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IRS SUMMERTIME TAX TIPS- Don’t Forget Those Pesky Misc Deductions

Don’t Overlook the Benefits of Miscellaneous Deductions

If you are able to itemize your deductions on your tax return instead of claiming the standard deduction, you may be able to claim certain miscellaneous deductions. A tax deduction reduces the amount of your taxable income and generally reduces the amount of taxes you may have to pay.

Here are some things you should know about miscellaneous tax deductions:

Deductions Subject to the 2 Percent Limit. You can deduct the amount of certain miscellaneous expenses that exceed 2 percent of your adjusted gross income. Deductions subject to the 2 percent limit include:

Unreimbursed employee expenses such as searching for a new job in the same profession, certain work clothes and uniforms, work tools, union dues, and work-related travel and transportation.
Tax preparation fees.
Other expenses that you pay to:
– Produce or collect taxable income,
– Manage, conserve, or maintain property held to produce taxable income, or
– Determine, contest, pay, or claim a refund of any tax.

Examples of other expenses include certain investment fees and expenses, some legal fees, hobby expenses that are not more than your hobby income and rental fees for a safe deposit box if it is not used to store jewelry and other personal effects.

Deductions Not Subject to the 2 Percent Limit. The list of deductions not subject to the 2 percent limit of adjusted gross income includes:

Casualty and theft losses from income-producing property such as damage or theft of stocks, bonds, gold, silver, vacant lots, and works of art.
Gambling losses up to the amount of gambling winnings.
Impairment-related work expenses of persons with disabilities.
Losses from Ponzi-type investment schemes.
Qualified miscellaneous deductions are reported on Schedule A, Itemized Deductions. Keep records of your miscellaneous deductions to make it easier for you to prepare your tax return when the filing season arrives.

There are also many expenses that you cannot deduct such as personal living or family expenses. You can find more information and examples in IRS Publication 529, Miscellaneous Deductions, which is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

Publication 529, Miscellaneous Deductions (PDF)
Tax Topic 508 – Miscellaneous Expenses
Schedule A Itemized Deductions (PDF)
Instructions for Schedule A (PDF)

This is Pretty Cool – The IRS Will Help With Your FAFSA Application

Automated IRS System Helps College-Bound Students with Financial Aid Application Process

College-bound students and their parents sometimes face last minute requests to complete or provide additional information for financial aid applications.

The Internal Revenue wants to help by minimizing time spent on the completion of the Department of Education’s Free Application for Federal Student Aid (FAFSA). By using the IRS Data Retrieval Tool, applicants can automatically transfer required tax data from their federal tax returns directly to their FAFSA form.

This IRS tool is a free, easy and secure way to access and transfer tax return information onto the FAFSA form. Using the tool saves time, improves accuracy and may reduce the likelihood of the school’s financial aid office requesting that you verify the information.

Here are some tips on using the IRS DRT:

Eligibility Criteria To use the IRS DRT to complete their 2012 -2013 FAFSA form, taxpayers must:
o have filed a federal 2011 tax return,
o possess a valid Social Security Number,
o have a Federal Student Aid PIN (individuals who don’t have a PIN will be given the option to apply for one through the FAFSA application process), and
o have not changed marital status since Dec. 31, 2011.

Exceptions If any of the following conditions apply to the student or parents, the IRS Data Retrieval Tool cannot be used for the 2012 FAFSA application:
o an amended tax return was filed for 2011,
o no federal tax return was filed for 2011,
o the federal tax filing status on the 2011 return is married filing separately or
o a Puerto Rican or other foreign tax return has been filed.

Applicants who cannot use the IRS DRT to meet college requests for verification, may need to obtain an official transcript from the IRS. Transcripts are not available until the IRS has processed the related tax return. To order tax return or tax account transcripts, visit IRS.gov and select “Order a Transcript” or call the toll-free Transcript line at 1-800-908-9946.

In addition, the IRS offers money-saving information for college students and their parents about tax credits and deductions for qualifying tuition, materials and fees.

Links:

Student’s Page – College Bound
Order a Transcript
IRS Tax Benefits for Education: Information Center
IRS Publication 970, Tax Benefits for Education

My Joy of Solitary Public Dinning

Yes, that’s me, the lady eating by herself.  No, I’m not waiting for friends or being stood up on a date. I chose to be here, all by myself… And it’s glorious.

