Author: Jan Roberg

Posted on by Jan Roberg

How to Negotiate Your Own Payment Agreement With the IRS

Tax On Money Background
I’ve heard two stories in just as many days about people who paid one of those TV tax companies thousands of dollars to help them with their IRS debt and when all was said and done, all they got was a monthly installment agreement with the IRS.  I’ve got a big problem with that–because in both of those cases, the people could have used that money to pay down their debt–and done the installment agreement themselves for free.
While not everyone can handle their IRS tax debt problem themselves, before you go sending thousands of dollars to some company with a 1-800 phone number, lets see if you can handle this yourself for free first.
The first question:  Do you really owe the money in the first place?  That’s pretty important.  If your taxes were professionally prepared and you have a huge balance due-well you probably really do owe the IRS.  On the other hand, if you haven’t filed for several years and the IRS says you owe them lots of money–there’s a good chance you don’t.  Anybody does taxes better than the IRS–anybody!  The CPA down the hall, H&R Block, VITA, the really bad tax place I won’t name down the street, and even my high school intern — they all do taxes better than the IRS.
True story:  a couple of years ago, I had a high school intern while I was working at the big tax company.  She had only been there for a couple of days, she was supposed to help with the phones, photo copies and data entry type stuff.  A woman came to me with an IRS tax debt of $16,000.  I took the case, but I was busy working on another return so I asked the intern to just do the basic data entry work for me.  A little while later she came to me and said, “I did the data entry but I’m afraid you’re going to have to show me what I’m doing wrong.”  “What do you mean,” I asked, “It’s just data entry.”  “I know,” she said, “But I heard you say she owes the IRS $16,000 and on all the returns I input she’s got refunds!”
I looked over everything the girl had done.  It was perfect.  Instead of the woman owing the IRS $16,000, the IRS owed her $8,000.  So when I tell you that anybody prepares a tax return better than the IRS–I’m not kidding.  Now you can go to an IRS office and they will help you with a return–those people know what they’re doing (usually), but those computer generated IRS returns that get mailed to you are garbage.  Plain and simple.
Second question:  Do you owe less than $50,000?  If you owe more than $50,000, you won’t be able to do an IRS streamline installment agreement.  If you can pay enough on the debt to bring it to $50,000 or less, then you can still do the streamline–otherwise you are going to want to get some help with your debt.  But let’s say you owe $52,000.  Well, you could pay some tax company $8,000 to negotiate for you, but if you paid $2,000 towards the debt, you could negotiate for yourself and still have $6,000 more pay your debt or buy groceries or whatever.
Third question:  How much can you afford to pay each month?  Let’s say you got hit with an IRS bill of $6,000 and you just didn’t have any money saved to pay it.  Realistically, look at your financial situation and figure out what you can afford.  What’s the most you could possibly pay without causing yourself a hardship?  That’s going to be your upper limit number.  You need to think it through because you don’t want to commit to paying $500 a month if it means you lose your house.
Here’s the mechanics of it:  In a perfect world–you should be able to pay of your IRS debt within 2 years (24 months.)   So if you take that $6000 and divide it by 24, then your monthly payment would be $250.  And if you can afford that–great!  That’s the preferred timeline for the IRS to have you pay off your debt.
But if you can’t handle the $250 a month, you need to know that the IRS will go as far as 72 months (or six years) for you to pay off the debt.  So if you take $6,000 and divide that by 72 then you get $85 dollars a month (I rounded up to the nearest 5.)
What you might want to do is negotiate the $85 payment, but then pay the $250 to get rid of the debt faster.  That way you’ve got some wiggle room if you lose your job or have some other issue.
Here’s the other stuff you’ve got to know:
There is a fee of $105 for setting up the installment agreement.  It’s lower if you set up direct debit from your checking account or it may be reduced if your income is low–make sure you ask about it, they won’t always tell you.
If you’re trying to negotiate a payment agreement and things are just not going your way, it’s okay to
back out before you commit.  Tell them that you think you’re going to need professional help and that you will have to call them back later.
Once you do have an agreement, you have to hold up your end of it.  Make your payments on time.  If you’re late, your installment agreement is void and you’ll have to start all over again–including the $105 fee for setting up the agreement.  (Not to mention those nasty letters they send about putting a lien on your home and levying your bank account.)
One final word, if you can’t handle the installment agreement yourself–maybe your tax issue is too complex or you’re just too intimidated to deal with the IRS, get help from a local professional.  You’ll need an enrolled agent or CPA because they’re licensed to represent you before the IRS.  I recommend using someone local (okay, someone like me) that you can meet with in person.  Sometimes, IRS debt issues will cost a few thousand dollars to settle up, depending upon the work that needs to be done.  But it’s important to know what is going to be done before you pay that kind of money out.  $8,000 for something you can do yourself is too high a price.  Ask questions, know why they’re charging you that much, and what you’re getting for it.  You have a right to know.
Posted on by Jan Roberg

