Tuesday, September 25, 2007
Senate Bill Would Crack Down on Employee Misclassification
Senate Bill Would Crack Down on Employee Misclassification Senators Barack Obama (D-IL), Dick Durbin (D-IL), Ted Kennedy (D-MA), and Patty Murray (D-WA) have introduced S. 2044, the Independent Contractor Proper Classification Act of 2007, which seeks to close a perceived loophole that allows businesses to classify workers as independent contractors. The senators believe that current law allows companies to avoid paying payroll taxes and benefits for employees. Their bill would restrict the ability of businesses to justify worker misclassifications under Section 530 of the Revenue Act of 1978. The legislation would also require the Department of Labor to enforce the new law. Recent high profile court cases involving FedEx (and other large companies that classify many individuals who appear to be employees as independent contractors) have brought this issue to light.
Monday, September 24, 2007
Pasadena Church wants Apology from IRS
from www.latimes.com
Pasadena church wants apology from IRS
Stephen Osman / LAT
BEWILDERED: The Rev. J. Edwin Bacon Jr., rector of All Saints Episcopal Church, told congregants during morning services today that he and other officials were relieved that the church no longer faced the imminent loss of its tax-exempt status, but were bewildered by the IRS' seemingly contradictory conclusions about the case.
All Saints' rector also demands that the agency clarify its findings after closing its probe into an antiwar sermon in 2004.
By Rebecca Trounson, Los Angeles Times Staff Writer September 24, 2007
The Internal Revenue Service has told a prominent Pasadena church that it has ended its lengthy investigation into a 2004 antiwar sermon, church leaders said Sunday.But the agency wrote in its letter to All Saints Episcopal Church that officials still considered the sermon to have been illegal, prompting the church to seek clarification, a corrected record and an apology from the IRS, the church's rector told standing-room-only crowds of parishioners at Sunday's services.
The church also has asked the Treasury Department, which oversees the IRS, to investigate allegations that officials from the Justice Department had become involved in the matter, raising concerns that the investigation was politically motivated."To be sure, we are pleased that the IRS exam is over," the Rev. J. Edwin Bacon Jr. said in his 9 a.m. sermon, which was interrupted several times by applause. "However, the main issue of protecting the freedom of this church and other religious communities to worship according to the dictates of their conscience and core values is far from accomplished."Bacon predicted that the vague, mixed message from the IRS after its nearly two-year investigation of the All Saints case would have a continued "chilling effect" on the freedom of clerics from all faiths to preach about moral values and significant social issues such as war and poverty.Although the church no longer faces the imminent loss of its tax-exempt status, All Saints has "no more guidance about the IRS rules now than when we started this process," the rector said. He said the church would continue its struggle with the IRS, which he said so far had cost the 3,500-member congregation about $200,000.One of Southern California's largest and most liberal congregations, All Saints came under IRS scrutiny after a sermon two days before the 2004 presidential election by a guest speaker, the Rev. George F. Regas. In his sermon, Regas, the church's former rector, imagined Jesus participating in a political debate with then-presidential candidates George W. Bush and John F. Kerry. Regas did not endorse either candidate, saying that "good people of profound faith" could support either one. But he strongly criticized the war in Iraq and said that Jesus would have told Bush that his preemptive war strategy in Iraq "has led to disaster."A letter from the IRS arrived in June 2005 stating that the church's tax-exempt status was in jeopardy. Federal law prohibits tax-exempt organizations, including churches, from intervening in political campaigns and elections. The letter said the agency's concerns were based on a Nov. 1, 2004, article in the Los Angeles Times, which included three paragraphs about Regas' sermon in a lengthy national roundup of rhetoric from the pulpit on the Sunday before the election. In its latest letter to All Saints, dated Sept. 10, the IRS said the church continues to qualify for tax-exempt status, but said that Regas' sermon did amount to intervention in the 2004 presidential race. The letter offered no details or explanation for either conclusion.An IRS spokesman said Sunday that in keeping with the law, the agency could not comment on specific investigations. However, a top IRS official later issued a statement in response to questions about the All Saints case. "The IRS is committed to ensuring that tax-exempt organizations understand and comply with the law," said Steven T. Miller, commissioner of the agency's Tax Exempt and Government Entities Division. "We will continue to work with charities and churches during the 2008 political season about the federal law's guidelines on political activity. Our goal is to ensure that charities meet their responsibilities under the law and avoid becoming involved in campaign activity."Along with its requests to the IRS, All Saints has asked a top Treasury Department official to investigate what the church called a series of procedural and substantive errors in the case, including allegedly inappropriate conversations between IRS and Justice Department officials about the investigation.Those conversations, documented in e-mails obtained by the church through Freedom of Information Act requests, appear to show that Justice Department officials were involved in the All Saints case before the IRS made any formal referral of it for possible prosecution, an attorney for the church said. The discussions raise concerns that the IRS' investigation was politically motivated, church officials said. One e-mail, for example, appears to show coordination between IRS and Justice Department officials about a request to the church for documents. Others discuss the timing of the request and news coverage about the case. "In view of the fact that recent congressional inquiries have revealed extensive politicization of [the Department of Justice], my client is very concerned that the close coordination undertaken by the IRS allowed partisan political concerns to direct the course of the All Saints examination," attorney Marcus S. Owens wrote in a letter Friday requesting an investigation.Owens, a former director of the IRS division that handles tax-exempt organizations, said that although liberal and conservative congregations and other nonprofits had been investigated by the IRS in recent years, its examination of All Saints was "highly unusual" in a number of ways, not only in its seemingly contradictory conclusions. Among other things, he said the agency had never allowed the church the chance that all taxpayers are typically granted when audited to explain and discuss the issues of concern. "There's always an opportunity to do that, to sort of push back," Owens said. Ellen Aprill, a law professor at Loyola Law School and a tax law specialist, also called the unclear outcome of the case "puzzling" and said it underlined the need for the IRS to explain which activities violate the rules against intervening in a political campaign. Meanwhile, at the church Sunday, parishioners expressed overwhelming support for the decision to pursue an apology and clarification from the IRS, and an explanation from the Justice Department. But some also expressed concerns about possible costs to All Saints, both financial and otherwise."It's so important for this church to be speaking truth to power, and I applaud that," said Sharon Fane of Burbank, who said she had joined All Saints largely because of its IRS battle. "But I have some fear for us too. What will this cost?"The church's top lay leader, senior warden Rich Llewellyn, said the decision to push for answers from the IRS was clear, given the significance of the issues and the church's long history of social activism. "We really need clarity from the IRS," he said. "Otherwise, it's a very scary prospect to think that these agencies are looking over our shoulders at what our pastors can preach in church."Support for the church also came Sunday from leaders of other faiths and Christian denominations, many of whom attended the day's services and a news conference afterward. "The nature of the pulpit is about freedom, freedom to express belief," said Maher Hathout, a leader at the Islamic Center of Southern California and a partner of Bacon's in interfaith efforts. "We need to work together to prevent intimidation."Rep. Adam B. Schiff (D-Burbank) also expressed support. Schiff, who in 2005 unsuccessfully sought a Government Accountability Office investigation into the IRS' scrutiny of churches and other nonprofits, including All Saints, said he still would like to know whether the probes were politically motivated. "The real message from today is that the IRS picked on the wrong church," said Schiff, whose district includes Pasadena. "They thought that All Saints would fold up the tent and admit it was wrong . . . but instead they found a church that would stand up for itself."rebecca.trounson@latimes.comTimes staff writer Tony Barboza contributed to this report
Pasadena church wants apology from IRS
Stephen Osman / LAT
BEWILDERED: The Rev. J. Edwin Bacon Jr., rector of All Saints Episcopal Church, told congregants during morning services today that he and other officials were relieved that the church no longer faced the imminent loss of its tax-exempt status, but were bewildered by the IRS' seemingly contradictory conclusions about the case.
