been searching for work at least six months. And employers may be granted a $9,600 tax credit for hiring out-of-work veterans with service-related disabilities. The new legislation also provides job training to help returning vets return to work.
 
Under prior law, qualified veterans are included as one of the target groups eligible for the Work Opportunity Tax Credit (WOTC). The WOTC is currently scheduled to expire after December 31, 2011.
 
A Department of Defense official said that the agency will expand its programs to help returning veterans."Combat is incredibly tough business, and we are finding that the human toll on a 10-year veteran, the physical and mental toll, it is incredible," said Philip Burdette, principal director of the Office of Wounded Warrior Care and Transition Policy. "As we end the war in Iraq and wind down in Afghanistan, we are absolutely planning for returning service members."
 
Finally, in a separate provision, the new legislation repeals the three percent withholding requirement for payments made by federal, state, and local governments to contractors for goods and services. The withholding requirement, which was established by a 2006 law, was scheduled to take effect in 2013.

Charitable Rollovers Are Set to Fall off the Table

Unless Congress takes action soon, on December 31, 2011, a unique tax break for senior citizens will be wiped off the books. This tax law provision allows qualified taxpayers to "roll over" funds tax-free from an IRA to a charity.

But there's a major drawback to the deal. Unlike a regular charitable gift, the donor isn't entitled to a deduction for the amount of the rollover. In essence, this technique creates a tax return "wash"; however, it can provide other benefits worth considering.

Background: Under the Pension Protection Act of 2006 (PPA), a taxpayer age 70½ or older can choose to transfer funds directly from an IRA to a qualified charitable organization. The annual limit on rollovers is $100,000 per taxpayer. Although no tax deduction is permitted, donors aren't taxed on the distribution either. The PPA provision, which initially expired in 2007, was reinstated and extended through 2009. Recent tax legislation extended the tax break through 2011 and permitted retroactively for 2010.

Note that the distribution must be made directly from the IRA trustee to the charitable organization. In other words, the taxpayer can't use the funds and then transfer the cash to the charity. It has to be a straight shot.

In addition, the contribution must otherwise qualify as a tax-deductible charitable donation. For instance, if the deductible amount would be disallowed due to inadequate substantiation or would be decreased because the donor received a benefit in return, the tax exclusion wouldn't apply to any part of the IRA distribution.

Be aware that a rollover can be made from a Roth IRA if a portion of the distribution would be taxable (e.g., distributions from a Roth in existence fewer than five years). In general, it makes sense to exhaust the funds in a traditional IRA first. Subsequent distributions from a Roth may be tax-free of their own accord.

Extra benefit: Once reaching age 70½, they must begin taking Required Minimum Distributions (RMDs) from their IRAs. RMDs are taxed at highly taxed, ordinary income rates. Failing to take an RMD generally results in a penalty equal to 50 percent of the amount that should have been withdrawn; however, the amount rolled over from an IRA to charity counts as an RMD. Therefore, it's possible to meet this requirement without paying tax and contribute to a worthy cause at the same time.

Furthermore, the benefit from this technique would be if charitable deductions would otherwise be limited by other tax law provisions. Finally, the tax-free rollover may effectively lower the tax that a retiree must pay on Social Security benefits and reduce a taxpayer's adjusted gross income (AGI) for various other tax purposes.

IRS to Host Public Meeting Dec. 8 on Real-Time Tax System

The Internal Revenue Service will kick off a series of public meetings  Thursday, Dec. 8 to gather feedback on how to implement a series of long-term changes to the tax system described by IRS Commissioner Doug Shulman in an April 2011 speech at the National Press Club.  In that speech, the Commissioner described a vision where the IRS would move away from the traditional “look back” model of compliance, and instead perform substantially more “real time,” or upfront matching of tax returns when they are first filed with the IRS.  The goal of this initiative is to improve the tax filing process by reducing burden for taxpayers and improving overall compliance upfront.

Under the vision of a real-time tax system, the IRS could match information submitted on a tax return with third-party information right up front during processing and could provide the opportunity for taxpayers to fix the tax return before acceptance if it contains data that does not match IRS records

By contrast, today the IRS conducts a significant number of compliance activities months after the tax return has been filed and processed.  It is not uncommon for a taxpayer to receive a notice 12 to 18 months after a tax return is filed.  This after-the-fact compliance approach can create problems and frustrations for both taxpayers and the IRS.

At the public meetings, IRS officials will solicit feedback and input from outside stakeholders to provide comments and insight. The first meeting will feature representatives of consumer groups, the tax professional community and government representatives.  A future public meeting will include, among others, representatives of the employer and payroll community, the software industry, financial institutions and additional government representatives. 

The first meeting, scheduled at 9:00 a.m. on Dec. 8, will take place at the IRS Headquarters Building Auditorium, 1111 Constitution Ave., NW, Washington, D.C.

The next public meeting will be held early next year.

IRS Seeks to Return $153 Million in Undelivered Checks to Taxpayers

In an annual reminder to taxpayers, the Internal Revenue Service announced today that it is looking to return $153.3 million in undelivered tax refund checks. In all, 99,123 taxpayers are due refund checks this year that could not be delivered because of mailing address errors.

Undelivered refund checks average $1,547 this year.

Taxpayers who believe their refund check may have been returned to the IRS as undelivered should use the “Where’s My Refund?” tool on IRS.gov. The tool will provide the status of their refund and, in some cases, instructions on how to resolve delivery problems.

Taxpayers checking on a refund over the phone will receive instructions on how to update their addresses. Taxpayers can access a telephone version of “Where’s My Refund?” by calling 1-800-829-1954.

While only a small percentage of checks mailed out by the IRS are returned as undelivered, taxpayers can put an end to lost, stolen or undelivered checks by choosing direct deposit when they file either paper or electronic returns. Last year, more than 78.4 million taxpayers chose to receive their refund through direct deposit. Taxpayers can receive refunds directly into their bank account, split a tax refund into two or three financial accounts or even buy a savings bond.

The IRS also recommends that taxpayers file their tax returns electronically, because e-file eliminates the risk of lost paper returns. E-file also reduces errors on tax returns and speeds up refunds. Nearly 8 out of 10 taxpayers chose e-file last year. E-file combined with direct deposit is the best option for taxpayers to avoid refund problems; it’s easy, fast and safe.

The public should be aware that the IRS does not contact taxpayers by e-mail to alert them of pending refunds and does not ask for personal or financial information through email.  Such messages are common phishing scams.  The agency urges taxpayers receiving such messages not to release any personal information, reply, open any attachments or click on any links to avoid malicious code that can infect their computers.  The best way for an individual to verify if she or he has a pending refund is going directly to IRS.gov and using the “Where’s My Refund?” tool.

Before You Hire Your First Employee

First assess the implications of putting workers on payroll. Then limit future legal headaches by creating an employment policy.

From Karen E. Klein, a Los Angeles-based writer who covers entrepreneurship and small-business issues.

The decision to move from self-employed to employer is among the most important a business owner must make. The added cost of employees can swamp a young company, particularly in an economic downturn or if there’s a sudden decline in business.

The most cautious strategy would be to wait until demand dictates that you must hire—because, say, you are routinely turning down work—and when you do, hire people who add to your bottom line, such as sales or administrative employees.

It is frustrating to work exclusively with “sidepreneurs”—people who leverage expertise from full-time jobs but can never make your projects their top priority, says Rhonda Abrams, president of PlanningShop, a Palo Alto (Calif.) publisher, and author of Successful Business Plan: Secrets and Strategies. “I’m in a similar situation, and it’s very difficult when you can’t even schedule a meeting with all the people you need, because one’s available only at noon and someone else is available only on Tuesdays,” she says.

LOSING FLEXIBILITY

But once you move from independent contractors to employees, you’re “changing your business model from variable-cost, low-regulation, and highly flexible to fixed-cost, highly regulated, and somewhat inflexible,” says Derek Alderton, a business consultant and lecturer at the UCLA Anderson School of Management. At least in the U.S., employers must meet a host of tax and labor requirements. And it would be far more difficult to lay off an employee if your projects were to dry up.

Here are some exercises to help you plan:

1. Calculate financial impact. Familiarize yourself with laws and costs that apply to employers in your country. Be sure to include “not only their direct salary or wage, but also the employer share of taxes, insurance, holidays, and vacation time,” says Gene Fairbrother, chief executive officer of MBA Consulting in Dallas. “At the very least, get your CPA to show you what last year’s financial results would have looked like if you had been complying with all the costs and regulations for employees, rather than project contractors,” Alderton says.

2. Consider alternatives. Could you hire student interns, temps, or part-time employees as a way to test the waters? “An intern or recent graduate can be hired full time per project or for a set time with the possibility of full-time employment depending on the growth of the firm,” says Philip Moorcroft, president of MGPS, an expense management consulting firm in Toronto. Bringing in a temporary employee or hiring a contractor as a part-time employee could increase the attention paid to your projects, minimize your costs, and allow the contractor more time to expand his or her moonlighting to make up for lost wages.

3. Make realistic projections. “When you’re working on a project-to-project basis, you don’t know how long things are going to last,” Abrams says. “Look over your existing contracts and see how many are ongoing, or could become ongoing. Then hustle to get signatures on proposals so you will be more confident about the future.”