Normally, and just like other service professionals,  I spend long days, nights and weekends taking care of, or preventing, other peoples problems. “We worry for you” isn’t  just a slogan, it’s a fact of life.

Really, and I’m being totally serious here, the questions, What can I get you?  How was that?  Can I get you something else?, well..they are just plain magical.  So magical in fact, sometimes they amaze me.

And it’s not only that. The whole darn process is satisfying.

First, there are so many wonderful venue choices-and the choice is all mine!  Better yet, if I want to go to the same place over and over- who cares?  I never have that irritating conversation with myself that starts, where do you want to go?  I don’t know, where do you want to go. I don’t care, what do you want to do? Argh- shoot me.

Next, I arrive and someone greets me.  “Can I help you?” Why yes, yes you can.

The smiling, friendly and eager hostess leads me to my own temporary little bubble of personal space, where she leaves me alone with a list of tasty and fun treats.  Of course, this magical piece of fine literature, from which I can choose anything I want, is the menu. No really, menu writing is a skill and a work of art if done correctly.

And, if all of this isn’t enough, someone is willing, nay, begging, to cook, clean and serve ME while I indulge in something I enjoy – completely stress free – like reading, catching up on the news, or even writing a blog post. I do imagine that heaven must be something like this.

I admit, sometimes people are a bit puzzled by my enjoyment of solitary “public” dinning. And yes, in my younger days, there was often that “one guy”  who just didnt think it was right for me to be alone and so wouldn’t go away.

But, as I’ve gotten older, that problem has faded sweetly and comfortably (for the most part) into the past, allowing for much cherished ME time.

When you think about it, here is a process that focuses totally on your wants and needs, no pressure to perform or entertain, and allows you the ability to do something you enjoy?  I mean really, need I say more?

Oh, and what does this have to do with a tax blog? Absolutely nothing.

Way Busy Here, But This IRS News is to Good to Pass Up – Unemployed? Can’t Pay Your Tax?

Tax

WASHINGTON — The Internal Revenue Service today announced a major expansion of its “Fresh Start” initiative to help struggling taxpayers by taking steps to provide new penalty relief to the unemployed and making Installment Agreements available to more people.

Under the new Fresh Start provisions, part of a broader effort started at the IRS in 2008, certain taxpayers who have been unemployed for 30 days or longer will be able to avoid failure-to-pay penalties. In addition, the IRS is doubling the dollar threshold for taxpayers eligible for Installment Agreements to help more people qualify for the program.

“We have an obligation to work with taxpayers who are struggling to make ends meet,” said IRS Commissioner Doug Shulman. ”This new approach makes sense for taxpayers and for the nation’s tax system, and it’s part of a wider effort we have underway to help struggling taxpayers.”

Penalty Relief

The IRS announced plans for new penalty relief for the unemployed on failure-to-pay penalties, which are one of the biggest factors a financially distressed taxpayer faces on a tax bill.

To assist those most in need, a six-month grace period on failure-to-pay penalties will be made available to certain wage earners and self-employed individuals. The request for an extension of time to pay will result in relief from the failure to pay penalty for tax year 2011 only if the tax, interest and any other penalties are fully paid by Oct. 15, 2012.

The penalty relief will be available to two categories of taxpayers:

  • Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for filing a federal tax return this year.
  • Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.

This penalty relief is subject to income limits. A taxpayer’s income must not exceed $200,000 if he or she files as married filing jointly or not exceed $100,000 if he or she files as single or head of household. This penalty relief is also restricted to taxpayers whose calendar year 2011 balance due does not exceed $50,000.

Taxpayers meeting the eligibility criteria will need to complete a new Form 1127A to seek the 2011 penalty relief. The new form is available on IRS.gov.

The failure-to-pay penalty is generally half of 1 percent per month with an upper limit of 25 percent. Under this new relief, taxpayers can avoid that penalty until Oct. 15, 2012, which is six months beyond this year’s filing deadline. However, the IRS is still legally required to charge interest on unpaid back taxes and does not have the authority to waive this charge, which is currently 3 percent on an annual basis.

