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Penalties For Not Filing Tax Returns

Dec 6

Posted by admin in Taxes

Many good folks each year fall behind in filing their tax returns. The largest reasons for not filing are fear of not knowing how to file and the thought of not being able to pay the balance due. Even if you are unable to pay you should file your return to avoid future penalties for not filing.
Penalties for not filing can reach up to 25 percent of the amount due. If you are due a refund from the IRS there is no penalty for not filing. However, you should file as soon as possible to avoid losing your refund. After three years from the tax return due date you will not be eligible to collect a refund or claim tax credits on your return.

To help those who can’t afford to pay the balance due IRS does offer installment agreements to pay off your debt. The downside to installment agreements is that you will continue to pay penalties and interest because you did not pay your yearly taxes in full.

If your debt to the IRS is so large that an installment agreement will not help and there is reason to believe that paying would place you in a financial hardship there is the option to file an offer in compromise. In the case that you believe you may qualify to file an offer in compromise you should consult with an experienced professional first.

To help ensure that you do not end up with a large tax bill at the end of the year make sure you are withholding enough tax from your regular paycheck or making estimated tax payments throughout the year if you are self employed. Events such as an increase in earnings or change in marital status may call for the need to change your withholding amount. As long as the taxpayer has paid the same amount of taxes from the prior year or they have paid 90% of the current year’s tax, whichever is smaller, they will not be penalized.

After not filing one year it seems the chances of filing the next year go from slim to none. If you are years behind in filing you should consult with a professional to help you file all your returns correctly. The sooner you file; the better. Penalties and interest will continue to accrue until you decide to do something about them.

Finding someone who is knowledgeable in tax law and IRS procedures will help take the stress off of your shoulders. You can sign a power of attorney to allow that person to communicate with the IRS directly on your behalf. In the event that you owe the IRS money and you have made no effort to arrange for payment the IRS may take action through issuing a tax levy (such as garnishing your wages) or serving you with a federal tax lien. A garnishment of wages, or wage levy, takes place by notifying your employer of your debt and forcing them to send a portion of your wages to the IRS.

As for tax liens, the IRS often file them to protect their interest. If you have a tax lien filed against you it will destroy your credit. For all debts besides secured mortgages, the IRS becomes the next lien holder and they will not release the lien until you have fully paid off the debt or an offer in compromise case has been settled.

Although most cases with the IRS are handled in civil court the consequences for not filing and complying with IRS laws can be brutal. It can be a crime to willfully not file a return. To avoid being investigated you have to make an effort to file your return or make arrangements to begin the process of filing (such as hiring a tax professional) before you receive a letter stating that you are under criminal investigation.

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Self Employed mortgage Getting a Mortgage when you are Self Employed

Nov 7

Posted by admin in Loans, Taxes

When you’re self-employed, you can write off all your reductions on your taxes. But, these are some things to understand that will help you make the mortgage process run smoothly when you’re self employed.

When verifying earnings – usually, lenders would like to see at least two years of self work history, infrequently they need to see three years. They are going to want to see this history determined in tax returns, sometimes. Occasionally the lenders will figure your earnings as being the average revenue you announced on your earnings taxes as profit, not your gross business revenue. Sometimes the bank will figure your earnings as the lowest of the 2 years and infrequently as the highest of the 2 years. Occasionally lenders will figure a little of your write-offs or deductions into your earnings. There are ideas of alternative routes a bank may be in a position to confirm your earnings and if you are self employed it will help you to be in a position to show a more of your revenue. Use bank records as evidence of earnings Find a bank who will accept 1-2 years of bank records as evidence of earnings. This way generally works better in establishing revenue than going off your tax returns, as you can mostly prove a load more money flow than tax returns will show. On your tax returns you sometimes take away each business cost before you claim any profit. Do a stated revenue or no doc loan These kinds of loans are done all the time, where you want no explanation of revenue, you only state on a form what your revenue is, and you don’t need to confirm it. These are some things to recollect when moving forward in the application process to get your house loan.

Many banks will tell you that you aren’t going to get licensed anywhere and that if they can not help you, no-one can. All home-loan brokers have access to absolutely different mortgage programs and some brokers are way more creative in their financing methodologies than others. Look for creative methods to get financing and contact as many brokers as possible. Day trading coaching. Her internet site has articles and an inventory of commended mortgage banks for many different sorts of mortgage loans.

