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Entries in Tax Returns (45)

Sunday
Mar032013

Non-Profit Urges Tax-filers to Save Tax Refund

iStockphoto/Thinkstock(NEW YORK) -- A non-profit group hopes to encourage tax filers to save a portion of their tax refund through a contest.

Doorways to Dreams (D2D) Fund is a non-profit group based in Allston, Mass. and founded by a former Harvard Business School professor, Peter Tufano. The group is awarding $25,000 to a grand prize winner and 40 weekly drawing prizes of $250 each to those over age 18 who use Form 8888 when they file their taxes with the IRS and put at least $50 in a savings vehicle. After participants file their taxes, they must also register at www.saveyourrefund.com by April 15 to enter the sweepstakes.

D2D, whose mission is to strengthen the financial security and opportunity of low- and moderate-income consumers, is using funding from Capital One Bank’s Investing for Good program, the Annie E. Casey foundation and other philanthropic sources for the contest.

Since the contest launched Feb. 1, Timothy Flacke, executive director of D2D, said it has received hundreds of entries.

“The reason we’re doing it is to shine a spotlight on this opportunity that savings represent,” Flacke said.

Because many middle- and low-income tax filers receive large tax refunds this time of year, “it’s the best time of year to try to save,” he said.

The sweepstakes’ website highlights the stories of a number of the weekly winners, some of whom say that until the contest, they had not heard of the little-known IRS program that allows you to invest your tax refund in a savings vehicle.

“We know a lot of people don’t understand an IRS infrastructure exists to have large refunds to an IRA, prepaid card and savings bond,” Flacke said. “The idea is to shine a spotlight on this and to bring an element of fun.”

President Obama announced the Tax Time Savings Bond plan in September 2009.

About 45,000 Americans have saved $11 million in U.S. savings bonds at tax time with a portion of their tax refund, with an average of $244 per family, according to D2D in 2011; and 73 percent of the 2011 users of the tax time savings bond policy had household incomes, or adjusted gross income, below $50,000.

Copyright 2013 ABC News Radio

Thursday
Jan242013

IRS Pushes Back Tax Filing Season Eight Days

iStockphoto/Thinkstock(NEW YORK) -- The IRS has delayed the start of this year's tax filing season by eight days.

The window for accepting 2012 tax returns will now open on Wednesday, meaning many early filers will get their refunds late.

"Early filers are all about my refund, 'I want my refund now,' so that's going to impact them negatively," says Bob Meighan of Turbo Tax.

He says the IRS' decision to delay the processing of all returns until Jan. 30 was the result of the late debate in Congress over the so-called "fiscal cliff."

So how long will it take to process electronic returns?

"The IRS is now giving guidance that it's going to be as long as 21 days, but that's to set the expectation of 21 days.  Normally, we find the processing is much quicker," Meighan says.

Copyright 2013 ABC News Radio

Friday
Dec282012

IRS Year-End Tax Saving Tips

iStockphoto/Thinkstock(NEW YORK) -- While the looming fiscal cliff makes America’s financial future uncertain, what is certain is that taxpayers will shell out more money to the government in 2013.

And while it’s impossible to determine exactly what type of increases taxpayers will see, there are still ways to help you save money in 2012.

To help you get started, ABC News spoke to Scott Cramer, a financial planner and president of Cramer & Rauchegger, and found some savings on IRS.gov to assist taxpayers.

Donate: You have five days to make a donation to a charitable organization for a tax deduction.  Check the IRS website for detailed information on charitable donations.

Fund a Retirement Plan: If you have a 401(k), try to max it out this year.  If your company does not offer a retirement plan, then you should consider Roth IRA or a traditional IRA.  You can donate to these up until the tax filing deadline in April.

Tax Harvesting: With tax rates expected to go up, consider selling some highly appreciated stock.  If you want to minimize your tax liabilities, sell some losers and some gainers, says Cramer.

Avoid a Wash Sale: Do not purchase the same stocks sold to minimize tax liabilities in the next 30 days because that's considered a wash sale, which means you will cancel out your sale.  You can find the rules on capital gains and losses on the IRS website.

Get Rid of Poor Performers: ”Capital gains taxes are going up and going away,” said Cramer.  With taxes on stock gains expected to increase from about 15 percent to 20 percent, take a look at all the stock you own and consider selling shares that are laggards.  “Your stock has to go up five percent just for you to break even, and there is expected to be a 3.8 tax levy on stock as of Jan. 1st.  You have to expect any stock you own to appreciate by 8 percent to break even,” said Cramer.

