Her are a list of tax scams that taxpayer need to be awre of during tax season
According to the IRS taxpayers should be careful and avoid falling into a trap with the scam artist. “Scam artists will tempt people in-person, on-line and by e-mail with misleading promises about lost refunds and free money. Don’t be fooled by these scams.”

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. The IRS Criminal Investigation Division works closely with the Department of Justice to shutdown scams and prosecute the criminals behind them.

The following is a list of popular tax scams that taxpayers should be aware of.

Identity Theft
In response to growing identity theft concerns, the IRS has embarked on a comprehensive strategy that is focused on preventing, detecting and resolving identity theft cases as soon as possible. In addition to the law-enforcement crackdown, the IRS has stepped up its internal reviews to spot false tax returns before tax refunds are issued as well as working to help victims of the identity theft refund schemes.
An IRS notice informing a taxpayer that more than one return was filed in the taxpayer’s name or that the taxpayer received wages from an unknown employer may be the first tip off the individual receives that he or she has been victimized. Anyone who believes his or her personal information has been stolen and used for tax purposes should immediately contact the IRS Identity Protection Specialized Unit. For more information, visit the special identity theft page at www.IRS.gov/identitytheft

Phishing
Phishing is a scam typically carried out with the help of unsolicited email or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft. If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

It is important to keep in mind the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

Return Preparer Fraud
About 60 percent of taxpayers will use tax professionals this year to prepare and file their tax returns. Most return preparers provide honest service to their clients. But as in any other business, there are also some who prey on unsuspecting taxpayers.

Questionable return preparers have been known to skim off their clients’ refunds, charge inflated fees for return preparation services and attract new clients by promising guaranteed or inflated refunds. Taxpayers should choose carefully when hiring a tax preparer. Federal courts have issued hundreds of injunctions ordering individuals to cease preparing returns, and the Department of Justice has pending complaints against many others.

In 2012, every paid preparer needs to have a Preparer Tax Identification Number (PTIN) and enter it on the returns he or she prepares.

Here are some of the clues to watch for when you are dealing with an unscrupulous return preparer would include that they:

• Do not sign the return or place a Preparer Tax identification Number on it.


• Do not give you a copy of your tax return.


• Promise larger than normal tax refunds.


• Charge a percentage of the refund amount as preparation fee.


• Require you to split the refund to pay the preparation fee.


• Add forms to the return you have never filed before.


• Encourage you to place false information on your return, such as false income, expenses and/or credits.

Hiding Income Offshore
Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice to prosecute tax evasion cases.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting and disclosure requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Free Money” from the IRS & Tax Scams Involving Social Security
Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.

Scammers prey on low income individuals and the elderly. They build false hopes and charge people good money for bad advice. In the end, the victims discover their claims are rejected. Meanwhile, the promoters are long gone. The IRS warns all taxpayers to remain vigilant.

There are a number of tax scams involving Social Security. For example, scammers have been known to lure the unsuspecting with promises of non-existent Social Security refunds or rebates. In another situation, a taxpayer may really be due a credit or refund but uses inflated information to complete the return.

Beware. Intentional mistakes of this kind can result in a $5,000 penalty.

False/Inflated Income and Expenses
Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular scam. Claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions. This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.

Additionally, some taxpayers are filing excessive claims for the fuel tax credit. Farmers and other taxpayers who use fuel for off-highway business purposes may be eligible for the fuel tax credit. But other individuals have claimed the tax credit when their occupations or income levels make the claims unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.

False Form 1099 Refund Claims
In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return. In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS.

Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

Frivolous Arguments
Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

Falsely Claiming Zero Wages
Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.

Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any variations of this scheme. Filing this type of return may result in a $5,000 penalty.

Abuse of Charitable Organizations and Deductions
IRS examiners continue to uncover the intentional abuse of 501(c)(3) organizations, including arrangements that improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or the income from donated property. The IRS is investigating schemes that involve the donation of non-cash assets –– including situations in which several organizations claim the full value of the same non-cash contribution. Often these donations are highly overvalued or the organization receiving the donation promises that the donor can repurchase the items later at a price set by the donor. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and set new standards for qualified appraisals.

Disguised Corporate Ownership
Third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business.

These entities can be used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering, and financial crimes. The IRS is working with state authorities to identify these entities and bring the owners into compliance with the law.

Misuse of Trusts
For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.

IRS personnel have seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.