Even with the new penalty relief becoming available, the IRS strongly encourages taxpayers to file their returns on time by April 17 or file for an extension. Failure-to-file penalties applied to unpaid taxes remain in effect and are generally 5 percent per month, also with a 25 percent cap.

Installment Agreements

The Fresh Start provisions also mean that more taxpayers will have the ability to use streamlined installment agreements to catch up on back taxes.

The IRS announced today that, effective immediately, the threshold for using an installment agreement without having to supply the IRS with a financial statement has been raised from $25,000 to $50,000. This is a significant reduction in taxpayer burden.

Taxpayers who owe up to $50,000 in back taxes will now be able to enter into a streamlined agreement with the IRS that stretches the payment out over a series of months or years. The maximum term for streamlined installment agreements has also been raised to 72 months from the current 60-month maximum.

Taxpayers seeking installment agreements exceeding $50,000 will still need to supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F). Taxpayers may also pay down their balance due to $50,000 or less to take advantage of this payment option.

An installment agreement is an option for those who cannot pay their entire tax bills by the due date. Penalties are reduced, although interest continues to accrue on the outstanding balance. In order to qualify for the new expanded streamlined installment agreement, a taxpayer must agree to monthly direct debit payments.

Taxpayers can set up an installment agreement with the IRS by going to the On-line Payment Agreement (OPA) page on IRS.gov and following the instructions.
These changes supplement a number of efforts to help struggling taxpayers, including the “Fresh Start” program announced last year. The initiative includes a variety of changes to help individuals and businesses pay back taxes more easily and with less burden, including the issuance of fewer tax liens.

“Our goal is to help people meet their obligations and get back on their feet financially,” Shulman said.

Input from the Internal Revenue Service Advisory Council and the IRS National Taxpayer Advocate’s office contributed to the formulation of Fresh Start.

Offers in Compromise

Under the first round of Fresh Start, the IRS expanded a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers. An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.

The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place more common-sense changes to the OIC program to more closely reflect real-world situations.

For example, the IRS has more flexibility with financial analysis for determining reasonable collection potential for distressed taxpayers.

Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.

Details on IRS Collection and Other Information

A series of eight short videos are available to familiarize taxpayers and practitioners with the IRS collection process. The series “Owe Taxes? Understanding IRS Collection Efforts”, is available on the IRS website, www.irs.gov.

The IRS website has a variety of other online resources available to help taxpayers meet their payment obligations:

IRS YouTube Video: Fresh Start: English

IRS Podcast: Fresh Start: English

Tax Tips – What Employers Need to Know About Claiming the Small Business Health Care Tax Credit

Many small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for the small business health care tax credit. This credit can enable small businesses and small tax-exempt organizations to offer health insurance coverage for the first time. It also helps those already offering health insurance coverage to maintain the coverage they already have. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ 25 or fewer workers with average income of $50,000 or less.

Here is what small employers need to know so they don’t miss out on the credit for tax year 2010:

  • Hurricane Irene, Tropical Storm Lee and other recent disaster-related tax relief postponed certain tax filing and payment deadlines to Oct. 31, 2011. Qualifying businesses affected by these natural disasters still have time to file and claim the small employer health care credit on Form 8941 and claim it as part of the general business credit on Form 3800, which they would include with their tax return. For more information on the disaster relief visit IRS.gov.
  • Sole proprietors who file Form 1040, Partners and S-corporation shareholders who report their income on Form 1040 and had requested an extension have until Oct. 17 to complete their returns. They would also use Form 8941 to calculate the small employer health care credit and claim it as a general business credit on Form 3800, reflected on line 53 of Form 1040.
  • Tax-exempt organizations that file on a calendar year basis and requested an extension to file to Nov. 15 can use Form 8941 and then claim the credit on Form 990-T, Line 44f.
  • Businesses who have already filed can still claim the credit. For small businesses that have already filed and later determine they are eligible for the credit, they can always file an amended 2010 tax return. Corporations use Form 1120X and individual sole proprietors use Form 1040X.
  • Businesses that couldn’t use the credit in 2010 may be eligible to claim it in future years. Some businesses that already locked into health insurance plan structures and contributions for 2010 may not have had the opportunity to make any needed adjustments to qualify for the credit for 2010. So these businesses may be eligible to claim the credit on 2011 returns or in years beyond. Small employers can claim the credit for 2010 through 2013 and for two additional years beginning in 2014.