All Saints' rector also demands that the agency clarify its findings after closing its probe into an antiwar sermon in 2004.
By Rebecca Trounson, Los Angeles Times Staff Writer September 24, 2007
The Internal Revenue Service has told a prominent Pasadena church that it has ended its lengthy investigation into a 2004 antiwar sermon, church leaders said Sunday.But the agency wrote in its letter to All Saints Episcopal Church that officials still considered the sermon to have been illegal, prompting the church to seek clarification, a corrected record and an apology from the IRS, the church's rector told standing-room-only crowds of parishioners at Sunday's services.
The church also has asked the Treasury Department, which oversees the IRS, to investigate allegations that officials from the Justice Department had become involved in the matter, raising concerns that the investigation was politically motivated."To be sure, we are pleased that the IRS exam is over," the Rev. J. Edwin Bacon Jr. said in his 9 a.m. sermon, which was interrupted several times by applause. "However, the main issue of protecting the freedom of this church and other religious communities to worship according to the dictates of their conscience and core values is far from accomplished."Bacon predicted that the vague, mixed message from the IRS after its nearly two-year investigation of the All Saints case would have a continued "chilling effect" on the freedom of clerics from all faiths to preach about moral values and significant social issues such as war and poverty.Although the church no longer faces the imminent loss of its tax-exempt status, All Saints has "no more guidance about the IRS rules now than when we started this process," the rector said. He said the church would continue its struggle with the IRS, which he said so far had cost the 3,500-member congregation about $200,000.One of Southern California's largest and most liberal congregations, All Saints came under IRS scrutiny after a sermon two days before the 2004 presidential election by a guest speaker, the Rev. George F. Regas. In his sermon, Regas, the church's former rector, imagined Jesus participating in a political debate with then-presidential candidates George W. Bush and John F. Kerry. Regas did not endorse either candidate, saying that "good people of profound faith" could support either one. But he strongly criticized the war in Iraq and said that Jesus would have told Bush that his preemptive war strategy in Iraq "has led to disaster."A letter from the IRS arrived in June 2005 stating that the church's tax-exempt status was in jeopardy. Federal law prohibits tax-exempt organizations, including churches, from intervening in political campaigns and elections. The letter said the agency's concerns were based on a Nov. 1, 2004, article in the Los Angeles Times, which included three paragraphs about Regas' sermon in a lengthy national roundup of rhetoric from the pulpit on the Sunday before the election. In its latest letter to All Saints, dated Sept. 10, the IRS said the church continues to qualify for tax-exempt status, but said that Regas' sermon did amount to intervention in the 2004 presidential race. The letter offered no details or explanation for either conclusion.An IRS spokesman said Sunday that in keeping with the law, the agency could not comment on specific investigations. However, a top IRS official later issued a statement in response to questions about the All Saints case. "The IRS is committed to ensuring that tax-exempt organizations understand and comply with the law," said Steven T. Miller, commissioner of the agency's Tax Exempt and Government Entities Division. "We will continue to work with charities and churches during the 2008 political season about the federal law's guidelines on political activity. Our goal is to ensure that charities meet their responsibilities under the law and avoid becoming involved in campaign activity."Along with its requests to the IRS, All Saints has asked a top Treasury Department official to investigate what the church called a series of procedural and substantive errors in the case, including allegedly inappropriate conversations between IRS and Justice Department officials about the investigation.Those conversations, documented in e-mails obtained by the church through Freedom of Information Act requests, appear to show that Justice Department officials were involved in the All Saints case before the IRS made any formal referral of it for possible prosecution, an attorney for the church said. The discussions raise concerns that the IRS' investigation was politically motivated, church officials said. One e-mail, for example, appears to show coordination between IRS and Justice Department officials about a request to the church for documents. Others discuss the timing of the request and news coverage about the case. "In view of the fact that recent congressional inquiries have revealed extensive politicization of [the Department of Justice], my client is very concerned that the close coordination undertaken by the IRS allowed partisan political concerns to direct the course of the All Saints examination," attorney Marcus S. Owens wrote in a letter Friday requesting an investigation.Owens, a former director of the IRS division that handles tax-exempt organizations, said that although liberal and conservative congregations and other nonprofits had been investigated by the IRS in recent years, its examination of All Saints was "highly unusual" in a number of ways, not only in its seemingly contradictory conclusions. Among other things, he said the agency had never allowed the church the chance that all taxpayers are typically granted when audited to explain and discuss the issues of concern. "There's always an opportunity to do that, to sort of push back," Owens said. Ellen Aprill, a law professor at Loyola Law School and a tax law specialist, also called the unclear outcome of the case "puzzling" and said it underlined the need for the IRS to explain which activities violate the rules against intervening in a political campaign. Meanwhile, at the church Sunday, parishioners expressed overwhelming support for the decision to pursue an apology and clarification from the IRS, and an explanation from the Justice Department. But some also expressed concerns about possible costs to All Saints, both financial and otherwise."It's so important for this church to be speaking truth to power, and I applaud that," said Sharon Fane of Burbank, who said she had joined All Saints largely because of its IRS battle. "But I have some fear for us too. What will this cost?"The church's top lay leader, senior warden Rich Llewellyn, said the decision to push for answers from the IRS was clear, given the significance of the issues and the church's long history of social activism. "We really need clarity from the IRS," he said. "Otherwise, it's a very scary prospect to think that these agencies are looking over our shoulders at what our pastors can preach in church."Support for the church also came Sunday from leaders of other faiths and Christian denominations, many of whom attended the day's services and a news conference afterward. "The nature of the pulpit is about freedom, freedom to express belief," said Maher Hathout, a leader at the Islamic Center of Southern California and a partner of Bacon's in interfaith efforts. "We need to work together to prevent intimidation."Rep. Adam B. Schiff (D-Burbank) also expressed support. Schiff, who in 2005 unsuccessfully sought a Government Accountability Office investigation into the IRS' scrutiny of churches and other nonprofits, including All Saints, said he still would like to know whether the probes were politically motivated. "The real message from today is that the IRS picked on the wrong church," said Schiff, whose district includes Pasadena. "They thought that All Saints would fold up the tent and admit it was wrong . . . but instead they found a church that would stand up for itself."rebecca.trounson@latimes.comTimes staff writer Tony Barboza contributed to this report
www.Ripoffreport.com
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If you are unhappy or concerned with your current Tax Representitive, or are interested in checking out a particular Tax Representitive company, then we suggest you check out www.Ripoffreport.com. Here you can check out not only Tax Advocacy, LLC, but also most if not all of the National Tax Representitive firms. We cannot guarantee the accuracy of the stories or complaints you will find. We suggest you contact the author of the posts and see for yourself.
If you are unhappy or concerned with your current Tax Representitive, or are interested in checking out a particular Tax Representitive company, then we suggest you check out www.Ripoffreport.com. Here you can check out not only Tax Advocacy, LLC, but also most if not all of the National Tax Representitive firms. We cannot guarantee the accuracy of the stories or complaints you will find. We suggest you contact the author of the posts and see for yourself.
Sunday, September 16, 2007
10 Don't Miss Tax Breaks
from www.cnn.com
By Jeanne Sahadi, CNNMoney.com senior writer
As annual rites go, sweating over your 1040 is one of the most taxing, no pun intended.
