Posted by taxdrz on Wednesday, January 25th, 2012 , Posted in Tips , No Comments »
Tax evasion using foreign jurisdictions is accomplished using many different methods. Some can be as simple as taking unreported cash receipts and personally traveling to a tax haven country and depositing the cash into a bank account. Others are more elaborate involving numerous domestic and foreign trusts, partnerships, nominees, etc. The following schemes are not all-inclusive, but just a sample of abusive tax schemes.
Abusive Foreign Trust Schemes: The foreign trust schemes usually start off as a series of domestic trusts layered upon one another. This set up is used to give the appearance that the taxpayer has turned his/her business and assets over to a trust and is no longer in control of the business or its assets. Once transferred to the domestic trust, the income and expenses are passed to one or more foreign trusts, typically in tax haven countries.
As an example, a taxpayer’s business is split into two trusts. One trust would be the business trust that is in charge of the daily operations. The other trust is an equipment trust formed to hold the business’s equipment that is leased back to the business trust at inflated rates to nullify any income reported on the business trust tax return (Form 1041). Next the income from the equipment trust is distributed to foreign trust-one, again, which nullifies any tax due on the equipment trust tax return. Foreign trust-one then distributes all or most of its income to foreign trust-two. Since all of foreign trust-two’s income is foreign based there is no filing requirement.
Once the assets are in foreign trust-two, a bank account is opened either under the trust name or an International Business Corporation (IBC). The trust documentation and business records of this scheme all make it appear that the taxpayer is no longer in control of his/her business or its assets. The reality is that nothing ever changed. The taxpayer still exercises full control over his/her business and assets. There can be many different variations to the scheme.
International Business Corporations (IBC): The taxpayer establishes an IBC with the exact name as that of his/her business. The IBC also has a bank account in the foreign country. As the taxpayer receives checks from customers, he sends them to the bank in the foreign country. The foreign bank then uses its correspondent account in the to process the checks so that it never would appear to the customer, upon reviewing the canceled check that the payment was sent offshore. Once the checks clear, the taxpayer’s IBC account is credited for the check payments. Here the taxpayer has, again, transferred the unreported income offshore to a tax haven jurisdiction.
False Billing Schemes: A taxpayer sets up an International Business Corporation (IBC) in a tax haven country with a nominee as the owner (usually the promoter). A bank account is then opened under the IBC. On the bank’s records the taxpayer would be listed as a signatory on the account. The promoter then issues invoices to the taxpayer’s business for goods allegedly purchased by the taxpayer. The taxpayer then sends payment to the IBC that gets deposited into the joint account held by the IBC and taxpayer. The taxpayer takes a business deduction for the payment to the IBC thereby reducing his/her taxable income and has safely placed the unreported income into the foreign bank account.
Posted by taxdrz on Monday, January 23rd, 2012 , Posted in Tips , No Comments »
College can be very expensive. To help students and their parents, the IRS offers the following five ways to offset education costs.
1. The American Opportunity Credit
This credit can help parents and students pay part of the cost of the first four years of college. The American Recovery and Reinvestment Act modifies the existing Hope Credit for tax years 2009 and 2010, making it available to a broader range of taxpayers. Eligible taxpayers may qualify for the maximum annual credit of $2,500 per student. Generally, 40 percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes.
2. The Hope Credit
The credit can help students and parents pay part of the cost of the first two years of college. This credit generally applies to 2008 and earlier tax years. However, for tax year 2009 a special expanded Hope Credit of up to $3,600 may be claimed for a student attending college in a Midwestern disaster area as long as you do not claim an American Opportunity Tax Credit for any other student in 2009.
3. The Lifetime Learning Credit
This credit can help pay for undergraduate, graduate and professional degree courses – including courses to improve job skills – regardless of the number of years in the program. Eligible taxpayers may qualify for up to $2,000 – $4,000 if a student in a Midwestern disaster area – per tax return.
4. Enhanced benefits for 529 college savings plans Certain computer technology purchases are now added to the list of college expenses that can be paid for by a qualified tuition program, commonly referred to as a 529 plan. For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services.