For tax years 2010 to 2013, the maximum credit for eligible small business employers is 35 percent of premiums paid and for eligible tax-exempt employers the maximum credit is 25 percent of premiums paid. Beginning in 2014, the maximum tax credit will go up to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible tax-exempt organizations.

Additional information about eligibility requirements and calculating the credit can be found on the Small Business Health Care Tax Credit for Small Employers page of IRS.gov.

Links:

HeLp fOr PeOpLe iN DiSaStEr SiTuAtIoNS

"Elk Bath" – A wildfire in the Bitte...

Help in Disaster Situations

Reprinted from the IRS

Tax Relief for Victims of Aug. 30 Wildfires in Texas

Updated 9/29/11 to include Anderson, Caldwell, Fayette, Henderson, Hill and Rusk counties.
Updated 9/27/11 to include Harrison, Smith and Upshur counties.
Updated 9/20/11 to include Cass and Marion counties.
Updated 9/19/11 to include Gregg, Grimes, Montgomery, Walker and Waller counties.
Updated 9/15/11 to include Colorado, Houston, Leon, Travis and Williamson counties.

TX-2011-64, Sept. 12, 2011

HOUSTON — Victims of wildfires that began on Aug. 30, 2011 in parts of Texas may qualify for tax relief from the Internal Revenue Service.

The President has declared the following counties a federal disaster area: Anderson, Bastrop, Caldwell, Cass, Colorado, Fayette, Gregg, Grimes, Harrison, Henderson, Hill, Houston, Leon, Marion, Montgomery, Rusk, Smith, Travis, Upshur, Walker, Waller and Williamson. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Aug. 30 and on or before Oct. 31 have been postponed to Oct. 31. This includes corporations and other businesses that previously obtained an extension until Sept. 15 to file their 2010 returns, and individuals and businesses that received a similar extension until Oct. 17. It also includes the estimated tax payment for the third quarter, normally due Sept. 15.

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Aug. 30 and on or before Sept. 14, 2011, as long as the deposits were made by Sept. 14, 2011.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Oct. 31 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Aug. 30 and on or before Oct. 31.

The IRS also gives affected taxpayers until Oct. 31 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Aug. 30 and on or before Oct. 31.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Aug. 30 and on or before Sept. 14 provided the taxpayer made these deposits by Sept. 14.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Texas/Wildfires” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information

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Tax Relief for Victims of Hurricane Irene in Puerto Rico

Updated 9/29/11 to add the municipalities of Adjuntas, Ciales, Guaynabo.Updated 9/13/11 to add the municipalities of Fajardo, Gurabo, Las Piedras, Naguabo, Naranjito, Río Grande, San Lorenzo, Trujillo Alto, Vega Baja, Vieques and Villalba.Updated 9/6/11 to add the municipalities of Arroyo, Aguas Buenas, Cidra, Coamo, Comerio, Humacao, Jayuya, Juncos, Orocovis, Patillas and Ponce.

SP-FL-2011-14, Aug. 30, 2011

MIAMI — Victims of Hurricane Irene that began on Aug. 21, 2011 in parts of Puerto Rico may qualify for tax relief from the Internal Revenue Service.

The President has declared the following municipalities a federal disaster area: Adjuntas, Arroyo, Aguas Buenas, Caguas, Canóvanas, Carolina, Cayey, Cidra, Ciales, Coamo, Comerío, Fajardo, Guaynabo, Gurabo, Humacao, Jayuya, Juncos, Las Piedras, Loíza, Luquillo, Naguabo, Naranjito, Orocovis, Patillas, Ponce, Río Grande,  San Juan, San Lorenzo, Trujillo Alto, Vega Baja, Vieques and Villalba. Individuals who reside or have a business in these municipalities may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Aug. 21, and on or before Oct. 31, have been postponed to Oct. 31, 2011. This includes corporations and other businesses that previously obtained an extension until Sept. 15 to file their 2010 returns, and individuals and businesses that received a similar extension until Oct. 17. It also includes the estimated tax payment for the third quarter, normally due Sept. 15.

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Aug. 21, and on or before Sept. 6, as long as the deposits are made by Sept. 6, 2011.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The municipalities listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Oct. 31 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Aug. 21 and on or before Oct. 31.

