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Bank Settles Claims Over Lost Tax Papers

Nov 25

Posted by admin in Taxes

Mellon Bank has agreed to pay $16.5 million to the federal government to settle claims that it allowed overwhelmed employees to destroy thousands of federal tax returns and payments in 2001, The Associated Press reported.
In turn, the government will not pursue any civil or administrative monetary claims against Mellon, the United States district attorney’s office and Mellon Bank said Thursday, the AP reported.

The bank, a subsidiary of the Mellon Financial Corporation, had a contract with the Internal Revenue Service to process income tax returns and tax-payment checks. Mellon employees, feeling overworked and unable to meet deadlines imposed by the contract, destroyed more than 77,000 returns and checks totaling $1.3 billion at a company service center in Pittsburgh in April 2001, the AP reported.

Mellon lost its IRS contract in Pittsburgh and has paid more than $18 million to cover the interest the government would have received from the delayed payments, as well as the costs of moving the IRS processing center to another company’s site in suburban Philadelphia.

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Bid to End Private Tax Collection Dies

Nov 24

Posted by admin in Personal Finance

An initiative to farm out tax collection to private agencies survived a challenge Thursday from House lawmakers who said the program was improper and should be eliminated, The Associated Press reported.

Defenders of the private debt collection program used a procedural move to strip from a Treasury Department spending bill a provision saying the Internal Revenue Service could spend no more than $1 million next year to operate the program, which would have effectively shut it down, the AP reported.

Rep. Jim McCrery, R-La., top Republican on the Ways and Means Committee, cited estimates that the IRS could lose $69 million in 2008 if the program, which began operations in September 2006, were dismantled, the AP reported.

”The whole notion of having private debt collectors collecting taxes throughout this country does not sit well with a lot of people,” said Rep. Jose Serrano, D-N.Y., a leading opponent, according to the AP. Even with careful supervision, he said, taxpayers will eventually see ”all kinds of tactics we will live to regret.”

Currently the IRS has contracted with two private agencies, but it’s looking to expand the program this year, the AP reported.-New York State Society of Certified Public Accountants

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Still Waiting For Your Tax Refund?

Nov 1

Posted by admin in Taxes

I am constantly amazed when I speak with people and they tell me they are still waiting for tax refund checks after six or twelve months. If you are in this position, you may be in for a surprise.

Still Waiting For Your Tax Refund?

Preparing and filing taxes is one of those things almost nobody likes to do. Much like spring cleaning, it is something to be done and then forgotten about. If you are due a tax refund, however, this can result in some problems. This is particularly true with the IRS.

Every year, the Internal Revenue Service reports that it cannot get refund checks to a large number of taxpayers. No, it does not try to hide this fact. It actually will publish news releases and contact media outlets to get the world out. This year, the IRS is trying to find almost 100,000 people that it has refund checks for. The total dollar figure for outstanding refunds is over $92 million dollars. That is almost a grand per person the IRS cannot find.

Why can’t the IRS find you? Well, there can be a variety of reasons. The most common is you have moved since filing your tax return, but did not tell the IRS. As a result, the IRS sent the refund check to your old address. Another situation that can arise occurs when a marriage happens and the IRS is not notified of any new address or name change. Contrary to what you may have heard, the IRS does not keep tabs on you every day. If you move, you have to let the agency know.

If you are still waiting for a tax refund check, you should get proactive. You can go to the IRS web site and use the ?Where is my Refund?? link on the home page to find out the status of your refund. You can also pick up the phone and call the agency at 800-829-1954.

Listen, we all hate preparing and filing our taxes. If you have suffered through the process and generated a refund, don’t lose it. Take action and contact the IRS to get your money today.

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Take Expenses Now To Limit Your 2006 Business Taxes

Nov 1

Posted by admin in Taxes

As we roll towards the end of 2006, you are probably thinking about the holidays and gifts you need to buy. Well, it is also time to give yourself a tax gift.

Take Expenses Now To Limit Your 2006 Business Taxes

Take a moment to think back to last April. Do you remember the anguish of writing a check to the Internal Revenue Service? Did it seem a bit more than it should have been? Did you have to scramble to put together the funds? If you do not recall, go check the ledger in your check book or your accounting system. Bring back bad memories? If you want to avoid this situation again, you need to start following the simplest of tax strategies.