So to make the venture a little more palatable -- and maybe even profitable -- we asked Thomas Riley, president of the New York State Society of Certified Public Accountants, and Mark Luscombe, principal federal tax analyst for tax information publisher CCH, to help us draw up a tickler list of valuable (and in some cases new) tax breaks worth remembering before signing off on your federal and state tax returns.
Get back your phone tax
Thanks to the recent repeal of a 3 percent long-distance excise telephone tax, you have a refund coming to you on your 2006 tax return whether you itemize or not.
The one-time refund covers the 3 percent tax that you've paid from March 1, 2003 to July 31, 2006. If you don't feel like combing through old bills to tally your total, the IRS will let you claim a standard amount based on your exemptions:
1 exemption: $30 refund
2 exemptions; $40 refund
3 exemptions: $50 refund
4 or more: $60 refund
(If you opt for the standard amount, claim it on line 71 on the 1040. If you want to do the calculations yourself, fill out Form 8913.)
Take credit for being efficient
Tax year 2006 is the first for which you can get a tax break for making your home more energy efficient.
You can take a 30 percent credit up to $2,000 for the cost of solar water heating or photovoltaic equipment in your home. You can get a 10 percent credit up to $500 for insulation and heat-reducing metal roofs, and up to $200 for energy-efficient windows. Labor costs, though, don't count.
(For more information, see IRS Form 5695. The credit is entered on line 52 on the 1040.)
Write off the nanny
If you work full-time and pay for the care of a dependent (e.g., a young child, elderly parent or disabled adult child or spouse), you may be able to get a credit for the amount you spend.
Depending on your income, you're allowed to claim between 20 percent and 35 percent on up to $3,000 in expenses for one dependent or $6,000 for two or more. (Please see correction at end of article.) You may only take the credit on the amount of your expenses that exceeds what you put into a tax-deductible flexible-spending plan at work.
So if you have two small kids, pay $6,000 for their care and defer $5,000 from your paycheck into your plan at work, you may only take the dependent care credit on $1,000 of your expenses, since you're already getting a tax break on the first $5,000.
If you don't put money into a plan at work, you may take a credit on all of your care expenses up to the $3,000 limit for one dependent or $6,000 for two or more, assuming your income qualifies.
(For more information, see IRS Form 2441 or IRS Publication 503. The credit is entered on line 48 on the 1040.)
Get money back for saving
Saving for retirement can result in a lower tax bill in more ways than one. If your AGI is $25,000 or less ($50,000 or less for married couples), you may take up to a 50 percent credit on as much as $2,000 in contributions made to qualified retirement savings plans, such as 401(k)s, 403(b)s and traditional and Roth IRAs. The closer you are to the income ceilings, the lower your credit will be.
That credit is on top of the deduction on your income that you get for making contributions to a 401(k), 403(b) or deductible IRA.
(For more information on the saver's credit, see IRS Form 8880. The credit is entered on line 51 on the 1040.)
A break for self-employed savers
If you're self-employed, you may contribute up to 25 percent of your self-employment income (gross income minus expenses) to a SEP (Simplified Employee Pension) and deduct the full amount.
You're allowed to create and contribute to this IRA-type plan up to the due date of your return -- which, with extensions, can be as late as Oct. 15, 2007.
(For more information, see IRS Form 5305A-SEP. The deduction is entered on line 28 on the 1040.)
Deduct Money Magazine
Among the miscellaneous deductions you may be eligible to take:
Travel costs for job interviews: If you interview for a job in your field, you may deduct the costs of transportation, food and lodging.
Phone use: You may deduct business calls made on a personal cell phone and work-related long-distance calls made on your home phone.
Subscriptions for work-related publications
Dues for professional association memberships
Miscellaneous deductions may be claimed if combined they exceed 2 percent of your adjusted gross income (AGI) and you itemize on your return. But only the amount above 2 percent of your AGI is deductible.
(For more information, see IRS Form 2106. These deductions are entered on Schedule A.)
Pick your state tax
You may either deduct your state and local income taxes on your federal return or the state and local sales taxes you paid, whichever is higher. If you don't have all your receipts, you can use the Optional State Sales Tax Tables in IRS Publication 600.
(The sales tax deduction is claimed by entering "ST" on line 5 of Schedule A.)
Save on tuition
You can take a deduction for qualified higher education expenses whether you itemize or not. It may be taken on up to $4,000 in tuition and fees if your adjusted gross income is $65,000 or less ($130,000 for joint filers). If your AGI is higher ($80,000 or less for single filers; $160,000 or less for married couples), you may deduct up to $2,000.
The tuition deduction may not be taken for expenses for which you are claiming an education credit (e.g., the HOPE or Lifetime Learning credits).
(For more information, see IRS Topic 302. The deduction is entered on line 35 on the 1040.)
Real estate tax deduction
If you bought property and reimbursed the seller for the portion of property taxes he paid for the year, you may deduct that amount on your return, unless you're subject to AMT, which disallows property tax deductions.
(This deduction is entered on Schedule A.)
Save on 529 savings
Some states offer an income tax deduction to residents for contributions they make to a 529 plan. To see if yours does, visit SavingForCollege.com.
This article is an expanded version of the original that appeared in the March issue of Money Magazine.
Correction: Originally this article incorrectly stated that you can take a dependent care credit on up to $3,000 or $6,000 in expenses above what you put into your company's flexible spending account.
-------------------------------------------------
By Jeanne Sahadi, CNNMoney.com senior writer
As annual rites go, sweating over your 1040 is one of the most taxing, no pun intended.
So to make the venture a little more palatable -- and maybe even profitable -- we asked Thomas Riley, president of the New York State Society of Certified Public Accountants, and Mark Luscombe, principal federal tax analyst for tax information publisher CCH, to help us draw up a tickler list of valuable (and in some cases new) tax breaks worth remembering before signing off on your federal and state tax returns.
Get back your phone tax
Thanks to the recent repeal of a 3 percent long-distance excise telephone tax, you have a refund coming to you on your 2006 tax return whether you itemize or not.
The one-time refund covers the 3 percent tax that you've paid from March 1, 2003 to July 31, 2006. If you don't feel like combing through old bills to tally your total, the IRS will let you claim a standard amount based on your exemptions:
1 exemption: $30 refund
2 exemptions; $40 refund
3 exemptions: $50 refund
4 or more: $60 refund
(If you opt for the standard amount, claim it on line 71 on the 1040. If you want to do the calculations yourself, fill out Form 8913.)
Take credit for being efficient
Tax year 2006 is the first for which you can get a tax break for making your home more energy efficient.
You can take a 30 percent credit up to $2,000 for the cost of solar water heating or photovoltaic equipment in your home. You can get a 10 percent credit up to $500 for insulation and heat-reducing metal roofs, and up to $200 for energy-efficient windows. Labor costs, though, don't count.
(For more information, see IRS Form 5695. The credit is entered on line 52 on the 1040.)
Write off the nanny
If you work full-time and pay for the care of a dependent (e.g., a young child, elderly parent or disabled adult child or spouse), you may be able to get a credit for the amount you spend.
Depending on your income, you're allowed to claim between 20 percent and 35 percent on up to $3,000 in expenses for one dependent or $6,000 for two or more. (Please see correction at end of article.) You may only take the credit on the amount of your expenses that exceeds what you put into a tax-deductible flexible-spending plan at work.
So if you have two small kids, pay $6,000 for their care and defer $5,000 from your paycheck into your plan at work, you may only take the dependent care credit on $1,000 of your expenses, since you're already getting a tax break on the first $5,000.
If you don't put money into a plan at work, you may take a credit on all of your care expenses up to the $3,000 limit for one dependent or $6,000 for two or more, assuming your income qualifies.