5. Tuition and fees deduction Students and their parents may be able to deduct qualified college tuition and related expenses of up to $4,000. This deduction is an adjustment to income, which means the deduction will reduce the amount of your income subject to tax. The Tuition and Fees Deduction may be beneficial to you if you do not qualify for the American opportunity, Hope, or lifetime learning credits.
You cannot claim the American Opportunity and the Hope and Lifetime Learning Credits for the same student in the same year. You also cannot claim any of the credits if you claim a tuition and fees deduction for the same student in the same year. To qualify for an education credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.
Posted by taxdrz on Saturday, January 21st, 2012 , Posted in Tips , No Comments »
You can receive income in the form of money, property, or services. This section discusses many kinds of income that are taxable or nontaxable. It includes discussions on employee wages and fringe benefits, and income from bartering, partnerships, S corporations, and royalties. The information on this page should not be construed as all-inclusive. Other steps may be appropriate for your specific type of business.
Generally, an amount included in your income is taxable unless it is specifically exempted by law. Income that is taxable must be reported on your return and is subject to tax. Income that is nontaxable may have to be shown on your tax return but is not taxable. A list is available in Publication 525, Taxable and Nontaxable Income.
Constructively-received income. You are generally taxed on income that is available to you, regardless of whether it is actually in your possession.
A valid check that you received or that was made available to you before the end of the tax year is considered income constructively received in that year, even if you do not cash the check or deposit it to your account until the next year. For example, if the postal service tries to deliver a check to you on the last day of the tax year but you are not at home to receive it, you must include the amount in your income for that tax year. If the check was mailed so that it could not possibly reach you until after the end of the tax year, and you could not otherwise get the funds before the end of the year, you include the amount in your income for the next year.
Assignment of income.
Income received by an agent for you is income you constructively received in the year the agent received it. If you agree by contract that a third party is to receive income for you, you must include the amount in your income when the party receives it.
Example. You and your employer agree that part of your salary is to be paid directly to your former spouse. You must include that amount in your income when your former spouse receives it.
Prepaid income. Prepaid income, such as compensation for future services, is generally included in your income in the year you receive it. However, if you use an accrual method of accounting, you can defer prepaid income you receive for services to be performed before the end of the next tax year. In this case, you include the payment in your income as you earn it by performing the services.
Employee Compensation
Generally, you must include in gross income everything you receive in payment for personal services. In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options.
You should receive a Form W-2, Wage and Tax Statement, from your employer showing the pay you received for your services.
Childcare providers.
If you provide child care, either in the child’s home or in your home or other place of business, the pay you receive must be included in your income. If you are not an employee, you are probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. You generally are not an employee unless you are subject to the will and control of the person who employs you as to what you are to do and how you are to do it.
Babysitting.
If you babysit for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you.
Fringe Benefits
Fringe benefits you receive in connection with the performance of your services are included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law. Abstaining from the performance of services (for example, under a covenant not to compete) is treated as the performance of services for purposes of these rules.
Recipient of fringe benefit.
You are the recipient of a fringe benefit if you perform the services for which the fringe benefit is provided. You are considered to be the recipient even if it is given to another person, such as a member of your family. An example is a car your employer gives to your spouse for services you perform. The car is considered to have been provided to you and not your spouse.
You do not have to be an employee of the provider to be a recipient of a fringe benefit. If you are a partner, director, or independent contractor, you can also be the recipient of a fringe benefit.
Business and Investment Income
Rents from personal property. If you rent out personal property, such as equipment or vehicles, how you report your income and expenses is generally determined by:
Whether or not the rental activity is a business, and
Whether or not the rental activity is conducted for profit.
Generally, if your primary purpose is income or profit and you are involved in the rental activity with continuity and regularity, your rental activity is a business.
Partnership Income
A partnership generally is not a taxable entity. The income, gains, losses, deductions, and credits of a partnership are passed through to the partners based on each partner’s distributive share of these items. For more information, refer to Publication 541.
Partner’s distributive share.
Your distributive share of partnership income, gains, losses, deductions, or credits generally is based on the partnership agreement. You must report your distributive share of these items on your return whether or not they actually are distributed to you. However, your distributive share of the partnership losses is limited to the adjusted basis of your partnership interest at the end of the partnership year in which the losses took place.
