The Internal Revenue Service today released proposed regulations that would establish a fee for individuals who apply for a preparer tax identification number (PTIN). Proposed regulations that were issued in March would require certain tax return preparers to obtain a PTIN. The IRS is working to finalize those proposed regulations, which are the first of a series of steps planned to increase oversight of federal tax return preparation.
The proposed regulations (REG-139343-08) would establish a fee of $50, payable to the IRS, to cover technology costs, as well as compliance and outreach efforts associated with the new PTIN program. The proposed regulations would also provide for an additional fee (expected to be substantially lower than $50) to be charged by the third-party vendor chosen to operate the new online system. That fee amount is expected to be announced soon, as well as additional details about the launch of a new online application system. These fees could change in future years as program costs are reevaluated.
Agencies are directed by the Office of Management and Budget (OMB) to charge user fees to recover the cost of services that convey special benefits beyond those available to the general public, such as the authority to prepare federal tax returns for compensation.
Tax professionals and other interested parties have until Aug. 23, 2010, to submit comments regarding the proposed regulations. The official publication date of these proposed regulations is July 23.
In January, IRS Commissioner Doug Shulman announced the results of a comprehensive six-month study of the tax return preparer industry, which proposed new registration, testing, and continuing education of tax return preparers. With more than 80 percent of American households using a tax preparer or tax software to help them prepare and file their taxes, higher standards for the tax return preparer community will significantly enhance protections and service for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term.
How to Learn More
The IRS recently broadcast the topic “New Requirements for Tax Return Preparers – Learn the Who, What, When and How” on the webinar IRS Live, an educational program for tax professionals. View the archive on IRS.gov.
Tax professionals can also learn more by attending one of six tax forums this summer around the country hosted by the IRS. The IRS Nationwide Tax Forums are three-day events that provide tax professionals with the most up-to-date information on federal and state tax issues.
Wednesday, July 28, 2010
Eight Reasons to Visit an IRS Taxpayer Assistance Center
Do you need assistance with a tax issue that can’t be handled online or on the phone? If you want to meet with an IRS representative face-to-face, come to your local IRS Taxpayer Assistance Center. Here are eight reasons to visit an IRS TAC.
1. Notices or letters Have you received a letter or notice and need face-to-face assistance to understand the next step? No appointment is necessary -- just walk in.
2. Multilingual Assistance Don’t let a language barrier prevent you from getting the face-to-face tax assistance you may need. Multilingual services are offered to taxpayers in over 150 languages. These services are provided through bilingual employees and an Over-the-Phone Interpreter.
3. Payments You can make payments at your local IRS TAC. Be sure you know the tax period and the type of tax for the payment you are making. If you received a notice from the IRS, be sure to bring it with you.
4. Free Federal Tax Return Preparation Your local TAC will prepare both current and prior year basic tax returns for those who qualify for Earned Income Tax Credit or those whose income is less than $49,000.
5. Form 2290, Heavy Highway Vehicle Use Tax Return Your local TAC can help you prepare Form 2290, accept your payment and provide the needed receipts for you to take when registering your vehicle.
6. Individual Taxpayer Identification Number If you are not eligible for a Social Security Number but need to file a tax return, bring the completed tax return, Form W-7, Application for IRS Individual Identification Number and certified identification documents to your local TAC to apply for your ITIN and file your return. For more information, see Publication 519, U.S. Tax Guide for Aliens.
7. Alien Clearances Before leaving the United States, most aliens must obtain a certificate of tax compliance. This document, also popularly known as the sailing permit or departure permit, must be secured from the IRS before leaving the U.S. You can get the permit from your local TAC. For more information, see Publication 513, Tax Information for Visitors to the United States.
8. Tax Return and Tax Account Transcripts Do you need a copy of your tax return for financial aid or to obtain a mortgage? If so, a tax return or tax account transcript will generally meet the requirements of these lending institutions. Visit your local TAC for free transcripts, which are generally available for the current and past three years.
TAC locations, business hours and an overview of services are available at IRS.gov. Just go to the “Individuals” tab and click on the link for Contact My Local Office in the left tool bar section under IRS Resources.
1. Notices or letters Have you received a letter or notice and need face-to-face assistance to understand the next step? No appointment is necessary -- just walk in.
2. Multilingual Assistance Don’t let a language barrier prevent you from getting the face-to-face tax assistance you may need. Multilingual services are offered to taxpayers in over 150 languages. These services are provided through bilingual employees and an Over-the-Phone Interpreter.
3. Payments You can make payments at your local IRS TAC. Be sure you know the tax period and the type of tax for the payment you are making. If you received a notice from the IRS, be sure to bring it with you.
4. Free Federal Tax Return Preparation Your local TAC will prepare both current and prior year basic tax returns for those who qualify for Earned Income Tax Credit or those whose income is less than $49,000.
5. Form 2290, Heavy Highway Vehicle Use Tax Return Your local TAC can help you prepare Form 2290, accept your payment and provide the needed receipts for you to take when registering your vehicle.
6. Individual Taxpayer Identification Number If you are not eligible for a Social Security Number but need to file a tax return, bring the completed tax return, Form W-7, Application for IRS Individual Identification Number and certified identification documents to your local TAC to apply for your ITIN and file your return. For more information, see Publication 519, U.S. Tax Guide for Aliens.
7. Alien Clearances Before leaving the United States, most aliens must obtain a certificate of tax compliance. This document, also popularly known as the sailing permit or departure permit, must be secured from the IRS before leaving the U.S. You can get the permit from your local TAC. For more information, see Publication 513, Tax Information for Visitors to the United States.
8. Tax Return and Tax Account Transcripts Do you need a copy of your tax return for financial aid or to obtain a mortgage? If so, a tax return or tax account transcript will generally meet the requirements of these lending institutions. Visit your local TAC for free transcripts, which are generally available for the current and past three years.
TAC locations, business hours and an overview of services are available at IRS.gov. Just go to the “Individuals” tab and click on the link for Contact My Local Office in the left tool bar section under IRS Resources.
Seven Things to know about the Taxpayer Advocate Service
The Taxpayer Advocate Service is an independent organization within the Internal Revenue Service. TAS helps taxpayers who are experiencing economic harm such as not being able to provide necessities like housing, transportation, or food, taxpayers who are seeking help in resolving problems with the IRS, and those who believe an IRS system or procedure is not working as it should. Here are seven things every taxpayer should know about TAS.
1. The Taxpayer Advocate Service is your voice at the IRS.
2. TAS service is free, confidential, and tailored to meet your needs.
3. You may be eligible for TAS help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should.
4. TAS helps taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. This includes businesses as well as individuals.
5. TAS employees know the IRS and how to navigate it. If you qualify for TAS help, your case will be assigned to an advocate who will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved.
6. There is at least one local taxpayer advocate office in every state, the District of Columbia, and Puerto Rico. You can call your local advocate, whose number is in your phone book, in Pub. 1546, Taxpayer Advocate Service -- Your Voice at the IRS, and on the website at www.irs.gov/advocate. You can also call toll-free number at 1-877-777-4778 or TTY/TDD 1-800-829-4059.
7. You can learn about your rights and responsibilities as a taxpayer by visiting the TAS online tax toolkit at www.taxtoolkit.irs.gov. You can get updates on hot tax topics by visiting the TAS YouTube channel at www.youtube.com/tasnta and the TAS Facebook page at http://www.facebook.com/YourVoiceAtIRS, or by following TAS tweets at http://twitter.com/YourVoiceatIRS.
1. The Taxpayer Advocate Service is your voice at the IRS.
2. TAS service is free, confidential, and tailored to meet your needs.
3. You may be eligible for TAS help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should.
4. TAS helps taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. This includes businesses as well as individuals.
5. TAS employees know the IRS and how to navigate it. If you qualify for TAS help, your case will be assigned to an advocate who will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved.
6. There is at least one local taxpayer advocate office in every state, the District of Columbia, and Puerto Rico. You can call your local advocate, whose number is in your phone book, in Pub. 1546, Taxpayer Advocate Service -- Your Voice at the IRS, and on the website at www.irs.gov/advocate. You can also call toll-free number at 1-877-777-4778 or TTY/TDD 1-800-829-4059.
7. You can learn about your rights and responsibilities as a taxpayer by visiting the TAS online tax toolkit at www.taxtoolkit.irs.gov. You can get updates on hot tax topics by visiting the TAS YouTube channel at www.youtube.com/tasnta and the TAS Facebook page at http://www.facebook.com/YourVoiceAtIRS, or by following TAS tweets at http://twitter.com/YourVoiceatIRS.
Friday, July 23, 2010
IRS Releases Proposed Regulations Related to Fees for Preparer Tax Identification Numbers
The Internal Revenue Service today released proposed regulations that would establish a fee for individuals who apply for a preparer tax identification number (PTIN). Proposed regulations that were issued in March would require certain tax return preparers to obtain a PTIN. The IRS is working to finalize those proposed regulations, which are the first of a series of steps planned to increase oversight of federal tax return preparation.