(For more information, see IRS Form 2441 or IRS Publication 503. The credit is entered on line 48 on the 1040.)
Get money back for saving
Saving for retirement can result in a lower tax bill in more ways than one. If your AGI is $25,000 or less ($50,000 or less for married couples), you may take up to a 50 percent credit on as much as $2,000 in contributions made to qualified retirement savings plans, such as 401(k)s, 403(b)s and traditional and Roth IRAs. The closer you are to the income ceilings, the lower your credit will be.
That credit is on top of the deduction on your income that you get for making contributions to a 401(k), 403(b) or deductible IRA.
(For more information on the saver's credit, see IRS Form 8880. The credit is entered on line 51 on the 1040.)
A break for self-employed savers
If you're self-employed, you may contribute up to 25 percent of your self-employment income (gross income minus expenses) to a SEP (Simplified Employee Pension) and deduct the full amount.
You're allowed to create and contribute to this IRA-type plan up to the due date of your return -- which, with extensions, can be as late as Oct. 15, 2007.
(For more information, see IRS Form 5305A-SEP. The deduction is entered on line 28 on the 1040.)
Deduct Money Magazine
Among the miscellaneous deductions you may be eligible to take:
Travel costs for job interviews: If you interview for a job in your field, you may deduct the costs of transportation, food and lodging.
Phone use: You may deduct business calls made on a personal cell phone and work-related long-distance calls made on your home phone.
Subscriptions for work-related publications
Dues for professional association memberships
Miscellaneous deductions may be claimed if combined they exceed 2 percent of your adjusted gross income (AGI) and you itemize on your return. But only the amount above 2 percent of your AGI is deductible.
(For more information, see IRS Form 2106. These deductions are entered on Schedule A.)
Pick your state tax
You may either deduct your state and local income taxes on your federal return or the state and local sales taxes you paid, whichever is higher. If you don't have all your receipts, you can use the Optional State Sales Tax Tables in IRS Publication 600.
(The sales tax deduction is claimed by entering "ST" on line 5 of Schedule A.)
Save on tuition
You can take a deduction for qualified higher education expenses whether you itemize or not. It may be taken on up to $4,000 in tuition and fees if your adjusted gross income is $65,000 or less ($130,000 for joint filers). If your AGI is higher ($80,000 or less for single filers; $160,000 or less for married couples), you may deduct up to $2,000.
The tuition deduction may not be taken for expenses for which you are claiming an education credit (e.g., the HOPE or Lifetime Learning credits).
(For more information, see IRS Topic 302. The deduction is entered on line 35 on the 1040.)
Real estate tax deduction
If you bought property and reimbursed the seller for the portion of property taxes he paid for the year, you may deduct that amount on your return, unless you're subject to AMT, which disallows property tax deductions.
(This deduction is entered on Schedule A.)
Save on 529 savings
Some states offer an income tax deduction to residents for contributions they make to a 529 plan. To see if yours does, visit SavingForCollege.com.
This article is an expanded version of the original that appeared in the March issue of Money Magazine.
Correction: Originally this article incorrectly stated that you can take a dependent care credit on up to $3,000 or $6,000 in expenses above what you put into your company's flexible spending account.
-------------------------------------------------
Wednesday, September 12, 2007
Back to School Tax breaks Help Teachers Pay Classroom Costs
from www.irs.gov
Back-to-School Tax Breaks Help Teachers Pay Classroom Costs; Aid Parents, Students With College Tuition
IR-2007-158, Sept. 11, 2007
WASHINGTON — With the new school year now under way, the Internal Revenue Service today reminded teachers, parents and students that saving receipts and keeping good records can help them take advantage of various education-related deductions and credits on their 2007 federal income tax return.
“The start of the school year is a good time to remind parents, students and teachers to save all receipts related to tax-advantaged education expenses,” said IRS Acting Commissioner Linda Stiff. “Good recordkeeping makes sense because it can help avoid missing a deduction or credit at tax time.”
Deductions reduce the income on which tax is figured. Credits reduce the overall tax. Though both can lower a person’s year-end tax bill or increase their refund, credits normally result in greater tax savings.
The educator expense deduction allows teachers and other educators to deduct the cost of books, supplies, equipment and software used in the classroom. Eligible educators include those who work at least 900 hours during a school year as a teacher, instructor, counselor, principal or aide in a public or private elementary or secondary school.
Worth up to $250, the educator expense deduction is available, whether or not the educator itemizes their deductions on Schedule A. In tax-year 2005, teachers and educators deducted just over $893 million of these out-of-pocket classroom expenses. Under current law, this deduction is scheduled to expire at the end of this year.
Three key tax breaks — the tuition and fees deduction, the Hope credit and the lifetime learning credit — help parents and students pay for the cost of post-secondary education. All three are available, regardless of whether an eligible taxpayer itemizes their deductions. Under current law, the tuition and fees deduction is scheduled to expire at the end of this year, but the two credits remain in effect. In tax-year 2005, taxpayers claimed tuition and fees deductions totaling nearly $11 billion and education credits of almost $6.2 billion.
Normally, a taxpayer can claim tuition and required enrollment fees paid for their own and their dependent’s college education. A taxpayer cannot take both an education credit and the tuition and fees deduction for the same student in the same year. Income limits and other special rules apply to each of these provisions. Education credits are claimed on Form 8863, and the tuition and fees deduction for 2007 will be claimed on new Form 8917.
IRS Publication 970, Tax Benefits for Education, can help eligible parents and students understand the special rules that apply and decide which tax break to claim. The publication also describes other education-related tax benefits, including qualified tuition programs (also known as 529 plans), the student loan interest deduction, Coverdell education savings accounts and the education savings bond program.
Back-to-School Tax Breaks Help Teachers Pay Classroom Costs; Aid Parents, Students With College Tuition
IR-2007-158, Sept. 11, 2007
WASHINGTON — With the new school year now under way, the Internal Revenue Service today reminded teachers, parents and students that saving receipts and keeping good records can help them take advantage of various education-related deductions and credits on their 2007 federal income tax return.
“The start of the school year is a good time to remind parents, students and teachers to save all receipts related to tax-advantaged education expenses,” said IRS Acting Commissioner Linda Stiff. “Good recordkeeping makes sense because it can help avoid missing a deduction or credit at tax time.”
Deductions reduce the income on which tax is figured. Credits reduce the overall tax. Though both can lower a person’s year-end tax bill or increase their refund, credits normally result in greater tax savings.
The educator expense deduction allows teachers and other educators to deduct the cost of books, supplies, equipment and software used in the classroom. Eligible educators include those who work at least 900 hours during a school year as a teacher, instructor, counselor, principal or aide in a public or private elementary or secondary school.
Worth up to $250, the educator expense deduction is available, whether or not the educator itemizes their deductions on Schedule A. In tax-year 2005, teachers and educators deducted just over $893 million of these out-of-pocket classroom expenses. Under current law, this deduction is scheduled to expire at the end of this year.
Three key tax breaks — the tuition and fees deduction, the Hope credit and the lifetime learning credit — help parents and students pay for the cost of post-secondary education. All three are available, regardless of whether an eligible taxpayer itemizes their deductions. Under current law, the tuition and fees deduction is scheduled to expire at the end of this year, but the two credits remain in effect. In tax-year 2005, taxpayers claimed tuition and fees deductions totaling nearly $11 billion and education credits of almost $6.2 billion.
Normally, a taxpayer can claim tuition and required enrollment fees paid for their own and their dependent’s college education. A taxpayer cannot take both an education credit and the tuition and fees deduction for the same student in the same year. Income limits and other special rules apply to each of these provisions. Education credits are claimed on Form 8863, and the tuition and fees deduction for 2007 will be claimed on new Form 8917.