Merry Christmas

Christmas Laughter by Nikki Giovanni

My family is very small
Eleven of us
three are over 80
Three are over 60
Three are over 50
Two of us are sons


Come Labor Day the quilts
are taken from the clean white sheets
in which they summered


We seldom have reason
and need no excuse
to polish the good silver
wash the tall stemmed glasses
and invite one another
into our homes


We win at Bid Whist
and lose at Canasta
and eat the lightest miniautre Parker House rolls
and the world's best
five cheese macaroni and cheese
I grill the meat
Mommy boils the beans


Come first snow the apple cider
with nutmeg...cloves...cinnamon...
and just a hint of ginger
brews every game day and night


We have no problem

luring

Santa Claus

down

our chimney


He can't resist



The laughter

Expiring Tax Cuts Affecting Individuals

With all the talk about whether to extend the payroll tax cut, many people are over looking many other tax provisions for both individuals and businesses that are set to expire.

Higher Education Expenses: After 2011, the above-the-line deduction for qualified higher education expenses won't be available, so you'd better claim it now. Taxpayers with adjusted gross incomes of up to $65,000 for singles and $130,000 for couples can claim the maximum deduction: $4,000. The deduction applies to fees and tuition paid by students enrolled in an institution of higher learning during 2011 or during the first three months of 2012.

Mortgage Insurance Premiums: Before year's end, homeowners with joint adjusted gross incomes of less than $109,000 can deduct the cost of their mortgage insurance. Afterwards, they can't.

Adoption Credits: Under a program that expires Jan. 1, parents of adopted children can claim a credit against their federal income tax of up to $13,360for each adopted child (for qualified expenses). If the expenses have been paid for by an employer, they can exclude up to $13,360 form their gross income.

Sales Tax: Planning to buy a big-ticket item? Buy it now, if you're somebody who doesn't have to pay state and local income taxes (a retired public employee, for instance). Up to now, such people have had the option of deducting sales taxes to reduce their federal income tax. After the new year, however, they won't. This deductin is important to residents of Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennesse, Wyoming and Washington.

Classroom Materials: Are you a K-12 teacher, instructor, principal or aide? Have you worked in a school for at least 900 hours during the school year? If so, you can claim an above-the-line deduction of up to $250 for any expenses you have paid out of pocket for books, computer equipment, supplies or supplementary materials used in the classroom. Next year, however, you won't be able to: The deduction vanishes.

Energy Efficiency Upgrades: Taxpayers who plan on going green to improve their home's energy efficiency can claim a credit of 10 percent for the cost, up to a maximum of $500. You can, for example, add insulation to your attic, install insulated windows or buy an energy-efficient air conditioner or furnace. You should retain the receipts and any certification by the manufacturer that your property meets the requirements for the credit. Be advised: This is a one-time deal: If you claim credit for an upgrade this year, you won't be able to claim it next.

IRA Contributions: People 701/2 years old (or older) can get a special break for charitable giving, but only if they act before the break expires Dec. 31. Senior donors who have a traditional IRA (or other tax-deferred retirement plan) can give their distribution -- up to $100,000 -- to a qualified charity, excluding it from income. By so doing, they will have satisfied their distribution requirement without owing taxes. The move is especially advantageous, tax experts say, for seniors who don't itemize.

AMT Patch: This break, which expires annually, was created by Congress to save taxpayers from having to pay the Alternative Minimum Tax (AMT), a flat 28 percent rate imposed on high-earners. The AMT dates back to the Nixon era, when the Treasury Department, to its horror, discovered that many of the wealthy were paying nothing. Under the AMT, anyone earning more than a set amount was forbidden from claiming certain deductions and was potentially subject to the 28 percent rate. Problem is, there was no provision made for adjusting that set amount for inflation. As a result, decades of inflation have put more and more people of relatively modest means into the 28 percent bracket. Rather than change the law and peg the AMT's threshold to inflation, Congress has opted every year to raise the threshold. This re-adjusted amount is the so-called patch, the latest of which is now due to expire at the end of December. It's $72,450 for a married couple filing jointly, and $47,450 for a single filer. Congress certainly will enact a new patch for next year, because to do otherwise could be politically suicidal: the threshold would automatically drop to what it was in the 1960s, catapulting millions of Americans into the higher bracket, not a good move in an election year. What can you do to avoid the AMT? In the long run nothing. But if you are in danger of exceeding the patch this year, you can take steps to defer the tax bite to the next.
You could, for instance, defer payment of some of your state or city taxes until next year: your property taxes, say. Likewise, you could defer income until next year. Doing either could keep you below the threshold.

Click here for a list of all expiring federal tax provisions.

Financial Statement objectives

This`post represent the first in a series of posts that will focus on financial statement analysis. The topics will cover the various areas of financial analysis such as current liquidity, capital structure, funds flow and profit and loss analysis.