The proposed regulations (REG-139343-08) would establish a fee of $50, payable to the IRS, to cover technology costs, as well as compliance and outreach efforts associated with the new PTIN program. The proposed regulations would also provide for an additional fee (expected to be substantially lower than $50) to be charged by the third-party vendor chosen to operate the new online system. That fee amount is expected to be announced soon, as well as additional details about the launch of a new online application system. These fees could change in future years as program costs are reevaluated.
Agencies are directed by the Office of Management and Budget (OMB) to charge user fees to recover the cost of services that convey special benefits beyond those available to the general public, such as the authority to prepare federal tax returns for compensation.
Tax professionals and other interested parties have until Aug. 23, 2010, to submit comments regarding the proposed regulations. The official publication date of these proposed regulations is July 23.
In January, IRS Commissioner Doug Shulman announced the results of a comprehensive six-month study of the tax return preparer industry, which proposed new registration, testing, and continuing education of tax return preparers. With more than 80 percent of American households using a tax preparer or tax software to help them prepare and file their taxes, higher standards for the tax return preparer community will significantly enhance protections and service for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term.
How to Learn More
The IRS recently broadcast the topic “New Requirements for Tax Return Preparers – Learn the Who, What, When and How” on the webinar IRS Live, an educational program for tax professionals. View the archive on IRS.gov.
Tax professionals can also learn more by attending one of six tax forums this summer around the country hosted by the IRS. The IRS Nationwide Tax Forums are three-day events that provide tax professionals with the most up-to-date information on federal and state tax issues.
The proposed regulations (REG-139343-08) would establish a fee of $50, payable to the IRS, to cover technology costs, as well as compliance and outreach efforts associated with the new PTIN program. The proposed regulations would also provide for an additional fee (expected to be substantially lower than $50) to be charged by the third-party vendor chosen to operate the new online system. That fee amount is expected to be announced soon, as well as additional details about the launch of a new online application system. These fees could change in future years as program costs are reevaluated.
Agencies are directed by the Office of Management and Budget (OMB) to charge user fees to recover the cost of services that convey special benefits beyond those available to the general public, such as the authority to prepare federal tax returns for compensation.
Tax professionals and other interested parties have until Aug. 23, 2010, to submit comments regarding the proposed regulations. The official publication date of these proposed regulations is July 23.
In January, IRS Commissioner Doug Shulman announced the results of a comprehensive six-month study of the tax return preparer industry, which proposed new registration, testing, and continuing education of tax return preparers. With more than 80 percent of American households using a tax preparer or tax software to help them prepare and file their taxes, higher standards for the tax return preparer community will significantly enhance protections and service for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term.
How to Learn More
The IRS recently broadcast the topic “New Requirements for Tax Return Preparers – Learn the Who, What, When and How” on the webinar IRS Live, an educational program for tax professionals. View the archive on IRS.gov.
Tax professionals can also learn more by attending one of six tax forums this summer around the country hosted by the IRS. The IRS Nationwide Tax Forums are three-day events that provide tax professionals with the most up-to-date information on federal and state tax issues.
IRS Drops and Gives You 10…Military Tax Tips
Summer is a busy time for everyone, but particularly for military members and their families. Whether it’s moving to a new base or traveling to a duty station, members of the military have many obligations that could impact their tax situation. Here are 10 IRS tax tips military members should keep in mind this summer to help with filing a tax return next year.
Moving Expenses If you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you can deduct the reasonable unreimbursed expenses of moving you and members of your household.
Combat Pay If you serve in a combat zone as an enlisted person or as a warrant officer for any part of a month, all your military pay received for military service that month is not taxable. For officers, the monthly exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received.
Extension of Deadlines The time for taking care of certain tax matters can be postponed. The deadline for filing tax returns, paying taxes, filing claims for refund, and taking other actions with the IRS is automatically extended for qualifying members of the military.
Uniform Cost and Upkeep If military regulations prohibit you from wearing certain uniforms when off duty, you can deduct the cost and upkeep of those uniforms, but you must reduce your expenses by any allowance or reimbursement you receive.
Joint Returns Generally, joint returns must be signed by both spouses. However, when one spouse may not be available due to military duty, a power of attorney may be used to file a joint return.
Travel to Reserve Duty If you are a member of the US Armed Forces Reserves, you can deduct unreimbursed travel expenses for traveling more than 100 miles away from home to perform your reserve duties.
ROTC Students Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.
Transitioning Back to Civilian Life You may be able to deduct some costs you incur while looking for a new job. Expenses may include travel, resume preparation fees, and outplacement agency fees. Moving expenses may be deductible if your move is closely related to the start of work at a new job location, and you meet certain tests.
Tax Help Most military installations offer free tax filing and preparation assistance during the filing season.
Tax Information IRS Publication 3, Armed Forces’ Tax Guide, summarizes many important military-related tax topics. Publication 3 can be downloaded from IRS.gov or may be ordered by calling 1-800-TAX-FORM (800-829-3676).
Moving Expenses If you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you can deduct the reasonable unreimbursed expenses of moving you and members of your household.
Combat Pay If you serve in a combat zone as an enlisted person or as a warrant officer for any part of a month, all your military pay received for military service that month is not taxable. For officers, the monthly exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received.
Extension of Deadlines The time for taking care of certain tax matters can be postponed. The deadline for filing tax returns, paying taxes, filing claims for refund, and taking other actions with the IRS is automatically extended for qualifying members of the military.
Uniform Cost and Upkeep If military regulations prohibit you from wearing certain uniforms when off duty, you can deduct the cost and upkeep of those uniforms, but you must reduce your expenses by any allowance or reimbursement you receive.
Joint Returns Generally, joint returns must be signed by both spouses. However, when one spouse may not be available due to military duty, a power of attorney may be used to file a joint return.
Travel to Reserve Duty If you are a member of the US Armed Forces Reserves, you can deduct unreimbursed travel expenses for traveling more than 100 miles away from home to perform your reserve duties.
ROTC Students Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.
Transitioning Back to Civilian Life You may be able to deduct some costs you incur while looking for a new job. Expenses may include travel, resume preparation fees, and outplacement agency fees. Moving expenses may be deductible if your move is closely related to the start of work at a new job location, and you meet certain tests.
Tax Help Most military installations offer free tax filing and preparation assistance during the filing season.
Tax Information IRS Publication 3, Armed Forces’ Tax Guide, summarizes many important military-related tax topics. Publication 3 can be downloaded from IRS.gov or may be ordered by calling 1-800-TAX-FORM (800-829-3676).
Five Tax Scams to Avoid this Summer
The Internal Revenue Service issues a list of the top 12 tax scams each year – known as the Dirty Dozen. The scams are illegal and can lead to problems for taxpayers including significant penalties, interest and possible criminal prosecution. These scams don’t just happen during the tax filing season, they can happen anytime during the year. Here are five scams from the 2010 Dirty Dozen list every taxpayer should be aware of this summer.
1. Phishing Phishing is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information in an electronic communication. Scams can take the form of e-mails, tweets or phony websites and they try to mislead consumers by telling them they are entitled to a tax refund from the IRS and they must reveal personal information to claim it. Regardless of how official this e-mail may look and sound, the IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Phishers use the personal information obtained to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name. If you receive an e-mail that you suspect is a phishing attempt or directs you to an imitation IRS website, please forward it to the IRS at phishing@irs.gov. You can also visit IRS.gov and enter the keyword phishing for additional information.
2. Return Preparer Fraud Dishonest tax return preparers can cause trouble for taxpayers who fall victim to their ploys. Such preparers are skimming a portion of their clients’ refunds, charging inflated fees for tax preparation or are attracting new clients by promising refunds that are too good to be true. To increase confidence in the tax system, the IRS is requiring all paid return preparers to register with the IRS, pass competency tests and attend continuing education.
3. Hiding Income Offshore Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks and brokerage accounts. IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from more than 14,700 voluntary disclosures received last year. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans.
4. Abuse of Charitable Organizations and Deductions The IRS continues to observe the misuse of tax-exempt organizations. This includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets. The IRS also continues to investigate various schemes where donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets.
5. Frivolous Arguments Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. If a scheme seems too good to be true, it probably is. The IRS has a list of frivolous legal positions that taxpayers should avoid on IRS.gov. These arguments are false and have been thrown out of court.
For the full list of 2010 Dirty Dozen tax scams or to find out how to report suspected tax fraud, visit IRS.gov.
1. Phishing Phishing is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information in an electronic communication. Scams can take the form of e-mails, tweets or phony websites and they try to mislead consumers by telling them they are entitled to a tax refund from the IRS and they must reveal personal information to claim it. Regardless of how official this e-mail may look and sound, the IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Phishers use the personal information obtained to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name. If you receive an e-mail that you suspect is a phishing attempt or directs you to an imitation IRS website, please forward it to the IRS at phishing@irs.gov. You can also visit IRS.gov and enter the keyword phishing for additional information.
2. Return Preparer Fraud Dishonest tax return preparers can cause trouble for taxpayers who fall victim to their ploys. Such preparers are skimming a portion of their clients’ refunds, charging inflated fees for tax preparation or are attracting new clients by promising refunds that are too good to be true. To increase confidence in the tax system, the IRS is requiring all paid return preparers to register with the IRS, pass competency tests and attend continuing education.