If you want to expand your company, at some point you will need to bite the bullet. “The virtual company goes only so far,” Abrams notes. When you do hire, start slowly and be ready to deal with fallout from your existing contractors, Alderton says. “They will rightly perceive the new employee as being a threat to their own incomes or choice of desirable projects.”

Even with just one employee, you should create a manual that states your employment policies in writing, Fairbrother recommends. “Having your policies in place could save you considerable confusion and headaches later on, including legal costs if an employee or ex-employee challenges you,” he says. Search for sample employee manuals online or buy software that allows you to develop your own handbook. He recommends Nolo Press’s Create Your Own Employee Handbook.

[Once you've decided to hire your first employee, remember to call Hershkowitz & Kunitzer, P.A. to discuss your payroll processing options!]

The information found here is from the article "Before You Hire Your First Employee" by Karen E. Klein published by Bloomberg Businessweek.

Home Energy Credits Still Available for 2011

The IRS reminds homeowners that they still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits.

The Nonbusiness Energy Property Credit is aimed at homeowners installing energy efficient improvements such as insulation, new windows and furnaces. The credit is more limited than in the past years, but can still provide substantial tax savings.

• The 2011 credit rate is 10 percent of the cost of qualified energy efficiency improvements. Energy efficiency improvements include adding insulation, energy-efficient exterior windows and doors and certain roofs. The cost of installing these items does not count.

• The credit can also be claimed for the cost of residential energy property, including labor costs for installation. Residential energy property includes certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass fuel.

• The credit has a lifetime limit of $500, of which only $200 may be used for windows. If the total of nonbusiness energy property credits taken in prior years since 2005 is more than $500, the credit may not be claimed in 2011.

• Qualifying improvements must be placed into service to the taxpayer’s principal residence located in the United States before January 1, 2012.

Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment.

• The credit equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property.

• No cap exists on the amount of credit available except for fuel cell property.

• Generally, labor costs are included when figuring this credit.

Not all energy-efficient improvements qualify for these tax credits, so homeowners should check the manufacturer’s tax credit certification statement before they purchase. Taxpayers can normally rely on this certification statement which can usually be found on the manufacturer’s website or with the product packaging.
 
Eligible homeowners can claim both of these credits on Form 5695, Residential Energy Credits when they file their 2011 federal income tax return. Because these are credits and not deductions, they reduce the amount of tax owed dollar for dollar. An eligible taxpayer can claim these credits regardless of whether he or she itemizes deductions on Schedule A.

5 Reasons Selling Your Business Is Like Thanksgiving Dinner

From Barbara Taylor, co-owner of the business brokerage firm, Synergy Business Services, in Bentonville, Arkansas:

I had a professor in graduate school who once compared the world of business to Thanksgiving dinner. His comment was directed at a room full of students who, at the time, were intent on climbing the corporate ladder. According to him, those of us who were willing to work hard and get advanced degrees would have the ability to leave the chaos and humiliation of “the little kids’ table” (supervisory and front line management positions) and graduate to sitting with the grown-ups (director level and above). And wasn’t that what we all aspired to?

In lieu of another tired business analogy that revolves around sports or military strategy, here are five reasons why selling your business is like Thanksgiving dinner.

An emotional outburst can ruin an otherwise lovely gathering.
I’ve often thought of my professor’s description of the little kids’ table as I’ve watched small-business owners go through the process of selling. It is not uncommon to see tears, yelling and tantrums on the sell side of a deal. The buyer, who brings almost no emotional baggage to the table, rarely exhibits such behavior.

Selling a business is an emotionally charged event. So much so that I have rarely seen an instance where a business owner doesn’t “lose it” at some point during the process. Anyone familiar with the process knows that an emotional issue can kill a deal just as quickly as any detail uncovered on a financial statement.

There are books and organizations dedicated to helping business owners anticipate and overcome the emotional challenges that come with selling a business. If you haven’t reached a point where you can be objective about your business, discuss its strengths and weaknesses openly, and see it for what it is during the sale process — namely an asset with market value — then you may not be ready to sell.

There’s no substitute for experience.
Grandmothers make the best Thanksgiving dinners, hands down. This is presumably because they’ve prepared the meal 30 times before they become grandmothers. Successful business sales take place with a team of experienced professionals who are both generalists and specialists in their field — including lawyers, accountants, financial planners and intermediaries.

Small-business owners tend to be extraordinarily successful do-it-yourselfers. When my husband and I started our coffee business I decided I would take care of payroll myself. How hard could it be, I reasoned, and why not save the $45 per month I was going to pay a service to do it? Somewhere along the road to employing 14 baristas, I should have started filing my employee withholding monthly instead of quarterly. Being a newbie, I didn’t realize this until I got a nasty letter from the Internal Revenue Service saying that I was behind and that if I didn’t get current they would seize everything I owned. Oops.

When it comes to selling your business, don’t go it alone. The cost of inexperience is simply too high.

Timing is critical.
The real trick to Thanksgiving dinner is getting everything to the table piping hot at the same time. And so it goes with selling a business. Most business owners pick an inopportune time to sell that is based on their personal wants and needs, rather than when the business will get the most interest from buyers — and the best price on the open market. It can be difficult to do, but the best time to sell is when your business is going gangbusters and your industry shows plenty of opportunity for growth.

Good manners are expected.
Like the passing of dishes around the table at Thanksgiving dinner, the process of selling a business consists of a series of careful exchanges — an orderly back and forth between buyer and seller, managed so that everyone is satisfied.

If you’ve represented your business as having $2 million in annual sales and $350,000 in owner’s benefit, you will be asked to please pass every financial statement, tax return and sales receipt to support that claim in due diligence. Refusing to do so, or not relinquishing those items in their entirety, in proper order and in a timely manner is not acceptable. It’s the equivalent of throwing mashed potatoes at Thanksgiving.

Everyone looks forward to dessert.
Thanksgiving dinner without the pumpkin pie would be a major letdown. Building a successful business that has no transferable value seems equally disappointing. Selling your business and cashing out after years of hard work is the ultimate reward. Prepare yourself and your business well for the day you will leave, and when you do, you will savor a slice of success that many business owners never enjoy.

[Always remember to consult your CPA for business valuation services if you're considering selling your business!]

The information found here is from the article "5 Reasons Selling Your Business Is Like Thanksgiving Dinner" by Barbara Taylor published in the Small Business section of the New York Times.

Why Few Employers Use Health-Care Tax Credits

Low exploitation rates for tax breaks intended to encourage small business owners to provide health insurance are prompting complaints that the credits aren't practical.

Small business health insurance tax credits went into effect in March 2010 as part of the Patient Protection and Affordable Care Act that was a centerpiece of President Barack Obama’s early legislative agenda. A U.S. House Ways and Means oversight subcommittee recently scheduled a hearing on the credits to take place on Nov. 15 to explore whether the credit is “providing meaningful help to employers.”

The U.S. Treasury Inspector General for Tax Administration’s early numbers show that in the first year of the small business health insurance tax credit, approximately 228,000 small businesses claimed $278 million—only about 14 percent of eligible businesses. The number is incomplete because it was calculated in May and many small businesses file returns on extension in the fall. However, more recent estimates that $435 million in claims were filed still fall far short of Congressional Budget Office projections that taxpayers would claim up to $2 billion in 2010.

Since the disappointing figures were released, charges have been flying among small business advocacy groups, accounting organizations, and the government officials who conceived the credit as a way to encourage small business owners to provide insurance for their employees. A September 2011 Small Business Administration study shows that employees of small businesses are far less likely to be insured than those working for midsized and larger companies and that coverage costs small employers and their employees more.

A POLITICAL TOOL?

The low participation rate was predictable, says William Dennis, senior research fellow at the National Federation of Independent Business Research Foundation in Washington. The NFIB has filed a legal challenge against the health-care legislation, claiming it is unconstitutional to mandate the purchase of health insurance. “It [the small business credit] was put in there as a talking point for political reasons; it wasn’t a serious thing. It was predestined to fail,” Dennis says.

Administration officials deny this, saying the credit was passed as a good-faith effort to bridge the gap for small employers until 2014, when they can sign up for insurance exchanges that will increase competition and theoretically bring costs down. Acting Assistant Treasury Secretary for Tax Policy Emily McMahon explained on her tax policy blog that it was no surprise that numbers for 2010 were low because by the time the legislation went into effect, most businesses were unable to adjust employee coverage to take advantage of the credit. More small businesses may claim the credit on their 2011 returns and beyond, she wrote.

McMahon also mentioned that the IRS is continuing its outreach to small employers, insurance brokers, accountants, and the tax software industry to improve awareness of the tax credits. This year, the IRS sent out 4.4 million postcards to small businesses notifying them they might be eligible for the tax break.

Tax preparers say it wasn’t lack of information about the credits that dampened participation, but the complex formula governing eligibility. The tax credit is generally available to business owners who pay for at least half the cost of employees’ insurance coverage, have fewer than 25 employees, and pay salaries that average less than $50,000 annually.

ELIGIBILITY TOUGH TO DETERMINE

Pat Thompson, a tax partner at Piccerelli, Gilstein & Co. in Providence and chair of the American Institute for Certified Public Accountants’s tax executive committee, says very few of her small business clients were eligible for the credit and fewer still were able to determine eligibility for themselves, using a worksheet her firm had designed. “The definition of an eligible business is challenging because it’s not based on [the number of] employees but on full-time equivalents,” she says. “For companies with a lot of part-timers … that’s not very transparent.”

