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Dealing With Scam Artist Pretending To Be IRS Debt Collectors

Mar 28

Posted by admin in Taxes

In 2004, the IRS was given the authority to use third party debt collectors to hunt down taxes owed by delinquent taxpayers. Scam artists knew an opportunity when they saw one.

Dealing with Scam Artist Pretending To Be IRS Debt Collectors

In an effort to track down delinquent taxpayers, the federal government gave the IRS the right to hire private debt collectors in 2004. You know, those annoying people that call during dinner. The reason for this change in policy actually made some sense. With as much information as the IRS is forced to deal with, it simply took forever for the IRS to start collection actions. By using the third parties, the IRS would be able to get the process moving without taking up employee time.

As you might imagine, the private tax debt collector program sounded like a good idea, but proved to be problematic. There were two primary problems. First, the legitimate debt collectors were threatening taxpayers. Second, scam artists started posing as debt collectors to collect money from na’ve tax collectors or perform identify theft on them. It is this second problem that we focus on here.

The central problem with the new debt collector program is how does a taxpayer know if they are dealing with a legitimate company or a scam artist trying to rip them off? Well, the IRS has instituted a new program in an effort to clarify matters. Here are the highlights:

1. If the IRS is going to use a private debt collector to come after you, the agency will first send you a letter indicating as much. The name of the company handling the debt collection will be included in the letter. If you do not receive this letter, ignore or report any parties claiming to be debt collectors to the IRS immediately. Play along and get their contact information so the IRS can hammer them.

2. When dealing with the debt collector, you will eventually reach a point where you write a check. The check should be written to the United States Treasury. If the debt collector instructs you to write it to any other name, they are scam artists and you should report them immediately. There is no exception to this rule. All payments are made to the United States Treasury, just like if you had actually paid your taxes on time!

Scam artists are very creative when it comes to thinking up schemes for ripping people off. Understand and stick to the following guidelines and you can foil them.

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Taxes: The Plan Ahead, Not The Look Behind

Mar 27

Posted by admin in Taxes

The word “taxes” has a negative affect on people. It makes us look away, it upsets us and we make lots of grunting noises. But that?s looking at the previous year and preparing for the tax season. What about planning for 2006? Can we actually plan ahead for taxes?

Yes, it is possible. It?s important to begin our discussion on taxes by knowing what tax changes are taking affect. So I?d thought I?d get you started in the right direction. Here are some of the tax benefits coming your way in 2006 for your 2007 filings.

- Standard Deduction will increase to $10,300 for married couples filing jointly, $5,150 for singles and $7,550 for heads of household.

- Save more money with retirement contributions into your 401(k) or 403(b). Limits have been increased to $15,000. If you are at least age 50 before the end of 2006, you can now contribute an additional $5,000. Every little bit helps.

- Estate and Gift Tax are certainly getting a gift. The exception amount increases to $2M and the maximum marginal tax rates dropped 1% to 46%.

- Hybrid cars are the new ?in? thing and you?ll get rewarded for it too. But buy it fast to get your $2,400 tax credit. It?s only good for the first 60,000 vehicles per manufacturer.

- Income Limits Increase for Deductible IRA’s. Although regular IRA and Roth contributions limit of $4,000 haven?t changed, people age 50 or older can put in another $1,000 for a total of $5,000 for the year.

- Child Tax Credit will remain at $1,000 per each qualifying child. Better something than nothing.
?You can put a little bigger bow on the Gift Tax Annual Exclusion package. You can now give an extra $1,000 or $12,000 for the year without filing a gift tax return.

- And a little something for you. Personal exceptions have increased from $3,200 to $3,300 for the year.

So now you have it. Tax benefits that you can count on for 2006. Plan ahead and put that little extra away for those later years. When you?re retired, you can finally look behind and thank yourself for planning ahead.

John Michalak is a well-known local authority and financial educator in the matters of retirement finances. He assists retirees

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Start A Home Business For Tax Purposes

Mar 26

Posted by admin in Taxes

If you use a part of your home for business, you may qualify to deduct costs related to your home office, including rent, heat, electric, telephone, insurance, utilities, maintenance, repairs and so-on.

There are many tax-saving benefits available to those who operate their own small business in addition to their normal job or employment. First, you have the home-office deduction which can be used to deduct up to 20% of the cost of running your home. The amount depends on how much space you are using for your home office.

Secondly, you will become eligible to deduct a portion of many of the things you’re already paying for such as your computer, your ink cartridges, your printer paper, and any computer related books or business-related classes you may be taking. If you’re using your computer as part of your home-based business, then a portion of that is considered a business-related expense.

Most expenses related to running a business are tax deductible

Having said that, let’s take a look at just a few of the more common home business tax deductions. You will be able to deduct most if not all common business-related deductions. Things like start-up costs, equipment purchases, payment for services, supplies, advertising, and other monthly fees like website hosting.