3. Hiding Income Offshore Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks and brokerage accounts. IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from more than 14,700 voluntary disclosures received last year. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans.
4. Abuse of Charitable Organizations and Deductions The IRS continues to observe the misuse of tax-exempt organizations. This includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets. The IRS also continues to investigate various schemes where donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets.
5. Frivolous Arguments Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. If a scheme seems too good to be true, it probably is. The IRS has a list of frivolous legal positions that taxpayers should avoid on IRS.gov. These arguments are false and have been thrown out of court.
For the full list of 2010 Dirty Dozen tax scams or to find out how to report suspected tax fraud, visit IRS.gov.
Tuesday, July 20, 2010
Five Facts about the Making Work Pay Tax Credit
1. This credit – still available for 2010 – equals 6.2 percent of a taxpayer’s earned income. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.
2. Eligible self-employed taxpayers can benefit from the credit by evaluating their expected income tax liability and, if they are eligible, by making the appropriate adjustments to the amounts of their estimated tax payments.
3. Taxpayers who fall into any of the following groups during 2010 should review their tax withholding to ensure enough tax is being withheld. Those who should pay particular attention to their withholding include:
• Married couples with two incomes
• Individuals with multiple jobs
• Dependents
• Pensioners
• Workers without valid Social Security numbers
Having too little tax withheld could result in potentially smaller refunds or – in limited instances –small balance due rather than an expected refund.
4. The Making Work Pay tax credit is reduced or unavailable for higher-income taxpayers. The reduction in the credit begins at $75,000 of income for single taxpayers and $150,000 for couples filing a joint return.
5. A quick withholding check using the IRS Withholding Calculator on IRS.gov may be helpful for anyone who believes their current withholding may not be right. Taxpayers can also check their withholding by using the worksheets in IRS Publication 919, How Do I Adjust My Tax Withholding?. Adjustments can be made by filing a revised Form W-4, Employee's Withholding Allowance Certificate. Pensioners can adjust their withholding by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments.
For more information about this and other key tax provisions of the Recovery Act, visit IRS.gov/recovery.
2. Eligible self-employed taxpayers can benefit from the credit by evaluating their expected income tax liability and, if they are eligible, by making the appropriate adjustments to the amounts of their estimated tax payments.
3. Taxpayers who fall into any of the following groups during 2010 should review their tax withholding to ensure enough tax is being withheld. Those who should pay particular attention to their withholding include:
• Married couples with two incomes
• Individuals with multiple jobs
• Dependents
• Pensioners
• Workers without valid Social Security numbers
Having too little tax withheld could result in potentially smaller refunds or – in limited instances –small balance due rather than an expected refund.
4. The Making Work Pay tax credit is reduced or unavailable for higher-income taxpayers. The reduction in the credit begins at $75,000 of income for single taxpayers and $150,000 for couples filing a joint return.
5. A quick withholding check using the IRS Withholding Calculator on IRS.gov may be helpful for anyone who believes their current withholding may not be right. Taxpayers can also check their withholding by using the worksheets in IRS Publication 919, How Do I Adjust My Tax Withholding?. Adjustments can be made by filing a revised Form W-4, Employee's Withholding Allowance Certificate. Pensioners can adjust their withholding by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments.
For more information about this and other key tax provisions of the Recovery Act, visit IRS.gov/recovery.
Friday, July 16, 2010
Six Tax Tips for New Business Owners
Are you opening a new business this summer? The IRS has many resources available for individuals that are opening a new business. Here are six tax tips the IRS wants new business owners to know.
1. First, you must decide what type of business entity you are going to establish. The type of business entity will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation.
2. The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
3. An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.
4. Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.
5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.
6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.
IRS Publication 583, Starting a Business and Keeping Records, provides basic federal tax information for people who are starting a business. This publication is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676). Visit the Business section of IRS.gov for resources to assist entrepreneurs with starting and operating a new business.
1. First, you must decide what type of business entity you are going to establish. The type of business entity will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation.
2. The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
3. An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.
4. Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.
5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.
6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.
IRS Publication 583, Starting a Business and Keeping Records, provides basic federal tax information for people who are starting a business. This publication is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676). Visit the Business section of IRS.gov for resources to assist entrepreneurs with starting and operating a new business.
Wednesday, July 14, 2010
Six Tax Benefits for Job Seekers
Did you know that you may be able to deduct some of your job search expenses on your tax return?
Many taxpayers spend time during the summer months updating their résumé and attending career fairs. If you are searching for a job this summer, you may be able to deduct some of your expenses on your tax return. Here are six things the IRS wants you to know about deducting costs related to your job search.
1. To qualify for a deduction, the expenses must be spent on a job search in your current occupation. You may not deduct expenses incurred while looking for a job in a new occupation.
2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.
3. You can deduct amounts you spend for preparing and mailing copies of your résumé to prospective employers as long as you are looking for a new job in your present occupation.
4. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
5. You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.
6. You cannot deduct job search expenses if you are looking for a job for the first time.
For more information about job search expenses, see IRS Publication 529, Miscellaneous Deductions. This publication is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Many taxpayers spend time during the summer months updating their résumé and attending career fairs. If you are searching for a job this summer, you may be able to deduct some of your expenses on your tax return. Here are six things the IRS wants you to know about deducting costs related to your job search.
1. To qualify for a deduction, the expenses must be spent on a job search in your current occupation. You may not deduct expenses incurred while looking for a job in a new occupation.
2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.
3. You can deduct amounts you spend for preparing and mailing copies of your résumé to prospective employers as long as you are looking for a new job in your present occupation.
4. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
5. You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.
6. You cannot deduct job search expenses if you are looking for a job for the first time.
For more information about job search expenses, see IRS Publication 529, Miscellaneous Deductions. This publication is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Monday, July 12, 2010
Four Tips on Preparing for a Disaster
Planning what to do in case of a disaster is an important part of being prepared. The Internal Revenue Service encourages taxpayers to safeguard their records. Some simple steps can help taxpayers protect financial and tax records in case of disasters.
Listed below are tips for individuals on preparing for a disaster.
1. Recordkeeping Take advantage of paperless recordkeeping for financial and tax records. Many people receive bank statements and documents by e-mail. This method is an outstanding way to secure financial records. Important tax records such as W-2s, tax returns and other paper documents can be scanned onto an electronic format. You can copy them onto a ‘key’ or ‘jump drive’ periodically and then keep the electronic records in a safe place.
2. Document Valuables The IRS has disaster loss workbooks for individuals that can help you compile a room-by-room list of your belongings. One option is to photograph or videotape the contents of your home, especially items of greater value. You should store the photos in a safe place away from the geographic area at risk. This will help you recall and prove the market value of items for insurance and casualty loss claims.
3. Update Emergency Plans Emergency plans should be reviewed annually. Individual taxpayers should make sure they are saving documents everybody should keep including such things as W-2s, home closing statements and insurance records. Make sure you have a means of receiving severe weather information; if you have a NOAA Weather Radio, put fresh batteries in it. Make sure you know what you should do if threatening weather approaches.
4. Count on the IRS In the event of a disaster, the IRS stands ready to help. The IRS has valuable information you can request if your records are destroyed. If you have been impacted by a federally declared disaster, you may receive copies or transcripts of previously filed tax returns free of charge by submitting Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, clearly identified as a disaster related request.
For more information type “Preparing for a Disaster” in the search box on the IRS.gov homepage.
Listed below are tips for individuals on preparing for a disaster.
1. Recordkeeping Take advantage of paperless recordkeeping for financial and tax records. Many people receive bank statements and documents by e-mail. This method is an outstanding way to secure financial records. Important tax records such as W-2s, tax returns and other paper documents can be scanned onto an electronic format. You can copy them onto a ‘key’ or ‘jump drive’ periodically and then keep the electronic records in a safe place.
2. Document Valuables The IRS has disaster loss workbooks for individuals that can help you compile a room-by-room list of your belongings. One option is to photograph or videotape the contents of your home, especially items of greater value. You should store the photos in a safe place away from the geographic area at risk. This will help you recall and prove the market value of items for insurance and casualty loss claims.
3. Update Emergency Plans Emergency plans should be reviewed annually. Individual taxpayers should make sure they are saving documents everybody should keep including such things as W-2s, home closing statements and insurance records. Make sure you have a means of receiving severe weather information; if you have a NOAA Weather Radio, put fresh batteries in it. Make sure you know what you should do if threatening weather approaches.
4. Count on the IRS In the event of a disaster, the IRS stands ready to help. The IRS has valuable information you can request if your records are destroyed. If you have been impacted by a federally declared disaster, you may receive copies or transcripts of previously filed tax returns free of charge by submitting Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, clearly identified as a disaster related request.
For more information type “Preparing for a Disaster” in the search box on the IRS.gov homepage.
Friday, July 9, 2010
IRS Highlights Job Opportunities for New Grads on YouTube
The Internal Revenue Service today announced the availability of a new job search tool on YouTube dedicated to helping job seekers learn about employment opportunities at the IRS.