I Lost My Job and Can’t Pay the IRS

going out of business

Photo by Timetrax on flickr.com

I write a lot about what to do if you can’t pay the IRS, but this is new stuff just for 2011 taxes.   If you’re out of work, or if you’re self-employed and your income is lower than last year, you may be able to apply for an extension of time to pay your 2011 income tax–so you don’t get hit with late payment penalties.

Who can qualify?
  • First, your adjusted gross income (that’s line 38 on form 1040) must be less than $100,000 (or $200,000 if you’re married filing jointly.)
  • Second, you need to owe the IRS less than $50,000.
What’s considered a good reason for filing?
  • Losing your job, for one.  If you were unemployed for at least 30 consecutive days in 2011 or the first part of 2012, then you can apply for relief.
  • Or, if you’re self employed, if your business income is 25% or more less than what it was in 2010, then you also can qualify.
What other things do I need to know?
  • The relief is only good for your 2011 taxes.
  • It only helps with the failure to pay penalty, you’ll still have to pay the interest on your late payment (about a 3% annual interest rate.)  You’ll also have to pay any other penalties that you might owe.
  • If you don’t pay the amount of tax you owe in full by October 15, 2012–then you’ll still wind up paying the penalty and it will be back-dated to April 15th.
  • If you apply for the late payment relief, you must have your tax return or extension filed on time.
So if I want to apply, how do I go about it?
The form you need is called:  Application for Extension of Time for Payment of Income Tax for 2011 Due to Undue Hardship.   That’s a mouthful isn’t it?  Fortunately, it’s easier to fill out than it is to say.  The form number is called 1127-A.  Here’s a link to the IRS website so you can download it yourself:

http://www.irs.gov/pub/irs-pdf/f1127a.pdf

Besides stuff like your name and address, you only need to know your adjusted gross income and the amount of tax you owe.  You can’t e-file the form with your tax return, you have to print it and mail it in.  It doesn’t go to your regular tax office–it’s either going to be mailed to Huntsville, New York or Fresno, California.  Look at the instructions on page 3 of the form to learn where you should mail your form.

Why would I want to do this?
Basically, if you owe taxes and can’t pay, the IRS charges ½ of one percent on the balance due each month that you haven’t paid.  So, after 5 months–that’s a 2.5% penalty.   So if you owe $5,000 that would cost you an extra $125.  That might not seem like that much but why pay the IRS more than you have to?  If you think you can come up with the money within 5 months–why not take advantage of the break?
One last piece of advice
I wind up dealing with lots of people who just don’t bother to file their tax returns because they owe.  That’s a really bad decision.  You see, the penalty for paying late is only ½ of one percent per month, but the penalty for not filing is 5% per month.  So if you take that $5,000 I mentioned earlier and you didn’t file your return because you knew you owed–well the penalty for that would be $1,250 if you waited until October to file.  Now that’s a pretty serious chunk of change so make sure you file your return–or at least file an extension, by April 17th.   You really don’t want to give the IRS any more money that you have to, do you?
Posted on by Jan Roberg

I Want to Settle My Tax Debt for “Pennies on the Dollar”

You’ve seen those late night TV ads with the little old lady who says that JK Harris settled her IRS tax debt for “pennies on the dollar.” Or maybe you’ve seen the red bearded guy who tells you his company, Tax Masters with its team of ex-IRS agents has helped “many good people just like you.”

