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Entries in Taxes (142)

Thursday
Mar142013

Tax Tip: What Are the Penalties of Filing Late?

iStockphoto/Thinkstock(NEW YORK) -- During tax season, many rush to get their taxes filed in time for Tax Day.  But what happens if you file your taxes late and you owe money?

Eric Smith of the Internal Revenue Service says there's a penalty for not filing on time.

"Most of the time it's five percent based on the unpaid balance for each month or part of a month that your return is late," Smith says.

That penalty starts right after the filing deadline.

"Even just within a few days after April 15th, you're already at the 5 percent level [for] May 15th then it moves up to 10 percent," he says.

So let's say your tax bill is a thousand bucks.  That becomes $1,100 a month after the deadline if you don't file.

The lesson from this?  Janice Hayman, a certified tax accountant, cautions, "Don't be the ostrich.  Don't hide."

Hayman says that you should file the return in a timely manner, and then talk to the IRS.

"They are very much aware of everybody's struggles, and they have installment agreements that you can enter," she says.

If you're not ready by April 15, you can file an extension.  But you will still face a penalty if you don't pay on time.

Copyright 2013 ABC News Radio

Wednesday
Mar132013

H&R Block Filing Snafu Delays 600K Tax Returns

Tim Boyle/Getty Images(NEW YORK) -- A filing error by America’s biggest tax preparation firm, H&R Block, could delay about 600,000 returns for up to six weeks.  Many of them are for students who need the tax receipt to apply for financial aid.

The IRS revealed the snafu, saying it involves Form 8863, which must be filed to qualify for the student tax credit.

H&R Block confirmed that for some customers its software did not complete the form, but the firm has not apologized to its customers.

A company statement says, “H&R Block has confirmed with the IRS that there was an issue with a limited number of software company products that affected some tax returns filed between Feb. 14 and 22, 2013.  These affected returns included certain education tax credits claimed on Form 8863.  H&R Block has worked with the IRS to expedite a solution to this issue for our affected clients.”

Upset customers have taken to H&R Block's Facebook page to complain.

"I just can't believe that nobody said anything. I have been a loyal customer of H&R Block for years, that is going to change... many of us count on that money," wrote Nicole Critchett.

Another customer, Angelo Adams, told ABC News affiliate WTVD-TV, "They could have sent out mass email to all their clients letting us know they have a problem, and the money's not there, and the money won't be there until we fix the problem."

Copyright 2013 ABC News Radio

Wednesday
Mar132013

Tax Tip: What Has Changed Since the Fiscal Cliff?

Ingram Publishing/Thinkstock(NEW YORK) -- At the end of last year there was a huge debate over government spending and taxes. But when the smoke cleared, today's complex system was left largely unchanged.

"It did extend some tax breaks that expired at the end of 2011 but for most people 2012 is basically unchanged and that's true even for the more affluent tax payers," says Bob Meighan with the tax prep firm TurboTax.

For most people the big change came at the start of the 2013 tax season.

"For the last couple of years there's been a two percent point reduction on the social security tax that folks paid on their wages or that self employed people pay," says Eric Smith with the Internal Revenue Service.

But Smith adds that special break went away on Jan. 1, meaning most people are paying more taxes this year.

"The rate that you pay returns to 6.2 percent on social security tax plus 1.45 percent for most people on Medicare," he notes.

Most people are paying that amount now.

Copyright 2013 ABC News Radio

Tuesday
Mar122013

Tax Tip: How to File Electronically for Free

iStockphoto/Thinkstock(NEW YORK) -- Put down that pencil and paper.  The Internal Revenue Service now makes it possible to do all of your calculations electronically -- and it's free.

"If your income is around $58,000 or less, you can use a variety of software that's available through the free file link on IRS.gov.  Then you can actually prepare your return and file it for free," explains Eric Smith with the IRS.

Smith says the software programs are the same ones you see on the shelves in stores.  If you're eligible, you can still use the free fillable forms on the IRS website.  They're essentially electronic versions of the 1040 and other forms.

"That's where you actually do e-file your return, but you use online forms," Smith says.  "It does some of the math for you, some of the verification.  Basically, it's for people who are comfortable with the tax forms, but still want the advantage of electronic filing."

Copyright 2013 ABC News Radio

Monday
Mar112013

Tax Tip: When Should You Itemize?

iStockphoto/Thinkstock(NEW YORK) -- Some pay more money in taxes than they should, as many people don't realize they can itemize their deductions.

"A common deduction that they don't think of are state and local taxes paid," says tax accountant Janice Hayman.  "All they have to do is look at their W-2 for state and local taxes."

Hayman says if you are above the threshold for itemizing, it can make a lot of sense to do this.

