Bail Out and Past Due Tax Returns - Spells Trouble for Many

With the bail out money ...... who do you think is going to have to pay the cost? You/we the taxpayer will be required to provide the cash flow to make the bail outs work.

Your next thought might be, "Won't money be tight?" The answer is yes. AND guess where they will start looking for large sums of extra cash?

You got it ..... from past due tax returns.

It is only a matter of time before the squeeze will be on. (More so then at the present time) The IRS will be looking for money and if you have not filed your past due tax returns, they will be looking for you.

Sure, there will be a step up in snail mail communications. Then there may even be a massive telephone campaign, if they can put it into the budget. But sooner or later, they will develop an aggressive campaign to contact taxpayers who have not filed past due tax returns, based on W2 information and mortgage interest information.

Now is the time to put "past due tax returns" on your list of things to do.

Not to worry there are online services that are bonded, and licensed and registered with the IRS to complete past due tax returns and http://taxeswilltravel.com/ is one of these services.

Taxpayers can get a simple Federal and State tax return completed for less then $50. and within a very short period of time. More complex returns cost a little more. Many times the IRS can be satisfied just by "us" calling them and asking for wage information to file your past due tax returns

Tax Professionals in the state of California are required to attend tax school EVERY year to keep up with all the new tax laws. There are confidential requirements that we must adhere to.

http://Taxeswilltravel.com/pdr.com uses a secure fax line and all information obtained from the IRS is completed in confidence and destroyed accordingly once the tax return has been completed (except what has to be maintained by law)

Because I am not a tax attorney, our fees are extremely affordable and can benefit moderate income taxpayers greatly. Of course if you earned over $250,000 with a gift tax issue and major AMT concerns, your best bet would be to contact a tax attorney. However, if you have a low six figure income or below, with investment property, investment income, a house or two, a kid or two, a dog or cat, child in college, a small business or you sold some stock during those years - we can more then help.

C. Ingraham
Tax Accountant
Federal & State Taxes

New Tax Credit, The Making Work Pay Tax Credit (2009)

For 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns.

This tax credit will be calculated at a rate of 6.2% of earned income and will phase out for taxpayers with adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.

For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes in early spring. These changes may result in an increase in take-home pay. The amount of the credit must be reported on the employee's 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.

It is not necessary to submit a Form W-4 to get the automatic withholding change. However, an employee with multiple jobs or married couples whose combined incomes place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough withholding is held to cover the tax for his or her combined income. Publication 919 provides additional guidance for tax withholding.

This information was provided by the IRS. For further clarification visit irs.gov

For affordable help with past due tax returns, visit: http://taxeswilltravel.com/pdr.htm

Figuring the Basis of Properety In Order to Generate a Correct Tax Return

If you ask 10 different Tax professionals to calculate the basis of a select group of properties, you will more then likely get 4 to 5 different answers.

Professional tax software helps tax professionals to come up with the best and most correct answer, because the software asks the professional certain questions and the advance software development helps to calculate the basis as close to the tax code as possible.

However, when there is no professional software, you have to refer to Publication 17 for the tax year in question.

That is what we have done here (2007)

We will divide the information into three parts as the Publication 17 for 2007 has done, but will only address the first section in this posting.

* cost basis
* adjusted basis
* basis other than cost


Your basis is the amount of your investment in property for tax purposes. You use the basis to figure gain or loss on the sale, exchange or disposition of property. You also use the basis to figure deductions for depreciation, amortisation, depletion and casualty losses.

So being able to figure the basis is extremely important in arriving at the correct deductions in a tax return. (It is believed that many tax payers miss the boat entirely when preparing their own tax return, when it comes to figuring the basis and using that information to calculate a legal tax deduction)

Property used for business or investment purposes and for personal purposes must allocate the basis based on the use. ONLY the basis allocated to the business or investment use of property can be depreciated.

The basis of property you buy is usually its cost. The cost is the amount you pay in cash, debt obligations, other property or SERVICES.