"Whether you're a veteran or a recent college graduate, the IRS is a great place to work and build a career. The IRS has a wide range of jobs and needs a variety of skills to serve the nation's taxpayers,” said IRS Commissioner Doug Shulman. “Our goal is to make the IRS the best place to work in government."
As many recent high school and college graduates actively seek employment, the IRS’s new YouTube playlist, Working at the IRS, provides information about various career paths available throughout the nation’s tax administration agency. The playlist features “Day in the Life” videos in which IRS employees discuss their jobs, the diversity of the IRS workforce and the culture of the agency.
“This is a great opportunity for new graduates and applicants to explore employment with the IRS and join a dedicated workforce serving our nation’s taxpayers,” IRS Chief Human Capital Officer James Falcone said. “Potential applicants can learn a lot from a job description. But showcasing our talented employees on YouTube gives applicants first-hand insight into whether or not they would be a good fit for a particular position.”
The IRS has more than 100,000 full-time and seasonal employees and hires new employees throughout the year to fill a wide array of positions, including revenue agents, revenue officers, criminal investigation special agents, financial analysts and economists.
The YouTube playlist complements numerous other videos currently available on the IRS YouTube channel (IRSvideos). IRS videos provide tax tips for individuals and businesses and information about new credits, deductions and changes in tax law, including tax provisions pertaining to Recovery and health care. The IRS has also posted videos in American Sign Language (IRSvideosASL) and Spanish (IRSvideosmultilingual).
New IRS Careers Website
In addition to the new YouTube playlist, the IRS Human Capital Office recently launched a new and improved IRS Careers Website with more detailed information on job openings, how to apply for new positions, what qualifications are needed in potential candidates and information on the benefits of working at the IRS. The site features a direct link to the IRS on USAJobs.com, the main source for federal employment opportunities, allowing candidates to focus their job search.
"Whether you're a veteran or a recent college graduate, the IRS is a great place to work and build a career. The IRS has a wide range of jobs and needs a variety of skills to serve the nation's taxpayers,” said IRS Commissioner Doug Shulman. “Our goal is to make the IRS the best place to work in government."
As many recent high school and college graduates actively seek employment, the IRS’s new YouTube playlist, Working at the IRS, provides information about various career paths available throughout the nation’s tax administration agency. The playlist features “Day in the Life” videos in which IRS employees discuss their jobs, the diversity of the IRS workforce and the culture of the agency.
“This is a great opportunity for new graduates and applicants to explore employment with the IRS and join a dedicated workforce serving our nation’s taxpayers,” IRS Chief Human Capital Officer James Falcone said. “Potential applicants can learn a lot from a job description. But showcasing our talented employees on YouTube gives applicants first-hand insight into whether or not they would be a good fit for a particular position.”
The IRS has more than 100,000 full-time and seasonal employees and hires new employees throughout the year to fill a wide array of positions, including revenue agents, revenue officers, criminal investigation special agents, financial analysts and economists.
The YouTube playlist complements numerous other videos currently available on the IRS YouTube channel (IRSvideos). IRS videos provide tax tips for individuals and businesses and information about new credits, deductions and changes in tax law, including tax provisions pertaining to Recovery and health care. The IRS has also posted videos in American Sign Language (IRSvideosASL) and Spanish (IRSvideosmultilingual).
New IRS Careers Website
In addition to the new YouTube playlist, the IRS Human Capital Office recently launched a new and improved IRS Careers Website with more detailed information on job openings, how to apply for new positions, what qualifications are needed in potential candidates and information on the benefits of working at the IRS. The site features a direct link to the IRS on USAJobs.com, the main source for federal employment opportunities, allowing candidates to focus their job search.
Six Tips for Students with a Summer Job
School’s out and many students now have a summer job. Some students may not realize they have to pay taxes on their summer income. Here are the six things the IRS wants everyone to know about income earned while working a summer job.
1. All employees fill out a W-4, Employee’s Withholding Allowance Certificate, when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. If you have multiple summer jobs you will want to make sure all your employers are withholding an adequate amount of taxes to cover your total income tax liability. To make sure your withholding is correct, use the Withholding Calculator on IRS.gov.
2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tip income you receive is taxable income and is therefore subject to federal income tax.
3. Many students do odd jobs over the summer to make extra cash. Earnings you received from self-employment are subject to income tax. These earnings include income from odd jobs like baby-sitting and lawn mowing.
4. If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.
5. Food and lodging allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.
6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:
o You are in the business of delivering newspapers.
o All your pay for these services directly relates to sales rather than to the number of hours worked.
o You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.
Generally, newspaper carriers or distributors under age 18 are not subject to self-employment tax.
1. All employees fill out a W-4, Employee’s Withholding Allowance Certificate, when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. If you have multiple summer jobs you will want to make sure all your employers are withholding an adequate amount of taxes to cover your total income tax liability. To make sure your withholding is correct, use the Withholding Calculator on IRS.gov.
2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tip income you receive is taxable income and is therefore subject to federal income tax.
3. Many students do odd jobs over the summer to make extra cash. Earnings you received from self-employment are subject to income tax. These earnings include income from odd jobs like baby-sitting and lawn mowing.
4. If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.
5. Food and lodging allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.
6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:
o You are in the business of delivering newspapers.
o All your pay for these services directly relates to sales rather than to the number of hours worked.
o You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.
Generally, newspaper carriers or distributors under age 18 are not subject to self-employment tax.
IRS Opens Dedicated Phone Line for Gulf Oil Spill Victims
The Internal Revenue Service today announced the opening of a special telephone line for taxpayers affected by the Gulf oil spill.
Individuals who have questions about the BP payments or who are experiencing filing or payment hardships because of the oil spill should contact the IRS at 866-562-5227.
The special services phone line will operate weekdays from 7 a.m. to 10 p.m. local time.
In certain cases, the IRS can assist oil spill victims by suspending collection and examination actions. Taxpayers who need this assistance must request it. Others may decide to continue making payments because interest will continue to accrue on outstanding balances, even if some penalties are abated.
In addition to postponing collection actions, the IRS continues to have a number of other ways to help taxpayers deal with oil spill issues or other economic hardships, including:
• Added flexibility for missed payments on installment agreements and offers in compromise for previously compliant individuals.
• Consideration of a taxpayer’s current income and potential for future income when negotiating an offer in compromise.
• Accelerated levy releases.
• Assistance of the Taxpayer Advocate Service for those experiencing economic harm and seeking help resolving tax problems that have not been resolved through normal channels.
• Special Assistance on July 17 at Gulf Coast Offices
In addition to the new telephone line, the IRS will conduct a special assistance day on July 17 for oil spill victims in seven cities.
Taxpayers and tax preparers will be able to work directly with IRS employees to resolve tax issues, including specific topics related to the oil spill. The IRS will hold the Gulf Coast Assistance Day in the following cities:
• Mobile, Ala.
• Panama City and Pensacola, Fla.
• New Orleans, Houma and Baton Rouge, La.
• Gulfport, Miss.
Times and addresses will be announced soon.
Related Information:
For further information, including the tax treatment of BP compensation payments, see Questions & Answers about the Gulf oil spill on the IRS website, IRS.gov. Taxpayers are also encouraged to visit DisasterAssistance.gov, which has information on assistance for Gulf oil spill victims.
Individuals who have questions about the BP payments or who are experiencing filing or payment hardships because of the oil spill should contact the IRS at 866-562-5227.
The special services phone line will operate weekdays from 7 a.m. to 10 p.m. local time.
In certain cases, the IRS can assist oil spill victims by suspending collection and examination actions. Taxpayers who need this assistance must request it. Others may decide to continue making payments because interest will continue to accrue on outstanding balances, even if some penalties are abated.
In addition to postponing collection actions, the IRS continues to have a number of other ways to help taxpayers deal with oil spill issues or other economic hardships, including:
• Added flexibility for missed payments on installment agreements and offers in compromise for previously compliant individuals.
• Consideration of a taxpayer’s current income and potential for future income when negotiating an offer in compromise.
• Accelerated levy releases.
• Assistance of the Taxpayer Advocate Service for those experiencing economic harm and seeking help resolving tax problems that have not been resolved through normal channels.
• Special Assistance on July 17 at Gulf Coast Offices
In addition to the new telephone line, the IRS will conduct a special assistance day on July 17 for oil spill victims in seven cities.
Taxpayers and tax preparers will be able to work directly with IRS employees to resolve tax issues, including specific topics related to the oil spill. The IRS will hold the Gulf Coast Assistance Day in the following cities:
• Mobile, Ala.
• Panama City and Pensacola, Fla.
• New Orleans, Houma and Baton Rouge, La.
• Gulfport, Miss.
Times and addresses will be announced soon.
Related Information:
For further information, including the tax treatment of BP compensation payments, see Questions & Answers about the Gulf oil spill on the IRS website, IRS.gov. Taxpayers are also encouraged to visit DisasterAssistance.gov, which has information on assistance for Gulf oil spill victims.