"It really does help.  A lot of people think, 'Oh I won't take just the standard deduction because then they won't audit me,' but many times a simple itemization won't be audited because it's all documented by outside sources," Hayman says.

But Kathy Pickering of H&R Block says the tactic isn't for everyone: many taxpayers don't have enough expenses to itemize.

"For the extra complexity of doing itemized deductions, if you don't get any additional tax benefit, then you may want to save yourself that additional effort," she says.

Copyright 2013 ABC News Radio

Friday
Mar082013

Top 15 Most Frequently Asked Tax Questions

iStockphoto/Thinkstock(NEW YORK) -- TurboTax's tax experts have fielded thousands of questions from tax filers, and the questions tend to ebb and flow with changing economic times.

This year's most popular question is related to confusion over who can be claimed as a dependent, says Lisa Greene-Lewis, lead CPA with the American Tax and Financial Center at TurboTax.

"There is a lot of confusion about who people can claim as a dependent," Greene-Lewis says.  "There are parents moving in with kids and kids supporting them, or vice versa, with the changing economy."

Last year, the same question was also a frequently asked question.

"There are so many different areas and different specifics that people ask about this particular question," she says.

Here are TurboTax's top 15 most frequently asked questions compiled by TurboTax's experts:

Who can I claim as a dependent?

TurboTax says the short answer is that you can claim a "qualifying child" or "qualifying relative" if they meet specific requirements related to residence, relationship to you, age, financial support provided and income.  Even significant others or friends can qualify in some cases.

What is the earned income tax credit and how do I claim it?

This question is also a frequent question for hard times, but many low- and middle-income filers are not familiar with this credit.  Some families believe they don't make enough to file their taxes, but taxes must be filed to get this credit, which may help a family with three dependents receive a credit worth up to $5,891.

Does health care reform impact my 2012 taxes?


TurboTax encourages filers to relax because the requirement to purchase health care does not impact your 2012 or 2013 taxes.  That starts January 2014 (and won't need to be filed until the next year).  There may be exceptions based on income, religious beliefs and citizenship.

Are unemployment benefits taxable?


Yes, unemployment income is taxable income, TurboTax says.

Can I deduct the cost of searching for a job?  Are moving expenses for my new job tax-deductible?

Job search and moving expenses may be tax-deductible depending on distance and other factors, TurboTax says.

What are the tax implications of withdrawing money early from a retirement account to pay bills or debt?


TurboTax says withdrawing money early from a retirement account comes with a 10 percent tax penalty plus regular income tax on the amount withdrawn.  Watch out if that additional retirement money bumps you into the next tax bracket, which could affect Social Security taxes and other considerations.

What are qualified education expenses?  And when can I file?

TurboTax says there are a number of education credits and deductions, including the American Opportunity Credit, which was extended through 2012.  It benefits full-time and part-time college students with a maximum $2,500 credit per student, based on income requirements.

My house foreclosed.  How does that impact my taxes?

The Mortgage Forgiveness Debt Relief Act was extended another year through 2013, meaning homeowners don't have to pay taxes on the loss of their homes through foreclosures or short sales, up to $2 million (or $1 million if married filing separately).

I started my own business; can I deduct my home office expenses?

Though this is a legitimate tax deduction, expenses for a home office should be used exclusively and regularly for the home office, and not a space that is mixed residential and business.

Will January tax law changes impact my taxes?

The drama of the fiscal cliff came to a temporary end this year with the passing of The American Tax Relief Act of 2012, including "a permanent extension of the alternative minimum tax (AMT) patch, the permanent reduction of tax rates and the reinstatement of several tax deductions, including the educator expense deduction, the tuition and fees deduction, and state sales taxes in lieu of state income taxes," TurboTax experts say.

I was impacted by a natural disaster in 2012.  What tax breaks are available to me?

TurboTax says it's possible to take a tax deduction for "property loss claims not compensated by insurance or, in some special cases, when you're still waiting for compensation.  These are known as casualty losses and include hurricanes, floods, earthquakes, tornadoes, fire -- even vandalism and shipwrecks."

Am I eligible for a child and dependent care deduction?

"People often ask questions about what benefits are available in general, if you work and pay for child care," says Greene-Lewis.  She says some parents don't realize they can deduct the cost of summer camp if sending their child to one allows them to work.  If you work and pay for child care for your dependents under 13 years old you may be able to qualify for a deduction of up to $2,100, TurboTax says.

What is the eligibility for the child tax credit?

You can claim an additional $1,000 credit for each dependent child under the age of 17 if you meet income and support tests.

What are some other education credits available?