Partnership return. Although a partnership generally pays no tax, it must file an information return on Form 1065, U.S. Return of Partnership Income. This shows the result of the partnership’s operations for its tax year and the items that must be passed through to the partners.
S Corporation Income
In general, an S corporation does not pay tax on its income. Instead, the income, losses, deductions, and credits of the corporation are passed through to the shareholders based on each shareholder’s pro rata share. You must report your share of these items on your return. Generally, the items passed through to you will increase or decrease the basis of your S corporation stock as appropriate.
S corporation return.
An S corporation must file a return on Form 1120S, U.S. Income Tax Return for an S Corporation. This shows the results of the corporation’s operations for its tax year and the items of income, losses, deductions, or credits that affect the shareholders’ individual income tax returns. For additional information, see the Instructions for Form 1120S.
Royalties
Royalties from copyrights, patents, and oil, gas and mineral properties are taxable as ordinary income. You generally report royalties in Part I of Schedule E (Form 1040), Supplemental Income and Loss. However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc., report your income and expenses on Schedule C or Schedule C-EZ.
For additional information, refer to Publication 525, Taxable and Nontaxable Income.
Bartering
Bartering is an exchange of property or services. You must include in your income, at the time received, the fair market value of property or services you receive in bartering.
Posted by taxdrz on Wednesday, January 18th, 2012 , Posted in Tips , No Comments »
The Internal Revenue Service receives thousands of reports each year from taxpayers who receive suspicious emails, phone calls, faxes or notices claiming to be from the IRS. Many of these scams fraudulently use the IRS name or logo as a lure to make the communication appear more authentic and enticing. The goal of these scams – known as phishing – is to trick you into revealing your personal and financial information. The scammers can then use your information – like your Social Security number, bank account or credit card numbers – to commit identity theft or steal your money.
Here are five things the IRS wants you to know about phishing scams.
The IRS never asks for detailed personal and financial information like PIN numbers, passwords or similar secret access information for credit card, bank or other financial accounts.
The IRS does not initiate contact with taxpayers by email to request personal or financial information. If you receive an e-mail from someone claiming to be the IRS or directing you to an IRS site:
• Do not reply to the message.
• Do not open any attachments. Attachments may contain malicious code that will infect your computer.
• Do not click on any links. If you clicked on links in a suspicious e-mail or phishing website and entered confidential information, visit the IRS website and enter the search term ‘identity theft’ for more information and resources to help.
The address of the official IRS website is www.irs.gov. Do not be confused or misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on the suspicious site and report it to the IRS.
If you receive a phone call, fax or letter in the mail from an individual claiming to be from the IRS but you suspect they are not an IRS employee, contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Report any bogus correspondence. You can forward a suspicious email to phishing@irs.gov.
You can help shut down these schemes and prevent others from being victimized. Details on how to report specific types of scams and what to do if you’ve been victimized are available at www.irs.gov. Click on “phishing” on the home page.
Posted by taxdrz on Monday, January 16th, 2012 , Posted in Tips , No Comments »
Get Ready for the Tax Filing Season with IRS Social Media
The Internal Revenue Service uses social media tools and platforms to share the latest information on tax changes, initiatives, products and services. These social media platforms include the IRS2Go phone application, YouTube, Twitter, Facebook and iTunes. A listing is available on IRS.gov.
IRS2Go
The IRS plans to offer even more features for its IRS2Go phone app for the 2012 filing season. The app is available for the iPhone and Android, and it’s free. Stay tuned for future updates.
YouTube
The IRS has short and informative YouTube videos on tax related topics in English, Spanish and American Sign Language (ASL). The channels have received nearly 2.2 million views. The main English channel is the fourth most-viewed federal government YouTube channel.