Your cost also includes amount you pay for the following items:

* sales tax
* freight
* installation and testing
* excise taxes
* legal and account fees
* revenue stamps
* recording fees and
* real estate taxes (if you assume liability for the seller)

(The basis of real estate and business assets may include other items)

Real Property - also called real estate, is land and generally anything built on, growing on, or attached to land.

When you buy real estate, certain fees and other expenses you pay, are part of your cost basis in the property.

Example: If you pay a lump sum for the building and the property, you allocate the cost basis according to the respective fair market values FMV at the time of the purchase. Then figure the basis of each asset by multiplying the lump sum by a fraction. The numerator is the FMV of that asset and the denominator is the FMV of the whole property at the time of purchase.

The FMV or fair market value is the price at which the property would change hands between a willing buyer and a willing seller or sales of similar property on or about the same date may be helpful in figuring the FMV.

Your bases includes the settlement fees and closing cost you paid for buying the property. Please note: A fee for buying property is a cost that must be paid even if you buy the property for cash. You CANNOT include fees and costs for getting a loan on the property in your basis.

When you buy property and assume or buy the property subject to an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage.

The following are some of the settlement fees or closing cost that you can include in the basis of your property. (Not to be confused with what you can deduct)

* abstract fees abstract of title fees
* charges for installing utility services
* legal fees including fees for the title search and preparation of the sales contract and deed
* recording fees
* survey fees
* transfer taxes
* owner's title insurance
* any amounts the seller owes that you agree to pay, such as interests, recording or mortgage fees, charges for improvements or repairs, and sales commissions.

If you pay real estate taxes, the seller owed on the property you purchased, and the seller did not reimburse you, you can treat those real estate taxes as a part of you basis. You CANNOT deduct them as an expense.

Points - If you pay points to get a loan, including a mortgage, second mortgage, line of credit or a home equity loan, do NOT add the points to the basis of the property. Generally you can deduct the points over the term of the loan.

If certain requirements are met, you can deduct points in full for the year in which they are paid.

Then there is the topic of Adjusted Basis, more on this at a latter time.

Help with Past due Returns: http://taxeswilltravel.com/

Estaimated Taxes ES

Estimated taxes is the method used to pay tax on income that is not subject to withholding.
This includes income from self-employment, interest, dividend, alimony, rent, gains from the sale of assets, prizes and awards.

You may also have have to pay estimated tax if the amount of income tax being withheld from your salary, pension or other income is not enough.

You usually do not have to pay estimated taxes if:

* you had no tax liability for the previous year
* you were a US citizen or resident for the whole year
* your previous year taxes covered a 12 month period

Or if your previous year tax liability was zero and you did not have to file an income tax return.


You usually will have to pay estimated tax payments if the following applies:

* you expect to owe AT LEAST $1000 in taxes for the coming year, after subtracting your withholding and credits

* You expect your withholding and credits to be less than the smaller of

1. 90% of the tax to be shown on your upcoming tax return, or

2. 100% of the tax shown on your previous tax return. Your previous year tax return must cover all 12 months.

Estimated Taxes are paid for the Period of:
Jan 1st - March 31 on April 15
April 1st to May 31 on June 15
June 1 to August 31 on September 15
and
Sept 1st to December 31 on January 15 of the next year.

Personal Exemptions and Dependents

Exemption amount for each person that you claim on your tax return was $3,300 in 2006 and $3,400 in 2007, and continues to go up each year.

There are two types of exemptions: personal exemptions and exemptions for dependents. Each exemption is the same amount $3,400 in 2007 - different rules apply to each type.

You are generally allowed one exemption for yourself and if you are married, one exemption for your spouse. These are called personal exemptions. (You can not take an exemption for yourself if you can be claimed on another taxpayer's tax return)

Your spouse is NEVER considered as a dependent.

Exemptions for Dependents - The term "dependent" means:

* A qualifying child
* A qualifying relative

There are three test to determine if a person can be a qualifying child or a qualifying relative.

1. dependent taxpayer test
2. joint return test
3. citizen or resident test

If you have housekeepers, maids or servants working for you, you CANNOT claim exemptions for them.