Close on a Home: If your home purchase is in the final stages, attempt to close by Dec. 31 to avoid an expected 3.8 percent tax.  See Realtor.org for scenarios on the expected 3.8 percent investment income tax, which does not apply to gains under $500,000.

Organize Receipts: Take some time to organize tax receipts before sitting down with your accountant or financial planner.  Do not forget distributions or rollovers from retirement funds.

Earned Income Tax Credit: If you earn under $45,068, then you may be eligible for a tax credit.  Check out the IRS website for details on eligibility.

Don’t Forget the Child Tax Credit:  Taxpayers may be able to reduce their federal income tax by up to $1,000 for each qualifying child under the age of 17.  Check out these 10 facts to determine if you meet the criteria for a tax credit.

Make Last-Minute Tuition Payments: The American Opportunity Tax Credit, which was created to help parents and students pay for college expenses, is expected to expire at the end of the year.  Check to see if you are eligible for the maximum $2,500 per student annual tax credit.

Last-Minute Energy-Efficiency Purchases: The federal government offers tax credits for homeowners who purchase energy-efficient products.  You can check online to determine what products are eligible for the tax credit.

Copyright 2012 ABC News Radio

Tuesday
Apr172012

Tax Day: Still Haven't Filed Your Returns? Opt for an Extension

iStockphoto/Thinkstock(NEW YORK) -- Are you freaking out because you haven’t filed your taxes yet?

Relax, says New York tax accountant Janice Hayman.  “Do yourself a favor and file the extension and then you can file your return once you have a moment to breathe,” she says.

While April 15 is typically the tax-filing deadline, taxpayers received a two-day reprieve this year, pushing Tax Day to the 17th of the month.  But many people wait until the last day before mailing their annual returns.

Filers who rush through their forms are making a costly error.

“Frequently the mistakes are not in their favor,” says Hayman.  “They underestimate expenses or even worse they could underestimate income and that could certainly cause them more pain.”

Simple math mistakes are among the most frequent problems with taxpayers’ returns.  And these goofs can lead to questions from the IRS.

“Once you do your taxes you want to put them to bed,” says personal finance writer Farnoosh Torabi.  “You don’t want to hear from the IRS again unless it’s a refund check.  You don’t want to hear from the IRS saying you have to fill out the form again or we’re going to audit you.”

That’s why Hayman and nearly every other tax preparer says don’t do your paperwork in a rush.

“They should absolutely take their time and file that extension,” she says.  “You can do it electronically.  You can download a form and mail it in to the IRS or to your state.”

The IRS extension form is 4868, which you can get from the IRS' website.  While this gives you an additional six months to file, anything you owe on your 2011 taxes is due now.  You can send in a check with the extension form.

Another argument for filing an extension is that Tax Day is probably the worst day of the year to get your tax questions answered by a professional.

“It’s very hard right now to get somebody who’s coherent,” says Hayman.  “Taxpayers should take a step back, relax a moment and understand there’s no penalty for filing an extension.”

Copyright 2012 ABC News Radio

Monday
Apr162012

Seven Tax Deductions That Set Off Alarms

Comstock/Thinkstock(NEW YORK) -- With only one day before the Internal Revenue Service's April 17 deadline, here's a look at a range of common and uncommon tax loopholes that, depending on your career, border on gray to you, but to auditors can come across as flashing red lights:

Guard Dogs

If you have certified guard dogs for your business, they may be deductible.  Philadelphia tax attorney Kelly Phillips Erb said they can't be "junkyard dogs" to be deductible.

Similarly, private jets that are purchased for security reasons could be deductible for corporations, and not just if they offer convenience or comfort, Erb said.

Gambling

Casual gamblers may not realize they can deduct their gambling losses as professional gamblers do.  There are some things to note, however, said Erb. 

First, you may deduct gambling losses only if you itemize deductions, which Erb said is only a third of tax filers.

Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races, and casinos, cash winnings and the fair market value of prizes like cars and trips.

Second, the amount of losses you deduct can't exceed the amount of gambling income reported on your return.  That rule doesn't apply to professional gamblers.

"If it's your real job and you lose money, then you can deduct those losses," she said.  "But if you're just a casual gambler, you're out of luck if you always lose."