Add in the requirement that different insurance plans—such as medical and dental—must be tested separately, then factor in the issue of average annual wages, she says, and the credit was just too difficult for business owners to decipher without help. The credit was cast narrowly to appeal to the companies least able to afford insurance, but those companies are probably also least likely to have their taxes done professionally. “If a person is trying to prepare their tax returns themselves, I don’t think they would even consider this credit,” Thompson says.

John Arensmeyer, chief executive officer of advocacy group Small Business Majority, which supported the health-care reform effort, blames the low participation on general confusion about the health-care reform act (to which the Supreme Court will hear a challenge this term), as well as resistance from the accounting community. “We’d like to see a renewed commitment on the part of all concerned—particularly organizations dedicated to supporting small business—to make sure we communicate to small businesses about the tax credit and make it as easy as possible to take advantage of it.”

The information found here is from the article, "Why Few Employers Use Health-Care Tax Credits" by Karen E. Klein published by Bloomberg Businessweek.

U.S. House Approves Looser SEC Rules for Closely Held Firms

The U.S. House passed two measures aimed at removing barriers to investments in closely held firms, including a proposal President Barack Obama’s administration backed in its jobs package.

House lawmakers voted 407-17 to pass a measure that would exempt from Securities and Exchange Commission registration firms that solicit and pool small investments, often online, of up to $1 million. The practice, known as crowdfunding, garnered bipartisan support after Obama’s Sept. 8 speech to Congress.

“What we’re doing is giving investors the power, the opportunity and relieving this restriction that prevents them from having an equity stake in their favorite business, their favorite idea, their local coffee shop, their favorite band or even the next Facebook,” Patrick McHenry, a North Carolina Republican and the sponsor of the measure, said on the House floor before the vote.

Lawmakers in the Republican-led House have found bipartisan consensus this week on four measures that would loosen SEC rules.

Representative Kevin McCarthy, the third-ranked Republican in the House, sponsored a second bill passed today that would allow closely held firms to market offerings to accredited investors. The SEC currently bans closely held firms from soliciting funding from investors.

“This opens up a whole new group of capital for someone that has an idea, even if they don’t have a prior relationship,” McCarthy, of California, said today in an interview. “If you have an idea, you have another opportunity to try to raise capital to go to the market.”

The House passed the measure 413-11.

Senate

Both measures now move to the Senate, where lawmakers have yet to consider similar legislation. McCarthy said he hoped the bipartisan support would serve as the impetus for action in the other chamber.

Both measures have drawn opposition from state securities regulators, with McHenry’s crowdfunding proposal originally drawing objections from Democrats on the Financial Services Committee. The sponsors agreed to changes that would give states notifications of offerings and allow state regulators to continue to take enforcement action against fraud or unlawful content.

“We need to have protection for investors as businesses seek to form and develop capital,” Representative Ed Perlmutter, a Democrat from Colorado, said today on the House floor.

McHenry’s measure would allow companies to raise up to $2 million if they provide audited financial statements to regulators. Investors would be able to contribute up to $10,000 or 10 percent of their annual income, whichever is less.

The White House, in a statement of administration policy yesterday, said the bill is “is broadly consistent” with the president’s proposal.

“This bill will make it easier for entrepreneurs to raise capital and create jobs,” the Office of Management and Budget said in the release.

The information found here is from the article, "U.S. House Approves Looser SEC Rules for Closely Held Firms" by Phil Mattingly published by Bloomberg Businessweek.

A Verification System for New Hires Backfires

Two years ago the Asheville (N.C.) rumor mill lit up with speculation that local flower wholesaler Van Wingerden International was hiring undocumented workers. To ensure that he take on only legal employees, co-owner Bert Lemkes enrolled the $20 million business in E-Verify, a federal program that matches data on new hires, such as Social Security numbers, with government records.

Lemkes says E-Verify has made it harder to find enough workers for his 37 acres of greenhouses, especially during spring growing season, when he employs up to 350 people. Though the U.S. unemployment rate is stalled above 9 percent, business owners such as Lemkes say few native-born workers are willing to do tough jobs, leading employers to hire immigrants. “Those who want to work fail to pass E-Verify, and those that pass fail to work,” he says.

E-Verify can be used only to check immigration status after a worker is hired, not to screen job candidates or check on existing employees. Lemkes says he has had to fire more than 60 recent hires. Although E-Verify’s proponents argue the unemployed will replace the undocumented, Lemkes says that hasn’t happened. “Without comprehensive immigration reform, [verification requirements are] going to kill agriculture,” he says.

At its launch in 1997, E-Verify was voluntary, and today about 300,000 employers—less than 5 percent of U.S. companies—use it. As states strengthen sanctions against illegal immigrants, 18 have passed laws making the program mandatory for certain employers, according to the National Conference of State Legislatures. In five states—Alabama, Arizona, Mississippi, South Carolina, and Tennessee—all employers are required to use it or will be by 2013; in three others, all but the smallest companies will have to use it by then. On Sept. 21 a congressional committee passed a measure by Representative Lamar Smith (R-Tex.) that would require use of E-Verify by all U.S. businesses, including those with just one employee.

Some farmers, contractors, and restaurant owners who rely on foreign-born labor argue that a patchwork of regulations will prompt undocumented laborers to cross state lines or work for employers who pay them off the books. Small companies will be particularly burdened by E-Verify because they lack dedicated human resources staff to manage the system, says Rebecca Smith, an attorney at the National Employment Law Project. While businesses with fewer than 500 workers employ about half the U.S. labor force, if the program were mandatory those companies would bear 99 percent of the $2.7 billion in costs for E-Verify (mostly paying their own staffers or consultants to do the searches), Bloomberg Government estimates.

Opponents worry that more full-timers will be registered as contract workers by companies seeking to avoid E-Verify, cutting payroll tax revenues. “You bring on E-Verify, that simply pushes more illegal immigrants over to employers who are willing to misclassify them as independent contractors,” says Norm Adams, a Houston insurance broker who helped defeat legislation that would have mandated use of E-Verify in Texas. “The more E-Verify laws we have in this country, the more payroll taxes we’re going to lose.” A 2008 Congressional Budget Office report estimates that requiring E-Verify nationally would cut federal tax revenue by more than $17 billion.

In Arizona, where E-Verify became mandatory in 2008, the program has caused worker shortages across industries from construction to food service, says Julie Pace, an employment lawyer in Phoenix. “They can’t find the workers,” Pace says. “It’s a big cost that is not captured in the use of E-Verify.” Still, she supports making the program mandatory nationwide so all employers share an equal burden, which could prompt Congress to create a “logical and reasonable guest worker program to really meet the labor needs of this country.”

The information found here is from the article, "A Verification System for New Hires Backfires" by Nick Leiber published by Bloomberg Businessweek.

In 2012, Many Tax Benefits Increase Due to Inflation Adjustments

For tax year 2012, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation, the Internal Revenue Service announced today.

By law, the dollar amounts for a variety of tax provisions, affecting virtually every taxpayer, must be revised each year to keep pace with inflation. New dollar amounts affecting 2012 returns, filed by most taxpayers in early 2013, include the following:

The value of each personal and dependent exemption, available to most taxpayers, is $3,800, up $100 from 2011.

The new standard deduction is $11,900 for married couples filing a joint return, up $300, $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.

Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.

Credits, Deductions, and Related Phase Outs

For tax year 2012, the maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,891, up from $5,751 in 2011. The maximum income limit for the EITC rises to $50,270, up from $49,078 in 2011.The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.

The foreign earned income deduction rises to $95,100, an increase of $2,200 from the maximum deduction for tax year 2011.

The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $104,000 for joint filers, up from $102,000, and $52,000 for singles and heads of household, up from $51,000.

For 2012, annual deductible amounts for Medical Savings Accounts (MSAs) increased from the tax year 2011 amounts to $2,100 for self-only coverage and $4,200 for family coverage for the minimum annual deductible; $3,150 for self-only coverage and $6,300 for family coverage for the maximum annual deductible; and $4,200 for self-only coverage and $7,650 for family coverage for the maximum annual out-of-pocket expenses.

The $2,500 maximum deduction for interest paid on student loans begins to phase out for a married taxpayers filing a joint returns at $125,000 and phases out completely at $155,000, an increase of $5,000 from the phase out limits for tax year 2011. For single taxpayers, the phase out ranges remain at the 2011 levels.

Estate and Gift

For an estate of any decedent dying during calendar year 2012, the basic exclusion from estate tax amount is $5,120,000, up from $5,000,000 for calendar year 2011. Also, if the executor chooses to use the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,040,000, up from $1,020,000 for 2011.

The annual exclusion for gifts remains at $13,000.

Other Items

The monthly limit on the value of qualified transportation benefits exclusion for qualified parking provided by an employer to its employees for 2012 rises to $240, up $10 from the limit in 2011. However, the temporary increase in the monthly limit on the value of the qualified transportation benefits exclusion for transportation in a commuter highway vehicle and transit pass provided by an employer to its employees expires and reverts to $125 for 2012.

Several tax benefits are unchanged in 2012. For example, the additional standard deduction for blind people and senior citizens remains $1,150 for married individuals and $1,450 for singles and heads of household.