Financial statement analysis is the process of applying various analytical tools and techniques to the financial statements of an organization. The purpose of this analysis is to determine significant relationships from business transactions that are not necessarily apparent in the financial statements.

Financial analysis can be used as a preliminary screening tool in the selection of merger candidates. It can be used as a forecasting tool of future results by individual and institutional investors. It can also used as an evaluation tool by corporate management. A key element of financial analysis is to eliminate the reliance on guesswork, hunches or intuition in the decision making process.

In order to understand financial statement analysis, we must first examine the analytical objectives of some of the users of financial statements such as creditors, equity investors, management, auditors and merger analysts.

Creditors are providers of either short term or long term financing to an organization. Trade creditors are providers of very short term credit for the purchase of goods or services and usually expect to be paid within 30 to 90 days. Banks can be thought of the more traditional lenders of short term an long term financing. Another method of credit financing is through the sale of corporate bonds in the securities market. Creditor used financial analysis to asses the existence and reliability of resources to ensure the repayment of principal and interest on loans,

Equity investors are providers of capital to an organization. Since equity investors represent owners in the enterprise equity capital is exposed to all the risks of ownership and provides a cushion to the loan capital that is senior to it. Equity capital or residual interest is what remains after the claims of creditors, bondholders and preferred stockholders have been satisfied during the liquidation process. Therefore, the financial data needs of equity investors are the most comprehensive because their investment is affected by all aspects of the enterprise such as operations, profitability, financial condition, and capital structure.

The objectives of management in financial statement analysis is to asses the organization's financial condition, profitability, and cash flow. management has a number of methods, tools and techniques available to it in monitoring and keeping up with the ever changing business environment.

The objectives of acquisition and merger analysts are in many ways similar to those of the equity investor except that the analysis of the enterprise focuses primarily on the acquisition of an enterprise. Acquisition analysis will stress the valuation of assets including intangible assets such as goodwill, and the liabilities included in the acquisition or merger plan.

Homeowner Energy Tax Credits

Homeowners still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits.

The Nonbusiness Energy Property Credit is aimed at homeowners installing energy efficient improvements such as insulation, new windows and furnaces. The credit is more limited than in the past years, but can still provide substantial tax savings.

The 2011 credit rate is 10 percent of the cost of qualified energy efficiency improvements. Energy efficiency improvements include adding insulation, energy-efficient exterior windows and doors and certain roofs. The cost of installing these items does not count.

The credit can also be claimed for the cost of residential energy property, including labor costs for installation. Residential energy property includes certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass fuel.

The credit has a lifetime limit of $500, of which only $200 may be used for windows. If the total of nonbusiness energy property credits taken in prior years since 2005 is more than $500, the credit may not be claimed in 2011.

Qualifying improvements must be placed into service to the taxpayer’s principal residence located in the United States before January 1, 2012.
Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment.

The credit equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property.

No cap exists on the amount of credit available except for fuel cell property.

Generally, labor costs are included when figuring this credit.
Not all energy-efficient improvements qualify for these tax credits, so homeowners should check the manufacturer’s tax credit certification statement before they purchase. Taxpayers can normally rely on this certification statement which can usually be found on the manufacturer’s website or with the product packaging.

Eligible homeowners can claim both of these credits on Form 5695, Residential Energy Credits when they file their 2011 federal income tax return. Because these are credits and not deductions, they reduce the amount of tax owed dollar for dollar. An eligible taxpayer can claim these credits regardless of whether he or she itemizes deductions on Schedule A.

Thanksgiving Time
by Langston Hughes (1921)

When the night winds whistle through the trees and blow the crisp brown leaves a-crackling down,
When the autumn moon is big and yellow-orange and round,
When old Jack Frost is sparkling on the ground,
It’s Thanksgiving Time!

When the pantry jars are full of mince-meat and the shelves are laden with sweet spices for a cake,
When the butcher man sends up a turkey nice and fat to bake,
When the stores are crammed with everything ingenious cooks can make,
It’s Thanksgiving Time!

When the gales of coming winter outside your window howl,
When the air is sharp and cheery so it drives away your scowl,
When one’s appetite craves turkey and will have no other fowl,
It’s Thanksgiving Time!

Online Sales Tax

A bill creating the first national legislation for states to collect online sales tax will become law next year according to Senator Richard Durbin. Sentor Durbin, who is co-sponsoring the bill with nine other senators from both parties, said he wants to hold a Senate committee hearing, possibly before Christmas on the measure. Senator Lamar Alexander, who is also a co-sponsor of the bill, has been trying for years to overturn the court decision legislatively. He predicted that the bill would pass Congress because it is a bipartisan endeavor and is more flexible than previous efforts. The bill is similar to legislation introduced last month in the House.