The IRS also gives affected taxpayers until Oct. 31 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after Aug. 21 and on or before Oct. 31.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after Aug. 21 and on or before Sept. 6 provided the taxpayer makes these deposits by Sept. 6.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.
Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation “Puerto Rico/Hurricane Irene” at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS website, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information

SP-FL-2011-14SP, Alivio Tributario a Víctimas del Huracán Irene en Puerto Rico
Disaster Assistance and Emergency Relief for Individuals and Businesses
Recent IRS Disaster Relief Announcements

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Tax Relief for Victims of Tropical Storm Lee in Pennsylvania

Updated 9/27/11 to include Berks, Bucks, Chester, Delaware, Montgomery, Northampton and Philadelphia counties.PA-34-2011, Sept. 13, 2011PHILADELPHIA — Victims of Tropical Storm Lee that began on Sept. 3, 2011 in parts of Pennsylvania may qualify for tax relief from the Internal Revenue Service.

The President has declared the following counties a federal disaster area: Adams, Berks, Bradford, Bucks, Chester, Columbia, Cumberland, Dauphin, Delaware, Lancaster, Lebanon, Luzerne, Lycoming, Montgomery, Montour, Northampton, Northumberland, Perry, Philadelphia, Schuylkill, Snyder, Sullivan, Susquehanna, Union, Wyoming and York. Individuals who reside or have a business in these counties may qualify for tax relief.

The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Sept. 3, and on or before Oct. 31, have been postponed to Oct. 31, 2011. This includes corporations and other businesses that previously obtained an extension until Sept. 15 to file their 2010 returns, and individuals and businesses that received a similar extension until Oct. 17. It also includes the estimated tax payment for the third quarter, normally due Sept. 15.

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Sept. 3, and on or before Sept. 19, as long as the deposits are made by Sept. 19, 2011.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The counties listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Lions and Tigers and IRS Notices Oh My

Mug shot of Wesley Snipes.

Open Your Tax Notices

By Stacie Kitts, CPA

Once upon a time, a long time ago, I knew a taxpayer who was afraid to open correspondence from the IRS and accumulated a pile of letters hoping it would all go away.  It didn’t and bad things happened.

If you receive correspondence, open it right away while there is still time to do something about it.

Most of the time correspondence from the IRS is no big deal – you forgot to report some investment income, or you made an estimated tax payment a little later than your were supposed to so you owe some interest.

Honestly, I can’t think of many things you should be worried about when the IRS comes a-callin unless…..

  • You’re a crook and you know it
  • You don’t have advisers or you don’t listen to them
  • Someone was feeding you a line that was to good to be true.  Wesley Snipes is a good example of what not to believe.  Mr Snipes failed to file several years of tax returns based on the advice of shyster tax preparer and is now serving time in jail.

Getting a letter from the IRS informing you of an audit of your tax return can be distressing.  And let’s face it, even if you did everything hunky dory, it can be costly to have someone represent you.

There are things you can do ahead of time to help mitigate the cost of an audit should you win that lottery.

  • Choose the right tax preparer.  Do your research and make sure they are qualified to help you
  • Have your accountant look over your accounting records before the end of each tax year.
  • If you have a business, make sure you give details of your accounting transactions to your preparer. (full general ledger detail)
  • Do some tax planning with your tax professional
  • Keep records of your income and deductions organized and easy to find
  • During the audit process – provide your representative the requested information timely and as organized as possible.  Messy records are not going to help you and will likely drive up the cost of the audit.

The IRS published the following points they think you should know if you receive a notice.

  1. Don’t panic. Many of these letters can be dealt with simply and painlessly.
  2. There are number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
  3. Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry.
  4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
  5. If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
  6. If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the lower left part of the notice. Allow at least 30 days for a response.
  7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right corner of the notice. Have a copy of your tax return and the correspondence available when you call.
  8. It’s important that you keep copies of any correspondence with your records.

Not All Giving is Deductible

Stacie Kitts, CPA is a partner at Katherman Kitts & Co. LLP

On occasion I run across a taxpayer who “helped” out a family or a friend and wants to deduct the money given as a charitable contribution.  They are always shocked to find out that helping your neighbor isn’t tax deductible unless its through a charitable organization.