IRS Issues Proposed Regulations That Would Require Tax Preparers to File Due Diligence Checklist wit

The Internal Revenue Service announced today that it is issuing proposed regulations that would require paid tax return preparers, beginning in 2012, to file a due diligence checklist, Form 8867, with any federal return claiming the Earned Income Tax Credit (EITC). It is the same form that is currently required to be completed and retained in a preparer’s records.

The due diligence requirement, enacted by Congress over a decade ago, was designed to reduce errors on returns claiming the EITC, most of which are prepared by tax professionals.

The IRS created Form 8867, Paid Preparer's Earned Income Credit Checklist, to help preparers meet the requirement by obtaining eligibility information from their clients. Preparers have been required to keep copies of the form, or comparable documentation, which is subject to review by the IRS. To help ensure compliance with the law and that eligible taxpayers receive the right credit amount, the proposed regulations would require preparers, effective Jan. 1, 2012, to file the Form 8867 with each return claiming the EITC.

Further details can be found in REG-140280-09. Comments on the proposed regulations are due by Nov. 10, 2011, and a public hearing on the proposed regulations is scheduled for Nov. 7, 2011.

The EITC benefits low-and moderate-income workers and working families and the tax benefit varies by income, family size and filing status. Unlike most deductions and credits, the EITC is refundable –– taxpayers can get it even if they owe no tax. For 2011 tax returns, the maximum credit will be $5,751.

Although as many as one in five eligible taxpayers fail to claim the EITC, some of those who do claim it either compute it incorrectly or are ineligible. The IRS is proposing this step as part of its efforts to ensure that the credit is afforded to taxpayers who qualify. For 2009, over 26 million people received nearly $59 billion through the EITC. Tax professionals prepare close to 66 percent of these claims.

About the Small Business Health Care Tax Credit

The Internal Revenue Service, in partnership with the Department of Health and Human Services, is announcing a new round of outreach to small employers and the professional service providers they rely on to encourage them to review the new Small Business Health Care Tax Credit to see if they are eligible.

"As the filing deadlines approach, we want to make sure that small business owners don't leave any money on the table,” said IRS Commissioner Doug Shulman. “Small businesses that offer health insurance should learn about this credit and claim it if they are eligible."

The small business health care tax credit was included in the Affordable Care Act enacted last year. Small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for the small business health care tax credit. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ 25 or fewer workers with average income of $50,000 or less.

Small employers face two important tax filing deadlines in coming weeks:

    September 15. Corporations that file on a calendar year basis and requested an extension to file to September 15 can calculate the small employer health care credit on Form 8941 and claim it as part of the general business credit on Form 3800, which they would include with their corporate income tax return.
    October 17. Sole proprietors who file Form 1040 and partners and S-corporation shareholders who report their income on Form 1040 and request an extension have until October 17 to complete their returns. They would also use Form 8941 to calculate the small employer health care credit and claim it as a general business credit on Form 3800, reflected on line 53 of Form 1040.

In addition, tax-exempt organizations that file on a calendar year basis and requested an extension to file to November 15 can use Form 8941 and then claim the credit on Form 990-T, Line 44f.

As these 2010 tax return deadlines approach and businesses begin planning for the end of 2011 and 2012, the IRS’s new outreach campaign will focus on working with our partners:

1. The tax software industry to improve access to educational information and to help alert small employers and practitioners when taxpayers may be eligible for the credit.
2. Insurance agents, brokers and carriers who work with small businesses to help ensure that participants in the health insurance marketplace understand the features and benefits of the credit. The Department of Health and Human Services today sent an email to 2,000 agents and brokers alerting them to the credit for their small business clients.
3. The small business and tax practitioner community to provide additional webinars and educational opportunities about the credit.

Information will also be available through social media and other venues, including IRS YouTube videos in English, Spanish and American Sign Language. Targeted e-mails and tweets will be sent to the small business community and tax preparers. The IRS’s new outreach effort will remind employers about the upcoming extension deadlines and will also provide details on other important information about the credit, including:

1. Businesses who have already filed can still claim the credit: For small businesses that have already filed and later determine they are eligible for the credit, they can always file an amended 2010 tax return. Corporations use Form 1120X and individual sole proprietors use Form 1040X.
2. Businesses without tax liability this year can still benefit: The Small Business Jobs Act of 2010 provided that for Tax Year 2010, eligible small businesses may carry back unused general business credits (including the small employer health care tax credit) five years. Previously these credits could only be carried back one year. Small businesses that did not have tax liability to offset in 2010 should still evaluate eligibility for the small business health care tax credit in light of this expanded carry back opportunity.
3. Businesses that couldn’t use the credit in 2010 can claim it in future years: Some businesses that already locked into health insurance plan structures and contributions for 2010 may not have had the opportunity to make any needed adjustments to qualify for the credit for 2010. So these businesses may be eligible to claim the credit on 2011 returns or in years beyond. Small employers can claim the credit for 2010 through 2013 and for two additional years beginning in 2014.

Treasury, IRS Seek Public Input on Certain Employer Provisions of the Affordable Care Act

The Treasury Department and Internal Revenue Service requested public comment on a proposed affordability safe harbor for employers under the shared responsibility provisions included in the Affordable Care Act that will apply to certain employers starting in 2014.

Under the Affordable Care Act, employers with 50 or more full-time employees that do not offer affordable health coverage to their full-time employees may be required to make a shared responsibility payment. Notice 2011-73, posted today on IRS.gov, solicits public input and comment on a proposed safe harbor, designed to make it easier for employers to determine whether the health coverage they offer is affordable. To that end, Treasury and IRS expect to propose a safe harbor permitting employers that offer coverage to their employees to measure the affordability of that coverage by using wages that the employer paid to an employee, instead of the employee’s household income. This contemplated safe harbor would only apply for purposes of the employer shared responsibility provision, and would not affect employees’ eligibility for health insurance premium tax credits.

Today’s request for comment is designed to ensure that Treasury and IRS continue to receive broad input from stakeholders on how best to implement the shared responsibility provisions in a way that is administrable, allows flexibility, and minimizes burden. By soliciting comments and feedback now, Treasury and IRS are giving all interested parties the opportunity for input before proposed regulations are issued.

There are three ways to submit comments.

E-mail to: Notice.Comments@irscounsel.treas.gov. Include “Notice 2011-73” in the subject line.

Mail to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2011-73), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

Hand deliver to: CC:PA:LPD:PR (Notice 2011-73), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.

The deadline for comments is December 13, 2011.

IRS Provides Tax Relief to Victims of Hurricane Irene

The IRS announced that certain taxpayers in North Carolina, New Jersey, New York and Puerto Rico will receive tax relief, and other locations are expected to be added in coming days following additional damage assessments by the Federal Emergency Management Agency (FEMA).

Watch the IRS page 'Tax Relieft in Disaster Situations' for updates.

IRS Gives One-Week Filing Extension to Taxpayers Whose Preparers Were Affected by Hurricane Irene

The Internal Revenue Service today announced it is granting taxpayers whose preparers were affected by Hurricane Irene until Sept. 22 to file returns normally due Sept. 15. The taxpayer’s preparer must be located in an area that was under an evacuation order or a severe weather warning because of Hurricane Irene, even if the preparer is located outside of the federally declared disaster areas.

This relief, which primarily applies to corporations, partnerships and trusts that previously obtained a tax filing extension, is available to taxpayers regardless of their location.

This relief does not apply to any tax payment requirements.

This relief is in addition to the filing and payment relief the IRS is providing to taxpayers located in disaster areas declared by the Federal Emergency Management Agency (FEMA). For details, visit Tax Relief in Disaster Situations on the IRS website.

IRS Statement on Airline Ticket Taxes

Congressional action extending the Federal Aviation Administration authorization reinstates retroactively the airline ticket taxes for passengers who traveled during the lapse of the FAA's authorization. As a result of the bill Congress passed today, passengers who purchased tickets prior to July 23 and traveled between July 23 and the date of enactment of today’s legislation are not entitled to a refund of the airline ticket excise tax. Additionally, the IRS intends to provide relief for passengers and airlines with respect to ticket taxes that were not paid or collected because of the lapse.

The IRS intends to provide guidance to the airlines which will allow for an orderly restart of the collection of ticket taxes. Airlines will have from the time of enactment of the legislation through 12:01 a.m. on Monday, Aug. 8, to resume collection of the ticket taxes.

The IRS is currently reviewing other effects of the legislation and will issue future guidance.

Nine Tips for Charitable Taxpayers

If you make a donation to a charity this year, you may be able to take a deduction for it on your 2011 tax return. Here are the top nine things the IRS wants every taxpayer to know before deducting charitable donations.

MAKE SURE THE ORGANIZATION QUALIFIES Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization or check IRS Publication 78, Cumulative List of Organizations. It is available at www.IRS.gov.

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

WHAT YOU CAN DEDUCT 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.

WHEN YOU RECEIVE SOMETHING IN RETURN 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.

RECORDKEEPING Keep good records of any contribution you make, regardless of the amount. For any cash contribution, you must maintain a record of the contribution, such as a cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity containing the date and amount of the contribution and the name of the organization.

PLEDGES AND PAYMENTS 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, you can only deduct $200.

DONATIONS MADE NEAR THE END OF THE YEAR Include credit card charges and payments by check in the year you give them to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.