In addition to the American opportunity credit mentioned above, the lifetime learning credit helps with expenses related to post-secondary education, even if it's not a four-year program, and can be worth a credit as much as $2,000.

How do you find the value of non-cash charitable contributions?

With all the devastation last year related to Superstorm Sandy and other tragedies, many people volunteered time, money and donated their belongings.  You can deduct travel expenses if it's related to volunteering directly with a non-profit organization.  When it comes to the value of goods donated, you can deduct the fair market value at which they would re-sell an item.  TurboTax also has a tool called, "it's deductible," which estimates the fair market value of a good based on its characteristics.

Copyright 2013 ABC News Radio

Wednesday
Jan302013

Tax Filing Season Begins

iStockphoto/Thinkstock(NEW YORK) -- After being delayed by eight days because of Congress' debate over the so-called "fiscal cliff," the 2012 tax filing season has officially kicked off.  Taxpayers can begin filing electronically on Wednesday.

To make up for the lost time and get that refund check as soon as possible, expedite the process by getting all the necessary information ready.

"You need to gather all your income tax documents.  That's going to be your W2s, your 1099s, receipts for charitable contributions," says Kathy Pickering of H&R Block.

She says, "A great checklist is to look at your last year's return."

If you were hoping for a shortcut this year, you're out of luck.  Pickering says there haven't been many changes this year that could make filing easier.

The tax filing season was pushed back to Jan. 30 because Congress only this month passed legislation to address expired tax cuts.

Copyright 2013 ABC News Radio

Friday
Jan252013

Beware of Identity Theft When Filing Your Taxes

iStockphoto/Thinkstock(NEW YORK) -- With the start of the tax filing season just around the corner, the IRS is on alert for rising cases of identity theft and tax fraud.

Many taxpayers can become victims if they are not very careful about protecting their personal information.  In some cases, thieves grab W2 forms and other financial documents from mailboxes.

"The problem is there's way too much information about us floating around out there," says Adam Levin, CEO of the security firm Identity Theft 911. 

He says thieves have posed as tax accountants.

"They will take the name as a store front of a well known tax preparation company set up shop for a few days," Levin explains.  People will then go in to get their taxes done and "all of a sudden the store disappears," along with taxpayers' personal information.

The IRS is well aware of the problem.

"If you think you have been the victim of identity theft and your refund has been affected, contact the IRS," says spokesman Eric Smith.  "We have a process for handling that."

Levin says the number of cases of taxpayer identity theft reported to his firm has soared 800 percent since 2008.

Copyright 2013 ABC News Radio

Monday
Jan142013

United Airlines, American Airlines Accused of Running 'Sham Offices' to Dodge Taxes

Andrew Harrer/Bloomberg via Getty Images(CHICAGO) -- Chicago's Regional Transportation Authority is accusing United Airlines and American Airlines of operating "sham offices" in a suburban Illinois town and "dodging" millions of dollars in state sales taxes.

The Regional Transportation Authority (RTA), which helps fund bus and train systems in six counties, said the airlines are avoiding paying a higher 9.5-percent sales tax from their actual offices in Chicago and instead using "sham offices" in Sycamore, Ill., about 63 miles west of Chicago, thereby paying 8 percent in taxes.

Illinois collects sales tax based on where a company claims a purchase was "accepted."

RTA estimates that it has lost $96 million since 2005.

The RTA filed a lawsuit on Monday against United Airlines, which is based in Chicago, and is deferring formal action against American Airlines, based in Fort Worth, Texas, because it is involved in bankruptcy proceedings.

The RTA said both airlines buy and use millions of gallons of jet fuel in Chicago. But the RTA says United Airlines has claimed to "accept" jet fuel at its small office in a strip mall in Sycamore since 2001. American has done the same practice at its small office inside Sycamore's town hall since 2004.

Jordan Matyas, RTA chief of staff, said the RTA has spoken with other tenants in United's office building and was told part-time workers occasionally come to the office.

"It's one room with two empty desks and a model airplane," Matyas said. "This is not a place where they are buying $1 million of jet fuel per day. They are doing that at Sears Willis Tower where they have hundreds of employees."

United Airlines said in a statement that it is still reviewing the complaint, but believes "that any such suit is without merit."

"In fact, the operation of our fuel subsidiary in Sycamore has been examined by tax authorities in the past and has been determined to comply with all applicable laws. We will vigorously defend ourselves against these claims," United said.

Mary Frances Fagan, a spokeswoman for American Airlines, said the company does not comment on pending litigation "but what it is doing in Illinois is permitted under state law."

The RTA said the companies have entered into 25-year agreements with Sycamore, guaranteeing as much as $500,000 each year that they are allowed to claim that they "accept" jet fuel in that city.

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







ABC News Radio