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Deducting the Home Office: For Itemizers and Non-Itemizers

Oct 27

Posted by admin in Taxes

Introduction
The IRS provides numerous examples on a variety of topics, usually focused on what the taxpayer cannot do. This article covers some of the planning opportunities, focusing on what you can do to legitimately deduct your home office expenses and to maximize your home office expense deductions. The home office deduction is one of the least understood deductions. Many taxpayers avoid the deduction, frequently on the advice of their tax accountant or attorney, for fear of an IRS audit. This is nonsense!

The IRS provides detailed instructions on Business Use of Your Home in its Publication 587. 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.irsgov.com . Home office deductions are reported on Form 8829, Expenses for Business Use of Your Home.

Folklore – The “red flag” to the IRS
Folklore suggests that use of the home office deduction will send up a “red flag” and result in an IRS audit. However, it does not make sense to fail to take a deduction that you are legitimately entitled to! Consider the following:

For the 1997 tax year fewer than 1.5% of all individual income tax returns included claims for the home-office deduction.
In recent years, about 15% to 16% of all tax returns have included self-employment income/losses and a Schedule C or F.
Therefore, if the IRS devoted 100 percent of its audit resources to the tax returns for self-employed taxpayers, they would only be able to audit 1/10th of the individual federal income tax returns with self-employment income or losses.

Of course, the IRS does not audit the tax returns for all self-employed taxpayers. Self-employed taxpayers establish a home office for several reasons. First, they already own or rent a home, so operating out of their personal residence reduces the duplication of overhead and/or the maintenance of a separate office or place of business. The reduction of overhead, and related monthly cash outlays for the additional expense associated with rent, utilities, etc., reduces business risk and business failure rates. Establishment of the home office as the principal place of the self-employed taxpayer’s trade or business also minimizes non-deductible commuting expenses and increases the business use percentage of the business use automobile and, of course, reducing fuel consumption. In summary, one could legitimately argue that the home office is good for the U.S. economy!

IRS Audit Statistics
The IRS publishes audit statistics. For the 1996 tax year, 1,519,243 individual federal income tax returns were audited (1.28%), down from 1.67% of the returns filed for the 1995 tax year. The “no change” rate averaged 14% for office audits, 10% for field audits and 13% for correspondence audits. Additional percentage audited measures for 1996 individual federal income tax returns follows:

TABLE 1

Individuals – Non-business and based on Total Positive Income (TPI)
< $25,000 1.39%
$50,000 to $50,000 0.70%
>$100,000 2.27%
Individuals – Schedule C with Gross Receipts as indicated
< $25,000 3.19%
$50,000 to $50,000 2.57%
>$100,000 4.13%

Generally, the percentage of returns examined will depend on IRS staffing available for a particular geographical region. The returns least likely to be selected for audit are those on which the majority of the income was subject to withholding (e.g., salaries and wages) and where the taxpayer does not itemize deductions on their Schedule A.

The IRS selects returns for examination based on discrepancies identified against informational returns (e.g., W-3 and 1098 transmittals), history of deficiencies, statistically selected random sampling from an updated variation of the Taxpayer Compliance Measurement Program (TCMP), questionable refunds and their computerized discriminant income function (i.e., DIF scores).

Why pursue the home office deduction? There are several reasons why the taxpayer should deduct a home office:

Read the rest of this entry »

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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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Are You Running To The Post Office Right Now? – Tips For All You Last Minute Tax Filers On April 15

Jul 30

Posted by admin in Taxes

The preparation that goes into filing taxes becomes more ardent as April 15 comes closer. According to the Internal Revenue Services (IRS), the last day for filing your taxes is April 15. Most of people who lag behind the schedule because of various reasons have to pay a penalty for filing their returns late.

If you?re one of those who remember on April 14 that you have to file taxes the next day, then, understanding the minute instructions, putting all the receipts and documents together becomes very difficult.

According to some people it is better to file the taxes late and pay a penalty than filing it with errors on the last day (you have to talk to your own tax advisor on this comment). Yet, there are ways in which the long lines at the Post Office can be tolerated on the last day.