LARGE DONATIONS For any contribution of $250 or more, you need more than a bank record. You must have a written acknowledgment from the organization. It must include the amount of cash and say whether the organization provided any goods or services in exchange for the gift. If you donated property, the acknowledgment must include a description of the items and a good faith estimate of its value. For items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attach the form to your return. If you claim a deduction for a contribution of noncash property worth more than $5,000, you generally must obtain an appraisal and complete Section B of Form 8283 with your return.

TAX EXEMPTION REVOKED Approximately 275,000 organizations automatically lost their tax-exempt status recently because they did not file required annual reports for three consecutive years, as required by law. Donations made prior to an organization’s automatic revocation remain tax-deductible. Going forward, however, organizations that are on the auto-revocation list that do not receive reinstatement are no longer eligible to receive tax-deductible contributions.

For the list of organizations whose tax-exempt status was revoked, visit www.IRS.gov. For general 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 at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Ten Tips for Taxpayers Who Owe Money to the IRS

While the majority of Americans get a tax refund from the Internal Revenue Service each year, there are many taxpayers who owe and some who can’t pay the tax all at once.   The IRS has a number of ways for people to pay their tax bill.

The IRS has announced an effort to help struggling taxpayers get a fresh start with their tax liabilities. The goal of this effort is to help individuals and small business meet their tax obligations, without adding unnecessary burden.  Specifically, the IRS has announced new policies and programs to help taxpayers pay back taxes and avoid tax liens.

Here are ten tips for taxpayers who owe money to the IRS.

TAX BILL PAYMENTS If you get a bill this summer for late taxes, you are expected to promptly pay the tax owed including any 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.

ADDITIONAL TIME TO PAY Based on your circumstances, you may be granted a short additional time to pay your tax in full. A brief additional amount of time to pay can be requested through the Online Payment Agreement application at www.irs.gov or by calling 800-829-1040.

CREDIT CARD PAYMENTS You can pay your bill with a credit card. The interest rate on a credit card may be lower than the combination of interest and penalties imposed by the Internal Revenue Code. To pay by credit card contact one of the following processing companies: Link2Gov at 888-PAY-1040 (or www.pay1040.com), RBS WorldPay, Inc. at 888-9PAY-TAX (or www.payUSAtax.com), or Official Payments Corporation at 888-UPAY-TAX (or www.officialpayments.com/fed).  

ELECTRONIC FUNDS TRANSFER You can pay the balance by electronic funds transfer, check, money order, cashier’s check or cash.  To pay using electronic funds transfer, use the Electronic Federal Tax Payment System by either calling 800-555-4477 or using the online access at www.eftps.gov.

INSTALLMENT AGREEMENT You may request an installment agreement if you cannot pay the liability in full. This is an agreement between you and the IRS to pay the amount due in monthly installment payments. You must first file all required returns and be current with estimated tax payments.

ONLINE PAYMENTS AGREEMENT If you owe $25,000 or less in combined tax, penalties and interest, you can request an installment agreement using the Online Payment Agreement application at www.irs.gov.

FORM 9465 You can complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill in the envelope you 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.

COLLECTION INFORMATION STATEMENT You may still qualify for an installment agreement if you owe more than $25,000, but you are required to complete a Form 433F, Collection Information Statement, before the IRS will consider an installment agreement.

USER FEES If an installment 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 lower incomes, the fee can be reduced to $43.

CHECK WITHHOLDING Taxpayers who have a balance due may want to consider changing their W-4, Employee’s Withholding Allowance Certificate, with their employer. A withholding calculator at www.irs.gov can help taxpayers determine the amount that should be withheld.

For more information about the Fresh Start initiative, installment agreements and other payment options visit www.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 from www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

8 Benefits of Outsourcing Payroll

In our experience, small- and medium-sized businesses outsource payroll most often for these important reasons:

1. Avoid IRS Penalties
According to the IRS, 40 percent of small businesses pay an average penalty of $845 per year for late or incorrect filings and payments. Most national payroll services provide a tax guarantee, ensuring that customers will incur no penalties because the providers take responsibility for penalties when they do occur. In many instances, this cost-saving immediately justifies outsourcing payroll.

2. Reduce Costs
The direct costs of processing payroll can be greatly reduced by working with a payroll provider. Our research indicates that a small business with 10 employees will typically spend $2,600 per year in direct labor costs associated with payroll.

3. Alleviate Pain
Manual payroll is a headache in the best case and a nightmare in the worst case. Business owners who outsource payroll eliminate a tiresome source of personal pain.

4. Offer Direct Deposit
Providing direct deposit is difficult if a company doesn't use an outside payroll service. Increasingly, small businesses recognize that employees want direct deposit. Not having to make a trip to the bank is an important convenience for them. More importantly for business owners, direct deposit eliminates time-consuming and error-prone paper handling and the need to reconcile individual payroll checks every month.

5. Free Up Free Time
Payroll processing by hand is a time-consuming process. Outsourcing payroll can free up staff time to pursue more important value-added and revenue-generating activities. Inc. magazine recently identified payroll as the #1 task for small business to outsource, along with most accounting tasks.

6. Avoid Technology Headaches
A constant question for small business owners is whether they have the latest version of their payroll software and the most recent tax tables installed on their computer. Using the wrong tax tables can result in stiff penalties. Outsourcing payroll removes those headaches and keeps payroll running smoothly.

7. Leverage Outside Payroll Expertise
Most business owners and controllers don't have time to keep up with constantly changing regulations, withholding rates, and government forms. By outsourcing payroll, a small business can take advantage of expertise that was previously available only to big companies.

8. Avoid Payroll Knowledge Walking Out the Door
If your bookkeeper or controller gets a new job, they will walk out the door with their knowledge of the payroll process and how you do it. Using an outside service eliminates that business risk.

Does the IRS Have Money Waiting For You?

If you earned income in the last few years but you didn’t file a tax return because your wages were below the filing requirement, the Internal Revenue Service may have some money for you. The IRS also has millions of dollars in checks that are returned each year as undeliverable.

Here’s what you need to know about these two types of “missing money” and how to claim it:

Unclaimed Refunds

Some people earn income and may have taxes withheld from their wages but are not required to file a tax return because they have too little income. In this case, you can claim a refund for the tax that was withheld from your pay. Other workers may not have had any tax withheld but would be eligible for the refundable Earned Income Tax Credit, but must file a return to claim it.

To collect this money a return must be filed with the IRS no later than three years from the due date of the return.
If no return is filed to claim the refund within three years, the money becomes the property of the U.S. Treasury.  
There is no penalty assessed by the IRS for filing a late return qualifying for a refund.
Current and prior year tax forms and instructions are available on the Forms and Publications page of www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Information about the Earned Income Tax Credit and how to claim it is also available on www.irs.gov.

Undeliverable Refunds

Were you expecting a refund check but didn't get it?

Refund checks are mailed to your last known address. Checks are returned to the IRS if you move without notifying the IRS or the U.S. Postal Service.
You may be able to update your address with the IRS on the “Where’s My Refund?” feature available on IRS.gov. You will be prompted to provide an updated address if there is an undeliverable check outstanding within the last 12 months.
You can also ensure the IRS has your correct address by filing Form 8822, Change of Address, which is available on www.irs.gov or can be ordered by calling 800-TAX-FORM (800-829-3676).
If you do not have access to the Internet and think you may be missing a refund, you should first check your records or contact your tax preparer. If your refund information appears correct, call the IRS toll-free assistance line at 800-829-1040 to check the status of your refund and confirm your address.

Two-Year Limit No Longer Applies to Many Innocent Spouse Requests

The Internal Revenue Service announced this week that it will extend help to more innocent spouses by eliminating the two-year time limit that now applies to certain relief requests.

"In recent months, it became clear to me that we need to make significant changes involving innocent spouse relief," said IRS Commissioner Doug Shulman. "This change is a dramatic step to improve our process to make it fairer for an important group of taxpayers. We know these are difficult situations for people to face, and today’s change will help innocent spouses victimized in the past, present and the future."

The IRS launched a thorough review of the equitable relief provisions of the innocent spouse program earlier this year. Policy and program changes with respect to that review will become fully operational in the fall and additional guidance will be forthcoming. However, with respect to expanding the availability of equitable relief:

    The IRS will no longer apply the two-year limit to new equitable relief requests or requests currently being considered by the agency.

    A taxpayer whose equitable relief request was previously denied solely due to the two-year limit may reapply using IRS Form 8857, Request for Innocent Spouse Relief, if the collection statute of limitations for the tax years involved has not expired. Taxpayers with cases currently in suspense will be automatically afforded the new rule and should not reapply.

    The IRS will not apply the two-year limit in any pending litigation involving equitable relief, and where litigation is final, the agency will suspend collection action under certain circumstances.

The change to the two-year limit is effective immediately, and details are in Notice 2011-70, posted today on IRS.gov.

Existing regulations, adopted in 2002, require that innocent spouse requests seeking equitable relief be filed within two years after the IRS first takes collection action against the requesting spouse. The time limit, adopted after a public hearing and public comment, was designed to encourage prompt resolution while evidence remained available. The IRS plans to issue regulations formally removing this time limit.

By law, the two-year election period for seeking innocent spouse relief under the other provisions of section 6015 of the Internal Revenue Code, continues to apply. The normal refund statute of limitations also continues to apply to tax years covered by any innocent spouse request.

Available only to someone who files a joint return, innocent spouse relief is designed to help a taxpayer who did not know and did not have reason to know that his or her spouse understated or underpaid an income tax liability. Publication 971, Innocent Spouse Relief, has more information about the program.