Wednesday, July 7, 2010
National Taxpayer Advocate Submits Mid-Year Report to Congress; Identifies Priority Challenges and Issues for Upcoming Year
National Taxpayer Advocate Nina E. Olson today released a report to Congress that identifies the priority issues the Taxpayer Advocate Service (TAS) will address during the coming fiscal year. The report expresses concern about the adequacy of IRS taxpayer service, particularly as the IRS begins to implement health care reform, about new information reporting burdens facing small businesses and others, and about certain IRS collection practices.
Among the areas the report identifies for particular emphasis in FY 2011 are the following:
1. Taxpayer Services. Spending for IRS taxpayer service programs has been declining in recent years. At the same time, more taxpayers have been contacting the IRS for assistance as the IRS has been tasked with administering an increasing number of social benefit programs, including Economic Stimulus Payments, Making Work Pay credits, and First-Time Homebuyer credits. The report says that as a result of the imbalance between taxpayer demand and IRS resources, the IRS has fallen short of providing adequate taxpayer service in important areas. Most notably, after answering a high of 87 percent of its calls from taxpayers seeking to reach a telephone assistor in FY 2004, the IRS answered only 53 percent of its calls in FY 2008 and has set of goal of answering only 71 percent in the current fiscal year.
The report attributes much of the problem to inadequate funding for taxpayer services. While funding for the IRS overall has been increasing in recent years, the additional funding has been earmarked for enforcement programs. An analysis of IRS budget trends conducted by TAS shows that since FY 2004, inflation-adjusted funding for IRS enforcement activities has risen by 17.9 percent while spending for taxpayer service programs has declined by 6.8 percent, as shown in the following chart:
Moreover, a substantial portion of the budget for taxpayer service includes the costs of processing tax returns, which is essentially an overhead function. Funding for core taxpayer service (known as “Pre-filing Taxpayer Assistance and Education”) now stands at only $685 million, or six percent of the IRS budget. The report notes further that the Administration’s FY 2011 budget proposal projects that funding for taxpayer services will decline by another 7.2 percent over the next two years (FY 2012 and FY 2013), while funding for enforcement will increase by an additional 13.7 percent.
The report asserts the cuts in taxpayer service spending are harmful both because they undermine tax compliance and because they undermine the IRS’s ability to successfully deliver social benefit programs. First, with respect to tax compliance, Ms. Olson states:
There appears to be an implicit assumption built into existing budget procedures and projections that raising tax compliance requires ramping up enforcement and that taxpayer service is less important – perhaps even unimportant – for compliance. We think this implicit assumption is wrong. . . . Consider an individual without a college degree who becomes a successful plumber or electrician with a growing customer base. If he hires employees, he will face a host of employment, immigration verification, and state and federal tax requirements, including the need to withhold and pay over payroll taxes and to file employment tax and income tax returns on behalf of his business. For most taxpayers, these requirements would seem daunting or even impenetrable, and some taxpayers inevitably do not comply simply because they have no idea where to begin.
The report states that many noncompliant taxpayers are baffled by complex rules and states that additional taxpayer service, particularly outreach and education, could improve tax compliance.
Second, with respect to the IRS’s ability to deliver social programs, the report expresses concern that the IRS currently is neither structured nor funded to do the job effectively. “I have no doubt the IRS is capable of administering social programs, including health care,” Ms. Olson said. “But Congress must provide sufficient funding and the IRS itself must recognize that the skills and training required to administer social benefit programs are very different from the skills and training that employees of an enforcement agency typically possess. While some enforcement measures are required to prevent inappropriate claims, the overriding objective of agencies that administer social benefit programs is to help as many eligible persons qualify for the benefits as possible. That requires outreach and working one-on-one with potentially eligible individuals. If the IRS continues to ramp up enforcement while reducing taxpayer service programs, I would be concerned about its ability to administer the new health care credits and penalty taxes in a fair and compassionate way.”
Ms. Olson suggests that the IRS mission statement be revised to explicitly acknowledge the agency’s dual role as part tax collector and part benefits administrator. Such a revision would require the IRS to develop a strategic plan that gives sufficient attention to both roles and would underscore that the IRS requires sufficient funding to perform both functions effectively.
During FY 2011, TAS will continue to advocate for improved taxpayer services and will continue to make the case that taxpayer service is important not only as a courtesy but as a driver of tax compliance as well.
2. New Business and Tax-Exempt Organization Reporting Requirements. The report expresses concern that a new reporting requirement contained in the Patient Protection and Affordable Care Act may impose significant compliance burdens on businesses, charities, and government agencies. Beginning in 2012, all businesses, tax-exempt organizations, and federal, state and local government entities will be required to issue Forms 1099 to vendors from whom they purchase goods totaling $600 or more during a calendar year. To meet this requirement, these businesses and entities will have to keep track of all purchases they make by vendor. For example, if a self-employed individual makes numerous small purchases from an office supply store during a calendar year that total at least $600, the individual must issue a Form 1099 to the vendor and the IRS showing the exact amount of total purchases. The provision will have broad reach. According to a TAS analysis of 2009 IRS data, about 40 million businesses and other entities will be subject to the new requirement, including roughly 26 million non-farm sole proprietorships, four million S corporations, two million C corporations, three million partnerships, two million farming businesses, one million charities and other tax-exempt organizations, and more than 100,000 government entities. All of these nearly 40 million businesses and other entities are subject to the new reporting requirement.
TAS has not yet reached any conclusions regarding the benefits and burdens of the requirement, but the report expresses concern that the burdens “may turn out to be disproportionate as compared with any resulting improvement in tax compliance.” During FY 2011, TAS will study the impact of the new reporting requirement more closely and, depending on what its study finds, may propose administrative or legislative recommendations to modify the provision or suggest that Congress consider less burdensome tax gap proposals, including a TAS proposal to require reporting of non-interest bearing bank accounts, to replace it.
3. IRS Collection Practices. The report expresses continuing concern that IRS collection practices emphasize collection of past-due liabilities even where doing so inflicts unnecessary or disproportionate harm on taxpayers and jeopardizes future tax collection. “The conventional wisdom seems to be that more hard-core enforcement actions like liens and levies mean more revenue,” Ms. Olson said. “But the data don’t bear that out. Since FY 1999, the IRS has increased lien filings by about 475 percent and levies by about 600 percent, yet inflation-adjusted revenue raised by the IRS Collection function has actually declined by about seven percent over that period.”
Lien filings can badly damage a taxpayer’s financial viability because lien filings appear on credit reports, causing the taxpayer’s credit score to drop an average of about 100 points immediately and causing lasting harm because they typically remain on the taxpayer’s credit record for at least seven years. Many employers, mortgage companies, landlords, car dealerships, and credit card issuers check credit reports, so the filing of a tax lien can adversely affect the taxpayer’s ability to obtain and retain a job, purchase a home, rent an apartment, or obtain credit generally. Accordingly, a lien filing may reduce the taxpayer’s income or increase his expenses, thereby impairing his ability to pay tax in the future. Last year, the IRS filed nearly one million liens against taxpayers.
The report also notes that the IRS has issued at least four public statements over the past year-and-a-half pledging to assist financially struggling taxpayers who are having difficulty paying their tax bills. Yet the number of liens and levies has continued to rise, the number of offers-in-compromise the IRS is accepting is near an all-time low, and there is little evidence the IRS is changing its collection practices.
After publication of her 2009 Annual Report to Congress, Ms. Olson issued several Taxpayer Advocate Directives to the IRS on lien issues, including directives (i) to discontinue its policy of automatically filing tax liens in cases where the IRS has determined that the taxpayer’s account should be placed into “currently not collectible” status based on financial hardship and (ii) to require managerial approval for the filing of liens in cases where the taxpayer owns no assets. She has also urged the IRS to expand the availability of the offer-in-compromise program for financially struggling taxpayers who cannot reasonably pay their tax debts in full.
In response to these concerns, the IRS has convened a senior-level task force to conduct a comprehensive review of collection practices. Ms. Olson writes that she appreciates the IRS’s willingness to examine the issue. However, she remains concerned that it will take years to conduct the comprehensive review, and that in the interim, the IRS will continue both to damage taxpayers’ credit ratings and to undermine long-term tax compliance without any significant revenue gains to show for their actions. Accordingly, IRS collection practices will remain a key area of focus for TAS in FY 2011.
* * * * * * *
The National Taxpayer Advocate is required by statute to submit two annual reports to the House Committee on Ways and Means and the Senate Committee on Finance. The statute requires these reports to be submitted directly to the Committees without any prior review or comment from the Commissioner of Internal Revenue, the Secretary of the Treasury, the IRS Oversight Board, any other officer or employee of the Department of the Treasury, or the Office of Management and Budget. The first report is submitted mid-year and must identify the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year. The second report, due on December 31 of each year, must identify at least 20 of the most serious problems encountered by taxpayers, discuss the ten tax issues most frequently litigated in the courts, and make administrative and legislative recommendations to resolve taxpayer problems.
