Tag: taxes

Posted on by Jan Roberg

IRS Plans to Remove Debt Indicator for 2011

IRS Plans to Remove Debt Indicator for 2011

Have you ever gotten one of those Refund Anticipation Loans (also known as RALs) with your tax return? Those are the “fast money” refunds where you pay a fee and get your refund immediately, or perhaps in one or two days instead of waiting for two weeks. What the IRS has just announced could pretty much put and end to those types of loans.

In the past, the IRS has provided tax preparer firms and financial institutions with a “debt indicator” tool. Basically, when a tax return was prepared, if a person applied for the RAL, there would be a response about any government debt owed by the individual. Basically, if debt was owed, the RAL would be denied because the loan is secured by the anticipated refund.

According to the IRS, they no longer see a need for these Rapid Refund Loans since a person can receive his or her refund in 10 days.  There’s been a great deal of public pressure against RALs.  Consumer groups such as the National Consumer Law Center and the Consumer Federation of America have opposed RALs for years.  One reason is that RALS are usually targeted at low income households and the fees are often very high in relation to the loan provided.   The profit motive in RALS can sometimes lead to predatory and even fraudulent activity.  In 2008, the latest year that I could get figures for, 8.4 million RAL loans were made.  $738 million was spent on loan fees.  $68 million was spent on other related fees.

Individuals will still have access to their own personal information concerning debt via the “Where’s My Refund?” application on the IRS website.

For a look at the IRS press release dated August 5, 2010, click here:  http://www.irs.gov/newsroom/article/0,,id=226310,00.html

Posted on by Jan Roberg

Checkpoint, How’s Your Withholding?

It's a good idea to just make sure that you are withholding enough tax from your paycheck.

It’s a good idea to just make sure that you are withholding enough tax from your paycheck.

 

I recently read an online forum where a fellow wanted to sue his employer for not properly withholding the man’s income taxes  from his wages.  While I felt sorry for the man and his looming tax debt, given some of the information he posted, I wasn’t convinced that the employer was at fault.  But the tax code and the forms are all pretty confusing, so how do you know that you are withholding correctly?  Fortunately, there is help.

 

First and foremost, if nothing has changed about your job or life situation and you’re happy with your refund/balance due situation, this isn’t for you.  If everything is fine, why change?  But–if you owed too much last April, or you had a job or lifestyle change, then you really should do a mid-year evaluation to make sure that your withholding is on track.  It’s a whole lot easier to change your withholding now than it is to make adjustments in December or after the year is already over.

 

What you need to do is have a copy of your latest pay stub and your last tax return handy.  You’ll need both to answer the questions in the calculator.  Then you’re going to click on the link to the IRS withholding calculator.

 

Now I’m going to be honest, the first time I looked at this I went, “Oh gee, who’d want to bother with this?”  But seriously, it’s the best program for figuring out where you stand with your taxes.  For most situations, I like it better than some of the fancy professional tax projection programs I’ve used.  Most importantly, you don’t need any special training to use it.  Just answer all the questions.  Sometimes you may have to guess, but do your best.  You really do need to have your latest pay stub and last tax return to do this though.  If you’re just estimating, it’s not going to be helpful.

 

The program will tell you, based on what’s actually been taken out of your check, how much your refund or balance due will be.  And, if you are expected to owe, it tells you how to change your withholding so as not have a balance due.

 

So let’s say you ran the program and it does recommend that you change your withholding.  What next?  That’s easy, take the information to your employer (or the payroll department) and fill out a new W4 form.  Unlike some other paperwork that can only be completed annually, you are allowed to change your W4 any time during the year.

 

So about that guy who wants to sue his employer?  I’ll leave that up to the courts.   As for me, I’d rather catch a problem before it gets out of hand, and the IRS withholding calculator lets me do that.

Posted on by Jan Roberg

Scam of the Month Club

Scam of the Month Club

One of the things I like about summer is that I have more time to catch up on my reading.   Not just my summer beach novels, but my business related journals as well.  During tax season, I basically read what I have to and get back to work.  In the summer, I have time to read about all the new laws and new tax proposals and have time to really absorb the information.

There’s a whole hierarchy to the newsletters I receive:  1.  Important and relevant–those that come from my professional organizations or the IRS itself.  I pay for the privilege of getting this information and so I read it immediately.  2.  Other legitimate tax information services–there’s a wealth of information out there.  I can’t read it all, but in the summer, I like to catch up.   And 3, the group that I consider to be the “scam of the month club.”   I’m guessing that doesn’t need much explanation there.

One of the necessary evils of my job is going through my spam folder.  Occasionally I receive legitimate business mail that gets diverted to spam, so I have to sort through it.   Of course, my spam folder is where I usually find my tax scam of the month.    Now to be honest, most of the spam is so obvious that I don’t even bother to open it, but sometimes it’s kind of fun to look at.

For example:  “Write-off your Rolex, We’ll Show You How!”   No, don’t even try it.  It’s not a legitimate business expense.

One that’s been popular this year,  “Never Pay Taxes Again, it’s  Unconstitutional!”  Actually, that argument is a little old.  The income tax was declared unconstitutional in 1895.  In 1909 Congress proposed to make it part of the Constitution and it was ratified as the Sixteenth Amendment in 1913.  The government has had a right to collect an income tax for almost 100 years.