The lines at the post office are huge and they get bigger by midnight. But before you line up in front of the post office, you need to have the appropriate form to file a return. The federal tax forms are available at all the IRS local offices, the IRS website, and you can also call up the IRS at 1-800-TAX-FORM.

There are things other than just filing your return by standing in the post office lines. Taking a print out of your return that you are about to file also takes a lot of time. So, make sure that you have enough time at your hands before standing in that awful line.

Many taxpayers today go online to file their returns (e-file), as it is a comparatively easier and securer method to file taxes by sitting in the comforts of your home. Filing your returns online is recommended by a number of taxpayers.

The IRS is expecting more than 84 million individual income tax returns out of which more 50 million returns are expected to be filed online. For filing you taxes online you can log on the IRS website.

Try to avoid some common errors that people are prone to make due to the rush. Some of the errors and mistakes that top the IRS list include:

-Forgetting to include the W-2 with the return.

- Reversing the envelopes for federal return and state return. Putting the documents for one in the other envelope and vice versa.

- Forgetting to sign your return.

- Filling incorrect information like your wrong Social Security Number (SSN), and other things.

- Excluding the deductions that you get on the Lifetime Learning credits, Hope scholarship credits, student loan interests, adoption, child credits, health insurance premiums for the self-employed, and higher education expenses.

Your return should always give the amounts that are shown on the W-2 (wages), 1098 (mortgage interest) and the 1099 (non-employee compensation such as interest and dividends). If the amounts are not the same, then, attach an explanation.

A private delivery service, or a certified mail is the best way in which you can file your taxes through the mail. With certified mail, you will be able to get the PoD or proof of delivery.

You should also review filing the Alternative Minimum Tax, or Form 6251 to avoid any sort of penalties and interests in the future.

Going to any tax professional, or using tax software can ease you job so that in spite of the delay you are in a position to file your returns by the due date – the mighty April 15th!

Tax Tips – http://www.tax-definition.org

About The Author
Howard Schwartz is a partner in several business strategy groups, including HJ Ventures International, Inc. Howard has worked with hundreds of entrepreneurs worldwide with a focus on writing Business Plans for companies interested in raising capital from Venture Funds and Angel Investors. Howard?s business plans have secured several million dollars in funding. For more information: http://www.tax-definition.org.

Writen By : Howard I Schwartz

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Other Taxpayers Have It Worse

Jul 28

Posted by admin in Taxes

U.S. taxpayers aren\’t the only ones to feel a bit of a crunch at tax time. In fact, we don\’t have it that bad.

You may not believe it after paying that huge tax bill in April, but the U.S. isn\’t the top of the income-tax list when compared to the rest of the world. A recent study by the Organization for Economic Cooperation and Development compared the tax rates in 30 countries.

In Belgium, a single worker with the average income paid 42% of his income to the government in 2005. Twenty-eight percent went to income taxes and 14% went to Social Security, according to the study.

The German worker also paid a combination of income and Social Security that hit 42%. In Denmark, the average worker only pays 41%.

All tax rates were based on single workers with no children. They did not take into account what the employer pays in Social Security for the worker\’s behalf.

In the U.S., the average worker pays 24% to income tax and Social Security combined. The rate ranks the country 19th among the 30 listed.

Mexico came in at number 30, with 8% going to the combination of income taxes and Social Security taxes.

\”Countries differ in how much they decide to collect in taxes on people\’s income and how much tax they collect on when good are bought,\” explained Christopher Heady, head of OECD\’s tax policy and statistics division.

He points out that Mexico collects a very small amount of tax when compared to the other countries. But it collects most of its revenue on the sales of goods, not on labor. Belgium, on the other hand, doesn\’t charge much for sales tax, relying on labor income instead.

When all taxes were considered, including income, sales, business and others, Sweden was the top of the list. It tax revenues came in at about 50% of gross domestic product. Denmark and Belgium finished up the top three.

At the bottom of the list were Mexico, at number 30; Japan and Korea, tying for 29 and 28; and the U.S. at 27.

\”The U.S. is a comparatively low-tax country. I\’m sure the people filing tax returns recently wouldn\’t agree with that, but that\’s particularly because the U.S. collects a lot of its revenue from income tax and you don\’t have a value-added tax,\” Heady said.