The bill, called the Marketplace Fairness Act, would enable state and local governments to collect an estimated $23 billion in tax revenue each year for online, catalog and other so-called remote sales.

Currently, if an online retailer has a physical presence in a particular state, such as a store, business office, or warehouse, it must collect sales tax from customers in that state. If a business does not have a physical presence in a state, it is not required to collect sales tax for sales in that state. This rule is derived from a 1992 Supreme Court decision, Quill v North Dakota, which held that mail-order merchants did not need to collect sales taxes for sales into states where they did not have a physical presence.

Consumers who live in a state that collects sales tax are technically required to pay the tax to the state even when an Internet retailer doesn't collect it. When consumers are required to pay tax directly to the state, it is referred to as "use" tax rather than sales tax.

The only difference between sales and use tax is which person -- the seller or the buyer -- pays the state. Theoretically, use taxes are just a backup plan to make sure that the state collects revenue on every taxable item that is purchased within its borders. But because collecting use tax on smaller purchases is so much trouble, states have traditionally attempted to collect a use tax only on big-ticket items that require licenses, such as cars and boats.

The severe economic problems of many state and local governments have forced many state legislators to develop new methods of raising revenue without raising personal, business or real estate taxes. As a result, online sale tax seems to be viewed as a source of untapped revenue.

But as online retailing has grown over the last decade, states have been trying to solve the problem on their own by expanding the definition of physical presence to include third-party affiliates, typically in-state websites that earn commissions by providing links to Amazon and other out-of-state retailers

Amazon, which has fought such efforts in other states such as Hawaii, Rhode Island, North Carolina, and many other states has agreed to begin collecting sales tax in Septenber 2012 as a a compromise with Califirnia. The compromise Amazon struck with California was that California’s tax would take effect on September 15, 2012 only if the federal government does not pass a federal online tax measure.

Ebay which opposes the Market Fairness Act has stated "this is another Internet sales tax bill that fails to protect small business retailers using the Internet and will unbalance the playing field between giant retailers and small business competitors. It does not make sense to expand Internet sales tax burdens on small businesses at a time when we want entrepreneurs to create jobs and economic activity.”

Happy 4th of July

Have a safe and happy July 4th.

President Obama picks fight on taxes

With a sputtering economy and shrinking revenues president Obama is renewing his fight with the business community by insisting on 400 million dollars in tax increases be part of a defecit reduction package. Many of the president's proposal have been blocked by both parties in Congress.

Some would raise big money. Limiting tax deductions for high-income families and small business owners could raise more than $200 billion over the next decade. Others are more symbolic, such as scaling back a tax break for companies that buy corporate jets.

The corporate jet proposal would raise $3 billion over the next decade, according to GOP congressional aides. That's a relatively small sum in the big scheme of Washington budgets, but Obama and Democrats call attention to it repeatedly in their effort to portray Republicans as defenders of corporate fat cats. While Democrats have attempted to characterize their proposals as revenue raisers or plugging tax loopholes, GOP leaders oppose them all, arguing that raising taxes in a bad economy would only make matters worse.

The president stated earilier this week that "If we choose to keep those tax breaks for millionaires and billionaires, if we choose to keep a tax break for corporate jet owners, if we choose to keep tax breaks for oil and natural gas companies that are making hundreds of billions of dollars then that means we've got to cut some kids off from getting a college scholarship, that means we've got to stop funding certain grants for medical research, that means that food safety may be compromised, that means that Medicare has to bear a greater part of the burden."

The White House has identified about $600 billion in tax increases it wants over the next decade. About $400 billion of them were offered as part of deficit-reduction talks led by Vice President Joe Biden. That would be paired with more than $1 trillion in spending cuts. Sopme of the proposals are:

limiting deductions for high-income families and small businesses could raise anywhere between $210 billion and $290 billion, depending on what threshold is established as high income.

eliminate $41 billion in tax breaks for oil and natural gas companies.
raise taxes on investment fund managers by $21 billion.

change the way many businesses value their inventories for tax purposes this could raise an additional 70 billion over the next decade.

Associated Press

HAPPY NEW YEAR

IRS Announces That Some Taxpayers May Need To Wait Until Mid February To File Tax Returns

The Internal Revenue Service (IRS) has announced that the upcoming tax season will start on time for most people, but taxpayers affected by three recently reinstated deductions need to wait until mid- to late February to file their individual tax returns. In addition, taxpayers who itemize deductions on Form 1040 Schedule A will need to wait until mid- to late February to file as well.