About the Taxpayer Advocate Service
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. If you believe you are eligible for TAS assistance, you can reach TAS by calling the TAS toll-free number at 1–877–777–4778 or TTY/TDD 1-800-829-4059. For more information, go to www.irs.gov/advocate. You can learn about your rights and responsibilities as a taxpayer by visiting our tax toolkit at www.taxtoolkit.irs.gov. You can get updates on hot tax topics by visiting our YouTube channel at www.youtube.com/tasnta and our Facebook page at http://www.facebook.com/YourVoiceAtIRS, or by following our tweets at http://twitter.com/YourVoiceatIRS.
Among the areas the report identifies for particular emphasis in FY 2011 are the following:
1. Taxpayer Services. Spending for IRS taxpayer service programs has been declining in recent years. At the same time, more taxpayers have been contacting the IRS for assistance as the IRS has been tasked with administering an increasing number of social benefit programs, including Economic Stimulus Payments, Making Work Pay credits, and First-Time Homebuyer credits. The report says that as a result of the imbalance between taxpayer demand and IRS resources, the IRS has fallen short of providing adequate taxpayer service in important areas. Most notably, after answering a high of 87 percent of its calls from taxpayers seeking to reach a telephone assistor in FY 2004, the IRS answered only 53 percent of its calls in FY 2008 and has set of goal of answering only 71 percent in the current fiscal year.
The report attributes much of the problem to inadequate funding for taxpayer services. While funding for the IRS overall has been increasing in recent years, the additional funding has been earmarked for enforcement programs. An analysis of IRS budget trends conducted by TAS shows that since FY 2004, inflation-adjusted funding for IRS enforcement activities has risen by 17.9 percent while spending for taxpayer service programs has declined by 6.8 percent, as shown in the following chart:
Moreover, a substantial portion of the budget for taxpayer service includes the costs of processing tax returns, which is essentially an overhead function. Funding for core taxpayer service (known as “Pre-filing Taxpayer Assistance and Education”) now stands at only $685 million, or six percent of the IRS budget. The report notes further that the Administration’s FY 2011 budget proposal projects that funding for taxpayer services will decline by another 7.2 percent over the next two years (FY 2012 and FY 2013), while funding for enforcement will increase by an additional 13.7 percent.
The report asserts the cuts in taxpayer service spending are harmful both because they undermine tax compliance and because they undermine the IRS’s ability to successfully deliver social benefit programs. First, with respect to tax compliance, Ms. Olson states:
There appears to be an implicit assumption built into existing budget procedures and projections that raising tax compliance requires ramping up enforcement and that taxpayer service is less important – perhaps even unimportant – for compliance. We think this implicit assumption is wrong. . . . Consider an individual without a college degree who becomes a successful plumber or electrician with a growing customer base. If he hires employees, he will face a host of employment, immigration verification, and state and federal tax requirements, including the need to withhold and pay over payroll taxes and to file employment tax and income tax returns on behalf of his business. For most taxpayers, these requirements would seem daunting or even impenetrable, and some taxpayers inevitably do not comply simply because they have no idea where to begin.
The report states that many noncompliant taxpayers are baffled by complex rules and states that additional taxpayer service, particularly outreach and education, could improve tax compliance.
Second, with respect to the IRS’s ability to deliver social programs, the report expresses concern that the IRS currently is neither structured nor funded to do the job effectively. “I have no doubt the IRS is capable of administering social programs, including health care,” Ms. Olson said. “But Congress must provide sufficient funding and the IRS itself must recognize that the skills and training required to administer social benefit programs are very different from the skills and training that employees of an enforcement agency typically possess. While some enforcement measures are required to prevent inappropriate claims, the overriding objective of agencies that administer social benefit programs is to help as many eligible persons qualify for the benefits as possible. That requires outreach and working one-on-one with potentially eligible individuals. If the IRS continues to ramp up enforcement while reducing taxpayer service programs, I would be concerned about its ability to administer the new health care credits and penalty taxes in a fair and compassionate way.”
Ms. Olson suggests that the IRS mission statement be revised to explicitly acknowledge the agency’s dual role as part tax collector and part benefits administrator. Such a revision would require the IRS to develop a strategic plan that gives sufficient attention to both roles and would underscore that the IRS requires sufficient funding to perform both functions effectively.
During FY 2011, TAS will continue to advocate for improved taxpayer services and will continue to make the case that taxpayer service is important not only as a courtesy but as a driver of tax compliance as well.
2. New Business and Tax-Exempt Organization Reporting Requirements. The report expresses concern that a new reporting requirement contained in the Patient Protection and Affordable Care Act may impose significant compliance burdens on businesses, charities, and government agencies. Beginning in 2012, all businesses, tax-exempt organizations, and federal, state and local government entities will be required to issue Forms 1099 to vendors from whom they purchase goods totaling $600 or more during a calendar year. To meet this requirement, these businesses and entities will have to keep track of all purchases they make by vendor. For example, if a self-employed individual makes numerous small purchases from an office supply store during a calendar year that total at least $600, the individual must issue a Form 1099 to the vendor and the IRS showing the exact amount of total purchases. The provision will have broad reach. According to a TAS analysis of 2009 IRS data, about 40 million businesses and other entities will be subject to the new requirement, including roughly 26 million non-farm sole proprietorships, four million S corporations, two million C corporations, three million partnerships, two million farming businesses, one million charities and other tax-exempt organizations, and more than 100,000 government entities. All of these nearly 40 million businesses and other entities are subject to the new reporting requirement.
TAS has not yet reached any conclusions regarding the benefits and burdens of the requirement, but the report expresses concern that the burdens “may turn out to be disproportionate as compared with any resulting improvement in tax compliance.” During FY 2011, TAS will study the impact of the new reporting requirement more closely and, depending on what its study finds, may propose administrative or legislative recommendations to modify the provision or suggest that Congress consider less burdensome tax gap proposals, including a TAS proposal to require reporting of non-interest bearing bank accounts, to replace it.
3. IRS Collection Practices. The report expresses continuing concern that IRS collection practices emphasize collection of past-due liabilities even where doing so inflicts unnecessary or disproportionate harm on taxpayers and jeopardizes future tax collection. “The conventional wisdom seems to be that more hard-core enforcement actions like liens and levies mean more revenue,” Ms. Olson said. “But the data don’t bear that out. Since FY 1999, the IRS has increased lien filings by about 475 percent and levies by about 600 percent, yet inflation-adjusted revenue raised by the IRS Collection function has actually declined by about seven percent over that period.”
Lien filings can badly damage a taxpayer’s financial viability because lien filings appear on credit reports, causing the taxpayer’s credit score to drop an average of about 100 points immediately and causing lasting harm because they typically remain on the taxpayer’s credit record for at least seven years. Many employers, mortgage companies, landlords, car dealerships, and credit card issuers check credit reports, so the filing of a tax lien can adversely affect the taxpayer’s ability to obtain and retain a job, purchase a home, rent an apartment, or obtain credit generally. Accordingly, a lien filing may reduce the taxpayer’s income or increase his expenses, thereby impairing his ability to pay tax in the future. Last year, the IRS filed nearly one million liens against taxpayers.
The report also notes that the IRS has issued at least four public statements over the past year-and-a-half pledging to assist financially struggling taxpayers who are having difficulty paying their tax bills. Yet the number of liens and levies has continued to rise, the number of offers-in-compromise the IRS is accepting is near an all-time low, and there is little evidence the IRS is changing its collection practices.
After publication of her 2009 Annual Report to Congress, Ms. Olson issued several Taxpayer Advocate Directives to the IRS on lien issues, including directives (i) to discontinue its policy of automatically filing tax liens in cases where the IRS has determined that the taxpayer’s account should be placed into “currently not collectible” status based on financial hardship and (ii) to require managerial approval for the filing of liens in cases where the taxpayer owns no assets. She has also urged the IRS to expand the availability of the offer-in-compromise program for financially struggling taxpayers who cannot reasonably pay their tax debts in full.
In response to these concerns, the IRS has convened a senior-level task force to conduct a comprehensive review of collection practices. Ms. Olson writes that she appreciates the IRS’s willingness to examine the issue. However, she remains concerned that it will take years to conduct the comprehensive review, and that in the interim, the IRS will continue both to damage taxpayers’ credit ratings and to undermine long-term tax compliance without any significant revenue gains to show for their actions. Accordingly, IRS collection practices will remain a key area of focus for TAS in FY 2011.
* * * * * * *
The National Taxpayer Advocate is required by statute to submit two annual reports to the House Committee on Ways and Means and the Senate Committee on Finance. The statute requires these reports to be submitted directly to the Committees without any prior review or comment from the Commissioner of Internal Revenue, the Secretary of the Treasury, the IRS Oversight Board, any other officer or employee of the Department of the Treasury, or the Office of Management and Budget. The first report is submitted mid-year and must identify the objectives of the Office of the Taxpayer Advocate for the fiscal year beginning in that calendar year. The second report, due on December 31 of each year, must identify at least 20 of the most serious problems encountered by taxpayers, discuss the ten tax issues most frequently litigated in the courts, and make administrative and legislative recommendations to resolve taxpayer problems.