IRS Publication 970, Tax Benefits for Education, can help eligible parents and students understand the special rules that apply and decide which tax break to claim. The publication also describes other education-related tax benefits, including qualified tuition programs (also known as 529 plans), the student loan interest deduction, Coverdell education savings accounts and the education savings bond program.
Sunday, September 9, 2007
GM's 2008 Chevrolet and Saturn Certified as Qualified Hybrid Vehicles
from www.irs.gov
GM’s 2008 Chevrolet and Saturn Certified As Qualified Hybrid Vehicles
IR-2007-156, Sept. 6, 2007
WASHINGTON — The Internal Revenue Service has acknowledged the certification by General Motors Corp. that two of its Model Year 2008 vehicles meet the requirements of the Alternative Motor Vehicle Credit as qualified hybrid motor vehicles.
The credit amount for the certified 2008 model year hybrid vehicles are:
Chevrolet Malibu hybrid — $1,300
Saturn Aura hybrid — $1,300
Original purchasers of these vehicles may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.
GM’s 2008 Chevrolet and Saturn Certified As Qualified Hybrid Vehicles
IR-2007-156, Sept. 6, 2007
WASHINGTON — The Internal Revenue Service has acknowledged the certification by General Motors Corp. that two of its Model Year 2008 vehicles meet the requirements of the Alternative Motor Vehicle Credit as qualified hybrid motor vehicles.
The credit amount for the certified 2008 model year hybrid vehicles are:
Chevrolet Malibu hybrid — $1,300
Saturn Aura hybrid — $1,300
Original purchasers of these vehicles may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.
Alternative Minimum Tax
from www.optionetics.com
PERSONAL FINANCES FOR 2007: Alternative Minimum TaxThursday September 6, 2:00 pm ET By Clare White, CMT
It’s generally better to think about your tax situation during the year when you have some time to make adjustments, rather than scrambling at year end. One of the biggest issues that a large number of taxpayers continue to face is the status of the Alternative Minimum Tax [AMT]. In recent years the number of taxpayers impacted by the original form of this alternate calculation has increased significantly. Reductions to these numbers have come in the form of temporary relief measures enacted by Congress.
The AMT calculation was originally intended to set minimum tax levels for high income individuals. The end result is a flat-tax rate to prevent these taxpayers from using a large number of deductions to avoid taxes. The law was set-up with triggers to adjust income levels over the years with the intention of maintaining this high income pool of individuals. However, the calculations may have been too aggressive because in recent years many taxpayers deemed to be on the upper end of middle income earners have been caught up in the tax.
There is no set income level that triggers payment of AMT, but rather a series of calculations to determine if the tax applies. In general, those taxpayers impacted include individuals/families with significant deductions from a high number of exemptions, itemized deductions, and/or high state and local taxes. Increased income from capital gains and other sources may also contribute to AMT payment. This is a good point for a disclaimer, nothing in this article should be construed as tax advice – you need to contact an accountant for that.
As mentioned, more taxpayers have been subject to the AMT in its original form, but fewer taxpayers have paid it due to temporary changes made by Congress. Planning for 2007 is difficult because it’s uncertain whether or not these temporary changes will be enacted again for the tax year. If you were close to paying it last year and your tax and financial situation hasn’t changed that much this year, your accountant will have to run the calculation again this year and in future years until your situation changes significantly or the law is changed. That is, if a permanent change in tax law ever takes place.
As always, the best defense is a good offense, so you may want to be preemptive by having a conversation with your accountant in the short-term to get his or her pulse on the issue. They can provide you with planning ideas that can include putting more money in pre-tax accounts, mapping out years for asset sales, shifting expenses to years that will less likely be impacted by AMT and considering investments that are more AMT friendly. Pre-tax accounts include applicable retirement and medical accounts. Shifting expenses may include small things like pushing forward your Jan 2008 mortgage payment.
One thing to keep in mind is that you will be completing your 2007 taxes during an election year. It’s up to you to weigh whether either party wants to be the heavy by not extending AMT relief and forcing more payments.
To access other articles written by Clare White, please click here.
Clare White, CMT Contributing Writer and Options Strategist Optionetics.com ~ Your Options Education Site Questions for Clare? Visit the Optionetics.com Discussion Board
For more information on learning how to make money with options, go to the Optionetics.com full site! We empower investors through knowledge.
PERSONAL FINANCES FOR 2007: Alternative Minimum TaxThursday September 6, 2:00 pm ET By Clare White, CMT
It’s generally better to think about your tax situation during the year when you have some time to make adjustments, rather than scrambling at year end. One of the biggest issues that a large number of taxpayers continue to face is the status of the Alternative Minimum Tax [AMT]. In recent years the number of taxpayers impacted by the original form of this alternate calculation has increased significantly. Reductions to these numbers have come in the form of temporary relief measures enacted by Congress.
The AMT calculation was originally intended to set minimum tax levels for high income individuals. The end result is a flat-tax rate to prevent these taxpayers from using a large number of deductions to avoid taxes. The law was set-up with triggers to adjust income levels over the years with the intention of maintaining this high income pool of individuals. However, the calculations may have been too aggressive because in recent years many taxpayers deemed to be on the upper end of middle income earners have been caught up in the tax.
There is no set income level that triggers payment of AMT, but rather a series of calculations to determine if the tax applies. In general, those taxpayers impacted include individuals/families with significant deductions from a high number of exemptions, itemized deductions, and/or high state and local taxes. Increased income from capital gains and other sources may also contribute to AMT payment. This is a good point for a disclaimer, nothing in this article should be construed as tax advice – you need to contact an accountant for that.
As mentioned, more taxpayers have been subject to the AMT in its original form, but fewer taxpayers have paid it due to temporary changes made by Congress. Planning for 2007 is difficult because it’s uncertain whether or not these temporary changes will be enacted again for the tax year. If you were close to paying it last year and your tax and financial situation hasn’t changed that much this year, your accountant will have to run the calculation again this year and in future years until your situation changes significantly or the law is changed. That is, if a permanent change in tax law ever takes place.
As always, the best defense is a good offense, so you may want to be preemptive by having a conversation with your accountant in the short-term to get his or her pulse on the issue. They can provide you with planning ideas that can include putting more money in pre-tax accounts, mapping out years for asset sales, shifting expenses to years that will less likely be impacted by AMT and considering investments that are more AMT friendly. Pre-tax accounts include applicable retirement and medical accounts. Shifting expenses may include small things like pushing forward your Jan 2008 mortgage payment.
One thing to keep in mind is that you will be completing your 2007 taxes during an election year. It’s up to you to weigh whether either party wants to be the heavy by not extending AMT relief and forcing more payments.
To access other articles written by Clare White, please click here.
Clare White, CMT Contributing Writer and Options Strategist Optionetics.com ~ Your Options Education Site Questions for Clare? Visit the Optionetics.com Discussion Board
For more information on learning how to make money with options, go to the Optionetics.com full site! We empower investors through knowledge.
Friday, September 7, 2007
Divorced? Taxes May Still Bind You
from http://www.forbes.com/
Divorced? Taxes May Still Bind You Marlene M. Browne 09.07.07, 1:01 PM ET
The New Divorce Court
Most spouses know that evaluating the tax effects on any proposed property distribution or support package is a critical component of every settled or tried divorce case. In fact, ignoring the tax implications in a marital dissolution matter is considered malpractice. So, if most parties and their counsel are careful to consider taxes at the time of the split, how do tax issues arise after the divorce is final?