A time-tested and incredibly effective tax strategy is expensing everything you possible can before the end of the year. Now, the expenses need to be legitimate, but you can do some serious positive damage to your tax bill next year if you take this step. Remember, legitimate business expenses reduce your gross profit, which results in a reduction of your tax bill.

Most small businesses have a very interesting balance sheet around the end of December each year. If you took a look at it, you would think the company was nearly bankrupt. Why? A business that plans ahead will use all available cash to pay for expenses in an effort to ?buy down? their profit. A company that otherwise might show a $100,000 profit for the year suddenly shows a $10,000 profit. Of course, it may also have a bevy of new equipment, office supplies and so on.

So, what areas should you focus on? Well, every business is different, so you need to consider the nature of yours. Try to focus on expenses you know will come up in January and February of next year. This can be the most basic of things such as office supplies to more complex expenditures like new office equipment. Make a list of these items and determine what you can buy now instead of next year. Importantly, make sure you understand how much cash you will need in January so you don’t have cash flow problems if you over expense.

If you want to limit the damage of your tax bill in April, the time to act is now. Taking such action is like giving yourself a nice gift, but you have to wait till April to open it.

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The IRS Is Coming – Are You Ready?

Oct 30

Posted by admin in Taxes

One of an American citizen’s worst fears is an audit by the IRS. The unlucky individual who is the target of an audit begins to conjure up images of penalties, fines, levies, or worst of all, jail time. Even the most honest of taxpayers, under the scrutiny of an audit, begins to think back in their mind, “Did I calculate my return correctly?”, “Did I save all my receipts for the deductions I claimed?” This is a most stressful and challenging time in a taxpayer’s life. Nevertheless, before one loses sleep over the impending audit, there is a law which protects the American taxpayer in an IRS audit situation.

To be more specific, in 1998 the IRS passed the third installment of the Taxpayer Bill of Rights (TaBOR). The bill was passed as a byproduct of numerous complaints to Congress concerning the abusive behavior by IRS auditors. The Taxpayer Bill of Rights also requires the IRS to inform a taxpayer of his rights and what effect of the tax action the IRS is pursuing. The audit itself is traditionally thought as a meeting between an agent of the IRS and the taxpayer. However a good percentage of tax audits come in the form of a letter asking for clarification or substantiation of items on the tax return. Careful and organized record keeping usually make these types of audits resolve rather smoothly.

The IRS may choose to audit a portion of the filed return, or on some occasions an agent may request a closer examination of the entire return. If the auditor merely asks for documentation for a specific part of your return, it would be a good idea to give the auditor only that piece of information that is requested. Bringing additional documentation or information not requested could subject the taxpayer to wider scope audit, that is if something else on the return looks irregular. In other words, only bring what is requested. Do not volunteer any information to the tax auditor, and answer their questions with simple, direct answers.

Since most people are not experts at tax law, it is highly recommended that a CPA, tax lawyer, or tax advisor represent them in a meeting with the IRS. Contact the person who prepared the return. They will have specific advice on how to prepare for the audit. In most cases they can attend the audit in place of you to gather information from the field agent. This puts the taxpayer at an advantage and may buy valuable time to prepare the necessary documentation.

The audit will conclude with the IRS agent citing any irregularities noted with the return. They will then formally notify the taxpayer of any monetary adjustments that need to be made. In some cases some lucky citizens have received additional refunds after an audit. Unfortunately, in most cases, the IRS will be asking for a check. An agent’s decision can be appealed to a supervisor, or the Appeals Division of the IRS. If the Appeals Division decision is still unsatisfactory, a final appeal can be made to the US Tax Court.

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Tax Deduction 101 for Home Based Businesses

Oct 29

Posted by admin in Taxes

Seeking tax advice and tax tips is never a bad idea. When it is time to file your home based businesses taxes online you want to have every weapon that is legally at your disposal. Having a list of acceptable deductions for your home business will allow you to quickly and legitimately flow through the tax season with little to no hiccups. Here are a few things to think about when beginning to file taxes online.

First, do you have a home office in the same way the IRS sees a home office? Is your home business run in one designated room in your home or are you working from the computer in your family room? If it is the later it is not considered a home office by the IRS. The room you run your business from must have no other use except working. If you do run your business from a singular room then the square footage of that room can represent the percentage of your mortgage or rent that can be deducted from your taxes. Also, the utilities that you use in your business ventures such as electricity and internet can be deducted. Typically a percentage of the total cost is deducted.