And maybe you’ve wondered if they could help you too. Well no, they can’t. They’ve both filed for bankruptcy and their doors are shut. Part of the problem being was that their advertising was a little misleading.

Does that mean that you can’t settle your debt with the IRS for “pennies on the dollar”? No, that option is still available–it’s called an “Offer in Compromise”, but it’s not an option for everyone. An offer in compromise is only for people who genuinely can’t pay their tax bill–when all of their assets and future earnings are taken into account.

In 2010, there were over 57,000 Offer in Compromise applications submitted to the IRS–only 14,000 of them were accepted. Most of the problem with those rejected applications is that many people submitting Offers in Compromise don’t know the rules regarding spending and assets. When you’re filling out the form, you may say that your monthly mortgage payment is $2000, but the IRS has specific guidelines on what’s an allowable housing expense–if your payments don’t fall within the IRS guidelines, they don’t count. So if you live in an area where the IRS says that your monthly housing payment should only be $1500–that means you have $500 a month that the IRS says you can pay towards your tax bill–an offer would be unlikely. Now you don’t have an extra $500 a month, I get it–but to the IRS, if you owe them money, then you should live in a smaller house.

And although the IRS is rather generous about medical expenses–many of the alternative medicines and treatments are not considered to be “legitimate” medical expenses in an Offer in Compromise. So while the IRS would count your payments for your chemotherapy, they would take off the costs of the holistic vitamin program that you use. You need to keep that in mind if you’re using any kind of “unconventional” treatment. It doesn’t matter that it’s saving your life, if it’s not in the IRS book–it’s not a legitimate medical expense.

For an Offer in Compromise, there are national charts showing what you’re allowed to pay for food and clothing. There are charts for how much your housing should cost broken down by county. And there are different expense rules for senior citizens and younger folks as far as medical expenses are concerned. And you’ll have different rules for bus riders, car owners, and people who are still paying off their car. There’s a labyrinth of tax codes and charts to go through.

And I know this sounds harsh–but I want to make sure you understand how difficult it is to win an Offer in Compromise–if you have equity in your house–the IRS basically assumes that you can sell it for 20% less than what it’s worth and use that money to pay your tax bill. So basically, an Offer in Compromise isn’t usually a good option for homeowners with any equity.

If you don’t know the rules before submitting your application–you could lose before you even begin. That’s why it’s important to get professional help when submitting an Offer. And this is where it’s helpful to have someone who can meet with you in person, understand your situation, and fight for you because they know you’re a person and not just some file sitting on a desk. And if an Offer in Compromise isn’t the right choice for you then you can work together to come up with the best option that is available. And isn’t coming up with the best solution for you the whole point in the first place?

Posted on by Jan Roberg

The Retirement Saver’s Credit – Cool Cash for Smart Young People

Wild Bill's bar in Cheney

Photo by Ben Lakeyon flickr.com

The Retirement Saver’s Credit sounds like an old person kind of tax credit, but, for the most part, it’s really more of a young person’s credit and it gets totally ignored. The coolest part about the Saver’s Credit is that it’s a credit, not a deduction. That means that it’s a dollar for dollar reduction of your tax liability. A $100 tax credit would reduce your taxes by $100. A $100 tax deduction would reduce your taxes by $10 to $35 depending on your tax bracket. See the difference? Tax credits are better than deductions. The Saver’s Credit is for people with lower incomes so we’re looking at 10 to 15% tax brackets.