Charity is good, but if you want to deduct it, be sure to check out the items below.

If you make a donation to a charity this year, you may be able to take a deduction for it on your 2011 tax return. Here are the top nine things the IRS wants every taxpayer to know before deducting charitable donations.

  1. Make sure the organization qualifies Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization or check IRS Publication 78, Cumulative List of Organizations. It is available at www.IRS.gov.
  2. You must itemize Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
  3. What you can deduct You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
  4. When you receive something in return If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.
  5. Recordkeeping Keep good records of any contribution you make, regardless of the amount. For any cash contribution, you must maintain a record of the contribution, such as a cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity containing the date and amount of the contribution and the name of the organization.
  6. Pledges and payments Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, you can only deduct $200.
  7. Donations made near the end of the year Include credit card charges and payments by check in the year you give them to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.
  8. Large donations For any contribution of $250 or more, you need more than a bank record. You must have a written acknowledgment from the organization. It must include the amount of cash and say whether the organization provided any goods or services in exchange for the gift. If you donated property, the acknowledgment must include a description of the items and a good faith estimate of its value. For items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attach the form to your return. If you claim a deduction for a contribution of noncash property worth more than $5,000, you generally must obtain an appraisal and complete Section B of Form 8283 with your return.
  9. Tax Exemption Revoked Approximately 275,000 organizations automatically lost their tax-exempt status recently because they did not file required annual reports for three consecutive years, as required by law. Donations made prior to an organization’s automatic revocation remain tax-deductible. Going forward, however, organizations that are on the auto-revocation list that do not receive reinstatement are no longer eligible to receive tax-deductible contributions.

For the list of organizations whose tax-exempt status was revoked, visit www.IRS.gov. For general information see IRS Publication 526, Charitable Contributions, and for information on determining value, refer to Publication 561, Determining the Value of Donated Property. These publications are available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Links:

Fixing Your Tax Return If You Messed It Up

By Stacie Kitts, CPA

So you filed your tax return and now you’ve discovered that it’s all wrong or you simply forgot to include something.  Not to fret, there is a way to fix it all up.

Ultimately, the IRS will “fix” it for you if you forget to add a W2 or a Form 1099.  However, if you wait for the IRS to find and correct the error, and you owe additional tax, they are going to charge you interest on the taxes that are due until you pay them.  If you are going to owe a large amount of tax, you should consider filing an amended return and paying what you owe as soon as possible.

The Form you use to amend your return is Form 1040X.  Be sure to read the instructions carefully before you begin to complete this form.

You are required to explain the reason for the amendment and the effect on the tax return – there is a place for this on the form.  Plus, additional attachments will likely be required to be filed with the Form 1040X including updated / corrected Form 1040, the originally filed Form 1040 and associated schedules.

 Here are ten facts from the Internal Revenue Service about amending your federal tax return:

  1. When to amend a return You should file an amended return if your filing status, your dependents, your total income or your deductions or credits were reported incorrectly.
  2. When NOT to amend a return  In some cases, you do not need to amend your tax return.  The IRS usually corrects math errors or requests missing forms – such as W-2s or schedules – when processing an original return.  In these instances, do not amend your return. [ya, I don’t completely agree with this – see my comments above]
  3. Form to use Use Form 1040X, Amended U.S. Individual Income Tax Return, to amend a previously filed Form 1040, 1040A or 1040EZ.  Make sure you check the box for the year of the return you are amending on the Form 1040X. Amended tax returns cannot be filed electronically.
  4. Multiple amended returns If you are amending more than one year’s tax return, prepare a 1040X for each return and mail them in separate envelopes to the appropriate IRS processing center.
  5. Form 1040X The Form 1040X has three columns. Column A shows original figures from the original return (if however, the return was previously amended or adjusted by IRS, use the adjusted figures). Column C shows the corrected figures. The difference between Column A and C is shown in Column B.  There is an area on the back of the form to explain the specific changes and the reason for the change.
  6. Other forms or schedules If the changes involve other schedules or forms, attach them to the Form 1040X.
  7. Additional refund If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X.  You may cash that check while waiting for any additional refund.
  8. Additional tax If you owe additional tax, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges.
  9. When to file Generally, to claim a refund, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
  10. Processing time Normal processing time for amended returns is 8 to 12 weeks.