Home Office Costs

"You could find a million things for home offices that people can wrongly think they can deduct," Erb said.  But unless your home office is your primary place of business, auditors will take note if you deduct for related costs.

Many people treat their kitchen table or living room as their home office or home office storage area, but it's often not a primary place of work.

"If you choose to work from home because you want to, that doesn't create a home office," Erb said.

Clothing

Ted Schwartz, president and chief investment officer of Capstone Investment Financial Group and ABC News personal finance columnist, said he once had a client who was a professional wrestler who tried to deduct formal clothing he wore for interviews or other public appearances.  His reasoning was that he would never wear suits unless for work.

"I told him, 'if you have a wrestling uniform, that's an expense,' but clothing is not," Schwartz said.

Erb has a friend who works at a high-end retail store and is required to wear acceptable, nice clothing.  She wanted to deduct for the costs, which were significant on her budget, because said she said she would not wear that clothing of her own volition.

"She would never wear that clothing outside of work, but the IRS doesn't care," she said.

Legal Expenses

Certain personal legal expenses could be deductible to a degree, said Erb.

"Sometimes you can write off legal expenses if they are related to producing income," she said.

Writing off tax services from a divorce attorney could be deductible.  Writing off legal services related to a custody battle would probably not be.

Travel and Entertainment

Writing off travel and entertainment expenses is considered "low-hanging fruit" for auditors.

Mixing business with pleasure usually means a meal or trip is not deductible, said Erb.

"I've had a lot of folks who try to claim related expenses, which is where the fraud tends to be," she said.

Diet and Fitness Costs

While health and diet expenses that are prescribed by a physician can be deductible, advice from a doctor will not support an expense you try to write off.

"Dieters will say their doctor instructed them to lose weight," Erb said.  "Or they try to deduct a club membership because the doctor said to exercise more.  Those are only deductible if they are prescribed.  Not if a doctor just told them to do something."

Copyright 2012 ABC News Radio

Wednesday
Apr112012

10 Tips for Late Tax Filers

iStockphoto/Thinkstock(NEW YORK) -- With less than one week to go, the Internal Revenue Service's April 17 tax deadline is quickly approaching.  But don't fear -- here are 10 last-minute tips to help you file accurately and get the maximum refund:

1. You can file for a six-month extension.
Instead of ignoring the deadline, it's best to apply for an extension of time to file.  Keep in mind this is not an extension of time to pay. "Don't be afraid of an extension, filing for an extension is not necessarily an audit trigger," Philadelphia tax attorney Kelly Phillips Erb said.  "It's better to file a complete, correct return than a messy, rushed return on time."

2. Pay something if not the full amount.
The IRS advises you to file your return on time and pay as much as you can then, allowing you to cut down on interest charges.  While you have to make "a payment" to the IRS on or by April 17, that payment can be as little as $1.  Pay that minimum, and you won't have broken any rule.  However, you will have to pay interest to the IRS on what you owe, plus any penalties.

3. Gather relevant documents.
If you haven't already, it's time to dust off the W-2 forms that your employer may have mailed you earlier this year and your year-end charitable statements from December for charitable deductions. Phillips suggests you have your tax return from 2010, relevant forms from your student loan lender, such as a Form 1098-E, or investment company for your interest earned, such as a form 1099-INT.

4. E-file.
Last year, 78 percent of taxpayers filed electronically, which the IRS calls the fastest and safest way to file your taxes, and that number is expected to increase this year.  Not only do you get your refund faster, but you can have different payment options including paper check and credit card.

5. Find the closest post office.
In case you are among the 22 percent who do not e-file, it may be a good idea to find the location of the nearest post office and its business hours on April 17.  If you're not using the U.S. Postal Service to file but instead are using a private delivery service, such as UPS and FedEx, make sure the IRS approves the service.

6. Don't gloss over the simple things.
Don't go on auto-pilot when you write your Social Security number and dependent's name.  Incorrect SSNs and misspelled dependent's last names are among eight common tax-time avoidable errors, the IRS said.  People also make mistakes for mathematical computations and choosing one of the five filing statuses, which include "single," "married filing jointly" and "married filing separately."  Don't forget to sign and date your return, which is also a common error.