About the Taxpayer Advocate Service
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. If you believe you are eligible for TAS assistance, you can reach TAS by calling the TAS toll-free number at 1–877–777–4778 or TTY/TDD 1-800-829-4059. For more information, go to www.irs.gov/advocate. You can learn about your rights and responsibilities as a taxpayer by visiting our tax toolkit at www.taxtoolkit.irs.gov. You can get updates on hot tax topics by visiting our YouTube channel at www.youtube.com/tasnta and our Facebook page at http://www.facebook.com/YourVoiceAtIRS, or by following our tweets at http://twitter.com/YourVoiceatIRS.
Business Expenses and Tax Deductions Explained – A 101 for Small Business Owners
“There may be liberty and justice for all, but there are tax breaks only for some” (Martin A. Sullivan, Economist).
Well, yes, if you know where to find them and apply them correctly.
For small business owners, these tax breaks often come in the form of tax deductions – which can offer a nice little instant cash savings – if you know how to navigate tax law and claim the deductions you deserve (not what you believe you are entitled to).
Large tax deductions are a notorious red flag for the IRS, with home-based businesses, in particular, facing an increase in tax audits due to suspicious deduction activity on income tax returns.
To help you navigate the complex world of business tax deductions, here is some foundational guidance that will help you take the deductions you deserve.
1. Understanding Terminology: Business Expenses vs. Capital Expenses
Before you even start, knowing the difference between these two tax concepts is vital.
- Business expenses are expenses associated with the cost of doing business, e.g. property rental costs, business travel, client entertainment, etc. If you are a for-profit, these expenses are usually tax deductible.
- Capital expenses are the costs associated with purchasing fixed business assets, such as property and equipment, and must be capitalized rather than deducted as expenses.
2. Common Business Expenses
Below are the most typical types of business expenses that qualify for deductions.
Car Expenses – To take the business deduction for the use of your car, you must determine what percentage of the vehicle was used for business. Deductible costs can include the cost of traveling from one workplace to another, making business trips to visit customers or to attend meetings, or traveling to temporary workplaces. Be sure to maintain complete mileage records. When it comes to claiming car expenses there are two methods:
a) Actual Expenses – Add your annual car operating expenses (including gas, oil, tires, repairs, license fees, lease payments, registration fees, insurance, and deprecation). Multiply the car operating expenses by the percentage of business usage to get your deductible expense. Business-related parking and road tolls are fully deductible and don’t have to be reduced by the percentage of business use.
b) Standard Mileage Rate – The standard rate changes each year, for 2010 it is:
- 50 cents per mile for business miles driven
- 16.5 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
Business Use of Your Home – If you use part of your home for your business, you may be able to deduct expenses for items such as mortgage interest, insurance, utilities, repairs, and depreciation. To qualify you must meet the following criteria:
a) The business part of your home must be used exclusively and regularly for your trade or business. However, there are exceptions for daycare facilities or storage of inventory/product samples.
b) The business part of your home must be:
- The principal place of business, or
- A place where you meet or deal with patients, clients, or customers in the normal course of your business, or
- A separate structure (not attached to your home) used in connection with your business
For a full explanation of tax deductions for your home office refer to Business Use of Your Home (IRS Publication 587) or take a look at this quick video on the Business.gov YouTube* channel to understand more about the home office business deduction*.
Entertainment Expenses – This includes any activity considered to provide entertainment, amusement or recreation. To be deductible, you must generally show that entertainment expenses (including meals) are directly related to, or associated with, the conduct of your business. Record keeping is essential – you will need to keep a history of the business purpose, the amount of each expense, the date and place of the entertainment, and the business relationship of the persons entertained. Entertainment expenses are usually subject to a 50 percent limit.
Travel Expenses – These are “ordinary” and “necessary” expenses while away from home when the primary purpose is conducting business. Again, you must keep all receipts and travel records for lodging, transportation and meals (save receipts for amounts of $75 or more). You can either track the actual costs of your meals, or use the standard meal allowance, if you qualify. You can only claim a deduction for 50 percent of the reimbursed cost of your meals. The IRS provides more detail on business travel expenses.
Gift Expenses – If you give gifts in the course of business, you can deduct all or part of the cost. Generally, you can deduct no more than $25 for business gifts you give directly or indirectly to each person during the tax year.
3. How to Deduct Capital Expenses
There are two ways to deduct capital expenses. You can "depreciate" them by deducting a portion of the total cost each year over an asset's useful life; or you might be able to deduct the cost in one year as a Section 179 deduction. For more information on depreciation refer to the Business.gov Small Business Expenses and Tax Deductions guide (scroll halfway down the page).
Well, yes, if you know where to find them and apply them correctly.
For small business owners, these tax breaks often come in the form of tax deductions – which can offer a nice little instant cash savings – if you know how to navigate tax law and claim the deductions you deserve (not what you believe you are entitled to).
Large tax deductions are a notorious red flag for the IRS, with home-based businesses, in particular, facing an increase in tax audits due to suspicious deduction activity on income tax returns.
To help you navigate the complex world of business tax deductions, here is some foundational guidance that will help you take the deductions you deserve.
1. Understanding Terminology: Business Expenses vs. Capital Expenses
Before you even start, knowing the difference between these two tax concepts is vital.
- Business expenses are expenses associated with the cost of doing business, e.g. property rental costs, business travel, client entertainment, etc. If you are a for-profit, these expenses are usually tax deductible.
- Capital expenses are the costs associated with purchasing fixed business assets, such as property and equipment, and must be capitalized rather than deducted as expenses.
2. Common Business Expenses
Below are the most typical types of business expenses that qualify for deductions.
Car Expenses – To take the business deduction for the use of your car, you must determine what percentage of the vehicle was used for business. Deductible costs can include the cost of traveling from one workplace to another, making business trips to visit customers or to attend meetings, or traveling to temporary workplaces. Be sure to maintain complete mileage records. When it comes to claiming car expenses there are two methods:
a) Actual Expenses – Add your annual car operating expenses (including gas, oil, tires, repairs, license fees, lease payments, registration fees, insurance, and deprecation). Multiply the car operating expenses by the percentage of business usage to get your deductible expense. Business-related parking and road tolls are fully deductible and don’t have to be reduced by the percentage of business use.
b) Standard Mileage Rate – The standard rate changes each year, for 2010 it is:
- 50 cents per mile for business miles driven
- 16.5 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
Business Use of Your Home – If you use part of your home for your business, you may be able to deduct expenses for items such as mortgage interest, insurance, utilities, repairs, and depreciation. To qualify you must meet the following criteria:
a) The business part of your home must be used exclusively and regularly for your trade or business. However, there are exceptions for daycare facilities or storage of inventory/product samples.
b) The business part of your home must be:
- The principal place of business, or
- A place where you meet or deal with patients, clients, or customers in the normal course of your business, or
- A separate structure (not attached to your home) used in connection with your business
For a full explanation of tax deductions for your home office refer to Business Use of Your Home (IRS Publication 587) or take a look at this quick video on the Business.gov YouTube* channel to understand more about the home office business deduction*.
Entertainment Expenses – This includes any activity considered to provide entertainment, amusement or recreation. To be deductible, you must generally show that entertainment expenses (including meals) are directly related to, or associated with, the conduct of your business. Record keeping is essential – you will need to keep a history of the business purpose, the amount of each expense, the date and place of the entertainment, and the business relationship of the persons entertained. Entertainment expenses are usually subject to a 50 percent limit.
Travel Expenses – These are “ordinary” and “necessary” expenses while away from home when the primary purpose is conducting business. Again, you must keep all receipts and travel records for lodging, transportation and meals (save receipts for amounts of $75 or more). You can either track the actual costs of your meals, or use the standard meal allowance, if you qualify. You can only claim a deduction for 50 percent of the reimbursed cost of your meals. The IRS provides more detail on business travel expenses.
Gift Expenses – If you give gifts in the course of business, you can deduct all or part of the cost. Generally, you can deduct no more than $25 for business gifts you give directly or indirectly to each person during the tax year.
3. How to Deduct Capital Expenses
There are two ways to deduct capital expenses. You can "depreciate" them by deducting a portion of the total cost each year over an asset's useful life; or you might be able to deduct the cost in one year as a Section 179 deduction. For more information on depreciation refer to the Business.gov Small Business Expenses and Tax Deductions guide (scroll halfway down the page).
Summertime Child Care Expenses May Qualify for a Tax Credit
Did you know that your summer day care expenses may qualify for an income tax credit? Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation. Those expenses may help you get a credit on next year’s tax return.
Here are five facts the IRS wants you to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the lazy hazy days of summer and throughout the rest of the year.
1. The cost of day camp may count as an expense towards the child and dependent care credit.
2. Expenses for overnight camps do not qualify.
3. If your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit.
4. The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income.
5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
For more information check out IRS Publication 503, Child and Dependent Care Expenses. This publication is available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Here are five facts the IRS wants you to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the lazy hazy days of summer and throughout the rest of the year.