Second, what office supplies do you purchase? Even if you are not able to use the home office deduction, you can still deduct the office supplies that you purchase. Keeping well organized receipts will help you know what you can deduct and what you can not.

The third type of deduction is for office furniture. You have two choices when it comes to this deduction. One, you can deduct 100% of the cost of the furniture for that year. For that deduction, you would fill out the Section 179 deduction sheet in your tax form. In 2006, you could claim $108,000 in expenditures. If you don’t wish to claim the entire cost of your furniture that year you also have the option of depreciation, which allows you to deduct a part of the cost over a seven year period.

The other equipment such as computers, scanners, and fax machines can be deducted under the same principles as the office furniture. You would use the same Section 179 sheet to deduct these things. Any software or subscriptions used by your business can be deducted in the same way.

You can deduct any traveling you might do for your business but remember to keep accurate data of the trip mileage, tolls, or any other trip orientated expenses which includes your lodging and meal expenses. Only 50% of your meal expenses can be deducted. The IRS is a stickler for documentation, so have it readily available. You will also need to check what the gas rate was for the tax year in question and make the appropriate calculation. If you have purchased a vehicle, that too can be deducted. Just make sure to calculate the interest and depreciation for the vehicle.

There are several other deductions that you can find for a home based business. However, it is important that you make sure you follow the guidelines set forth by the IRS and they maintain documentation for everything that you are claiming.

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The IRCS1031 Tax-Free Exchange – Calculating the Basis of Replacement Property

Oct 27

Posted by admin in Taxes

Introduction
This article provides a very brief introduction to two different methods and approaches for the computation of the basis of replacement property receive in an Internal Revenue Code Section 1031 (IRC-1031) exchange. It should be noted that these methods are relatively ‘simple,’ when compared to more complex IRC-1031 exchanges. This is because some may involve more than one classification of like-kind properties (e.g., real property versus personal property). The Internal Revenue Service (IRS) provides some broad instructions on the IRC-1031 exchange in its Publication 544 ? Sales and Other Dispositions of Assets. This publication is updated every year and is provided to the public, for free, by calling the IRS tax forms 1-800 telephone number or by downloading the publication from the Internet at www.irs.gov . IRC-1031 exchanges are reported on Form 8824, Like-Kind Exchanges.

Basic Terminology
The below Table summarizes the two different methods and approaches for the computation of the basis of replacement property. However, before illustrating the methods for the IRC-1031 exchange replacement property basis calculation, some basic terms must be defined, as follows:

Adjusted Basis Cost plus improvements less depreciation.

Relinquished That property ‘sold’ in an IRC-1031 like-kind exchange (e.g., relinquished property). Also known as “phase I property,” property “given up,” ‘sale,’ “exchange,” or “downleg.”

Replacement That property “purchased” in an IRC-1031 like-kind exchange (e.g., replacement property). Also known as ‘phase II property,’ property ‘received,’ ‘purchase,’ ‘target,’ or ‘upleg.’

Realized A classification of gain or loss that may or may not be ‘realized’ or have any tax impact. A realized gain (or loss) may or may not be recognized.

Recognized A classification of gain or loss that always, by definition, has a tax impact. A recognized gain (or loss) must, first, have been realized.

Capital Gain Sales price less adjusted basis, when sold at a profit. The amount to which capital gains taxes and tax rates are applied. For the 2004 and 2005 tax years, long-term capital gains are taxed at 5% (for taxpayers in 5% or 10% ordinary income tax rates or brackets), 15% (for taxpayers in 25%, 28%, 33% or 35% ordinary income rates or brackets), and 25% (for taxpayers subject to IRC-1250 recapture rules).

Capital Loss Sales price less adjusted basis, when sold at a loss.

Ordinary Income Those types, categories or classifications of income (e.g., dividends, interest and salary) to which ordinary income tax rates are applied. Ordinary income tax rates or brackets are higher than those applied to long-term capital gains to provide taxpayers with an economic incentive to invest, rather than speculate, long-term.

Tax-Deferred Tax ‘savings’ are always the result of tax-planning strategies designed to achieve tax-deferral or tax-deferred treatment. This is the objective of the IRC-1031 like-kind exchange. The tax is not eliminated, but is merely deferred or pushed into the future.

Deferred Gain A gain that is realized, but not recognized. This is the objective and/or motivation for the IRC-1031 exchange.

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