The Saver’s Credit can be worth up to $1,000 ($2,000 if you’re married filing jointly), so it’s pretty valuable. Basically, it’s like the government is giving you money for saving for retirement – how cool is that?

Who’s eligible?

  1. You have to be 18 or over
  2. You can’t be a full time student
  3. You can’t be claimed as a dependent by someone else

So what are the income limitations?

  • Single, married filing separately, or qualifying widower – $28, 250
  • Head of Household – $42,375
  • Married filing jointly – $56,500

So what do I have to invest in to get this tax credit? That’s the easy part, you can invest in any of the following:

  1. A traditional or Roth IRA
  2. Most any employer sponsored retirement plan

The one thing that doesn’t qualify is rollover contributions. Also, if you’ve taken money out of a retirement plan, it could reduce your ability to qualify for the credit.

So if I put $1,000 into an IRA the government is going to give me a $1,000 tax credit? No. I said it’s easy, but it’s not that easy. It works on a sliding scale: the lower your income, the larger the percentage you get, somewhere between 10% and 50% of your contribution. The form you need is form 8880. Here’s a link: http://www.irs.gov/pub/irs-pdf/f8880.pdf

Let’s say you’re single, you made $18,000, and you put $2,000 into a Roth IRA. You’d qualify for a $400 tax credit. You can figure that out by looking at the chart and you’ll see you qualify for a 20% tax credit.

The coolest thing about the Retirement Saver’s Credit is that you can play with it. Let’s go back to the example above – you’re single and made $18,000. You have until April 15th to put money into an IRA, so you don’t have to have this all done before tax time. At $18,000 income, you qualify for a 20% tax credit, but at $16,999 you qualify for a 50% tax credit. So if you put $1,001 into a traditional IRA (instead of the $2,000 you were going to put into the ROTH), it will lower your overall income, making your “adjusted gross income” or AGI, $16,999. Now, instead of getting a $400 tax credit on $2000, you get a $500 tax credit on $1,001 – and you still have another $999 left over to save or spend.

So you might be thinking, “Cool, I’ll just put it all into an IRA!” And you can, but you reach a point where the credit doesn’t do you any more good. The Retirement Saver’s Credit is what’s called a “non-refundable” credit. That means that once you zero out your tax liability, you don’t get anything more.

Let’s go back to our example: you’re single, you make $18,000. This time you put the whole $2,000 into a traditional IRA. Now your AGI is $16,000, that means your taxable income is $6,500 and your tax liability is now $658. So you complete form 8880 and you see that you qualify for a 50% credit which is $1,000 but since your tax liability is only $658—that’s all the credit you get.

Now if you have $2,000 to put into savings, I am 100% behind you saving the full $2,000. But, you may be better off putting some of that money into a regular savings account instead. It’s something to play with. Never sneeze at a 50% return on your investment. Let’s be real, that’s what this is. Even the 10% and 20% return is a good deal. But once you’ve maxed out that return, then you need to look at what other options you’ve got. That’s why I like IRAs. You can figure out your tax return first before make the investment. The absolute best part – you can make the investment with your income tax refund! You can actually do your tax return, plan out your IRAs, and not fund them until after you’ve gotten your refund.

Not everyone will qualify for the Credit for Qualified Retirement Savings Contributions, but if your income is anywhere close, you’ll definitely want to at least look into it.

Posted on by Jan Roberg

Married Couples: Read Your Tax Return to Recognize Trouble

Happy couple

Photo by Ed Yourdon on flickr.com

About once a year, after preparing a tax return I’m asked, “Does my husband/wife have to see this?” Well, the answer is, “Yes, and he/she has to sign it too.”

A lot of people never really look at their tax returns, but it’s important that you do, even if you’re not the bread winner. Your tax return has a lot of information about you and your financial situation. If your spouse is in trouble, and you sign the return, then you’re in trouble too.