IRS Videos — http://www.youtube.com/irsvideos
ASL Videos — http://www.youtube.com/IRSvideosASL
Multilingual Videos — http://www.youtube.com/IRSvideosMultilingua
Twitter
IRS tweets include various tax-related announcements, news for tax professionals and hiring initiatives:
@IRSnews — http://twitter.com/irsnews
IRS news and helpful information for the public, the press and practitioners
@IRStaxpros — http://twitter.com/irstaxpros
IRS news and guidance for tax professionals
@IRSenEspanol — http://twitter.com/irsenespanol
Información, Comunicados de Prensa y Noticias en Español del IRS
(News and information in Spanish from IRS)
@RecruitmentIRS — http://twitter.com/recruitmentirs
IRS Human Capital Office
@YourVoiceatIRS — http://twitter.com/yourvoiceatirs
Taxpayer Advocate Service
Facebook
The IRS has four Facebook pages that focus on general taxpayers, return preparers, recruitment and taxpayer advocate issues:
IRS
IRS Return Preparer Office
IRS Recruitment
Taxpayer Advocate
iTunes
The IRS creates audio files for use as podcasts in English and Spanish. Each short audio recording provides information on one tax related topic. The audio files and their transcripts can be found in the Multimedia Center on IRS.gov. These files are also available as podcasts on iTunes.
Widgets
Widgets are tools that can be placed on websites, blogs or social media networks to direct others to IRS.gov for information. The IRS has developed a variety of widgets that feature the latest tax initiatives and programs. These widgets can be found on Marketing Express, the marketing site that allows IRS partners and tax preparers to customize their IRS communications products.
Posted by taxdrz on Friday, January 13th, 2012 , Posted in Tips , No Comments »
Progress on IRS forms and protecting your SSN
The IRS’s Social Security Number Elimination and Reduction (SSN/ER) Program has made significant strides in eliminating or reducing the use of SSNs within our systems, forms, notices and letters where the collection or use of the SSN was not necessary. We met the OMB 07-16 mandate to complete a review of the use of SSNs in all IRS Federal Information Security Management Act (FISMA) and non-FISMA systems. We also identified instances where the collection or use of the SSN was not necessary.
As of December 30, 2010, we successfully removed or redacted the SSN from 107 IRS Forms and 164 IRS Notices and Letters. In 2011, we built upon this effort with the initiation of a Barcoding Project for notices.
Barcoding Project
The Social Security Number Elimination and Reduction: Barcoding Project is a key component of the IRS’ continuous effort to protect taxpayer’s personally identifiable information. July 2011, marks the IRS’s elimination of SSNs from 13 IRS Notices, which will not request a payment remittance to be submitted and have an annual mail-out volume of more than 11 million. These 13 notices will only show the last four digits of the taxpayers SSN. This effort will ensure that the taxpayers’ SSN is not fully visible and discernible. We will continue to add additional taxpayer notices over the next few years. This protection will not require any change in behavior from the taxpayer when interacting with the IRS.
Full SSN not used on Economic Stimulus letters
We successfully redacted Social Security numbers from all 122, 757, 212 Economic Stimulus Letters (Notice 1378) sent to taxpayers.
Full SSN not used on Automated Collection System letters
We redacted Social Security numbers on numerous taxpayer sensitive, collection and enforcement related letters. During FY 2008 and FY 2009, more than 10 million collection notices were revised and in some cases SSNs were completely removed.
Compliance management tool tracks progress
We developed e-Trak, a tool to track, monitor and report ongoing SSN elimination and reduction compliance progress IRS-wide. This tool houses all SSN ER compliance data and establishes an electronic case file for those systems, notices, forms and letters using SSNs.
Posted by taxdrz on Wednesday, January 11th, 2012 , Posted in Tips , No Comments »
IRS Releases New Tax Gap Estimates; Compliance Rates Remain Statistically Unchanged From Previous Study
WASHINGTON — The Internal Revenue Service today released a new set of tax gap estimates for tax year 2006. The tax gap is defined as the amount of tax liability faced by taxpayers that is not paid on time.
The new tax gap estimate represents the first full update of the report in five years, and it shows the nation’s compliance rate is essentially unchanged from the last review covering tax year 2001.
The tax gap statistic is a helpful guide to the scale of tax compliance and to the persisting sources of low compliance, but it is not an adequate guide to year-to-year changes in IRS programs or to year-to-year returns on IRS service and enforcement initiatives.
The following table summarizes the new estimates being released today, as compared to the 2001 estimates, along with the total tax liabilities in each year.