IRS Changes Can Help Business Struggling With Taxes

Is your business struggling with unpaid taxes? You’re not alone, and since the recession began, the IRS has taken steps to help individuals and businesses that owe taxes get a fresh start with their tax liabilities.

This year the Fresh Start program made several changes to IRS collection practices to help taxpayers, including:

1. Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens. A federal tax lien gives the IRS a legal claim to a taxpayer’s property for the amount of an unpaid tax debt.This includes property owned at the time the notice of lien is filed as well as any property purchased after that. Since a lien can hurt a taxpayer or business’s credit rating, it’s crucial to pay taxes as quickly as possible to have the lien removed.

Currently, liens are automatically filed at certain dollar levels for people with past-due balances. The IRS will significantly increase the dollar thresholds at which liens are generally filed. The new dollar amount is tied to inflationary changes since the number was last revised. The IRS plans to review the results of the lien threshold change early next year.

2. Making it easier for taxpayers to have liens withdrawn after paying a tax bill. Liens will now be withdrawn once taxes are paid in full, if the taxpayer requests it. The IRS has also streamlined its internal procedures to speed the lien withdrawal process, and will withdraw liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement.

3. Creating easier access to Installment Agreements for more struggling small businesses. The IRS has made streamlined Installment Agreements available to more small businesses by raising the dollar limit so that additional small businesses can participate. Formerly, only small businesses with under $10,000 in liabilities could participate; the new program raises the limit so small businesses with $25,000 or less in unpaid tax can participate. Small businesses now have 24 months to pay.

In addition, streamlined Installment Agreements are now available for small businesses that file either as an individual or as a business. Small businesses with unpaid taxes of more than $25,000 will qualify for the streamlined Installment Agreement once they reduce the balance to $25,000 or less. Small businesses must enroll in a Direct Debit Installment Agreement to participate.

4. Expanding the streamlined Offer in Compromise program to cover more taxpayers. An OIC is an agreement between a taxpayer and the IRS to settle the taxpayer’s tax liabilities for less than the full amount owed. In most cases, an offer will not be accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement. The OIC program has been expanded to allow taxpayers with annual incomes up to $100,000 to participate. Participants must have tax liability of less than $50,000 (an increase from the former limit of $25,000 or less.)

Will any of these changes help your business? You can find out more about the changes and get necessary forms at the IRS website.

By Maria Valdez Haubrich at NetworkSolutions GrowSmartBiz.

Interest Checking Is Now Available to Small Businesses

Thursday, July 21, 2011 marks the one-year anniversary of the date the Dodd-Frank Wall Street Reform and Consumer Protection Act became law, and it is also the day many of the law’s provisions take effect. Some of those measures are controversial, like new enforcement powers for the Consumer Financial Protection Bureau and new limits on the fees banks can charge merchants for debit card transactions. Others have almost entirely escaped noticed. Among the little-discussed changes: a Depression-era ban on paying interest on business checking accounts has finally been retired. And big banks are quickly — and for the most part quietly — adapting.

Large companies with big deposits have long been able to get around the prohibition by using so-called sweep accounts, which invest deposits in money market accounts each night and then return the funds the next day. Sweep accounts, however, are an inefficient and expensive way to earn interest. Effective Thursday, with the repeal of what was once — long ago — called Regulation Q, several large banks will begin to offer interest-bearing checking accounts to all business customers. The banks include Capital One, Citibank, TD Bank, and Wells Fargo. Regions Bank plans to begin offering interest accounts to business customers on Aug. 1, and a spokeswoman for Fifth Third Bank, based in Cincinnati, said interest-earning checking for companies “is in the works.”

The two largest American banks, Bank of America and Chase, had not made a decision as of Wednesday, according to spokespeople for each. “We’re currently reviewing different options but have no immediate plans to alter any existing products or add a new one,” said Jefferson George, a spokesman for Bank of America, in an e-mail. (Mr. George added that Bank of America, like many banks, offers interest accounts to sole proprietors, nonprofits and government entities.)

Several other large banks have not responded to requests for information, and that seems to be in keeping with a widespread silence on the topic. One bank spokesperson — who insisted on anonymity — said that the change was trivial: “Interest-bearing checking is not a new thing. It’s available to more businesses now, but a large portion of our customer base already had access to it.”

Moreover, according to this spokesperson, interest isn’t very important to small-business owners. “They’re probably more interested in having their fees waived,” the spokesperson said. “In today’s environment, an account with $10,000 is likely to earn between $3 and $8 a year. In comparison, average monthly service fees industry-wide are $10 to $20 a month. By having them waived, you can save $120 a year.”

The information found here is from the article, "Shhh! Interest Checking Is Now Available to Small Businesses' by Robb Mandelbaum published by the New York Times.

Canceled Debt – Is it Taxable or Not?

In general, if you are liable for a debt that is canceled, forgiven, or discharged, you must include the canceled amount in gross income unless you meet an exclusion or exception. However, canceled or forgiven debt is not considered income if it is intended as a gift or bequest.

A debt includes any indebtedness for which you are personally liable or for which you are liable only to the extent of the property securing the debt. Cancellation of all or part of a debt that is secured by property may occur because of a foreclosure, a repossession, a voluntary return of the property to the lender, abandonment of the property, or a principal residence loan modification. You must report any taxable amount of a debt that is canceled, as ordinary income from the cancellation of debt, on Form 1040 or Form 1040NR and associated sub-schedules, as advised in IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals).

Caution: If your debt is secured by property and that property is taken by the lender in full or partial satisfaction of your debt, you will be treated as having sold that property and may have a reportable gain or loss. The gain or loss on such a deemed sale of your property is a separate issue from whether any canceled debt also associated with that same property is includable in gross income. See IRS Publication 544, Sales and Other Dispositions of Assets, for detailed information on reporting gain or loss from repossession, foreclosure or abandonment of property.

If a federal government agency or an applicable financial entity cancels or forgives a debt you owe of $600 or more, you should receive a Form 1099-C (PDF), Cancellation of Debt, showing amounts and other information relating to the cancellation. The amount of canceled debt is shown in Box 2 of the form. Taxpayers may also receive a Form 1099-A (PDF), Acquisition or Abandonment of Secured Property.

Canceled Debts that meet the requirements for any of the following exceptions or exclusions are not taxable.

Canceled Debt that Qualifies for Exception to Inclusion in Gross Income:

    Amounts specifically excluded from income by law such as gifts or bequests
    Cancellation of certain qualified student loans
    Canceled debt that if paid by a cash basis taxpayer is otherwise deductible
    A qualified purchase price reduction given by a seller

Canceled Debt that Qualifies for Exclusion from Gross Income:

    Cancellation of qualified principal residence indebtedness
    Debt canceled in a Title 11 bankruptcy case
    Debt canceled due to insolvency
    Cancellation of qualified farm indebtedness
    Cancellation of qualified real property business indebtedness

The exclusion for "qualified principal residence indebtedness," provides canceled debt tax relief for many American home owners involved in the mortgage foreclosure crisis currently affecting much of the country. The exclusion allows taxpayers to exclude up to $2,000,000 ($1,000,000 if married filing separately) of "qualified principal residence indebtedness".

Generally, if you exclude canceled debt from income under one of the exclusions listed above, you must also reduce your tax attributes (certain credits, losses, and basis of assets) by the amount excluded. You must file Form 982 (PDF), Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the exclusion and the corresponding reduction of certain tax attributes.

Refer to Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals), for more detailed information regarding taxability of canceled debt, how to report it, and related exceptions and exclusions. Additional information can also be found in Publication 525, Taxable and Nontaxable Income.

What Some Banks Don’t Want You to Know

New York Times columist Jay Goltz went to the source to find out what bankers are often reluctant to tell small-business owners: precisely what they expect from borrowers. Goltz, author of the column 'You're the Boss', asked his own banker Matt Sloan from American Chartered Bank to get small business owners 'in the know'. Here are Sloan's thoughts:

Deciding whether to provide credit to a business can definitely be as much art as science, but there are some material factors to consider:

1. How much equity or net worth does the business have on its balance sheet? This is extremely important as we need to know what happens if the company has a rainy day or if our economy goes through another recession. Does the business have enough capital to survive if it loses a major client? On the same note, what is the overall leverage (debt to equity) of the company? Less than four to one? That’s fair. Three to one? That’s good. Two to one? Excellent. If a business makes $100,000 and the owners pull out $200,000 in distributions, then the company actually lost $100,000 from our perspective. (Believe me, we see this happen.)

2. What type of collateral is supporting the loan? I don’t see many banks providing unsecured loans in today’s climate so there have to be enough “eligible” receivables (90 days and under), “clean” inventory (sellable), equipment and/or recently appraised real estate to cover the loan amount.

3. Cash Flow. The years 2008 and 2009 were rough for many businesses, so if you were able to survive and rebound in 2010, more power to you. We analyze the past three years to understand trends, but we completely understand how difficult the economy has been. So, if a company has turned the corner and can show that its cash flow can support its debt payments at a multiple of 1.2 or 1.3 (meaning that it is taking in at least 20 percent more than the debt payment), the it is a good banking candidate.

4. Character. Do I want a new client who doesn’t return phone calls and doesn’t treat me or my team with respect? No. I want to work with solid, ethical people who are looking to build long lasting relationships. End of story. It’s better for both sides.