Basic Rules for a Business Deduction

Any expense that meets the IRS’s basic rules (ordinary, necessary and reasonable) can be taken. A necessary and reasonable expense according to the IRS is one that is appropriate and helpful in developing and maintaining your trade or business

With all the tax benefits offered by Uncle Sam, wouldn’t you agree that having a tax-saving, moneymaking, at home business, is worth taking a second look at.

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Making More Money From Capital Gain Taxes

Mar 25

Posted by admin in Taxes

As we may know, keeping a diversified portfolio can be beneficial to the overall health of our financial stability and growth. Taking a closer look at each investment, they fall into two categories of taxes: capital gains tax and ordinary tax. Many people have both types of taxes within their portfolio but are not sure which tax applies to the investments.

Which Tax is Which: Capital Gains and Ordinary

Capital gains tax is applied on profits realized from the sale of capital assets such as a home, certain investments and dividends and business interests. The best way to determine how an investment is taxes is to simply ask, ?What occurred with the investment this year?? If the investment generated income such as interest, the income will probably be considered ordinary. But if you sold the investment for a profit then it will be determined a capital gain.

Capital gain is generated when the sale price for a capital asset exceeds your adjusted tax basis in that asset. Generally, your adjusted tax basis in an asset equals the price you paid for the asset with some adjustments. However, different basis rules may apply to assets acquired through gift or inheritance.

Retaining Income Through Capital Gain

Capital gain income is generally preferable to ordinary income. Currently, the highest marginal income tax rate is 35 percent, while long-term capital gains tax rates vary from 5 percent to 28 percent, depending on the asset and your marginal tax rate.

Here?s how capital gain is taxed. Taxation of capital gains depends on how long you owned or held your investments before selling. Assets that are held for less than one year generate short-term gains and are taxed at the ordinary income tax rates. If you hold the asset for more than one year, it is considered a long-term capital gain. The applicable long-term capital gains tax rate is determined by the type of asset and your marginal tax bracket. For taxpayers in tax brackets higher than 15 percent, the rate is generally 15 percent. For taxpayers in the 15 percent and 10 percent brackets, the rate is 5 percent. This applies to sales and exchanges made after May 5, 2003 and before January 1, 2009.

Too Much Income

If selling an asset that you?ve held on to for more than a year puts you into the higher tax bracket, you may not be taxed at 5 percent. You can use a preferred capital gains tax rate of 5 percent on a portion of the capital gain only. The remainder of your capital gain will be taxed at the higher 15 percent rate.

Net it Out with the Netting Rules

In order to properly compute your capital gains tax, you should be aware of the manner in which capital gains and losses may offset one another. These rules are known as the “netting rules.” Generally speaking, the tax code prescribes that short-term capital gains and losses must be netted against each other first. Next, long-term capital gains and losses are netted against one another according to a set of ordering rules. Finally, net short-term gains or losses must be netted against net long-term gains or losses in a prescribed manner.

Capital losses are netted against capital gains. Up to $3,000 of excess capital losses is deductible against ordinary income each year. Unused net capital losses are carried forward indefinitely and may offset capital gains, plus up to $3,000 of ordinary income during each subsequent year.

Knowing is the Key

The key to making the most of your money is deciding when to keep or sell your investments. But when you do, you now know how it can be taxed. Be sure to consult your financial planner or accountant to verify the tax rate so your decision is the best one.

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How To Benefit From A Student Loan Interest Deduction?

Mar 23

Posted by admin in Loans, Taxes

Being a student with a loan can be a huge hassle, but with the student loan interest deduction you can make it less of one. With the student loan interest deduction you can use it for up to $2,500 of the interest you might have paid on your loan and it’s interest. One exception is with student loans that may be nullified, in that case you can completely exclude the total from your income.

When it comes to the interest reduction it has to be claimed on a loan that was to pay for qualified higher education programs only. On the other hand it can be one used for you, your spouse or your kids, meaning any dependents.

Claiming things such as fees, tuition, supplies, equipment, room and board and transportation can be done when claiming a loan interest reduction. It can be used for a college, university or even a vocational school. A couple other things to take into consideration when looking into the interest deduction is that the student must be at least a half-time student in a degree, certificate, or any other qualified program, as long as you are legally obligated to pay it back.

There are a few things you should realize though before claiming interest reduction that may effect whether or not you qualify. These include if another person can claim you as a dependent, you are married but file separately, for any reason you are not legally allowed to clear the loan or a relative took out the loan. All of these can mean you cannot qualify for the deduction.

