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Entries in Taxes (142)

Thursday
Apr122012

26 US Companies Not Paying Federal Income Tax, Report Finds

SEBASTIEN BOZON/AFP/Getty Images(WASHINGTON) -- In November, the liberal lobbying group Citizens for Tax Justice stirred controversy with a report citing 280 so-called corporate tax-dodgers, highlighting companies they said were paying under the 35 percent federal income corporate tax rate.  This week, the group revised its list with new data and said most of the companies that paid no taxes previously repeated that in 2011.

The latest update estimates that all but four of the 30 Fortune 500 companies that paid an average negative federal income tax rate from 2008 to 2010 continued to do so for 2011.  Among the companies listed are Pepco Holdings and General Electric.

"One of the reasons we [released an update] is so many of these 30 companies asserted this was a temporary aberration in 2008 to 2010," Bob McIntyre, director of the Citizens for Tax Justice (CTJ), said.  "They said they will pay a lot of taxes soon, but 'soon' hasn't come yet."

McIntyre said the 280 companies analyzed were Fortune 500 companies that made money from 2008 to 2010.  The Citizens for Tax Justice created their latest estimates from company annual reports, based on U.S. profit and amounts companies report for federal income taxes.

General Electric, which appears on the list, called the report "misleading."  Spokesman Andrew Williams said, "GE paid $2.9 billion in income cash taxes in 2011 across all of its tax jurisdictions, including payments in the U.S.  In addition, GE paid more than $1 billion in other state, local and federal taxes in the U.S."

Matthew Gardner, executive director of the Institute on Taxation and Economic Policy, CTJ's research arm, said CTJ's study focuses on whether companies are paying a 35 percent rate for federal income taxes, and focusing on overall taxes is "trying to change the subject."

"As GE has said in the past, we pay taxes worldwide.  But they don't dispute that CTJ is wrong.  It's an exercise in misdirection," Gardner said.  "When deferred taxes are paid, they will show up in our report as having been paid.  But the harsh reality is that GE in particular is able to defer the taxes indefinitely."

William McBride, an economist with the Tax Foundation, said the best source of information would be a company's tax return, which is not public information.

"The CTJ is estimating the true figure from what the company is reporting," McBride said.  "They are guessing what companies are paying in taxes."

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

Monday
Apr092012

The Silliest and Most Outrageous Taxes in America

Comstock/Thinkstock(NEW YORK) -- If you take the tax codes of the 50 states and apply a magnifying glass, you'll find that here and there, hidden amongst the small print, are specimens that many would consider outrageous.

Take for example, a tax on fur, nudity or bagels (if sliced, but not if intact).

New tax marvels are being born daily.  New York tax expert Barbara Weltman, publisher of Big Ideas for Small Business, points to one new one, imposed by Mississippi on salt produced from that state's lands or waters.

"Unique, weird taxes are states' creative ways to increase revenue in a way consistent with their population and products," she says.  Some oddities arise from the circumstances of the moment: The feds, for example, have begun taxing arrows and other "archery products" -- an innovation she suspects has arisen in light of the popularity of The Hunger Games.

Here are some of the wildest taxes levied by the 50 states -- some supplied by Weltman, some coaxed from states' websites and others found by eFile, GoBanking, TurboTax/Intuit and the Corporate Tax Network:

Blueberries: Maine produces all but one percent of the wild blueberries sold nationally and taxes them every which way: Anyone growing, handling, processing, selling or purchasing blueberries pays a tax of a penny-and-a-half per pound.

Fur: Minnesota imposes a tax of 6.5 percent on the sale of fur apparel.

Nudity: Any business in Utah employing "nude or partially nude" workers must pay a tax of 10 percent on services sold to patrons.

Tattoos: Arkansas doesn't just tax tattoos (six percent of sales); the Natural State applies the same tax to body piercings and electrolysis.

Playing Cards: In Alabama, your purchase of a deck of playing cards will be subject to a tax of 10 cents per pack.

Candy, Sodas: Illinois applies to candy a surcharge of five percent over and above its 1.25 percent sales tax on food.  But candy isn't candy -- at least not for tax purposes -- if it contains flour.  Malted milk balls thus would be exempt.  In Chicago, a soda served from a soda fountain is taxed nine percent; the same soda drunk from a bottle or a can is taxed 3 percent.

Litigation: New York taxes litigation; any New Yorker involved in criminal or civil proceedings pays a flat $25.

Bagels, Pets: In Durham, N.C., residents who own a cat or dog must pay tax, since the state considers pets to be personal property no different from, say, a TV or stereo.  The tax on spayed or neutered pets is $10, but on animals intact, it is $75.  This is the reverse of New York's bagel tax, which applies an eight cent charge to altered bagels (ones sliced and schmeered) but not to ones uncut.

Balloon Rides: Kansas wisely distinguishes between tethered balloons and balloons set free.  The latter, says efile.com, "are considered a legitimate form of air transportation."  Thus rides in the former are taxed as amusements, rides in the latter are not.

Copyright 2012 ABC News Radio

Wednesday
Apr042012

IRS Taxes: Late Filers Can Avoid Costly Mistakes

iStockphoto/Thinkstock(WASHINGTON) -- The April 17 tax deadline is rapidly approaching, and millions of people wait until the very last minute to file.

But what happens if you can’t file your 2011 returns on time or pay your taxes?

The IRS says don’t panic. But the worst thing you can do is to simply ignore the deadline.

“Even if you owe money and you don’t know how you’re going to be able to afford to pay that balance due, first and foremost file your taxes,” says Kathy Pickering, executive director of the H&R Block Tax Institute.

“You can work out a payment plan with the IRS.” You may incur some interest or some payments, she says, but the penalties are far worse if you don’t file.