5. Conditions are a tricky topic because a good company can perform well in a bad economy (and vice versa). So, let’s leave that one alone.

I hope this clears up some of the confusion surrounding the crazy banking environment we live in.

In an addendum from Goltz himself,

"I will add one more thing. I found American Chartered Bank through my accountant. He knows which banks are lending, what they are like to work with and what they are looking for. And he has a relationship with the banks that the banks don’t want to mess up. If your accountant can’t help you, and you need to borrow money, it might be time to consider finding a new accountant. If you are looking to borrow money, you probably need an accountant who does more than your tax return."

Information in this article comes from 'You're the Boss: The Art of Running a Small Business' published in the New York Times.

How To Dig Out After A Long Weekend

Ah, the joy of long holiday weekends. They re-energize, revitalize and send you back to work... feeling you like you've slept in late and got a term paper due at noon. The reasons for this are unclear--vacations are planned for, coworkers notified to pick up the slack, email generally avoided--but just one extra day off can throw your entire week out of sync.

There are ways to enjoy the long weekends without paying for it on the other end. Here are a few tips to help you avoid emergency maneuvers on your way back to the office.

Set Up a Calm, Clean Space for Your Landing

You'll have plenty of chances to freak out about returning to work--11 p.m. the night before is a generally accepted starting point. Returning to a messy desk, a computer desktop full of unsorted files, and a few coffee mugs with brews of unknown vintage will reinforce the feeling that everything's gone South while you were sleeping in. So put in some dedicated custodial time before you split, or early when you return.

J.D. Roth, the productive personal finance blogger behind Get Rich Slowly and Your Money: The Missing Manual admits that he's a slob by nature with a messy office--which works fine on most days. But if Roth has a vacation or day off coming up, he carves out time before departing to pick up diet soda bottles and tidy up the paper stacks. "The top thing I can do to improve my productivity ... is to clean my office before I leave. I'm not kidding," Roth writes. "This gives me a huge boost when I return."

Prune Your Task Lists with New-Found Perspective

Your to-do list is supposed to be a practical, honest list of things you can get done in methodical fashion. Across long days and multiple projects, that list tends to get filled with things you wish you could do, things that are too big and vague to do simply ("Get a grip on expenses"), or things that aren't that important. Now that you've spent a good bit away from your desk, you have tangible proof that those tasks you're always putting off aren't holding up your ceiling. With that perspective, go ahead and clean out your to-do list.

Don't Panic, Stick to Your Routine (If You Have a Good One)

Mark Forster, author of Do It Tomorrow, might disagree with that previous advice about to-do lists--his productivity system leans more toward routines, flows, and being conscious of what you're doing. But Forster understands the nature of long weekend panic. When a heap of work is dropped on you, the part of your thinking that Forster terms the "Reactive Mind" wants to panic, to enter triage mode, to reach out and stab at a few seemingly Top Priority items and leave the rest.

That's a surefire ticket to email backlog, incomplete items, and no kind of output that will impress the bosses. Instead, take the time to fully address yourself to each of the things that needs doing. That calm starting point also forces you to figure out whether inbox cleaning, for example, is more important than touching base with an important client or vendor. Just as importantly, don't give up on the necessary breaks and daily rituals that balance out your other days. (Get a better sense of Forster's take on long weekends in a free first chapter.)

Nobody knows what awaits you at work after an extra day or two off, but that's also the good news. Give yourself a clean, calm space to work in, leave yourself the time you really need to do things right, and commit yourself to enjoying your extended weekend. If it helps, picture what your impatient managers and correspondents looked like in Bermuda shorts over the weekend when they're trying to add panic to your plan.

By Kevin Purdy @ Fast Company

How to Survive a Tax Audit

These five tips can help you minimize the stress of IRS scrutiny should your return raise a red flag.

Tax audits can be stressful and time consuming. Small-business owners, who might be navigating complex business tax rules for the first time or who work in cash businesses like restaurants where mistakes are easy to make, are especially likely to attract unwanted attention from the Internal Revenue Service.
The good news is that an audit doesn't have to be an endless, painful, invasive process, says James Guarino, a certified public accountant and a partner at Moody Famiglietti & Andronico in Tewksbury, Mass. You can even emerge without owing more money. Here are some tips for minimizing the pain of an audit.

1. Keep things in perspective.
Few audits are a line-by-line examination of a return that people imagine when they envision an IRS probe. Often there is a math error, and the supporting documents such as 1099s don't match the figures on a company's return. Addressing the IRS's concern could be as simple as supplying a missing document or fixing an incorrect 1099 and redoing the math on the tax form.

Beyond that, sometimes a single aspect of a return will raise a red flag and the IRS will ask for additional supporting material. For example, professional real-estate investors can claim losses and write-offs that casual investors might not be able to, Guarino explains. "But you have to meet certain criteria to be a professional rather than run-of-the-mill investor." So if an entrepreneur makes this claim but the investment activity doesn't fall into the range that's typical for professionals, the IRS might ask for further substantiation of that status.

2. Get help.
Larry Elkin, a certified public accountant in Scarsdale, N.Y., says that when he was audited, he never dealt with the IRS directly. "Hiring an attorney or CPA takes the emotion out of it," says Elkin, who is president of Palisades Hudson Financial Group, a financial planning firm. And experienced tax lawyers and accountants can recognize when an issue isn't as black-and-white as an agent might assert. "There can be a lot of shades of gray," Guarino says. "Your audit could relate to a deduction that's controversial, where the IRS always tries to take an aggressive stance but where every time it's gone to court, it's lost."
Elkin concurs. "The audit agent will write up points" that allege a client owes money, he says. "We often argue and win because they don't want taxpayers to appeal the levy in court and win."

3. Provide exactly what the agent asks for.
Resist the urge to volunteer information. It's ideal to provide no less, but no more than the IRS requests. The best way to get an IRS audit over with quickly is to keep it confined to the single issue initially raised.
If you talk directly to the audit agents, Guarino says, answer with direct speech: "Yes; no; I'll look into it," he says. "Any tidbit of information that you offer could bring things to the auditor's attention that he might not have thought of otherwise. That could open a new can of worms."
This is another reason in favor of having someone else represent you in an audit, Elkin says. "If I had dealt directly with the agent, I might have invited an open-ended fishing expedition. The other way the agent had to decide what he wanted to know. He asked and we answered."

4. Don't assume the IRS is right.
Agents can make mathematical errors or overlook important documents as easily as a taxpayer can. And when laws or financial values are open to interpretation, the auditor will take the stance that benefits the IRS, the experts say. That doesn't mean you can't successfully argue the opposite point of view. For example, if you donate a piece of art to a nonprofit, "no one is going to dispute that it's deductible, but you can disagree over the size of the deduction," Elkin says.
In that case, it's up to you as a business owner to provide documents, such as appraisals or auction prices for similar items, to substantiate your claimed deduction. If you can do so, the agent might have to accept it or agree to a compromise number.

5. Decline requests to extend the IRS's deadline.
Because of a backlog of cases, the IRS routinely asks owners of companies that are audit targets to waive the statute of limitations usually restricting probes to the three years previous. "You should say no," Elkin says. "Taxpayers have a few months to get their taxes together and the government has three years to audit them," he says. "That's enough. You don't have to endlessly accommodate them."
Elkin cautions that the written request for a waiver might not read like a request and it might seem as if you have no choice but to agree. Rather than be intimidated by the legalese, check with a tax adviser before responding. Sticking to a firm deadline with the IRS probably won't release you from an audit. "The agent will finish as much as possible in the time allowed," Elkin says. "If he's right, you should pay the claim; if he's not, you should dispute it."

Either way, a proper response should bring the audit to a prompt close so that you can move on—and start getting ready for the next tax season.

An article from Entrpreneur.com by Eileen P. Gunn

When to Hire a Bookkeeper or Accountant

When QuickBooks takes you only so far, it's time to bring in a financial pro.

Entrepreneurs thrive on a DIY mentality: Do everything you can yourself and don't pay for anything new until you have absolutely have to. It's especially difficult to justify hiring financial help like a bookkeeper.

With user-friendly software such as QuickBooks available, many business owners feel they should be able to do keep their records on their own, even as they wrestle with finding the time and wonder if they're doing things correctly.

Deciding about "hiring a bookkeeper is something I struggle with all the time," says Randy Mitchelson, owner of National Web Leads, an Internet marketing company in Estero, Fla. While he finds basic accounting easy to do, it takes him away from working on his business. Meanwhile, his accounting and tax planning have become only more complicated in the six years since he founded his business.
Entrepreneurs who hire accounting help usually discover they weren't doing nearly as well on their own as they thought they were.

Zalmi Duchman, chief executive of The Fresh Diet, a meal-delivery company based in Miami, lasted five years without a bookkeeper then hired one three months ago. The new employee cleaned up records that incorrectly mingled expenses and assets, reviewed employee purchases for duplications, and took over the mundane but critical task of paying bills. Duchman estimates his company is saving $500 to $1,000 in late fees every quarter. "I definitely have been able to make better and more educated decisions," he says.

So what are a small-business owner's options for professional help with financial tasks? Here is a primer:

Do I Need a Bookkeeper or an Accountant?

Actually it's a trick question. You may need both.