According to the IRS Commissioner Doug Shulman. “We will do everything we can to minimize the impact of recent tax law changes on other taxpayers. The IRS will work through the holidays and into the New Year to get our systems reprogrammed and ensure taxpayers have a smooth tax season.”

If you are in one of the following situations then you will need to wait until mid to late February to file your return.

Claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction which was extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 that was enacted on Dec. 17. The sales tax deduction primarily benefits people living in states that do not have state or local income taxes.

Claiming the Higher Education Tuition and Fees Deduction. This deduction is for parents and students and covers up to $4,000 of tuition and fees paid to a post-secondary institution. You must use Form 8917 in order to claim this deduction. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.

Claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16

Tax Deductions For The Unemployed

This article was originally posted last year while unemployment was hovering around 10%. What a difference a year makes because as of November 2010 unemployment is at 9.8%. So I thought this post would be appropriate for the unemployed.

Job search expenses can be deducted as miscellaneous itemized tax deductions if you look for a job in the same field at the same level as the one you left. The job search expenses are deductible even if you don't get the job.

You can deduct job-seeking expenses as long as the amount of all miscellaneous itemized tax deductions is more than 2% of your adjusted gross income (AGI). To figure your tax deduction, subtract 2% of your AGI from the total amount of these expenses. Job search expense deductions are also subject to the overall limitation on itemized deductions based on income threshold amounts.

To qualify, your job search must be for a job in your current, or most recent, trade or business and should be at a similar level of responsibility with duties similar to those of your most recent job.

• If you haven't held a job in that trade or business for an extended length of time, your job search will be considered for a new trade or business, and your deductions may not be allowed.



• If you held a college internship or valid job while in college and your search is for a job in the same trade or business, you will be able to deduct job search expenses.



• If you're just out of school and had no paying jobs while in school that were related to your trade or business, your deductions won't be allowed.

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. Also, If your employer pays the fees directly to the employment agency and you are not responsible for them, you do not include them in your gross income.

You can deduct amounts you spend for preparing and mailing copies of a resume to prospective employers as long as you are looking for a new job in your present occupation. Cost for preparing resumes includes typing, printing, postage, long-distance charges, advertising, and photographs required for your resume.

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.

If you are receiving unemployment compensation, these amounts are considered taxable income. You will receive Form 1099-G showing the amount you were paid and any federal income tax you elected to have withheld. If you did not elect to have any taxes withheld from your unemployment compensation you may be faced with an unexpected tax burden.

If you were employer either filed bankruptcy or went out of business here is some information you should know. Your employer must provide you with a Form W-2 showing your wages and withholdings by January 31 of the following year. You should keep up-to-date records or pay stubs until you receive your Form W-2. If your employer or its representatives fails to provide you with a Form W-2 by February 15, contact the IRS in order to obtain a substitute Form W-2. If your employer is liquidating your 401(k) plan, you have 60 days to roll it over to another qualified retirement plan or IRA.

Highlights Of The New Tax Package

After all the fighting among the Democrats and Republicans, President Obama has extended the Bush Tax Cuts for another two years for a cost of 868 billion dollars. Below is a list of some of the provisions.

*Lower rates for taxpayers at every income level. The top rate, on taxable income above $379,150, would stay at 35 percent, instead of increasing to 39.6 percent. The bottom rate, on taxable income below $8,500 for individuals and $17,000 for married couples, would stay at 10 percent, instead of increasing to 15 percent. Cost: $186.8 billion.

*More generous itemized deductions for high-income households. Cost: $20.7 billion.

*A more generous $1,000 child tax credit. Cost: $71.7 billion.

*Marriage penalty relief, increasing the standard deduction for married couples. Cost: $18 billion.

*A more generous Earned Income Tax Credit for low-income families. Cost: $15.7 billion.

*A series of tax breaks for students and their families, including interest deduction for student loans and an exemption for employer-provided educational assistance. Cost: $3.3 billion.

*A deduction for tuition and related expenses for higher education, for 2010 and 2011. Cost: $1.2 billion.

A tax credit of up to $2,500 for students' higher education expenses. Cost: $17.6 billion.

*The top capital gains tax rate of 15 percent. Cost: $25.9 billion.

*The top tax rate on dividends of 15 percent. Cost: $27.3 billion.

*Through 2011, enhanced jobless benefits for people who have been unemployed for long stretches. Cost: $56.5 billion.

*A series of incentives for selling, using and producing alternative fuels, including ethanol. Many of the provisions expired at the end of 2009. They would be extended through 2011. Cost: $11.3 billion.