Typically, years later, the IRS or state taxing authority sends one of the parties a notice explaining that he or she is liable for an outstanding sum owed on a joint, married income tax return.
Reason: When you file as a married person, each spouse becomes jointly and severally liable for the total taxes owed for the year of the return. Post-divorce tax liability commonly arises from cases involving a business or professional practice, where one spouse was in control of the family's financial matters, yet both signed and filed joint, married returns.
In these situations, the IRS finds deficiencies caused by the couple's overstating deductions or understating income on the joint returns in question. For instance, when the government discovers that your spouse earned $250,000 from his business (not the $125,000 reported on your return); both of you--and each of you--are responsible for the additional tax on the $125,000 dollars in unreported income, plus accumulated interest and penalties.
Similarly, if the IRS disallows deductions for the "farm" expenses that your wife reported on the joint return, you are both (as individuals) responsible for the entire amount of taxes owed on the formerly sheltered income, should the IRS determine that the farm was really her hobby.
Finding that you owe taxes on a jointly filed return can be traumatic enough while you are married. Learning that you are responsible for 100% of those joint taxes after you are divorced can be devastating, particularly if you really weren't the guilty party. What do you do when you're called upon to pay the tax debt due on long-ago filed joint returns? There are several options, but before we explore them, there are ground rules that the government (in our example, the IRS) must follow.
. Normally, the IRS has three years from the date you filed your return (excluding the date of filing), or two years from the date the tax was paid--whichever is later--to issue an assessment of deficiency. If you or your spouse omitted a substantial amount of income from your filed, joint returns (25% or more), the law allows the IRS six years to issue its deficiency assessment. If you or your spouse intentionally attempted to evade paying taxes or filed fraudulent returns, the IRS can take forever to figure out what you owe and file an assessment.
In fact, in the case of intentional tax evasion, nothing, not even filing subsequent, correct, amended returns, can erase the taint of fraud. In these cases, the IRS can take all the time it wants before issuing an assessment. Naturally, if you were duped into filing a joint tax return with an unscrupulous spouse who defrauded everyone (you, as well as the government), you could be hit with a tax assessment decades after your divorce.
Moreover, the IRS will go after whomever it can find most easily. If your spouse has fled, you'll be responsible for the entire sum, which, considering the compounding interest and penalties, can be truly staggering. After the assessment issues, the IRS has 10 years to collect.
What do you do when the IRS calls on to you to collect old joint taxes? Well, depending on your circumstances, you can tell the IRS that you should not have to pay the taxes, interest and penalties attributable to a spouse's or former spouse's activities. Since 1998, there are three different ways to avoid joint and several responsibility.
Under the first, the Innocent Spouse Rule, you may qualify for relief if you meet the four following requirements:
(1) You filed a joint return with an understatement of tax due to an erroneous item relating to your spouse, or former spouse;
(2) You lacked actual, or implied, knowledge of the understatement of tax liability when you signed the return;
(3) Given all the facts and circumstances at the time the IRS seeks collection, it would be unfair to make you pay the tax and consequential interest and penalties; and
(4) You applied for relief by filing IRS Forms 8857 and 12510, within two years after the IRS commences collection efforts against you.
Money2 of 2 Divorced? Taxes May Still Bind YouMarlene M. Browne 09.07.07, 1:01 PM ET
If you don't meet the Innocent Spouse criteria, you might find relief under the second option, the Separate Liability Election, so long as:
(1) You are either legally separated or are divorced from, or widowed by, the person with whom you filed the joint income tax returns in question, and have not been a member of the same household for any time during the 12-month period preceding the date you filed the Separate Liability Election;
(2) The IRS cannot meet the burden of proving you had actual knowledge of the item in question (that your former spouse reported) at the time you signed the return; and
(3) You apply for relief this relief by filing IRS Forms 8857 and 12510, within two years after the IRS commences collection efforts against you.
Unlike the knowledge requirement under the Innocent Spouse Rule, the Separate Liability Election does not address what a spouse should have known (also called implied or constructive knowledge) about the erroneous item when the joint income tax return was signed.
Rather, the issue concerns what the taxpayer seeking relief under this election knew in fact at the time she or he signed the return in question. Yet, the IRS will deny relief if it can prove the existence of a fraudulent scheme to avoid taxation (e.g., a transfer of assets between spouses to avoid taxes or tax collection).
If you qualify for relief under the Separate Liability Election, you will be responsible for only that part of the joint tax liability that would have been yours, if you had filed separately. Caution: Special rules apply for those in community property states--Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin; and Alaska, if elected; so see IRS Publication 971 Innocent Spouse Relief (And Separation of Liability And Equitable Relief) for these and other details.
The third option, "Equitable Relief," available since 1998, is a catchall provision, available to worthy taxpayers who fail to fit under the first two provisions. One invokes Equitable Relief by filing Forms 8857 and 12510 within two years after the IRS initiates collection. Note: If you were a victim of domestic violence, in fear of your safety when you signed any joint income tax return, you won't be held accountable for questionable items to which you acquiesced, for fear of retaliation.
The law does not deem a joint return signed under duress to be "joint" in any meaningful sense. But beware: Even if you failed to file any returns during the marriage, the IRS can still assess a marriage-era deficiency by calculating what you should have paid after performing its own review of your income and producing a "substitute return."
If you fail to find relief under the Innocent Spouse, Separate Liability Election or the Equitable Relief provisions, you have other resolution options. You can pay the IRS what you owe in full at once; or, enter into an installment agreement to pay over a course of three to five years; or, submit an offer in compromise (OIC) with a 20%, nonrefundable payment of the sum you seek to pay in compromise; or, you can request to pay nothing under a temporary hardship status.
Finally, though much tougher to achieve since the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, it's still possible to discharge personal liability for unpaid income tax debt so long as:
(1) The income taxes in question were due at least three years before filing your petition for bankruptcy;
(2) The taxes emanate from income tax returns filed at least two years before your bankruptcy's filing;
(3) More than eight months (240 days) have elapsed between the time you file your bankruptcy petition and the date the IRS assessed the tax debt in question; and
(4) The returns were not fraudulent or filed in an attempt to evade payment.
These time requirements can be tolled (delayed) for various reasons including the submission of an OIC; absence from the country; and prior bankruptcy filings. Also, discharge is no longer available for taxes owed from non-filed returns. Furthermore, no matter how successful you might be in Bankruptcy Court eliminating your personal responsibility to pay income tax debt, all pre-petition federal tax liens issued against your property (think real estate, pensions plans, bank accounts) survive.
The IRS can levy on those assets to collect its debt, discharge notwithstanding. (This would be the time for another OIC.) For more information on IRS collection protocol, see IRS Publication 594, What You Should Know About The IRS Collection Process.
In summary, your taxes--past and present, joint and several, filed and not filed-- should be neatly dealt with at the time of your divorce. If, however, if those taxes come back to haunt you, there are ways to make amends or seek relief. The IRS is intimidating: its rules arcane, its regulations complex. Do yourself a favor and hire a professional to guide you toward release, or maybe even, discharge.
Written by Marlene M. Browne Esq.
Divorced? Taxes May Still Bind You Marlene M. Browne 09.07.07, 1:01 PM ET
The New Divorce Court
Most spouses know that evaluating the tax effects on any proposed property distribution or support package is a critical component of every settled or tried divorce case. In fact, ignoring the tax implications in a marital dissolution matter is considered malpractice. So, if most parties and their counsel are careful to consider taxes at the time of the split, how do tax issues arise after the divorce is final?
Typically, years later, the IRS or state taxing authority sends one of the parties a notice explaining that he or she is liable for an outstanding sum owed on a joint, married income tax return.
