Economics Finance

It is a little known fact that the IRS is under a mandate from the Congress to achieve 80% electronic filing by the year 2012. The IRS Restructuring and Reform Act (RRA) was passed in 1998. In the nine years since the enactment of RRA 98, the percentage of individual e-filed returns nearly tripled, from 20 percent in 1998 to about 58 percent in 2007. There has also been steady growth in the number of self-prepared individual returns filed electronically. As the Electronic Tax Administration Advisory Committee (ETAAC) noted in its 2007 e-file report to Congress, this progress is very gratifying as it indicates that e-file is catching on with those who had previously resisted it. As per IRS data, nearly 80 million returns were filed electronically in 2007, out of which about 22.5 million were filed from home computers.

There are major benefits to filing taxes electronically. The IRS tax code is enormously complicated, and it requires considerable patience and skill to navigate the tax code in order to figure out the best possible tax situation for an individual. If one attempted to sit down with the many forms pertaining to one’s tax situation and proceed to accurately fill them out, it could be many days’ work, and even then possibly with unintended errors. This is why trained tax professionals and accountants are in such great demand during the tax season. But for an individual filer, the possibility of e-file is a heaven send. There are many quality internet tax sites managed by tax professionals that make the process of preparing an individual return straightforward and error free. All one needs is an internet connection.

The most important advantage of e-file is that the individual does not have to understand the intricacies of tax code. The rules also change from year to year, and this adds a layer of complexity to an already complex enterprise. The way most internet tax sites work is that one creates a user account with the site with a personal login and a password. The user is then asked a series of simple questions such as age, birthday, marital status, number of children, the kinds of income that the user plans to report, information from W2 forms etc. Thus, for example, the W2 form is replicated on the screen with the possibility of inputting the information exactly as it appears on the W2. Once the user has input all the information asked for by the site, the program calculates the best possible tax situation. All of the relevant information is then input into the appropriate forms and the return is electronically filed with the IRS. Once the return is filed with the IRS, an acknowledgment is usually received from the IRS within a couple of days. If there are no unintended errors, the return is accepted by the IRS. Continue reading ‘The Benefits of Electronically Filing Taxes on the Internet’ »

I am not a CPA or an accountant, so I don’t give out tax advice. However, I have compiled some information in regards to homeowner’s tax consequences for a short sale/ foreclosure event. These are some of the most common questions asked by homeowners.

If a homeowner has taken out a “home equity loan” (or aka, HELOC) loan and has received any cash out (even from a past refinance) to pay off unsecured debts, (i.e. credit cards, car loans, motorcycle or boat loan, etc…), the sum of that money maybe considered a “taxable event” aka mortgage debt forgiveness” by the IRS).

The “debt forgiveness” is calculated by deducting the original purchase price (or acquisition cost) FROM THE “NET LOSS” THE BANK INCURS after the home reverts back to the bank and is sold by their real estate division. Renovation Costs can be added to increase the base value…but in the case of an audit the proof is on the home owner and they must have all receipts. Continue reading ‘IRS Clarifies Shortsale Tax Consequences For Homeowners’ »

There is some good new out there from the IRS. The e-file service has been expanded. When you file taxes this 2008, and beyond, most people will be able to file their tax return for free online. This means you can get your tax forms in much faster and that means your get your refund much faster as well.

If you use direct deposit to get you refund then you could have your money with 10 days. With the new changes that the IRS has made to the e-file program this is a great way for people who are struggling to make ends me to get their tax refund fast and free.

The new Free File Fillable Tax Forms is so advanced that it is just like filing tax forms on paper. The layout is the same so you will not have a learning curb. The IRS made this new service for people who are comfortable with the tax laws already know what tax forms they need to file with. If you don’t need help with your taxes then this is perfect for you. Free file is now for people who make $54,000 or less a year. If you make more than that then it will not be free but still be fast.

Now you also have the option to file your returns now and pay later if you owe anything on your taxes. Plus the IRS e-file also lets you file both your federal and state taxes at the same time. That will really make things much faster. Since almost 90 million tax returns last year was filled out 58% were e-file users. I bet that will go up dramatically now.

They even have sources for employers whether you business is big or small. Plus self employed people can use the service too. Continue reading ‘IRS Tax Return Forms Are Even Faster and Free With E-File’ »

The news related to IRS actions usually goes unnoticed by the vast majority of people unless it involves something they have a financial interest in. The IRS has been making a lot of news the last few years related to hunting down Americans who hide money offshore and don’t pay taxes. What if you find yourself in this situation?

It all seemed so clear. You read a story on the web about how going offshore would provide you with asset protection and “tax advantages”. After all, who would really know about a bank account or trust in the Cayman Islands? You took the plunge and stuck some money offshore. Now you’ve watched the IRS penetrate Swiss banking privacy laws and have read they’ll be turning to the Caribbean next. What do you do?

The first thing to understand is that going offshore with your finances is not illegal. “Offshore” sounds glamorous, but it simply means any country outside of the United States. If you have a bank account in Canada, you’ve gone offshore. It really isn’t all it is cracked up to be, eh? Continue reading ‘Tax Issues – Dealing With Unreported Offshore Transactions’ »

Before discussing the tax benefits of a second home, let us first define what it is. A second home is usually termed a vacation home. These are properties used by owners during holidays. Most homeowners can earn additional income from this as they can have it rented. Many people are now discovering that they can save more if they rent single family homes rather than stay in hotels when vacationing.