Here’s the number one thing to look at so you don’t get caught unaware: Adjusted gross income. That’s going to be the number at the top of page 2 of your 1040 tax return (line 38). (It’s also at the bottom on page 1, line 37.) That’s all the money you make, including wages, business income, interest, gains from stock – everything. This is the number that should match your lifestyle. It’s the single most important number on your tax return (and you thought it was the refund didn’t you?) If you live in a million dollar mansion and drive a Porsche, and the adjusted gross income is only $20,000, you’ve got yourself a serious problem. Flip side, if you’re living in a shack and subsisting off of peanut butter sandwiches but the adjusted gross income number is $300,000, you need to ask yourself where all the money is going. It’s quite possible that your income numbers and lifestyle don’t match up and there could be a very legitimate reason for that, but you need to know what that is.

Of course, I recommend that you look at everything, and ask questions about anything you don’t understand. Here are three issues for you to check where you don’t need to know any math:

  1. Look at the address on the return. If it’s not yours, you need to be asking questions.
  2. Look at the names of the dependents. Do all the kids live with you? If not, does your spouse have a legal right to claim any children that are listed? Earned Income Credit Tax fraud is a big deal, and if you sign the return, it’s your problem too.
  3. Also, look at the back of the return. Is the refund being direct deposited into your joint checking account? If not, where’s the money going and why?

One more thing that might give you pause to think would be on line 21: Other Income. This could be just about anything, but it’s where the gambling income goes. Most gamblers have a number on their Schedule A for the same amount to claim gambling losses, it would go on line 28. You can’t claim a bigger deduction than the amount of gambling money you win. If your lifestyle isn’t matching your adjusted gross income and you’ve got gambling on your tax return – your spouse’s losses could be much larger than what’s reported on your taxes.

In today’s economy, it’s important to be aware of your family’s full financial picture. For some couples, talking about money is difficult. You can use your tax return as a convenient way to open up the discussion. If there are money problems, you should come up with solutions as a team. That’s what marriage is supposed to be about anyway.

Posted on by Jan Roberg

Tax Exclusion for Working in a Combat Zone

PMC

Photo by Rande Archer on flickr.com

One of the more interesting tax returns Bill and I worked on last year was for an employee of a private security firm in Afghanistan. While I’m the expert on foreign income, Bill’s our “go to” guy for all things military. While our client wasn’t working for the US military, he was clearly working with the US military and was definitely working in a combat zone.

Our goal of course was to make sure he didn’t pay more income tax than he was required to pay. I realize we’re not supposed to give preferential treatment to clients, but I gotta confess, we do tend to go the extra mile for our service members and for people who are working to keep our service members alive. (Plus he was just a really nice guy.)

My tactic was to claim a foreign income exclusion (Form 2555). While it reduced the guy’s taxable income, it still left him owing the IRS and we were trying to eliminate that balance due. Bill, coming from the military side, was trying to exclude the income under something called Internal Revenue Code Section 112. This basically excludes income that was earned in a combat zone, so we were thinking we might have something there. But here’s the actual rule:

“Gross income does not include compensation received for active service as a member below the grade of commissioned officer in the Armed Forces of the United States for any month during any part of which such member served in a combat zone.”

The key issue here, we decided, was that the person had to be a member of the Armed Forces to qualify for the income exclusion. And so we advised our client to pay the tax.

What we didn’t know at the time was that a similar case was being heard in Tax Court while we were working on the return. In the court case, Nathaniel J. Holmes v. Commissioner (TC Memo 2011-6), the Tax Court ruled that a civilian working for a private company doesn’t qualify for the combat zone income exclusion. So it turns out, we had been right. Had the case gone the other way, of course, we’d be amending our client’s tax return for FREE!

The bottom line though is – if you’re a private contractor in a foreign country, you won’t be able to exclude your income under the Section 112 rules for income earned in a combat zone. You still may be able to exclude your income (or a portion of your income) under the Foreign Income Exclusion on a Form 2555. Or, if you’re paying tax in the foreign country, there’s also the credit for foreign tax paid on Form 1116. There are options out there, you just have to make sure you’re using the right one.