*A $250 deduction for out-of-pocket classroom expenses by teachers, for 2010 and 2011. Cost: $390 million.

*A federal income tax deduction for state and local sales taxes, taken mostly by people who live in the nine states without state income taxes, for 2010 and 2011. Cost: $5.5 billion.

*The ability of older Americans to withdraw up to $100,000 a year from Individual Retirement Accounts, tax-free, to donate to certain public charities, for 2010 and 2011. Cost: $979 million.

*A business tax credit for research and experimentation expenses, for 2010 and 2011. Cost: $13.3 billion.

*Tax breaks for capital improvements to restaurants and other retail buildings, for 2010 and 2011. Cost: $3.6 billion.

*A tax break for active investors in foreign-based banking, securities and insurance firms, for 2010 and 2011. Cost: $9.2 billion.

*Increased depreciation and expensing for capital investments by businesses. Cost: $21.8 billion.

*Spares more than 20 million middle-income households from tax increases averaging $3,900 from the Alternative Minimum Tax in 2010 and 2011. Cost: $136.7 billion.

*Imposes a lower estate tax for the next two years, allowing couples to pass estates as large as $10 million to heirs tax-free. The balance would be taxed at 35 percent. Cost: $68.1 billion.

*Provides a one-year Social Security tax cut for all wage earners, from 6.2 percent to 4.2 percent. Cost: $112 billion.

Bush Tax Cuts: Estate Tax

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) otherwise known as the Bush Tax Cuts made sweeping changes to wealth transfer taxation. The act gradually phased out the estate and generation-skipping transfer (GST) taxes and completely eliminated both in 2010, leaving only the gift tax (at a reduced rate) in that year. After 2010 the estate, gift, and GST taxes return in full force under the rules that existed before the 2001 act.

The Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death. The total of all of these items is your "Gross Estate." The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.

After the net amount is computed, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit. Presently, the amount of this credit reduces the computed tax so that only total taxable estates and lifetime gifts that exceed $1,000,000 will actually have to pay tax. In its current form, the estate tax only affects the wealthiest 2 percent of all Americans.

Most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections, or jointly held property) do not require the filing of an estate tax return. A filing is required for estates with combined gross assets and prior taxable gifts exceeding $1,500,000 in 2004 - 2005; $2,000,000 in 2006 - 2008; and $3,500,000 effective for decedents dying on or after January 1, 2009.

Year End Financial Planning Moves

I decided to repost this article since it appears that the Bush Tax cuts will be extended for another two years and unemployment is still around 9.6%. 2010 remained a tough year financially for many Americans. Despite the fact that the econmic data has indicated that the US economy has turned the corner and is out of the Great Reccession. You could not turn on the news with out hearing about business closures, layoffs, and foreclosures. Lets be honest, between lost jobs, shrunken paychecks and disappearing bonuses it's been a time of more pain, less gain. But the year is not over and there are tax-savvy moves you can still make to pull some financial cheer out of an otherwise dreary 2010.

Gather Your Stock Market Losses.

Almost everything you own and use for personal or investment purposes is a capital asset. Examples are your home, household furnishings, and stocks or bonds held in your personal account. When you sell a capital asset, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. Capital gains and losses are classified as long–term or short–term. If you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed against ordinary income is $3,000. In what's often called tax loss harvesting, investors can sell assets that have generated large losses in after-tax accounts and use those losses to offset taxable income or even future gains. The losses can be used to offset capital gains as well as up to $3,000 of regular income each year. Any amount exceeding the $3,000 threshold can be carried forward to offset gains in the following year. IRS rules allow an investor to buy the asset back after 31 days — and still claim the tax loss.

Donate to a Charity

There are many people and organizations in need today, so it's a good time to review your charitable donations for the year. Donations can take the form of cash, electronics, cars, jewelry, paintings, stocks, real estate or clothing. Any donation of $250 or more requires a receipt as documentation. Property valued at more than $5,000 requires a written appraisal confirming its fair market value. There are also dollar limits: cash contributions cannot exceed 50% of adjusted gross income while property donations cannot top 30% of AGI. Contributions that exceed these limits can be carried over to the following tax year. President Obama has proposals on the table to put further limits on deductions for charitable contributions as a means of raising cash to cover the country's swelling deficit and health care reforms. So, taxpayers may want to max out their charitable contributions this year while limits are still generous.