Aaron Sylvan, a serial entrepreneur who lives in New York, compares the situation to needing to hire both a carpenter and an architect when building a house.

An accountant can analyze the big picture of your financial situation and offer strategic advice. He or she produces key financial documents, such as a profit-and-loss statement, if needed, and files a company's taxes.

After tax season is over, an accountant can also act as an outsourced chief financial officer, advising an entrepreneur on financial strategies, such as whether to secure a line of credit against receivables when introducing new products.

In contrast, a bookkeeper does the day-to-day hands-on tasks: making sure new employees file all the right paperwork for the company's payroll, submitting invoices (promptly) and following up on them, and paying the bills. The bookkeeper also tracks company expenses and can assure that every cost has been entered -- and recorded correctly -- into software like QuickBooks so that the business is ready for tax time along with filing any other reporting to, say, creditors or investors.

"I don't keep receipts; they're a pain," says Sylvan, who runs Sylvan Social Technology, an ecommerce-services company. "Every month I get a bank statement with a gazillion transactions," such as taxi rides, meals, conferences and other expenses he has placed on his company's debit card.

His bookkeeper spends a few hours a week sorting it all out. As a result, Sylvan has a better idea about how his expenditures stack up against his budget. He knows he won't bill clients incorrectly or miss important payments.

"Knowledge is power," even when it comes to the small details, Sylvan says. "If you don't have a bookkeeper, you're probably not being as strategic as you could be in how you spend your money."

When to Bring in a Bookkeeper

In his running a half-dozen businesses the past 15 years, Sylvan has typically hired a bookkeeper for a few hours a week within a few months after starting a new venture. For the first six to nine months, he's usually too busy to focus much on recordkeeping, then "things begin to stabilize," he says. "Then you can see trends and you can start to think strategically about where your money is going and where you can save." And this is when a bookkeeper becomes valuable. Since Sylvan has fewer than a dozen employees at each new company, the bookkeeping takes about one day a month, he says.

The rates for hiring a bookkeeper on a part-time basis in the U.S. can range from $15 to $60 an hour, depending on location, the workload and whether work is done at the company's office or from home.

Sylvan typically sees his accountant once a year, at tax time. But business owners requiring capital or frequently negotiating credit with a bank are likely to contact their accountants more often.

When to Hire a Staff Accountant or Bookkeeper

Many small entrepreneurs can probably stick to outsourcing accounting or bookkeeping services for quite some time. The typical service business can often outsource its chief financial officer tasks and bookkeeping until its revenues rises well above the $1 million mark -- or until it has about 30 employees. Until then, most businesses usually don't have enough work to keep a full-timer busy every day.

It's time to hire full-time help, though, when you're calling your accountant often enough that you wish he or she were in the office all the time. Bring in a full-time bookkeeper when your part-timer is spending two or three full days in the office and still falling behind.

Most new business owners find a staffing solution somewhere along the continuum that ranges from trying to go it alone and paying for full-time help.

An article from Entrpreneur.com by Eileen P. Gunn

IRS Increases Mileage Rate to 55.5 Cents per Mile

The Internal Revenue Service announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.

The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011, as set forth in Revenue Procedure 2010-51.

In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2011. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.

"This year's increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices," said IRS Commissioner Doug Shulman. "We are taking this step so the reimbursement rate will be fair to taxpayers."

While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

The new rates are contained in Announcement 2011-40 on the optional standard mileage rates.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

The IRS Goes Mobile!

Welcome to the 21st century! The Internal Revenue Service unveiled IRS2Go, its first smartphone application that lets taxpayers check on their status of their tax refund and obtain helpful tax information.

"This new smart phone app reflects our commitment to modernizing the agency and engaging taxpayers where they want when they want it," said IRS Commissioner Doug Shulman. "As technology evolves and younger taxpayers get their information in new ways, we will keep innovating to make it easy for all taxpayers to access helpful information."

The IRS2Go phone app gives people a convenient way of checking on their federal refund. It also gives people a quick way of obtaining easy-to-understand tax tips.

Apple users can download the free IRS2Go application by visiting the Apple App Store. Android users can visit the Android Marketplace to download the free IRS2Go app.

"This phone app is a first step for us," Shulman said. "We will look for additional ways to expand and refine our use of smartphones and other new technologies to help meet the needs of taxpayers."

The mobile app, among a handful in the federal government, offers a number of safe and secure ways to help taxpayers. Features of the first release of the IRS2Go app include:

Get Your Refund Status

Taxpayers can check the status of their federal refund through the new phone app with a few basic pieces of information. First, taxpayers enter a Social Security number, which is masked and encrypted for security purposes. Next, taxpayers pick the filing status they used on their tax return. Finally, taxpayers enter the amount of the refund they expect from their 2010 tax return.

For people who e-file, the refund function of the phone app will work within about 72 hours after taxpayers receive an e-mail acknowledgement saying the IRS received their tax return.

For people filing paper tax returns, longer processing times mean they will need to wait three to four weeks before they can check their refund status.

About 70 percent of the 142 million individual tax returns were filed electronically last year.

Get Tax Updates

Phone app users enter their e-mail address to automatically get daily tax tips. Tax Tips are simple, straightforward tips and reminders to help with tax planning and preparation. Tax Tips are issued daily during the tax filing season and periodically during the rest of the year. The plain English updates cover topics such as free tax help, child tax credits, the Earned Income Tax Credit, education credits and other topics.

2011 Tax Season Deadline Extended to April 18

The Internal Revenue Service today opened the 2011 tax filing season by announcing that taxpayers have until April 18 to file their tax returns. The IRS reminded taxpayers impacted by recent tax law changes that using e-file is the best way to ensure accurate tax returns and get faster refunds.

Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three e2011 Tax Season Deadline Extended to April 18The Internal Revenue Service today opened the 2011 tax filing season by announcing that taxpayers have until April 18 to file their tax returns. The IRS reminded taxpayers impacted by recent tax law changes that using e-file is the best way to ensure accurate tax returns and get faster refunds.Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns.

It’s important to note that the deadline for 1120 C & S Corporation returns and extensions remains March 15th or 2 ½ months after your corporation’s fiscal year end. xtra days to file this year. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns.It’s important to note that the deadline for 1120 C & S Corporation returns and extensions remains March 15th or 2 ½ months after your corporation’s fiscal year end. 

Filing Delays for Many Taxpayers

While the IRS believes that tax season will start on time for the majority of taxpayers, those affected by three recently reinstated deductions need to wait until mid- to late February to file their individual tax returns. In addition, taxpayers who itemize deductions on Form 1040 Schedule A will need to wait until mid- to late February to file as well.

The start of the 2011 filing season will begin in January for the majority of taxpayers. However, December’s changes in the law mean that the IRS will need to reprogram its processing systems for three provisions that were extended in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17.

People claiming any of these three items — involving the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction as well as those taxpayers who itemize deductions on Form 1040 Schedule A — will need to wait to file their tax returns until tax processing systems are ready, which the IRS estimates will be in mid- to late February.

The IRS will announce a specific date in the near future when it can start processing tax returns impacted by the late tax law changes. In the interim, people in the affected categories can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes.

Taxpayers will need to wait to file if they are within any of the following three categories:

• Taxpayers claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted Dec. 17, which primarily benefits people living in areas without state and local income taxes and is claimed on Schedule A, Line 5. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.
• Taxpayers claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students — covering up to $4,000 of tuition and fees paid to a post-secondary institution — is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.
• Taxpayers claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16.

For those falling into any of these three categories, the delay affects both paper filers and electronic filers.

Payroll Tax Cut to Boost Take-Home Pay for Most Workers

Millions of workers will see their take-home pay rise during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides a two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid. This reduced Social Security withholding will have no effect on the employee’s future Social Security benefits.
The new law also maintains the income-tax rates that have been in effect in recent years.

Employers should start using the new withholding tables and reducing the amount of Social Security tax withheld as soon as possible in 2011 but not later than Jan. 31, 2011.

The IRS recognizes that the late enactment of these changes makes it difficult for many employers to quickly update their withholding systems. For that reason, the agency has asked employers to adjust their payroll systems as soon as possible, but not later than Jan. 31, 2011. For any Social Security tax over withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2011.

Employers and payroll companies will handle the withholding changes, so workers typically won’t need to take any additional action, such as filling out a new W-4 withholding form.

Credit for Small Employer Health Insurance Premiums

Included in the Affordable Care Act enacted in March, the small business health care tax credit is designed to encourage both small businesses and small tax-exempt organizations to offer health insurance coverage to their employees for the first time or maintain coverage they already have. A broad range of employers meet the eligibility requirements, including religious institutions that provide coverage through denominational organizations, small employers that cover their workers through insured multiemployer health and welfare plans, and employers that subsidize their employees’ health care costs through a broad range of contribution arrangements.

In general, the credit is available to small employers that pay at least half of the premiums for single health insurance coverage for their employees. It is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

Small businesses can claim the credit for 2010 through 2013 and for any two years after that. For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small businesses and 25 percent of premiums paid by eligible tax-exempt organizations. Beginning in 2014, the maximum tax credit will increase to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible tax-exempt organizations.

The maximum credit goes to smaller employers –– those with 10 or fewer full-time equivalent (FTE) employees –– paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 or more FTEs or that pay average wages of $50,000 or more per year. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, employers that use part-time workers may qualify even if they employ more than 25 individuals.