Reason: When you file as a married person, each spouse becomes jointly and severally liable for the total taxes owed for the year of the return. Post-divorce tax liability commonly arises from cases involving a business or professional practice, where one spouse was in control of the family's financial matters, yet both signed and filed joint, married returns.
In these situations, the IRS finds deficiencies caused by the couple's overstating deductions or understating income on the joint returns in question. For instance, when the government discovers that your spouse earned $250,000 from his business (not the $125,000 reported on your return); both of you--and each of you--are responsible for the additional tax on the $125,000 dollars in unreported income, plus accumulated interest and penalties.
Similarly, if the IRS disallows deductions for the "farm" expenses that your wife reported on the joint return, you are both (as individuals) responsible for the entire amount of taxes owed on the formerly sheltered income, should the IRS determine that the farm was really her hobby.
Finding that you owe taxes on a jointly filed return can be traumatic enough while you are married. Learning that you are responsible for 100% of those joint taxes after you are divorced can be devastating, particularly if you really weren't the guilty party. What do you do when you're called upon to pay the tax debt due on long-ago filed joint returns? There are several options, but before we explore them, there are ground rules that the government (in our example, the IRS) must follow.
. Normally, the IRS has three years from the date you filed your return (excluding the date of filing), or two years from the date the tax was paid--whichever is later--to issue an assessment of deficiency. If you or your spouse omitted a substantial amount of income from your filed, joint returns (25% or more), the law allows the IRS six years to issue its deficiency assessment. If you or your spouse intentionally attempted to evade paying taxes or filed fraudulent returns, the IRS can take forever to figure out what you owe and file an assessment.
In fact, in the case of intentional tax evasion, nothing, not even filing subsequent, correct, amended returns, can erase the taint of fraud. In these cases, the IRS can take all the time it wants before issuing an assessment. Naturally, if you were duped into filing a joint tax return with an unscrupulous spouse who defrauded everyone (you, as well as the government), you could be hit with a tax assessment decades after your divorce.
Moreover, the IRS will go after whomever it can find most easily. If your spouse has fled, you'll be responsible for the entire sum, which, considering the compounding interest and penalties, can be truly staggering. After the assessment issues, the IRS has 10 years to collect.
What do you do when the IRS calls on to you to collect old joint taxes? Well, depending on your circumstances, you can tell the IRS that you should not have to pay the taxes, interest and penalties attributable to a spouse's or former spouse's activities. Since 1998, there are three different ways to avoid joint and several responsibility.
Under the first, the Innocent Spouse Rule, you may qualify for relief if you meet the four following requirements:
(1) You filed a joint return with an understatement of tax due to an erroneous item relating to your spouse, or former spouse;
(2) You lacked actual, or implied, knowledge of the understatement of tax liability when you signed the return;
(3) Given all the facts and circumstances at the time the IRS seeks collection, it would be unfair to make you pay the tax and consequential interest and penalties; and
(4) You applied for relief by filing IRS Forms 8857 and 12510, within two years after the IRS commences collection efforts against you.
Money2 of 2 Divorced? Taxes May Still Bind YouMarlene M. Browne 09.07.07, 1:01 PM ET
If you don't meet the Innocent Spouse criteria, you might find relief under the second option, the Separate Liability Election, so long as:
(1) You are either legally separated or are divorced from, or widowed by, the person with whom you filed the joint income tax returns in question, and have not been a member of the same household for any time during the 12-month period preceding the date you filed the Separate Liability Election;
(2) The IRS cannot meet the burden of proving you had actual knowledge of the item in question (that your former spouse reported) at the time you signed the return; and
(3) You apply for relief this relief by filing IRS Forms 8857 and 12510, within two years after the IRS commences collection efforts against you.
Unlike the knowledge requirement under the Innocent Spouse Rule, the Separate Liability Election does not address what a spouse should have known (also called implied or constructive knowledge) about the erroneous item when the joint income tax return was signed.
Rather, the issue concerns what the taxpayer seeking relief under this election knew in fact at the time she or he signed the return in question. Yet, the IRS will deny relief if it can prove the existence of a fraudulent scheme to avoid taxation (e.g., a transfer of assets between spouses to avoid taxes or tax collection).
If you qualify for relief under the Separate Liability Election, you will be responsible for only that part of the joint tax liability that would have been yours, if you had filed separately. Caution: Special rules apply for those in community property states--Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin; and Alaska, if elected; so see IRS Publication 971 Innocent Spouse Relief (And Separation of Liability And Equitable Relief) for these and other details.
The third option, "Equitable Relief," available since 1998, is a catchall provision, available to worthy taxpayers who fail to fit under the first two provisions. One invokes Equitable Relief by filing Forms 8857 and 12510 within two years after the IRS initiates collection. Note: If you were a victim of domestic violence, in fear of your safety when you signed any joint income tax return, you won't be held accountable for questionable items to which you acquiesced, for fear of retaliation.
The law does not deem a joint return signed under duress to be "joint" in any meaningful sense. But beware: Even if you failed to file any returns during the marriage, the IRS can still assess a marriage-era deficiency by calculating what you should have paid after performing its own review of your income and producing a "substitute return."
If you fail to find relief under the Innocent Spouse, Separate Liability Election or the Equitable Relief provisions, you have other resolution options. You can pay the IRS what you owe in full at once; or, enter into an installment agreement to pay over a course of three to five years; or, submit an offer in compromise (OIC) with a 20%, nonrefundable payment of the sum you seek to pay in compromise; or, you can request to pay nothing under a temporary hardship status.
Finally, though much tougher to achieve since the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, it's still possible to discharge personal liability for unpaid income tax debt so long as:
(1) The income taxes in question were due at least three years before filing your petition for bankruptcy;
(2) The taxes emanate from income tax returns filed at least two years before your bankruptcy's filing;
(3) More than eight months (240 days) have elapsed between the time you file your bankruptcy petition and the date the IRS assessed the tax debt in question; and
(4) The returns were not fraudulent or filed in an attempt to evade payment.
These time requirements can be tolled (delayed) for various reasons including the submission of an OIC; absence from the country; and prior bankruptcy filings. Also, discharge is no longer available for taxes owed from non-filed returns. Furthermore, no matter how successful you might be in Bankruptcy Court eliminating your personal responsibility to pay income tax debt, all pre-petition federal tax liens issued against your property (think real estate, pensions plans, bank accounts) survive.
The IRS can levy on those assets to collect its debt, discharge notwithstanding. (This would be the time for another OIC.) For more information on IRS collection protocol, see IRS Publication 594, What You Should Know About The IRS Collection Process.
In summary, your taxes--past and present, joint and several, filed and not filed-- should be neatly dealt with at the time of your divorce. If, however, if those taxes come back to haunt you, there are ways to make amends or seek relief. The IRS is intimidating: its rules arcane, its regulations complex. Do yourself a favor and hire a professional to guide you toward release, or maybe even, discharge.
Written by Marlene M. Browne Esq.
Thursday, September 6, 2007
Tax relief for foreclosures, but not McMansions
from www.bankrate.com
Tuesday, Aug. 28Posted 8 a.m. EDT
Tax relief for foreclosures, but not McMansions
Congress is still on its annual summer break for a few more days, but some tax proposals are worth reviewing before they get back in town.
First, foreclosure relief that was introduced last spring; April 17, tax-filing day to be exact. Don't you just love the showmanship aspect of Capitol Hill?
But the bill, its pointed introduction date notwithstanding, has some merit. It's the Mortgage Cancellation Tax Relief Act of 2007 (HR 1876), sponsored by Rep. Robert E. Andrews, D-N.J. A month later on the other side of Capitol Hill, Sen. Debbie Stabenow, D-Mich., introduced an identical version, S. 1394.