7. Avoid the "dirty dozen."
The IRS has a list of 12 tax scams to avoid, dubbed the "Dirty Dozen Tax Scams."  Make sure you're not giving the appearance of attempting any.  After the top scam of identity theft, the others include the abuse of charitable deductions, fraudulent tax preparers, falsely inflating income and expenses, and creating a fake or misleading Form 1099 Original Issue Discount (OID), which is used to report taxable interest income from bonds, notes or other long-term debt instruments.

8. Don't assume the tax forms are exactly the same as the previous year.
Phillips said one of the most common questions she has received this year relates to filers who are looking for a "Schedule M" form, which was used to determine the Making Work Pay Credit.  But the Making Work Pay Credit expired for the 2011 tax year.  The credit was replaced by the payroll tax "holiday" this year.  Among the other tax law changes the IRS points out is some people may have to file capital gains and losses on new Form 8949 and report the totals on Schedule D.  If you have foreign financial assets, you may have to file new Form 8938.  On page one of the 2011 IRS Tax Guide for individuals is a list of other changes, including a new standard mileage rate for business use of your car.

9. It's not too late to contribute to your retirement account for a possible tax-deduction.
If you haven't contributed to your retirement account, you have until April 17 to do so, said Kevin Starkey, managing partner, Capstone Investment Financial Group.  Those include a traditional or Roth individual retirement arrangement, or IRA.  If you are single and not an active participant, your maximum deductible contribution is $5,000 or $6,000 if you will be age 50 or older by year-end.

10. Avoid "frivolous arguments."
The IRS imposes penalties on filers making what it calls "frivolous arguments," including maintaining that the federal income tax system is "voluntary."  Laws allow the U.S. Tax Court, a federal trial court, to impose a penalty of up to $25,000 when it appears that: a taxpayer instituted or maintained a proceeding primarily for delay, a taxpayer's position in such proceeding is frivolous or groundless, or a taxpayer unreasonably failed to pursue administrative remedies.

Copyright 2012 ABC News Radio

Tuesday
Mar202012

Online Tax Prep: Is It Cheap and Safe?

iStockphoto/Thinkstock(NEW YORK) -- Online tax tools -- many offering free advice -- can make filing your return this year a breeze.  But beware: People who file online should heed two cautions.

First, the price you'll pay to file for online tax prep programs may be higher than the one that's advertised.

Second, after you have filed, be sure to take precautions to protect yourself against identity theft.

All the major online tax-help providers, including household names such as TurboTax and H&R Block, offer comparable services at comparable advertised prices.  Each website gives you the option of buying tax software and then downloading it (so you can file a printed return); or of using the website to do your return entirely online.

For example TurboTax, for a basic federal return, quotes a price of $29.95 to download and $19.95 to file online.  If you choose the latter option, most sites don't bill you until the very end of the filing process, after you've entered your data and completed your return.

But between start and finish, added fees can accrue.  Some sites, for example, try to up-sell you additional services and features -- like audit or fraud protection -- without always making clear that you'll be charged extra for them at checkout.

Filing state taxes also costs you more -- sometimes much more -- a fact that's easy to overlook on some sites.  And more complicated returns -- ones involving, say, itemized deductions or personal businesses -- may incur higher fees.

Sneaky?  Not at all.  Anybody who reads the websites carefully at the outset understands that he or she can wind up paying more than the promoted price.  Still, if you file online, you aren't told the total cost until you've done all the work and entered all your data, which makes you something of a hostage to the process.

Enter new, flat-fee providers such as TaxSlayer and OnePriceTaxes.

OnePriceTaxes, as its name implies, charges a single flat fee, regardless of whether the filer's return is simple or complex.  Total cost is disclosed up-front, and there are no hidden fees.  There's also no extra charges for the efiling of state taxes.

On OnePrice, a federal or state return costs $9.95.  A federal and state return, combined, cost $14.95.

If you do opt to efile, take a few precautions to make sure you don't leave your data vulnerable to identity thieves.

If you file the old fashioned way -- on paper -- then you'd want to shred tax documents you no longer need. Also do the same with your electronic documents.

For Apple users, says security consultant Securosis, that's easy: Macs come with what amounts to a built-in shredder, "Secure Empty Trash," listed in the Finder menu.  By selecting it, you overwrite your data, making recovery of it by thieves all but impossible.

PC users can delete a document and then empty their recycle bin.  For greater security, they can buy document-shredding software, such as Erasure or File Shredder, that overwrite their data.