Go For Energy Efficiency

Going green can offer a pretty nice payback at tax time. The IRS is offering tax credits to individuals and businesses that make or use energy or energy-efficient products in 2009 and 2010. But you have to spend in 2010 to take the credit against this year's taxes. A homeowner buying energy-efficient windows, doors, water heaters or biomass stoves, and those purchasing insulation, metal or reflective asphalt roofs and solar-energy systems can receive credits of 30% of the cost up to $1,500 in total. People purchasing geothermal heat pumps, solar panels and wind generators can get credits of 30% (up to $1,500) for each item through 2016. People buying plug-in hybrid electric cars can get tax credits of between $2,500 and $7,500.

Bush Tax Cuts Explained Part 2

28 more days before the Bush Tax cuts expire, and the House has passed an extension for middle class taxpayers whose incomes are under $250,000. The senate must still vote on the tax cuts, and the president must sign the bill before the tax cuts can take effect. With that being said lets continue to examine what are the Bush tax cuts and what were those changes that has caused so much debate

Alternative Minimum Tax Credit
The Alternative Minimum Tax (AMT)was created in 1969. The purpose was to ensure that everyone especially the most affluent pays at least some tax. The problem with the AMT is that its tax rates are based upon 1969 incomes. As a result, according to the Tax Policy Center, 46% of households with incomes between $75,000 and $100,000 will be subject to the AMT tax by 2010. What the Bush tax cuts attempted to do was to raise the exemptions rates so that fewer taxpayers would be forced into the amt system.

Dependent Care Credit
The Bush Tax Cuts increased the percentage and the amounts of the child and dependent care credit. The 35 percent maximum percentage and $3,000/$6,000 maximum credit effective since 2003 would revert in 2011 to a 30 percent maximum percentage and $2,400/$4,800 maximum credit - again, unadjusted for intervening inflation since 2003. The employer-provided child care credit is also scheduled to sunset in 2011.

Education IRAs
The Taxpayer Relief Act of 1997, allowed a taxpayer to establish an Education IRA, a trust or custodial account to pay a single named beneficiary's qualified education expenses (QEEs). Annual contributions were limited to $500 per beneficiary per year. The annual contribution limit was phased out for single filers with $95,000-$110,000 of modified AGI (MAGI) ($150,000-$160,000 if MFJ). Contributions had to end when the beneficiary reached age 18.

Under the Bush Tax Changes, the maximum annual contribution to an Education IRA is increased to $2,000, accounts may now also be used for elementary and secondary education expenses, whether incurred in a public, private or religious school. Additional amendments:

* End the MAGI-limit marriage penalty.

* Permit contributions for special-needs beneficiaries over age 18, and their accounts to continue after age 30.

* Include entities as contributors.

* Lengthen the contribution period until the return due date.

* Extend the time for returning excess contributions.

Employer-provided Educational Assistance
This change makes the $5,250 annual exclusion for employer-provided educational assistance permanent for both undergraduate and graduate courses, effective for tax years beginning in 2002. The current provision was due to expire for courses beginning after 2001.

Student Loan Interest
This new tax law modified the deduction for student loan interest. The new law repeals both the (1) limit on the number of months of interest for which a deduction can be taken and (2) nondeductibility of voluntary interest payments.

Further, the income phaseout ranges for eligibility for the deduction were increased from $50,000 to $65,000 for single taxpayers, and from $100,000 to $130,000 for MFJ taxpayers; these ranges are adjusted annually for inflation after 2002.

Qualified Higher Education Expense Deduction
Under this change, taxpayers are permitted an above-the-line deduction for qualified higher education expenses (QHEEs), defined as under the Hope credit. In 2002 and 2003, taxpayers with AGI that does not exceed $65,000 ($130,000 MFJ) can deduct up to $3,000 of QHEEs per year. The deduction does not phase out; it is lost completely when the AGI threshold is reached.

In 2004 and 2005, the deduction increases to a $4,000 maximum at those same levels of AGI; taxpayers with AGI of $60,000-$80,000 ($130,000-$160,000 MFJ) can take a maximum $2,000 deduction. Special rules bar use of the deduction in conjunction with the Hope or Lifetime Learning credit, an Education IRA distribution or a distribution of earnings from a qualified tuition plan.

Bush Tax Cuts Explained Part 1

One of the most talked about discussions in the weeks before and after the elections are whether the Bush Tax Cuts should be extended for all individuals or extended for only those individuals who earn less than $250,000 a year. Looking at the economy and the millions of people who are out of work, I thought it might be beneficial to examine what were the Bush Tax Cuts since politicians and the news only provide soundbites and no real detail.

The Bush Tax Cuts were part of the Economic Growth Reconciliation Act in 2001 and the Jobs Growth and Reconciliation Tax Relief Act in 2003. HEre nis a statement from the administration in 2003 on passing the tax cuts "we need tax relief totaling at least $550 billion to make sure our economy grows, and American workers and American businesses need every bit of that relief now so that people who want to find a job can find one." Doesn't this statement sound familiar. Hmm.