Posted on by Jan Roberg

Tax Reporting of Insurance Premiums for Retired Public Safety Officers

Fire fighters in station prepare for next emergency call

 

Retired public safety officers may be eligible to exclude up to $3,000 from their pension distributions for money that was used to pay the premiums for accident or health insurance or long-term care insurance. Public safety officers include law enforcement officers, firefighters, chaplains, and members of a rescue squad or ambulance crew. In order to qualify for this deduction, the payment for the insurance must be made directly from the pension plan to the insurance provider. Basically you exclude the smaller of the amount of your insurance or the $3,000. If you’re excluding the insurance from your pension income, then you can’t include it as a Schedule A deduction.

 

So if you’re making this deduction, how do you show it on your tax return? First, I guess I should be using the right words. It’s not really a deduction – you are “making an election to exclude the insurance premiums from your income.” Now you’ve just had a lesson in tax geek semantics. I know you don’t care, but I’m supposed to use the right words. For what it’s worth, a reduction in income is better than a deduction.

 

Anyway, if you look at your 1099R, which shows your pension distribution, the box 2a which shows what part of your pension is taxable doesn’t show your insurance payment, so the exclusion isn’t automatic. Here’s what I mean – let’s say that you receive a public pension for $25,000 a year. $5,000 of it isn’t taxable so your 1099 shows $25,000 in box one (your gross distribution) and $20,000 in box 2a (the taxable amount). But if you paid $4,000 for your health insurance, you’re allowed to exclude $3,000 of that money from your income. So really your true taxable amount is $17,000.

 

If you are doing this by hand, you’d just write it on the 1040 like this: On line 16a you’d write $25,000 for the total amount of the pension, and on line 16b you’d write $17,000 for the taxable portion. You’d write PSO next to it so that the IRS would know why the number on line 16B didn’t match the number in box 2a of your 1099.

 

It’s really important that the numbers on your tax return match the numbers in the boxes on your 1099. When they don’t, you get little letters from your friends at the IRS. Writing PSO on your tax return basically tells them that you’re not just arbitrarily changing their tax figures for them.

 

So how do you do this if you’re using a computerized tax program? That’s a little trickier because you can’t just go and change the numbers without somehow notating it. If you just type in $17,000 in box 2a instead of the $20,000 number, I guarantee you you’ll be hearing from the IRS. And we don’t want that do we?

 

If you’re using the 1040.com program, it’s really easy. When you’re in the 1099 input screen, you’ll see at the top there’s a little phrase in blue letters: “Special Tax Treatments.” You’re going to want to click on that button. It will take you to a new page with other items that also require special tax treatment. The “public safety officer” insurance is at the very bottom. All you have to do it type in how much you paid into the little box and the program will handle the rest.

 

Other tax programs should have something similar. If you can’t find a “special tax treatments” page, call the phone number listed with your program and they should be able to tell you how to get there. And if they can’t, come back here and use my 1040.com site (sorry for the shameless plug but a girl’s gotta eat.)

 

Special thanks go out to Mr. A—– in California for the idea for this post.

Posted on by Jan Roberg

How to File an Extension for Your Sub-Chapter S Corporation

Form 7004

Sub-Chapter S Corporation tax returns (1120S) are due on March 15th. Are you done yet? If not, you might need to file for an extension. Here’s how:

First, make sure you really are a Sub-S Corp. I know that sounds silly, but every year (really, every year) I run into someone who thinks they have a Sub-S Corporation and doesn’t. It’s really important not to file paperwork for an entity that you’re not. If you’re an LLC that wants to be a Sub-S and you’re filing a “Whoopsie, I forgot to do the right paperwork clause,” you can’t file an extension, you’ve got to get your stuff in by March 15th.

But if you’re already a Sub-S corporation, then you can file for an extension if you need to. What you want is Form 7004. Here’s a link to it: http://www.irs.gov/pub/irs-pdf/f7004.pdf.