However, you have to keep in mind that the Internal Revenue Services (IRS) will categorize your property as residence if you use it personally for a certain period in a year. However, if you will have the property rented year round, it will be considered as an investment property. You should also take note that in order for a property to be deemed as a second home it has to have a kitchen, bathroom and a place to sleep.

Having a second home is becoming more attractive because of its tax benefits. However, it can be confusing. Having a second home has different tax advantages but you have to check with your accountant or similar advisers because tax regulations change from time to time. Continue reading ‘Tax Benefits For a Second Home’ »

Reducing weight is almost everybody’s dream. You join gym, take medicines and improve your diet. All of these are expensive propositions and the taxman was not at all concerned about your expense on them. However, obesity is now considered as a serious threat to health and your spending to control it may be eligible for deduction out of your income.

If you are diagnosed by your doctor for obesity, he will advise you for weight loss treatment. Some other problems related to obesity like heart disease, hypertension or high levels of cholesterol may also force your doctor to prescribe for such treatment.

This treatment may include a lot of things – hospital based treatment including surgery, use of medicines, counseling for diet, joining programs like weight watchers and behavioral counseling. Expenses on all of these can be legitimately claimed as deduction on your tax return.

However, you cannot claim this deduction without knowing the requirements of IRS. Here are some important tips if you want to claim your expenditure on weight loss treatment – Continue reading ‘Tax Deduction For Losing Your Weight!’ »

Many people know that taxes are due on April 15th, but what if you miss that deadline? What then? The poor house? Jail!? What most people don’t know is that you can easily file for a tax extension, a simple process that could save you thousands in auditing fees.

Has this ever happened to you?: you planned your vacation over tax day and forgot to file. Or maybe you forgot until you saw lines of people at the post office. Or maybe you didn’t have the money to pay the IRS
right then, but would have in a month. Maybe as a result of those actions, you got audited and lost thousands in accountant fees and to the government.

Always remember that tax extensions are available. Tax extensions are the best way to make sure you give the IRS your tax money without getting in trouble. Never worry about missing April 15th ever again. Continue reading ‘How to File Tax Extensions (It’s Not Too Late!)’ »

IRS selects around 1.5 million taxpayers in a year and ‘invites’ those to explain inconsistencies in their tax return. How does it select these taxpayers out of 135 million returns filed every year? Well most of the times it applies some criteria to pick a ‘deserving’ taxpayer. Here are some important ones.

1. Mathematical corrections – Usually IRS computers generate these audits. If you have made mistakes while filing your tax return, these computers are most likely to catch you. These are silly mathematical mistakes which you would have avoided easily. Some of these mistakes are – entering incorrect spelling of your name on your tax return, entering incorrect social security number, entering the incorrect status, making a wrong calculations about earned income credit and improper assessment of estimated tax.

Usually IRS assumes that your details are correct and makes the calculation of your tax figures based on them. If there is any additional tax liability, they will add interest and penalties to it and you will be sent a notice demanding such money.

You will have a period of 30 days to contact IRS and schedule an appointment to prove that your original data is correct. Continue reading ‘How You Enter the Cage of Tax Audit’ »

An IRS bank account levy is one of the harshest collection mechanisms used by the IRS to collect taxes. With a bank account levy the IRS can legally seize all of the funds in your bank account and use those funds to satisfy tax debt owed. This type of levy is so difficult to deal with because the IRS seizes large sums of money quicker than if they were to use wage garnishment or physical asset seizure. For this reason it is extremely important to act fast when you know you have received an IRS bank account levy.

How a Bank Account Levy Works

The IRS will send you a notice of final intent to levy. This notice says that you have 30 days to pay the IRS or make some other arrangements. If you fail to do so in these 30 days then the IRS will decide which type of levy is most appropriate for you. If they choose to use a bank levy they will contact your bank directly and notify them that they intend to levy your bank account. Even when the IRS does this, you still have time to come to a resolution before they seize your money. Once the bank receives notice they will freeze your account. You will not receive any word that your funds will be seized, you will only know from your account being frozen. The bank will not send the funds to the IRS for 21 days. It is important to act prior to these 21 days are up or you will lose your funds forever. There are many different ways to approach this and since you don’t have the time to figure out which is best for you it is highly suggested you work with a tax relief professional to help you find the best solution. Continue reading ‘IRS Bank Account Levy – Why Use a Tax Professional to Release a Levy’ »

The IRS has many programs in place to assist taxpayers with back tax problems. The options largely consist of an Installment Agreement, Offer in Compromise (“OIC”), and Currently Not Collectible status.

Bankruptcy can be an option. But you must analyze the age and the type of the back income taxes. For the most part, recent federal income tax assessments cannot be discharged. This is also true for unpaid payroll taxes.

An OIC is another choice for you to consider. You will be required to disclose sensitive financial information. Rejection rates for OICs are high, but your chances for success will increase if you work with a tax professional. Should your OIC be rejected, there is an appeals process. Continue reading ‘IRS Tax Problem? Your Solutions to Back Tax Issues By Paul Sundin’ »