And to get a child tax credit, the child MUST be UNDER 17 at the end of the year. Child tax credit is not to be confused with the earned income credit which is discussed in another blog posting.

You can't claim a married person who files a joint return as a dependent unless that joint return is only a claim for refund and there would be no tax liability for either spouse on separate returns.

You can't claim a person as a dependent unless that person is a US citizen, US resident alien, US national or a resident of Canada or Mexico, for some part of the year.

You can't claim a person as a dependent unless that person is your QUALIFYING CHILD OR QUALIFYING RELATIVE.

There are 5 test to be meet before a child can be considered a qualifying child

1. relationship
2. age
3. residence
4. support
5. special test for qualifying child of more than one person.

Knowing When You Have to File a Tax Return

You can file a tax return even if you are not required to file, in order to get a refund.

Each year the requirements to file change. For instances in 2007 if you were single and under the age of 65 and your "gross income" was at least $8,750 or if you were 65 or older and your gross income was $10,500 - you would be required to file a tax return.

For this same year (2007) the filing requirement changes for each filing status, for example if you were under the age of 65 and were filing as head of household, and your gross income was at least $11,250 or $12,500 for 65 or older - then you would be required to file a return.

To view the tax laws for past due tax returns that you are filing, visit irs.gov and click on More Forms and Publications and then click on Previous Years to get to the year that you want to file a past due return for.

You must file a return if you are a citizen or resident of the U.S. or a resident of Puerto Rico and you meet the filing requirements.

Example of how to figure your exact age for tax purposes: If you were born on January 1, 1943, you would be considered to be age 65 at the end of 2007.

Gross Income includes all income you received in the form of money, goods, property and services that is not exempt from tax.

(Quick Note: If your spouse is serving in a combat zone and CANNOT sign the married filing joint tax return, attach a signed statement to your tax return and explain that your spouse is serving in a combat zone)

The IRS Get Downright Ugly Concerning Past Due Tax Return for D.C. Police Detective

D.C. POLICE DETECTIVE SENTENCED TO PRISON FOR TAX EVASION
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WASHINGTON – Eighteen-year veteran of the District of Columbia Metropolitan Police Department (MPD) Michael C. Irving was sentenced to 14 months in prison by U.S. District Judge Paul L. Friedman in the District of Columbia, the Justice Department, Internal Revenue Service (IRS), and the D.C. Office of Tax and Revenue (OTR) announced today. Irving, a homicide detective, was convicted in May 2008 of two counts of tax evasion for tax year 2005 following a jury trial.

According to evidence introduced at trial, Irving fraudulently arranged for his employer, the MPD, to stop withholding taxes from his paychecks for years 2003 through 2005. For those same years, Irving failed to file tax returns with the IRS and the OTR. Despite receiving wages from the MPD totaling $155,211 in 2002, $152,153 in 2003, $136,962 in 2004 and $181,913 in 2005, Irving did not pay any federal or D.C. income taxes. The total tax loss for those three years was more than $130,000.

Tax Professional Notes:

It is a thin line between tax evasion and NOT filing past due tax returns. Filing past due tax returns, BEFORE the IRS contacts you is always a good idea.

For immediate help, visit: http://taxeswilltravel.com/pdr.htm

Civil and Criminal Penalties for Not Filing Past Due Returns

If you do not file your past due tax returns and pay your tax by the due date, you will have to pay penalty. You also may have to pay a penalty if you understate your tax, file a untrue return or fail to supply your social security number. If you provide an untrue or fraudulent information on your return, you may have to pay a civil fraud penalty.

You can be subject to criminal prosecution and borough to trial for the following actions:

1. tax evasion
2. willful failure to file a return, supply information, or pay any tax due.
3. fraud and false statement, or
4. preparing and filing a fraudulent return.

The above is tax code and clarification can be found at irs.gov

The bottom line is: Taxpayers should file their past due tax returns if required to file in order to avoid any possibilities of being accused of tax evasion. It is one thing when you take the time and send in your past due tax returns. But when the IRS has to locate you, contact you and then communicate with you, that's another thing.