It’s easiest to just file it online and be done with it. But if you don’t have access to the software, you can paper file. Here’s the official list of mailing addresses: http://www.irs.gov/file/article/0,,id=177836,00.html . Basically, if you’re east of the Mississippi you’ll mail it to:

Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45999-0045

If you’re west of the Mississippi it will go to:

Ogden, UT 84201-0045

For some reason Florida and Louisiana are listed with the “west of the Mississippi states.” Anyway, Florida and Louisiana get mailed to Ogden. Also, any Sub-S with income of over $10 million sends its extension to Ogden no matter where the business is located. (Any Sub-S with income of over $10 million should have an accountant that can file the extension for them and you shouldn’t be reading a how-to blog about it. Seriously.)

You’ll have to check with your state to determine if you are required to file a separate extension for your state. Here in Missouri, your federal extension will serve as your state extension – you’ll just attach a copy of your Federal 7004 to your Missouri 1120S when you file it. You only need to file a MO 7004 if you have a franchise tax liability.

Why should you care about filing an extension? Money! If you don’t owe any money on your tax return, the penalty for filing late is $195 for each month (or part of a month) that the return is late, multiplied by the number of shareholders. So let’s say you and a buddy have a Sub-S corporation and you forget about the March 15th deadline and file on April 15th instead. You’ll owe a $390 penalty on a tax return with no balance due. That stinks. Of course, if you totally blow things off and file in August, the penalty will be $1,560 – on a tax return with a zero balance due! See why it’s important to file that extension?

Sub S corporations generally don’t pay tax with their corporate form, but if you do owe money for some reason the penalties are even higher.

Even though extensions are fairly simple forms, you still might not want to do it yourself. This is one form that Roberg Tax Solutions can prepare for you over the phone for $25. You’ll need your business name, address, EIN number and a credit card and we can do it while you’re on the phone with us. It’s that easy. You have no reason not to get your extension in on time.

Posted on by Jan Roberg

Getting Your Tax Return Information for Your FAFSA

USU Campus - Old Main

Photo by Cryostasis on flickr.com

One thing that I spend a lot of time on is helping people prepare their FAFSA forms for college. (FAFSA stands for Free Application for Federal Student Aid.) Well, the IRS has a “data retrieval tool” that you can use to just import your tax return information right into your FAFSA application. How cool is that?

This is the information that I received from the IRS:

Use the IRS Data Retrieval tool when applying for a student loan

If you are a student or parent you can now access your IRS tax return information using the 2012-2013 IRS Data Retrieval Tool. This is an easy and secure way to access and transfer your tax return information directly into your Free Application for Federal Student Aid form.
If you are eligible to use the IRS Data Retrieval Tool, we highly recommend using the tool for several reasons:

  1. It’s the easiest way to provide your tax data.
  2. It’s the best way of ensuring that your FAFSA has accurate tax information.
  3. You will not need to provide a copy of your or your parents’ tax returns for your financial aid application.

Who can use it?

If you or your parents meet the following criteria, you’ll be given the option to retrieve, display and transfer your federal tax information:

  • If you filed a 2011 tax return
  • If you have a valid Social Security Number
  • If you have a Federal Student Aid PIN
  • If you do not have a PIN, you will be given the option to apply for one
  • If your marital status has not changed since Dec. 31, 2011.

Who should not use it?

If any of the following conditions apply to you or your parents, you should not use this tool:

  • If you filed an amended federal tax return for 2011
  • If you did not file a federal tax return for 2011
  • If your 2011 federal tax filing status is married filing separately
  • If you filed both a federal tax return and a foreign return

If you do not use the IRS Data Retrieval Tool to provide tax information and your college requests a copy of your tax return or your parents’ tax return, you may be required to obtain an official tax transcript from the IRS. To order tax transcripts, go to Order a Return or Account Transcript at www.IRS.gov.

