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Have You Been a Bad Bad Taxpayer? No Worries California is Willing to Give You a Break

August 3, 2011 8:28 pm / 1 Comment on Have You Been a Bad Bad Taxpayer? No Worries California is Willing to Give You a Break

Even if you have been a bad taxpayer, California is willing to give you a break.

Voluntary Compliance Initiative 2 (VCI 2) is an opportunity for taxpayers who underreported their California income tax liabilities, through the use of abusive tax avoidance transactions (ATAT) or offshore financial arrangements (OFA), to amend their returns for 2010 and prior tax years and obtain a waiver of most penalties.

Filing period: August 1, 2011 to October 31, 2011

Applicable tax years: 2010 and prior

Eligibility

You are eligible to participate in VCI 2 if you (or one of your related entities):

  • Filed a tax return that underreported your income or tax liability through the use of an ATAT or OFA.

You are eligible even if you:

  • Are currently under FTB examination for an ATAT or OFA.
  • Are currently under administrative protest or appeal for an ATAT or OFA.
  • Participated in the IRS’s Offshore Voluntary Disclosure Initiative.

Participation

You must take the following steps to participate:

  1. File a completed Participation Agreement form with us between August 1, 2011 and October 31, 2011.
  2. Attach the form to your amended return to report all income from all sources, without regard to the ATAT and including all income from the OFA.
  3. Pay all tax and interest by October 31, 2011. See payment options for more information.

Benefits

Participation in VCI 2 will allow you to avoid:

  • The cost of litigation.
  • Certain penalties and the associated interest.
  • Criminal prosecution.

Penalties

You can avoid the following penalties under VCI 2:

  • Noneconomic Substance Transaction Understatement Penalty
  • Accuracy Related Penalty
  • Interest Based Penalty
  • Fraud Penalty

If you are eligible but do not participate, you will be subject to the full range of penalties and interest, and may be subject to criminal prosecution.

The Large Corporate Understatement Penalty (LCUP) and the Amnesty Penalty cannot be waived under this initiative.

Tax Stuff to Know When Your Son or Daughter Takes a Summer Job

August 3, 2011 7:37 pm / Leave a comment

Here are six things the IRS wants students to be aware of when they start a summer job.

1. When you first start a new job you must fill out a Form W-4, Employee’s Withholding Allowance Certificate. 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, 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 www.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 tips you receive are taxable income and are therefore subject to federal income tax.

3. Many students do odd jobs over the summer to make extra cash. Earnings you receive from self-employment – including jobs like baby-sitting and lawn mowing – are subject to income tax.

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:

  •  You are in the business of delivering newspapers.
  •  All your pay for these services directly relates to sales rather than to the number   of hours worked.
  •  You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.

 

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