1. The cost of day camp may count as an expense towards the child and dependent care credit.
2. Expenses for overnight camps do not qualify.
3. If your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit.
4. The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income.
5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
For more information check out IRS Publication 503, Child and Dependent Care Expenses. This publication is available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Friday, July 2, 2010
First-Time Homebuyer Credit Closing Deadline Extended to September 30, 2010
The deadline for the completion of qualifying First-Time Homebuyer Credit purchases has been extended. Taxpayers who entered into a binding contract before the end of April now have until September 30, 2010 to close on the home.
The Homebuyer Assistance and Improvement Act of 2010, enacted on July 2, 2010, extended the closing deadline from June 30 to Sept. 30 for eligible homebuyers who entered into a binding purchase contract on or before April 30 to close on the purchase of the home on or before June 30, 2010.
Here are five facts from the IRS about the First-Time Homebuyer Credit and how to claim it.
1. If you entered into a binding contract on or before April 30, 2010 to buy a principal residence located in the United States you must close on the home on or before September 30, 2010.
2. To be considered a first-time homebuyer, you and your spouse – if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.
3. To be considered a long-time resident homebuyer, your settlement date must be after November 6, 2009 and you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased.
4. The maximum credit for a first-time homebuyer is $8,000. The maximum credit for a long-time resident homebuyer is $6,500.
5. To claim the credit you must file a paper return and attach Form 5405, First Time Homebuyer Credit, along with all required documentation, including a copy of the binding contract. New homebuyers must attach a copy of the properly executed settlement statement used to complete the purchase. Long-time residents are encouraged to attach documentation covering the five-consecutive-year period such as Form 1098, Mortgage Interest Statements, property tax records or homeowner’s insurance records.
For more information about the First-Time Homebuyer Tax Credit and the documentation requirements, visit IRS.gov/recovery.
The Homebuyer Assistance and Improvement Act of 2010, enacted on July 2, 2010, extended the closing deadline from June 30 to Sept. 30 for eligible homebuyers who entered into a binding purchase contract on or before April 30 to close on the purchase of the home on or before June 30, 2010.
Here are five facts from the IRS about the First-Time Homebuyer Credit and how to claim it.
1. If you entered into a binding contract on or before April 30, 2010 to buy a principal residence located in the United States you must close on the home on or before September 30, 2010.
2. To be considered a first-time homebuyer, you and your spouse – if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.
3. To be considered a long-time resident homebuyer, your settlement date must be after November 6, 2009 and you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased.
4. The maximum credit for a first-time homebuyer is $8,000. The maximum credit for a long-time resident homebuyer is $6,500.
5. To claim the credit you must file a paper return and attach Form 5405, First Time Homebuyer Credit, along with all required documentation, including a copy of the binding contract. New homebuyers must attach a copy of the properly executed settlement statement used to complete the purchase. Long-time residents are encouraged to attach documentation covering the five-consecutive-year period such as Form 1098, Mortgage Interest Statements, property tax records or homeowner’s insurance records.
For more information about the First-Time Homebuyer Tax Credit and the documentation requirements, visit IRS.gov/recovery.
Closing Deadline Extended to Sept. 30 for Eligible Homebuyer Credit Purchases
Eligible taxpayers who contracted to buy a home, qualifying for the first-time homebuyer credit, before the end of April now have until Sept. 30, 2010 to close the deal, according to the Internal Revenue Service.
The Homebuyer Assistance and Improvement Act of 2010, signed by the President today, extended the closing deadline from June 30 to Sept. 30 for any eligible homebuyer who entered into a binding purchase contract on or before April 30 to close on the purchase of the home on or before June 30, 2010. The new law addresses concerns that many homebuyers might be unable to meet the original June 30 closing deadline.
The IRS reminds taxpayers that special filing and documentation requirements apply to anyone claiming the homebuyer credit. To avoid refund delays, those who entered into a purchase contract on or before April 30, but closed after that date, should attach to their return a copy of the pages from the signed contract showing all parties' names and signatures if required by local law, the property address, the purchase price, and the date of the contract.
Besides filling out Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, all eligible homebuyers must also include with their return one of the following documents:
• A copy of the settlement statement showing all parties' names and signatures if required by local law, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.
• For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price and date of purchase.
• For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.
Besides providing a tax benefit to first-time homebuyers and purchasers who haven’t owned homes in recent years, the law allows a long-time resident of the same main home to claim the credit if they purchase a new principal residence. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. Homebuyers claiming this credit can avoid refund delays by attaching documentation covering the five-consecutive-year period:
• Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
• Property tax records or
• Homeowner’s insurance records.
There are three options for claiming the credit on a qualifying 2010 purchase:
• If a 2009 return has not yet been filed, claim it on Form 1040 for tax-year 2009. Though these returns cannot be filed electronically, taxpayers can still use IRS Free File to prepare their return. The returns must be printed out and sent to the IRS, along with all required documentation. The IRS urges taxpayers claiming refunds to choose direct deposit.
• If a 2009 return has already been filed, claim it on an amended return using Form 1040X.
• Whether or not a 2009 return has been filed, wait until next year and claim it on a 2010 Form 1040.
More details on claiming the credit can be found in the instructions to Form 5405, as well as on the First-Time Homebuyer Credit page on IRS.gov.
The Homebuyer Assistance and Improvement Act of 2010, signed by the President today, extended the closing deadline from June 30 to Sept. 30 for any eligible homebuyer who entered into a binding purchase contract on or before April 30 to close on the purchase of the home on or before June 30, 2010. The new law addresses concerns that many homebuyers might be unable to meet the original June 30 closing deadline.
The IRS reminds taxpayers that special filing and documentation requirements apply to anyone claiming the homebuyer credit. To avoid refund delays, those who entered into a purchase contract on or before April 30, but closed after that date, should attach to their return a copy of the pages from the signed contract showing all parties' names and signatures if required by local law, the property address, the purchase price, and the date of the contract.
Besides filling out Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, all eligible homebuyers must also include with their return one of the following documents:
• A copy of the settlement statement showing all parties' names and signatures if required by local law, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.
• For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price and date of purchase.
• For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.
Besides providing a tax benefit to first-time homebuyers and purchasers who haven’t owned homes in recent years, the law allows a long-time resident of the same main home to claim the credit if they purchase a new principal residence. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. Homebuyers claiming this credit can avoid refund delays by attaching documentation covering the five-consecutive-year period:
• Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
• Property tax records or
• Homeowner’s insurance records.
There are three options for claiming the credit on a qualifying 2010 purchase:
• If a 2009 return has not yet been filed, claim it on Form 1040 for tax-year 2009. Though these returns cannot be filed electronically, taxpayers can still use IRS Free File to prepare their return. The returns must be printed out and sent to the IRS, along with all required documentation. The IRS urges taxpayers claiming refunds to choose direct deposit.
• If a 2009 return has already been filed, claim it on an amended return using Form 1040X.
• Whether or not a 2009 return has been filed, wait until next year and claim it on a 2010 Form 1040.
More details on claiming the credit can be found in the instructions to Form 5405, as well as on the First-Time Homebuyer Credit page on IRS.gov.
Thursday, July 1, 2010
IRS Requests Public Input on Expanded Information Reporting Requirement
The Internal Revenue Service today invited public comment on how to most effectively carry out a law change that, starting in 2012, will require businesses to report a wider range of payments to contractors, vendors and others, usually on Form 1099. These comments will help the IRS issue guidance that implements this provision in a manner that minimizes burden and avoids duplicate reporting.
Under a proposed regulation, many business purchases made with credit or debit cards would be exempt from the new reporting requirement because they are already reported by banks and other payment processors. The IRS seeks comments on additional circumstances in which duplicate reporting might otherwise occur and on rules that would prevent such duplicate reporting.
The change, enacted in March but not effective until 2012, expanded existing reporting requirements to include a business’s payments related to goods and other property, and payments to most corporations. With some exceptions, payments to corporations are currently exempt from this requirement.
There are three ways to submit comments.E-mail to:
• Notice.Comments@irscounsel.treas.gov. Include “Notice 2010-51" in the subject line.
• Mail to: Internal Revenue Service, CC:PA:LPD:PR ( Notice 2010-51), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
• Hand deliver to: CC:PA:LPD:PR ( Notice 2010-51), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.
The deadline is Sept. 29, 2010. Further details are in Notice 2010-51, posted today on IRS.gov.
Under a proposed regulation, many business purchases made with credit or debit cards would be exempt from the new reporting requirement because they are already reported by banks and other payment processors. The IRS seeks comments on additional circumstances in which duplicate reporting might otherwise occur and on rules that would prevent such duplicate reporting.
The change, enacted in March but not effective until 2012, expanded existing reporting requirements to include a business’s payments related to goods and other property, and payments to most corporations. With some exceptions, payments to corporations are currently exempt from this requirement.
There are three ways to submit comments.E-mail to:
• Notice.Comments@irscounsel.treas.gov. Include “Notice 2010-51" in the subject line.
• Mail to: Internal Revenue Service, CC:PA:LPD:PR ( Notice 2010-51), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
• Hand deliver to: CC:PA:LPD:PR ( Notice 2010-51), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.
The deadline is Sept. 29, 2010. Further details are in Notice 2010-51, posted today on IRS.gov.
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