Okay, it’s back to me talking again. One last thing about the FAFSA – it’s free! Make sure you go to the right website to complete your FAFSA application; this is it: http://www.fafsa.ed.gov/. There’s a fake FAFSA website where they charge you money to apply, so make sure that you’re on the official website. The IRS will only link with the real FAFSA site, so that’s another clue you’re in the right place. And good luck with college!

Posted on by Jan Roberg

How to Prepare the FBAR Form, TD F 90-22.1

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Photo by Martin Abegglen on flickr.com

So you were working on your tax return and you read that you needed to prepare a form TD F 90.22.1, right? That’s a mouthful isn’t it? That’s why it’s been nicknamed the FBAR. If you need to file the FBAR, it’s really not that difficult. Let me walk you through it.

First, you need the form. It’s on the IRS website, here’s a link to get it: http://www.irs.gov/pub/irs-pdf/f90221.pdf. Most software programs do not include the FBAR form in them. My professional software finally added the FBAR this year, which makes it an incredible time saver, but most at home programs still don’t include it because the FBAR isn’t filed with your income tax return. I’m going to give you the instructions based on doing the form on the IRS website.

First, for Box 1, in the upper right hand corner, you’ll need to input the year. So right now you’re doing 2011. The input is a little goofy – you have to hit tab to get to the next number. You’ll type 2 tab 0 tab 1 tab 1. As you try to move through the document, the tab key can always get you to the next box. (I prefer using the mouse myself, but the tab key will get you where you need to go.)

Box 2, Type of Filer: I’m usually working with individuals, but partnerships, corporations and trusts with foreign accounts are all required to report these accounts. If you’re a person filing a 1040, you would check “individual.” If you are a married couple and you and your spouse both have foreign accounts, you would each file an FBAR in your own name.

Box 3, US Taxpayer Identification Number: that’s going to be your Social Security Number or ITIN. If you don’t have one, you’ll need to complete box 4; otherwise box 4 is left blank.

Boxes 5 through 13 are pretty simple: your date of birth, your name, and where you live. Where is says “Country,” it refers to the country where you live, not the country your bank account is in.

Box 14 asks if you have 25 or more financial accounts. Most people just have one or two. But if you have 25 or more check the “yes” box and you don’t have to fill out parts 2 and 3. I also suspect that you’d better keep really good records for the IRS if you check the yes box, so don’t check “yes” just to avoid having to fill out the other parts. You’re basically telling the IRS that your accounts will require more scrutiny if you do.

Part II is about your actual accounts. Box 15 is asking for the maximum amount of funds that you had in the account all year. They are asking about the account in US Dollars. (You can see my post about reporting interest income to learn how to use the currency converter if you need help with that.) What I mean by the maximum amount of funds during the year is exactly that. What’s the most money that was in there all year? For example: let’s say you started the year with $20,000 USD, and you ended the year with $20,000 USD – well you’d think that you’d put $20,000 USD down in the box. But, maybe you transferred $10,000 USD into the account in the middle of the year to help your parents buy a new house. So that means the highest amount you had in that bank account was $30,000 USD, even though that amount was only temporary.

Box 16 is what type of account – bank, securities, or other.

Boxes 17 through 23 are all basic – name of bank, address of bank, what’s your account number, etc.

If you have more than one foreign account, there are continuation pages where you can list your other accounts. If you only have one foreign account, you’re almost done.

Be sure to sign the form at the bottom. If you’re an individual, you don’t need to put anything in the title box. Don’t forget to date your return.

The FBAR does not go with your federal income tax return. It gets mailed separately to an address in Detroit:

Department of the Treasury
Post Office Box 32621
Detroit, MI 48232-0621

The FBAR form is not required to be filed until June 30th. But why would you wait? Since you’re doing this because you had to report the information on your US income tax return, just finish the FBAR form and mail it in now so you don’t forget.

More FBAR information: http://www.irs.gov/businesses/small/article/0,,id=148849,00.html