Regardless of how bad a taxpayers situation is, it is ALWAYS best if you file your past due tax returns BEFORE the IRS contact you.

For affordable help in filing your past due returns and providing a correct, honest and acceptable return, contact: http://taxeswilltravel.com/pdr.htm

Installment Agreements for Past Due Taxes

We help taxpayers file back taxes.

One of the major questions that come up once we have completed the past due tax returns, is an Installment Agreement with the IRS for the unpaid taxes.

The tax code says the IRS must agree to accept the payment of your tax liability in installments if, as of the date you offer to enter into the agreement:

1. Your total taxes (not including interest, penalties, additions to the tax, or additional amounts) do not exceed $25,000

2. In the last 5 years, you (and your spouse if the liability relates to a joint return) have not:

a. Failed to file any required income tax returns
b. Failed to pay any tax shown on any such return, or
c. Entered into an installment agreement for the payment of any income tax,

3. You show you cannot pay your income tax in full when due.

4. The tax will be paid in full in 5 years or less and

5. You agree to comply with the tax laws while your agreement is in effect.

These tax laws are subject to change. To view the most recent tax codes visit irs.gov

To request an Installment Agreement, use Form 9465, Installment Agreement Request. You should receive a response within 30 days.

For help with past due tax returns, visit: http://www.taxeswilltravel.com/past_due_returns.htm

The ABCs of Traditional IRAs

IRA stands for Individual Retirement Account. Because of the many different tax codes concerning IRAs, it can be confusing. IRAs were established in 1975 and employees without a retirement plan could put $2000 into a retirement fund.


The original IRA, sometimes called a regular IRA is referred to as a “Traditional IRA”


There are 2 advantages to a Traditional IRA


*You may be able to deduct some or all of your contributions to a traditional IRA
*Amounts in your IRA are not taxes until you take the money out.


You can set up a traditional IRA at any time. You can set up different IRAs with either a bank, a mutual fund, or life insurance company. You can also set up a Traditional IRA through your stockbroker.


All IRAs must meet the Internal Revenue Code requirements.


Each year the maximum amount that you can contribute to an IRA changes. (This is one of the many laws that Congress votes on and changes each year)


Individuals who are over a certain age (50+) can contribute more then individual who are younger.


Contributions to your IRA cannot be made to a Traditional IRA after you reach the age of 70 ½, or for any later years. (You can contributed in a ROTH IRA up until any age)


Rollover


No, we are not talking to the dog.....


You can withdraw, TAX FREE, all or part of your Traditional IRA if you reinvest it within 60 days in the same or another Traditional IRA. This is called a “rollover” - rolling over money from

There are restrictions as to when you can make a tax-free rollover from that same IRA account.


Penalties


Generally, if you are under the age of 59 ½, you must pay a 10% additional tax on any distributions from your Traditional IRAs. Distributions before you are 59 ½ are called early distributions.


Exceptions


You may not have to pay a 10% penalty if one of the following situations apply:


* you have high medical expenses
* the distributions are not more then your medical insurance
* you are disabled
* you are the beneficiary of a decreased IRA owner
* you are receiving distributions in the form of an annuity
* the distributions are not more than your qualified higher education expenses
* you use the distributions to buy, build or rebuild a first home
* the distribution is due to an IRS levy of the qualified IRA plan.
Distributions from a Traditional IRA are taxable in the year that you receive them. (There are exceptions to this rule)


Prohibited Transactions


Improper use of your IRA could result in a 15% tax on the amount of the prohibited transaction.
Prohibited transactions would include transactions such as:


*Borrowing money from your Traditional IRA
*Selling property to your Traditional IRA
*Receiving unreasonable compensation for managing your Traditional IRA
*Using your Traditional IRA as a security for a loan
*Buying property for personal use with your Traditional IRA*



For more information visit irs.gov For affordable help with your past due returns, visit http://taxeswilltravel.com/