One that caught my eye the other day was “Tax Deductible Cruise.”   That one was intriguing because, to be quite honest, there are some cruises, or portions thereof, that can legitimately be claimed as tax deductions.   But, there are a lot of things out there that aren’t.

For one thing, you cannot deduct the cost of a cruise (or any other type of travel for that matter) to attend one of those investment related seminars.  You can only deduct travel related to your trade or business.  Just because the promoter of a convention says it’s tax deductible, doesn’t mean it is, you have to go by tax law.

That said, there are times when you can legitimately combine your business trip with personal travel and claim a deduction.  For example, the IRS is holding one of it’s National Tax Forums in Orlando this summer.  The IRS Forums are a very legitimate deductible expense for me.  If I spent an extra day down there visiting my good friend, Mickey Mouse, my trip would still be deductible.  I couldn’t deduct the hotel cost for the extra day spent at Disney World, but the travel costs for the trip would still be written off.

There are even some times when you may even be able to deduct that cruise, or maybe part of it, for business.  The key of course is legitimacy and excellent records.  (That’s both, not either/or.)   Legitimacy meaning that you have a real business purpose relating to that cruise.  And by record keeping, I mean that you substantiate the amount of money you spent, the time you spent it, the place and business purpose of every expenditure.  And you do it while you’re on the cruise, or right after, not six months later in your accountants office while doing your taxes.  You can pretty much guarantee that deducting a cruise as a business expense is going to get a thorough review by the IRS.  Your best defense is to have flawless records.

If you’ve read about some tax idea on the internet and you’re wondering if it’s true or not, get a professional opinion.  You certainly don’t want to miss out on a valuable opportunity, but you don’t want to be duped either.  Many scams have some point of fact in them to start with.  (Like the unconstitutionality argument, it was true back in 1895.)  You know the old saying, if it sounds too good to be true, then it probably is.

Posted on by Jan Roberg

Garage Sales and the IRS

Garage sales provide tax-free income

Updated June 2016.

 

While a robin may be the first sign of spring, to me a garage sale is the first sign of summer. Garage sales are full of so much promise. Whether it be the hope of some extra cash or the fantasy of a clean basement, garage sales have a happy, summery feel to them.

And tax-wise, they’re almost never counted as taxable income. That makes them double good in my book. Let’s face it, everything you’re selling at your garage sale is going at a loss. Really. That baby stroller you paid $90 for but are trying to sell for $15-it’s a loss. The $50 pair of jeans that looked so good 20 pounds ago that you’re trying to sell for $10–loss. Since you can’t claim personal losses on your tax return, it doesn’t even get reported.

{Okay, tax technicality:   if you sold those items for more than you paid for them, then you should be reporting the sales and claiming the profit as taxable income. But seriously, nobody in my neighborhood is making a profit on their old junk.}

So why am I even writing about garage sales in a tax column? Because after your sale, you pack everything left over into a package for the Goodwill, right?  Of course!   Otherwise your basement will be a mess again. So here’s my point, when you do that, write down what you packed up and list  the prices you put on everything. That way, you’ll have a list of your donations which  you’re going to need at tax time.

Too busy right now? Just take a few pictures with your digital camera. Then you’ll be able to look at them when you really need that list for your 2010 tax return. Trust me, come next February, you’re not going to remember what you sent to the Goodwill in May.

So now you’ve got a triple good: non-taxable income, a clean basement, and a tax deduction all rolled into one summertime event. How can anybody not like a garage sale?

 

Posted on by Jan Roberg

Unclaimed IRS Refunds

The IRS won't tell you they owe you money.

If you want the IRS to give you a refund, you’ve got to file a tax return.

Updated June 11, 2016.

One thing you might not know about the IRS is that if you don’t file a tax return, they prepare one for you— whether you ask them to or not. Surprised? Well you shouldn’t be. They take the information documents that they’re sent, like your W2s, and then they compute your taxes using the worst possible filing status. If it comes out showing that you owe, then you’ll get a letter telling you to pay up.

 

But what happens if they find out that you should be getting a refund? Well, nothing. They don’t send you a letter saying, “Dear Sir: Even though you’re too lazy to file your income taxes yourself, we’ve done them for you and we want to send you a big, fat refund!”

 

Right now, the IRS has data showing that there is close to $1 billion of unclaimed income tax refunds out there. If you’ve got a refund coming, and you don’t file your return within three years of the due date, you lose out on that money forever!
But why bother? How much money are we talking about for one person? Of the people who have refunds coming across the nation, the median refund is estimated to be $718. But that’s based upon the IRS doing your taxes. You could, in fact, be owed much more.

 

For example: let’s say you are a divorced mother with two school-aged children and a mortgage. When the IRS does your return, they compute your taxes based upon you being single, taking a standard deduction, and having no children. In a case like this, that $718 refund could be worth over $4,000!

So how do you know if you’ve got money coming?  You know what they say, you can’t win if you don’t play.  Same with taxes, you can’t get a refund if you don’t file!