Automatic extensions are available to taxpayers who need more time to finish their returns. But remember: this is an extension of time to file; not an extension of time to pay.

“What you can do is just file without even paying your taxes and they’ll contact you,” says Pickering. The IRS will send you a letter “and you can work out a payment plan then.”

Taxpayers will avoid stiff penalties if they file either a regular income tax return or a request for a tax-filing extension by this year’s April 17 deadline.

People who haven’t finished filling out their return can get an automatic six-month extension. The fastest and easiest way to get the extra time is through the free file link on IRS.gov. Use form 4868.

By properly filing this form, a taxpayer will avoid the late-filing penalty, normally five percent per month based on the unpaid balance that applies to returns filed after the deadline.

Last month, the IRS introduced the Fresh Start program for people who are out of work.

“If you’ve been unemployed for 30 days or more, whether in 2011 or 2012, you can have until October 15th to pay your taxes in full and they won’t assess the failure to pay penalty,” says Pickering. “I think it’s going to be a good program for some people.”

Some taxpayers get more time to file without having to ask for it. These include: taxpayers who live and work abroad, as well as members of the military on duty outside the U.S. They have until June 15 to file. Tax payments are still due April 17.

Members of the military and others serving in Iraq, Afghanistan or other combat zones can wait at least 180 days after they leave before they have to file or pay taxes.

People affected by certain tornadoes, severe storms, floods and other recent natural disasters may have until May 31 to file and pay. If this may be you, find out more information at the official website IRS.gov.

Copyright 2012 ABC News Radio

Monday
Mar262012

Many Low-Income Americans Don't Take Advantage of EITC

iStockphoto/Thinkstock(NEW YORK) -- While the Earned Income Tax Credit assists families with children who have lower incomes, helping reduce the poverty rate while also providing a work incentive, about one in five eligible filers may not be taking advantage of the program, which is why advocates are trying to raise awareness toward the end of the tax-filing season.

Lack of awareness among the "newly poor," could be one reason why eligible filers don't know they are available, said Rod West, Entergy's chief administrative officer, whose company has been working with the IRS and United Way to raise awareness of the program.

About 27 million working families and individuals received the EITC in the 2009 tax year, the most recent year in which data is available, according to the Center on Budget and Policy Priorities.  The center said that in 2010, the EITC helped boost about 6.3 million people out of poverty, including 3.3 million children.

While there has been criticism that some EITC filers don't pay any taxes at all, the Center of Budget and Policy Priorities said over the long term, those filers paid more in taxes than they received in benefits in a study from the period of 1989 through 2006.

Entergy, an energy company based in New Orleans, has promoted the EITC to its 2.7 million customers in Texas, Arkansas, Louisiana and Mississippi as part of an outreach effort for about a decade.

The company has mailed customers 2.2 million statement stuffers, sent automated phone calls this year and initiated a number of ways to educate filers about the EITC.

When asked why an energy company would be promoting this credit, West said -- because of our economy -- the company recognizes that many families in its service territory have lived at or below the poverty line.

"The need is more prevalent because of the economic strife the country is facing," he said.  "We started about 10 years ago and we're just glad the word is getting out with the importance of EITC with so many families struggling."

Depending on marital status and the number of dependent children, working families with children that have annual incomes below about $36,900 to $50,300 may be eligible for the federal EITC, while several states have their own programs.  Working, low-income people without children with incomes below about $13,900, or $19,200 for a married couple, can receive a small tax credit.

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

Friday
Mar162012

Fewer People Plan to Spend Their Tax Refunds on Vacations

iStockphoto/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 eight percent.

In 2011, 23 percent planned to use the refund to buy products such as cars, electronics or furniture. For 2012, it’s eight percent.

In 2011, 15 percent planned to give their refund to charity. For 2012, just two 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, five 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

Friday
Mar162012

Man Claims Politician as a Tax Deduction and Other Bizarre Tax Claims

"Just don't deduct how many treats you give us!" Some pet owners claim Fido and Fluffy as dependants. iStockphoto/Thinkstock(BLOOMINGTON, Minn.) -- 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 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.

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

Unscrupulous business travel and entertainment deductions: a personal luxury car; three country club memberships; a motor home and the full cost of a wedding.

Copyright 2012 ABC News Radio

Friday
Mar092012

‘Mystic Pizza’ Restaurant Has IRS Trouble

Comstock/Thinkstock(MYSTIC, Conn.) -- The Connecticut restaurant Mystic Pizza made famous by the Julia Roberts movie of the same name is under investigation by the IRS.

The U.S. Treasury Department seized more than $60,000 from the bank account of restaurant owners John Zelepos, George Zelepos and Christos Zelepos. The seizure of the money was revealed this week in a legal notice published in The Day newspaper in Connecticut.

Members of the Zelepos family did not respond to requests for comment and a representative at the restaurant said they had “no comment” on the matter.

The family owns Mystic Pizza LLC, which encompasses Mystic Pizza in Mystic, Conn., Mystic Pizza II in North Stonington, Conn., and the Mystic Pizza Food Co.

The Mystic Pizza Food Co. sells frozen pizza with the motto “A slice of heaven,” the same slogan that was on the t-shirts of Roberts and other actresses who worked at the restaurant in the movie.

Federal authorities confiscated the money in January after a criminal investigation, according to The Day.

Lisa Kennedy, the IRS special agent in charge of the investigation, told ABC News she could not comment on the case.

The legal notice in the newspaper asked that anyone with a claim to the money seized from the account contact Kennedy.

The 1988 film helped launch Roberts’ megastar career and her portrayal of Daisy Arujo in the movie is often considered her breakout role.

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

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