Any tax documents you want to retain should be stored, says the Identity Theft Resource Center, on a password-protected USB thumb drive or external hard drive.  Drop these in a safe deposit box or put them in your home safe.

Copyright 2012 ABC News Radio

Thursday
Mar152012

Bizarre Tax Claims: Man Claims Politician as a Deduction

Comstock/Thinkstock(MINNEAPOLIS) -- Elected officials are on the public payroll, but claiming a politician as a tax deduction on your 1040 because you pay their salary will not go over well with tax authorities.  That’s just one example of actual tax deductions attempted by U.S. citizens.

The Minnesota Society of Certified Public Accountants has just released its second annual list of strange tax deductions.  The deductions were removed by a CPA after they advised the taxpayer that leaving them on a tax return would trigger a letter from the IRS.

Here is the MNCPA's list of strange and unacceptable deductions for 2011:

-- Questionable Dependents: One woman wanted to include the months she was pregnant in 2011, even though she relinquished rights upon the child’s birth; another taxpayer wanted to claim his elected official because he “pays his salary.”  Yet another taxpayer wanted to claim a former spouse.

-- Disallowed Charitable Donations:
The market value of whole blood that the taxpayer donated; a $100,000 deduction for burning down an old cabin; gambling losses; private school tuition; raffle tickets.

-- "Fido" as a Business Expense: Pets proved popular with taxpayers wanting to deduct everything from pet food to vet bills.

-- Inflated Mileage Calculations: A handyman proposed to take a $25,000 mileage deduction, even though he had only $10,000 in revenue.  He justified it by saying he drove 50,000 business miles in one year.

-- Creative Medical Expenses: A rental house in Arizona for the taxpayer’s health; an in-ground swimming pool without a doctor’s order; a spouse’s drug habit; breast implants and tummy tucks.

-- Unscrupulous Business Travel and Entertainment Deductions: A personal luxury car; three country club memberships; a motor home and the full cost of a wedding.

-- An attorney’s fees for a divorce were considered an "investment" by the former spouse.

Copyright 2012 ABC News Radio

Tuesday
Mar132012

Survey: Fewer People Plan to Spend Their Tax Refunds on Vacations

Comstock/Thinkstock(NEW YORK) -- Using federal or state tax refunds to pay for a vacation seems like a good idea, but just 10 percent of Americans are planning to do so this year, a 20 percent drop from 2011.

The finding comes from a survey of 1,005 U.S. adults commissioned by TaxSoftware.com.  Most of the Americans surveyed said they will instead use their refunds to pay off debts or add to their savings or investments.

The decision to pay down debt rather than use the refund to cover a vacation is just one of several dramatic differences between surveys taken in 2011 and 2012.

Here’s a breakdown:

-- In 2011, 31 percent planned to use the refund to make home improvements.  For 2012, it’s 8 percent.
-- In 2011, 23 percent planned to use the refund to buy products such as cars, electronics or furniture. For 2012, it’s 8 percent.
-- In 2011, 15 percent planned to give their refund to charity.  For 2012, just 2 percent plan to do so.
-- In 2011, 59 percent planned to use the refund to pay off debts.  For 2012, it’s 29 percent.
-- In 2011, 19 percent planned to use the refund to mortgages or education loans.  For 2012, 5 percent.
-- In 2011, 66 percent planned to use the refund on savings and investments.  For 2012, it’s 27 percent.

Respondents were allowed to choose more than one way on how they plan to spend their refunds.

Copyright 2012 ABC News Radio

Tuesday
Feb282012

Tax Tip: Decoding the Ever-Changing Tax System

iStockphoto/Thinkstock(NEW YORK) -- The U.S. tax system -- federal, state and local -- is anything but simple.

"Our tax code is constantly changing," tax preparer Janice Hayman explains.

"Things are retroactively put into affect [when] they expire.  We have a lot of changes occurring for 2012 and into 2013," she adds.

Those changes may not affect most taxpayers and they do depend on Congress.  But if you have questions about your status it may be worth talking to a tax professional.  So, how do you make sure that person is qualified?

"Ideally you want a tax professional who is licensed.  There is one organization, the NAEA, that has a list of enrolled agents who are licensed tax professionals," Hayman says.

Enrolled tax agents have to take regular exams on the changing tax system.  To find out more, visit NAEA.org.

Copyright 2012 ABC News Radio







ABC News Radio