The voluntary compliance rate — the percentage of total tax revenues paid on a timely basis — for tax year 2006 is estimated to be 83.1 percent. The voluntary compliance rate for 2006 is statistically unchanged from the most recent prior estimate of 83.7 percent calculated for tax year 2001.
On a relative basis, the tax gap is largely in line with the growth in total tax liabilities. In addition, some growth in the tax gap estimate is attributed to better data and improved estimation methods. For example, the IRS developed a new econometric model for estimating the tax gap attributable to small corporations which was then applied to newer operational data. Also, large corporation tax gap estimates for 2006 are based on improved statistical methods and updated data. Finally, the data related to individual income taxpayers continues to improve based on improved estimation techniques and newer data.
The tax gap can be divided into three components: non-filing, underreporting and underpayment.
As was the case in 2001, the underreporting of income remained the biggest contributing factor to the tax gap in 2006. Under-reporting across taxpayer categories accounted for an estimated $376 billion of the gross tax gap in 2006, up from $285 billion in 2001. Tax non-filing accounted for $28 billion in 2006, up from $27 billion in 2001. Underpayment of tax increased to $46 billion, up from $33 billion in the previous study.
Overall, compliance is highest where there is third-party information reporting and/or withholding. For example, most wages and salaries are reported by employers to the IRS on Forms W-2 and are subject to withholding. As a result, a net of only 1 percent of wage and salary income was misreported. But amounts subject to little or no information reporting had a 56 percent net misreporting rate in 2006.
Posted by taxdrz on Sunday, January 8th, 2012 , Posted in Tips , No Comments »
Identity theft often starts outside of the tax administration system when someone’s personal information is stolen or lost. Identity thieves may then use a taxpayer’s identity to fraudulently file a tax return and claim a refund. In other cases, the identity thief uses the taxpayer’s personal information in order to get a job. The legitimate taxpayer may be unaware that anything has happened until they file their return later in the filing season and discover two returns have been filed using the same Social Security number.
These are the IRS’ top tips to help you avoid becoming the victim of an identity thief.
1. The IRS does not initiate contact with taxpayers by email to request personal or financial information. The IRS does not send emails stating you are being electronically audited or that you are getting a refund.
2. If you receive a scam email claiming to be from the IRS, forward it to the IRS at phishing@irs.gov.
3. Identity thieves access your personal information by many different means, including:
-Stealing your wallet or purse
-Posing as someone who needs information about you through a phone call or email
-Looking through your trash for personal information
-Accessing information you provide to an unsecured Internet site.
4. If you discover a website that claims to be the IRS but does not begin with ‘www.irs.gov’, forward that link to the IRS at phishing@irs.gov.
5. To learn how to identify a secure website, visit the Federal Trade Commission’s website.
6. If your SSN is stolen, another individual may use it to get a job. That person’s employer may report income earned by them to the IRS using your SSN, thus making it appear you did not report all of your income on your tax return.
When this occurs, you should contact the IRS to show the income is not yours. After the IRS authenticates who you are, your tax record will be updated to reflect only your information. The IRS will use this information to minimize future occurrences.
7. Your identity may have been stolen if a letter from the IRS indicates more than one tax return was filed for you or the letter states you received wages from an employer you don’t know. If you receive such a letter from the IRS, leading you to believe your identity has been stolen, respond immediately to the name, address or phone number on the IRS notice. If you believe the notice is not from the IRS, contact the IRS to determine if the letter is a legitimate IRS notice.
8. If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost wallet, questionable credit card activity, or credit report, you need to provide the IRS with proof of your identity. You should submit a copy of your valid government-issued identification, such as a Social Security card, driver’s license or passport, along with a copy of a police report and/or a completed IRS Form 14039, Identity Theft Affidavit, which should be faxed to the IRS at 978-684-4542. Please be sure to write clearly.
As an option, you can also contact the IRS Identity Protection Specialized Unit, toll-free at 800-908-4490. IPSU hours of Operation: Monday – Friday, 8:00 a.m. – 8:00 p.m. your local time (Alaska & Hawaii follow Pacific Time).