IRS Patrol – New: Surviving Spouses to Benefit from Portability Election; Estate Tax Return Required to Make this Choice For Some, Form 706 Due as Early as Oct. 3

Kilkenny Castle

Katherman Kitts & Co. LLP Protect Your Castle

By Stacie Kitts

Folks – here is info on the new portability election eliminating the need for spouses to retitled property and create trusts solely to take advantage of each spouses exclusion amount.  Read on…..

IR-2011-97, Sept. 29, 2011

WASHINGTON — The Internal Revenue Service today reminded estates of married individuals dying after 2010 that they must file an estate tax return to pass along their unused estate & gift tax exclusion amount to their surviving spouse.

Available for the first time this year, the new portability election allows estates of married taxpayers to pass along the unused part of their exclusion amount, normally $5 million in 2011, to their surviving spouse. Enacted last December, this provision eliminates the need for spouses to retitle property and create trusts solely to take full advantage of each spouse’s exclusion amount.

The IRS expects that most estates of people who are married will want to make the portability election, including people who are not required to file an estate tax return for some other reason. The only way to make the election is by properly and timely filing an estate tax return on Form 706. There are no special boxes to check or statements needed to make the election.

The first estate tax returns for estates eligible to make the portability election (because the date of death is after Dec. 31, 2010) are due as early as Monday, Oct. 3, 2011. This is because the estate tax return is due nine months after the date of death. Estates unable to meet this deadline can request an automatic six-month filing extension by filing Form 4768. The IRS emphasized that estates of those who died before 2011 are not eligible to make this election.

The IRS plans to issue regulations providing further guidance on this election and welcomes public comment on a number of issues. There are three ways to submit comments:

  • E-mail to: Notice.Comments@irscounsel.treas.gov. Include “Notice 2011-82” in the subject line.
  • Mail to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2011-82), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
  • Hand deliver to: CC:PA:LPD:PR (Notice 2011-82), 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 Oct. 31, 2011. Further details are in Notice 2011-82, posted today on IRS.gov.

Tax Deductions for Unemployed Persons Looking For Work

By Stacie Kitts, CPA

There are so many people looking for work, I agree it’s was a good idea to remind people that there is a tax deduction waiting for taxpayers.  Although – I think some of the restrictions here are totally bogus as it applies to this economy.  I think the restrictions should be lifted. But that’s just my opinion.

Here are seven 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 you incur while looking for a job in a new occupation. [This restriction irks me. Rather than wasting away on unemployment, any attempt to get a job should be rewarded]
  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. [In this economy, I think this restriction is stupid also]
  6. You cannot deduct job search expenses if you are looking for a job for the first time. [Okay well maybe I can go along with this one]
  7. The amount of job search expenses that you can claim on your tax return is limited. You can claim the amount that is more than 2 percent of your adjusted gross income.  You figure your deduction on Schedule A. [bogus – these should not be limited – all attempts to find employment – again in this economy – in my opinion should be fully deductible]

For more information about job search expenses, see IRS Publication 529, Miscellaneous Deductions. This publication is available on www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

IRS Patrol – 2010 Form 8939 is Due Nov. 15; Reporting Option Applies to Many Large Estates

Seal of the Internal Revenue Service

Katherman Kitts & Co. LLP

WASHINGTON – The Internal Revenue Service issued guidance today on the treatment of basis for certain estates of decedents who died in 2010.  The guidance assists executors who are making the choice to opt out of the estate tax and have the carryover basis rules apply.  Form 8939, the basis allocation form required to be filed by executors opting out of the estate tax, is due Nov. 15, 2011.

Under the guidance issued today, an executor must file Form 8939, Allocation of Increase in Basis for Property Acquired from a Decedent, to opt out of the estate tax and have the new carryover basis rules apply. The IRS expects to issue Form 8939 and the related instructions early this fall.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax was repealed for persons who died in 2010. However, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reinstated the estate tax for persons who died in 2010. This recent law allows executors of the estates of decedents who died in 2010 to opt out of the estate tax, and instead elect to be governed by the repealed carry-over basis provisions of the 2001 Act. This choice is to be made by filing Form 8939.

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