Something else you may want to know before trying to qualify for the deduction is that there are some instances where costs may be incurred and have to be reduced. This occurs when there are non-taxable distributions from a Coverdell education savings account, or from a qualified tuition program, if there is interest from US Savings Bonds that are non-taxable, parts of scholarships and fellowships that are non-taxable, any kind of veterans education assistance and any non-taxable amounts (excluding gifts, bequests or inheritances). Make sure you check into any connection to any of these things before applying for a student loan interest deduction.

One last thing that should be considered is if you are paying on any loans after 2002, you have a different option in claiming payments for the reduction. This is because the “first 60 months” requirement on interest is no longer part of loan agreements after this date. This allows for deductions on voluntary interest payments, instead of only on required ones.

Having the option to save on student loans and the interest they incur, can greatly help a lot of families who want to give their children a better education and future. By taking advantage of the loan interest reduction they are allowing themselves the chance to do just that.

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What Is A Standard Tax Deduction?

Mar 22

Posted by admin in Taxes

One thing you can always count on is the standard tax deduction. This deduction is one almost everyone can take advantage of it is an amount that is taxable as a flat amount. Those who may not be able to take advantage of the tax reduction are those who may benefit more by an itemized tax deduction. Because of laws you can only do one or the other, not both. Those who go with itemized deductions can take advantage of medical expenses, charity and such while those who go with the reduction cannot.

Commonly the brackets for the standard tax deduction are updated every year, so the maximum advantage can be taken, that reflects current inflation. But the deduction that actually gets taken into consideration can vary with the filing status of each individual taxpayer. This means that the tax reduction can vary depending on if you are married filing single or jointly or as single head of household. It can vary by several thousand dollars, so you should take into consideration how you file very carefully if you are going to go with the standard tax deduction.

Those who are considered senior citizens, age 65 or older, have additional advantages when it comes to the reduction. For these individuals they are allowed a higher deduction. This higher deduction can also apply to those people who are legally blind. Yet another group of people who claim this higher deduction in the standard deduction are spouses of the blind or individual who is 65 or older.

One thing you should also consider in a tax rebate is if you are part of someone else claim to a deduction. If you are you cannot claim as high a deduction on your own reduction. Those who are students can claim scholarships and grants as part of their deduction under the heading of income.

The standard tax deduction is also not available to those whose spouse itemizes their deductions. It is also not something available to those who may file a tax return for a short tax year or to those who may be a non-resident or dual-status alien. The only exception is if the non-resident alien is married to a United States citizen.

Because the deduction is simpler and more straightforward it is something a lot of people choose to use. If you are someone who is itemized but can easily qualify you may want to take a second look at the standard reduction instead, it could be well worth it.

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Federal Tax Returns

Mar 20

Posted by admin in Taxes

Congress first imposed the first federal income tax in 1862 to raise money for the Union in the Civil War. A 3% tax was fixed on incomes above $600. Those with incomes above $10,000 had to pay 5% in taxes.

After many changes and appeals, the states ratified the Sixteenth Amendment to the United States Constitution, which made possible modern income taxes. For the first time, Form 1040 appeared. People earning above $3,000 had to pay 1% tax on net personal incomes, and those with incomes above $500,000 had to pay 6% surtax.

Today more than two-thirds of the nation pays taxes. People earning less than $20,000 pay no income tax as a group. Payroll taxes for Social Security, Medicare and Unemployment Insurance amount to 7-10% of every dollar. Personal and corporate income taxes are major earners for federal taxes.

Income tax can be calculated in two ways. First of all gross income minus any applicable deductions is calculated, and on this a marginal tax percentage is applied as per the taxpayer?s income bracket. Then, applicable tax credits are subtracted, which gives the income tax owed.

Refundable tax credits are given if these calculations are in the negative or if the federal withholding tax is greater than the income tax that is actually owed. The taxpayer then gets a tax refund. He could receive one even without paying any federal income tax.

The newer Alternative Minimum Tax (AMT) is based on gross income. This was introduced to prevent people from using loopholes in the tax laws. It is calculated without taking into account certain tax preference items. It also has exemptions and deductions. This higher income base is taxed in two rate brackets of 26% and 28%; this depends on the taxpayer?s income. Unfortunately the addition of unrealized gain on incentive stock options made it difficult for people who could not come up with cash to pay tax on gains that weren?t realized. The modified AMT takes into account this problem.

American salaried people usually pay progressive income tax. Non-resident Americans have to pay taxes as per the flat rate. They also have fewer allowed deductions.

If you have all the documents, it is easy to file taxes yourself. However if you are in the higher tax bracket, you may need a consultant to help you. The IRS also helps in filing your returns; call the IRS customer service representatives toll-free at 1-800-829-1040.

The IRS website (www.irs.gov) gives you extensive information. You could also go to websites like About Taxes (www.abouttaxes.org), Complete Tax (www.completetax.com), or World Wide Web Tax (www.wwwebtax.com). Do keep in mind that a little bit of care in documentation goes a long way to filing a tax return without any ensuing problems!

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