You should also follow FTC’s guidance for reporting identity theft
9. Show your Social Security card to your employer when you start a job or to your financial institution for tax reporting purposes. Do not routinely carry your card or other documents that display your SSN.
10. For more information about identity theft, including information about how to report identity theft, phishing and related fraudulent activity, visit the IRS Identity Theft Protection page, which you can find by searching identity theft on the IRS.gov home page.
11. IRS impersonation schemes flourish during tax season and can take the form of email, websites, even tweets. Scammers may also use a phone or fax to reach their victims. If you receive a paper letter or notice via mail claiming to be the IRS but you suspect it is a scam, check the IRS phishing page at IRS.gov/phishing to determine if it is a legitimate IRS notice or letter. If it is a legitimate IRS notice or letter, reply if needed. If the caller or party that sent the paper letter is not legitimate, contact the Treasury Inspector General for Tax Administration at 800-366-4484. You may also fax the notice/letter you received plus any related or supporting information to TIGTA. Note: This is not a toll-free FAX number 202-927-7018.
12. While preparing your tax return for electronic filing, make sure to use a strong password to protect the data file. Once your return has been e-filed, save the file to a CD or flash drive and then delete the personal return information from your hard drive. Store the CD or flash drive in a safe place, such as a lock box or safe. If working with an accountant, you should query them on what measures they take to protect your information.
13. If you have information about the identity thief that impacted your personal information negatively, file an online complaint with the Internet Crime Complaint Center. The IC3 gives victims of cyber crime a convenient and easy-to-use reporting mechanism that alerts authorities of suspected criminal or civil violations. IC3 sends every complaint to one or more law enforcement or regulatory agencies that have jurisdiction over the matter.
Posted by taxdrz on Thursday, January 5th, 2012 , Posted in Tips , No Comments »
Two Extra Days to File and Pay
Taxpayers across the nation will have until Tuesday, April 17, 2012, to file their 2011 income tax returns and pay any taxes due. Taxpayers have extra time because April 15 falls on Sunday, and Emancipation Day, a holiday in the District of Columbia, is observed the following day on Monday, April 16. By law, filing deadlines that fall on D.C. holidays are extended to the next day that is not a Saturday, Sunday, or holiday.
The April 17 deadline applies to any return or payment normally due on April 15. It also applies to the deadline for requesting a tax-filing extension and for making 2011 IRA contributions.
Tax Benefits Extended
Legislation, enacted in December 2010, extended several popular tax benefits, including the American opportunity credit for parents and students, the enhanced child tax credit and the expanded Earned Income Tax Credit. Details on these and many other deductions and credits are in Publication 17.
Limited Nonbusiness Energy Property Credit Available in 2011
This credit generally equals 10 percent (down from 30 percent the past two years) of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $500 (down from the $1,500 combined limit that applied for 2009 and 2010). In addition, the energy standards are increased for most property; windows, exterior doors and skylights, for example, must meet Energy Star Program requirements.
Because of the way the credit is figured, in many cases, it may only be helpful to people who make energy-saving home improvements for the first time in 2011. That’s because homeowners must first subtract any nonbusiness energy property credits claimed on their 2006, 2007, 2009 or 2010 returns before claiming this credit for 2011.
The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items do not. See Form 5695 and its instructions for details.
Repayment of First-Time Homebuyer Credit
Taxpayers who claimed the first-time homebuyer credit for a home bought in 2008 must generally make the second of 15 annual repayment installments on their 2011 return. Report this repayment on Form 1040 Line 59b.
Separately, a repayment requirement also applies where a taxpayer purchased a home and claimed the credit on a prior year return and then sold it or stopped using it as a main home in 2011. Use Form 5405 to report the repayment.
Though the credit has expired for most homebuyers, certain members of the armed forces and some other taxpayers who bought a home early in 2011 may still qualify for the credit on their 2011 return. See Form 5405 and its instructions for details.
New Way to Report Capital Gains and Losses
In most cases, taxpayers now use new Form 8949 to report capital gain and loss transactions. Schedule D, the form traditionally used to show these individual transactions, is now used as a summary sheet, reporting amounts for total sales price, basis and other adjustments for all individual transactions, and for figuring the tax. For securities both bought and sold in 2011, the Form 1099-B, issued by the broker, normally shows the taxpayer’s basis. The information on this form will help taxpayers correctly fill out Form 8949. See the instructions for Form 8949 and Schedule D for details.