Both measures would amend the tax code to make debt forgiveness on principal home mortgages nontaxable income.
Since the bills were dropped in the hoppers, however, they have been languishing. Not even a subcommittee hearing has been scheduled by either the Ways and Means or the Senate Finance committees.
But given what's going on in the mortgage, and tax, world right now, as discussed in this Bankrate story on the double whammy of losing your home then owing taxes, that might change.
No deduction for McMansion mortgages: Congress also is looking for ways to combat greenhouse gasses. Insert your own Washington, D.C., joke here.
Kidding aside, a veteran lawmaker thinks he's come up with a solution that also could put more tax dollars in the U.S. Treasury.
According to real estate columnist Ken Harney, when Congress reconvenes next month, Rep. John D. Dingell, D-Mich., will introduce comprehensive climate-change legislation that would, in part, in the lawmaker's own words, "remove the mortgage interest deduction on McMansions -- homes over 3,000 square feet."
I don't think Dingell's idea has much chance of passing. Or maybe I hope it doesn't, since our house here in Austin, Texas, is a tad bigger than 3,000 square feet. Yep, it's true. Everything's bigger in the Lone Star State.
No word from the representative or his staff as to why the cutoff point of 3,000 square feet was chosen. But big houses are a general target because they tend to contribute more to greenhouse gas emissions via heating, cooling, electrical usage and building materials.
Personally, I've lived in smaller houses (in other states, of course) that were older and much less energy efficient than the place my husband I now call home. Many others who will oppose Dingell's proposal will make that same argument.
We'll also hear from the powerful real estate and lending lobbies, which are still taking hits thanks to the largely self-inflicted subprime debacle. Those folks definitely don't want to see things get difficult, taxwise, for folks who can afford to take out big mortgages for big houses.
There's also the greenhouse gas/global warming issue. It's so politically divisive that with the makeup of Capitol Hill now, expect most Republicans, who own their share of big houses, to come down squarely against the bill.
Finally, there's the sacredness of the mortgage interest deduction itself. Even Dubya's blue ribbon panel charged with coming up with tax reform proposals was shot down, in part, because it called for the elimination of the mortgage interest deduction.
Tuesday, Aug. 28Posted 8 a.m. EDT
Tax relief for foreclosures, but not McMansions
Congress is still on its annual summer break for a few more days, but some tax proposals are worth reviewing before they get back in town.
First, foreclosure relief that was introduced last spring; April 17, tax-filing day to be exact. Don't you just love the showmanship aspect of Capitol Hill?
But the bill, its pointed introduction date notwithstanding, has some merit. It's the Mortgage Cancellation Tax Relief Act of 2007 (HR 1876), sponsored by Rep. Robert E. Andrews, D-N.J. A month later on the other side of Capitol Hill, Sen. Debbie Stabenow, D-Mich., introduced an identical version, S. 1394.
Both measures would amend the tax code to make debt forgiveness on principal home mortgages nontaxable income.
Since the bills were dropped in the hoppers, however, they have been languishing. Not even a subcommittee hearing has been scheduled by either the Ways and Means or the Senate Finance committees.
But given what's going on in the mortgage, and tax, world right now, as discussed in this Bankrate story on the double whammy of losing your home then owing taxes, that might change.
No deduction for McMansion mortgages: Congress also is looking for ways to combat greenhouse gasses. Insert your own Washington, D.C., joke here.
Kidding aside, a veteran lawmaker thinks he's come up with a solution that also could put more tax dollars in the U.S. Treasury.
According to real estate columnist Ken Harney, when Congress reconvenes next month, Rep. John D. Dingell, D-Mich., will introduce comprehensive climate-change legislation that would, in part, in the lawmaker's own words, "remove the mortgage interest deduction on McMansions -- homes over 3,000 square feet."
I don't think Dingell's idea has much chance of passing. Or maybe I hope it doesn't, since our house here in Austin, Texas, is a tad bigger than 3,000 square feet. Yep, it's true. Everything's bigger in the Lone Star State.
No word from the representative or his staff as to why the cutoff point of 3,000 square feet was chosen. But big houses are a general target because they tend to contribute more to greenhouse gas emissions via heating, cooling, electrical usage and building materials.
Personally, I've lived in smaller houses (in other states, of course) that were older and much less energy efficient than the place my husband I now call home. Many others who will oppose Dingell's proposal will make that same argument.
We'll also hear from the powerful real estate and lending lobbies, which are still taking hits thanks to the largely self-inflicted subprime debacle. Those folks definitely don't want to see things get difficult, taxwise, for folks who can afford to take out big mortgages for big houses.
There's also the greenhouse gas/global warming issue. It's so politically divisive that with the makeup of Capitol Hill now, expect most Republicans, who own their share of big houses, to come down squarely against the bill.
Finally, there's the sacredness of the mortgage interest deduction itself. Even Dubya's blue ribbon panel charged with coming up with tax reform proposals was shot down, in part, because it called for the elimination of the mortgage interest deduction.
Increase in Federal Minimum Wage Will Not Reduce 45B Credit
from www.irs.gov
Increase in Federal Minimum Wage Will Not Reduce 45B Credit
IR-2007-155, Sept. 5, 2007Washington — Employers should be aware of two changes to the credit for the portion of employer Social Security paid with respect to employee cash tips known as the 45B Credit. These changes are the result of recently enacted legislation.The law now requires employers to determine their credit using the minimum wage in effect on January 1, 2007 even if the minimum wage increases. Therefore, in 2007, when the federal minimum wage did increase to $5.85 from $5.15 per hour, employers will still use the $5.15 rate to determine their credit to compute their allowable credit for tips reported for services performed after Dec. 31, 2006. The 45B Credit allows employers in the food and beverage industry to claim a credit for the Social Security and Medicare taxes the employers pay on their employees' tip income. The credit equals the Social Security and Medicare taxes the employer paid on the tips received by the employees. However, no credit is given for tips used to meet the federal minimum wage rate. Employers claiming the credit must reduce their Social Security and Medicare tax deduction accordingly. Eligible employers should use Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips, to claim the credit. The new law also allows the employer to use the 45B credit to offset alternative minimum tax. Previously, the credit could only be used against the regular tax. This offset is available for 45B credits for taxable years beginning after Dec. 31, 2006.
Related Item: Credit for Portion
Increase in Federal Minimum Wage Will Not Reduce 45B Credit
IR-2007-155, Sept. 5, 2007Washington — Employers should be aware of two changes to the credit for the portion of employer Social Security paid with respect to employee cash tips known as the 45B Credit. These changes are the result of recently enacted legislation.The law now requires employers to determine their credit using the minimum wage in effect on January 1, 2007 even if the minimum wage increases. Therefore, in 2007, when the federal minimum wage did increase to $5.85 from $5.15 per hour, employers will still use the $5.15 rate to determine their credit to compute their allowable credit for tips reported for services performed after Dec. 31, 2006. The 45B Credit allows employers in the food and beverage industry to claim a credit for the Social Security and Medicare taxes the employers pay on their employees' tip income. The credit equals the Social Security and Medicare taxes the employer paid on the tips received by the employees. However, no credit is given for tips used to meet the federal minimum wage rate. Employers claiming the credit must reduce their Social Security and Medicare tax deduction accordingly. Eligible employers should use Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips, to claim the credit. The new law also allows the employer to use the 45B credit to offset alternative minimum tax. Previously, the credit could only be used against the regular tax. This offset is available for 45B credits for taxable years beginning after Dec. 31, 2006.
Related Item: Credit for Portion
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