Heady points out that high-tax countries do have benefits.

\”Most of those high-tax countries have universal health-care systems. That means you don\’t have to pay for your own health care or pay for insurance to cover your health,\” he explained. The countries \”usually have more generous state-provided retirement pensions than the U.S, so that people don\’t usually feel the need to buy a private pension. There\’s better provision of preschool education, and universities are cheaper. There are all sorts of public services that are provided at lower cost.\”

However, he points out in the U.S. \”the advantage is that you have more choice over how you spend your money, because you get more of it.\”

Martin Lukac (http://www.MartinLukac.com), represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com, a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies!

Writen By : Martin Lukac

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How To Make Tax Time Less Painful

Jul 25

Posted by admin in Taxes

There are a few things that you can do throughout the year that may help you get through tax time with less stress. First, organize your documents and keep them organized throughout the year. Search the internet for free websites that give you organization suggestions. Some of them even have templates to help you put your tax records in order. Consider a good software program like Microsoft Money which has a 90-day free trial.

If you itemize your deductions, and you certainly should itemize if you are self-employed, keep all your receipts in an expandable folder that can be organized by month, alphabetically, or any way that you want to organize it. If you are ever audited, you will lose the deductions you claimed that cannot be verified by a receipt. If you make cash donations, IRS has a formula that calculates how much you can deduct, but, as with any other deduction, you must have a receipt in order to claim the deduction. Be sure your receipts have the name, date, address, amount, purpose, type, value, and any other information pertinent to the validity of the deduction.

Unless you are really knowledgeable in accounting and tax law, a good CPA is well worth the money. The tax laws are constantly changing, and the average person cannot keep up with the changes let alone understand them. Remember that you should always make the best use of your resources, and that includes using your talents for those things that you do well and outsourcing those things that someone else can do better.

There is no absolutely certain way to avoid an audit, but people say that certain things increase the likelihood of an audit. For example, make sure there are no math errors in your tax return. If there are inaccurate calculations, the IRS will have to take a second, more careful look at your return. Once IRS is looking more closely at your return, there may be red flags that could lead to an audit. It is best to do the math correctly so that IRS never has to take a closer look at your return.

There are blogs and websites for almost any topic, and doing a little research will help you be better educated and less stressed. Don?t forget that your local library has many book about income taxes and tax returns. You may also want to look into Turbo-Tax, Microsoft TaxSaver, or one of the other good tax software. Even if you hire a CPA, you will save yourself time and money by being well-prepared and by understanding the process.

IRS also has telephone help lines that can be really helpful. The IRS website at www.irs.gov is also very helpful and easy to use. It is alright to contact IRS and ask questions. You are not any more or less likely to be audited if you contact IRS and ask your questions. As previously stated, you are more likely to be audited if you make errors on your tax return. These are just a few basic suggestions that can help make tax-time less stressful for you.

Jo Ann Joy, Esq., MBA, CEO
Copyright 2006 Indigo Business Solutions. All rights reserved.

About the Author

Jo Ann Joy is the CEO and owner of Indigo Business Solutions, a legal and business consulting firm. Indigo Business Solutions is a ?one stop shop? for small businesses. We differ from other business consulting firms, because we offer comprehensive legal and business counseling. We can offer most of the professional services that a business requires. We work with our clients to develop strategies that create value and competitive advantage.

Jo Ann has a law degree, an MBA, and a degree in Economics, but she is not a traditional attorney. Rather, she is a strategic business attorney who works closely with clients to create and implement strategies that will greatly improve their performance and chance of success. Her background includes commercial and real estate law, accounting, financial planning, mortgages, marketing, product development, banking, and business strategies. She ran a successful business for 10 years, and she has written and given presentations on many different legal and business subjects.

You may contact Jo Ann by phone at (602) 663-7007, by fax at (602) 324-7582, by email at joannjoy@Indigo Business Solutions.net, and by mail at 2313 East Ocotillo Rd., Phoenix, AZ 85016. You may request free copies of her other Ezines or purchase her E-books on the website.

For more information about these and other important business topics and for legal consultation, please visit our website at http://www.IndigoBusinessSolutions.net

The future of your business starts here.

Writen By : Jo Ann Joy

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