Reporting Roth Conversions
As in 2010, income limits no longer apply to rollovers or conversions to Roth IRAs from other retirement plans. However, unlike 2010 conversions, all of the income resulting from a 2011 conversion must be included on the taxpayer’s 2011 return. See Form 8606 and its instructions for details.
For 2010 conversions, only half of the resulting income must be included in income in tax-year 2011 and the other half is reported in 2012, unless the taxpayer chose to include all of it in income for 2010. For those who did not make this choice, report the taxable amount on either Line 15b or Line 16b of Form 1040 for 2011. See the instructions to Form 1040 for details.
Standard Mileage Rates Up in 2011
The standard mileage rate for business use of a car, van, pick-up or panel truck is 51 cents a mile for miles driven during the first six months of 2011 (January through June) and 55.5 cents a mile for the rest of the year, up from 50 cents for 2010.
The rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 19 cents a mile from January through June and 23.5 cents a mile after that, up from 16.5 cents per mile in 2010.
The rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.
AMT Exemption Increased
For tax-year 2011, the alternative minimum tax exemption increases to the following levels:
$74,450 for a married couple filing a joint return and qualifying widows and widowers, up from $72,450 in 2010.
$37,225 for a married person filing separately, up from $36,225.
$48,450 for singles and heads of household, up from $47,450.
Health Insurance Deduction for Self-Employed People
In 2011, eligible self-employed individuals and S corporation shareholders can use the self-employed health insurance deduction to reduce their income tax liability. Eligible taxpayers still claim this deduction on Form 1040 Line 29. Premiums paid for health insurance covering the taxpayer, spouse and dependents generally qualify for this deduction. In addition, premiums paid to cover an adult child under age 27 at the end of the year, also qualify, even if the child is not the taxpayer’s dependent. However, the deduction from self-employment income for determining self-employment tax, which was available only in tax-year 2010, no longer applies.
As before, the insurance plan must be set up under the taxpayer’s business, and the taxpayer cannot be eligible to participate in an employer-sponsored health plan. For details see Publication 17 and the instructions to Form 1040 (including a worksheet).
Change for HSAs and MSAs
Starting in 2011, the additional tax on distributions from a health savings account (HSA), not used for qualified medical expenses, increases from 10 percent to 20 percent. Report on Form 8889. Similarly, the additional tax on distributions from an Archer medical savings account (MSA), not used for qualified medical expenses, rises from 15 percent to 20 percent. Report on Form 8853.
New Form for Reporting Foreign Financial Assets
Taxpayers must report specified foreign financial assets on new Form 8938, if the aggregate value of those assets exceeds certain thresholds. This new requirement is designed to improve tax compliance by taxpayers with offshore financial assets. Form 8938 is separate from and does not replace the existing requirement that U.S. persons with financial accounts located in a foreign country report those accounts to the Treasury Department using Form TD F 90-22.1. Unlike Form TD F 90-22.1, Form 8938 is attached to a taxpayer’s income tax return. Individuals who do not have an income tax return filing requirement need not file Form 8938.
The Form 8938 filing requirement applies to U.S. citizens and resident aliens, nonresident aliens who elect to file a joint income tax return and certain nonresidents who live in a U.S. territory. Form 8938 is required when the total value of specified foreign assets exceeds certain thresholds. For example, a married couple living in the U.S. and filing a joint tax return would only file Form 8938 if their total specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
The thresholds for taxpayers who live abroad are higher. For example, a married couple living abroad and filing a joint return would file Form 8938 if the value of specified foreign assets exceeds $400,000 on the last day of the tax year or more than $600,000 at any time during the year.
The instructions to Form 8938 explain the thresholds for reporting, what constitutes a specified foreign financial asset, how to determine the total value of relevant assets, what assets are exempted, and what information must be provided.
Posted by taxdrz on Tuesday, January 3rd, 2012 , Posted in Tips , No Comments »
WASHINGTON — 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.