New Tax Rates
The first set of tax cuts in 2001 essentially lowered the tax rates for individuals, and created a new 10% bracket.
the 15% bracket's lower threshold was indexed to the new 10% bracket
the 28% bracket would be lowered to 25%.
the 31% bracket would be lowered to 28%.
the 36% bracket would be lowered to 33%.
the 39.6% bracket would be lowered to 35%.

Marriage Penalty Relief
The Bush tax cuts in many cases lowered the taxes on married couples filing jointly by increasing the standard deduction for married filing joint (MFJ) filers to between 174% and 200% of the deduction for single filers. The effect of this change was to give the married filing joint filer a standard deduction of twice that of a single filer. The tax rates were also adjusted to remove the penalty. These changes are in effect until December 31, 2010.

Itemized Deduction Phaseout Repeal
Prior to the Bush tax cuts, taxpayers with adjusted gross income in excess of a threshold ($132,950 for 2001, $66,475 if MFS) had to reduce their otherwise allowable itemized deductions by three percent of the excess, limited to 80% of the itemized deductions subject to disallowance. If no extension is passed, then the phase out will resume at incomes above $122,500.

Personal Exemption phaseout
Prior to the Bush Tax cuts, personal exemptions were phased out by two percent by which adjusted gross income (AGI) exceeds a threshold. In 2001, a couple MFJ begins to lose the benefit of personal exemptions at $199,450 of AGI ($132,950 single, $166,200 HOH, $99,725 MFS). The benefit of exemptions is totally lost at $321,950 if MFJ.

Child Tax Credit
One major provision that will expire at the end of 2010 is the child tax credit, which doubled from $500 to $1,000 per child. Unless Congress votes to extend the child tax credit, the maximum amount will revert back to $500 for tax year 2011, and the number of families eligible for that amount will be much less as tougher eligibility standards that existed prior to 2001 will go back into effect.

Families with more than two children are allowed an additional refundable credit to the extent the excess of their Social Security tax over their earned income credit is greater than the otherwise allowable refundable credit. Further, the refundable credit will no longer be reduced by AMT. Lastly, the refundable child credit will no longer be deemed income or support for purposes of computing welfare benefits financed with Federal funds. Beginning in 2002, the full child credit will be allowable against both regular tax and AMT.

Capital Gains/Qualified Dividends
The maximum tax rate on long-term capital gains and qualified dividends were also reduced to 15%, with lower income filers facing a 0% tax rate. The sunset provisions would move the capital gains rate back to a maximum of 20%, and qualified dividends would resume being taxed at the regular tax rate of the filer, or as high as 39.6%Taxes on capital gains and dividends will increase, potentially costing investors an estimated $35 billion annually.

Adoption Tax Cedit
The adoption tax credit, currently $5,000 per child ($6,000 for special-needs children) was made permanent and increased to $10,000 for tax years beginning after 2001; it can be used to offset Alternative Mininum Taxes (AMT). For the adoption of a special-needs child after 2001, the $10,000 credit is allowable regardless of whether the taxpayer incurs any adoption-related expenses.

Tax Tips For Engaged or Newlywed Couples

If you recently got married or are planning a wedding, the last thing on your mind is taxes. However, there are some important steps you need to take to avoid stress at tax time. Here are five tips for newlyweds to keep in mind.

1. Notify the Social Security Administration. Report any name change to the Social Security Administration, so your name and Social Security Number will match when you file your next tax return. Otherwise, the IRS will reject your tax return and delay any refund you might be entitled to. Informing the SSA of a name change is quite simple. File a Form SS-5, Application for a Social Security Card, at your local SSA office. The form is available on SSA’s website at www.socialsecurity.gov, by calling 800-772-1213 or at local offices.


2. Notify the IRS. If you have a new address. You should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 from IRS.gov or order it by calling 800–TAX–FORM (800–829–3676).


3. Notify the U.S.Postal Service. You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence.


4. Notify Your Employer. Report any name and address changes to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.


5. Check Your Withholding. If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on IRS.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will even provide you with a new Form W-4, Employee's Withholding Allowance Certificate, you can print out and give to your employer so they can withhold the correct amount from your pay.
   
   
   

I Haved Moved My Blog

Hello All,


I am creating a new blog titled Personal Finance and Taxes. The purpose of this blog is to expand my readership to people who are interested in personal finance as well as taxes. My older posts can be found at http://www.taxobserved.blogspot.com/