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IRS Special Edition Tax Tip 2013-09: IRS Warns Donors about Charity Scams Following Recent Tragedies in Boston and Texas
It’s sad but true. Following major disasters and tragedies, scam artists impersonate charities to steal money or get private information from well-intentioned taxpayers. Fraudulent schemes involve solicitations by phone, social media, email or in-person.
Scam artists use a variety of tactics. Some operate bogus charities that contact people by telephone to solicit money or financial information. Others use emails to steer people to bogus websites to solicit funds, allegedly for the benefit of tragedy victims. The fraudulent websites often mimic the sites of legitimate charities or use names similar to legitimate charities. They may claim affiliation with legitimate charities to persuade members of the public to send money or provide personal financial information. Scammers then use that information to steal the identities or money of their victims.
The IRS offers the following tips to help taxpayers who wish to donate to victims of the recent tragedies at the Boston Marathon and a Texas fertilizer plant:
- Donate to qualified charities. Use the Exempt Organizations Select Check tool at IRS.gov to find qualified charities. Only donations to qualified charitable organizations are tax-deductible. You can also find legitimate charities on the Federal Emergency Management Agency (FEMA) Web site at fema.gov.
- Be wary of charities with similar names. Some phony charities use names that are similar to familiar or nationally known organizations. They may use names or websites that sound or look like those of legitimate organizations.
- Don’t give out personal financial information. Do not give your Social Security number, credit card and bank account numbers and passwords to anyone who solicits a contribution from you. Scam artists use this information to steal your identity and money.
- Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the donation.
- Report suspected fraud. Taxpayers suspecting tax or charity-related fraud should visit IRS.gov and perform a search using the keywords “Report Phishing.”
More information about tax scams and schemes is available at IRS.gov using the keywords “scams and schemes.”
IRS Special Edition Tax Tip 2013-08: Protect Yourself from the Dirty Dozen Tax Scams
The IRS’s annual ‘Dirty Dozen’ list includes common tax scams that often peak during the tax filing season. The IRS recommends that taxpayers be aware so they can protect themselves against claims that sound too good to be true. Taxpayers who buy into illegal tax scams can end up facing significant penalties and interest and even criminal prosecution.
The tax scams that made the Dirty Dozen list this filing season are:
Identity Theft. Tax fraud through the use of identity theft tops this year’s Dirty Dozen list. Combating identity theft and refund fraud is a top priority for the IRS. The IRS’s ID theft strategy focuses on prevention, detection and victim assistance. During 2012, the IRS protected $20 billion of fraudulent refunds, including those related to identity theft. This compares to $14 billion in 2011. Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should immediately contact the IRS so the agency can take action to secure their tax account. If you have received a notice from the IRS, call the phone number on the notice. You may also call the IRS’s Identity Protection Specialized Unit at 800-908-4490. Find more information on the identity protection page on IRS.gov.
Phishing. Phishing typically involves an unsolicited email or a fake website that seems legitimate but lures victims into providing personal and financial information. Once scammers obtain that information, they can commit identity theft or financial theft. 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. If you receive an unsolicited email that appears to be from the IRS, send it to phishing@irs.gov.
Return Preparer Fraud. Although most return preparers are reputable and provide good service, you should choose carefully when hiring someone to prepare your tax return. Only use a preparer who signs the return they prepare for you and enters their IRS Preparer Tax Identification Number (PTIN). For tips about choosing a preparer, visit www.irs.gov/chooseataxpro.
Hiding Income Offshore. One form of tax evasion is hiding income in offshore accounts. This includes using debit cards, credit cards or wire transfers to access those funds. While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements taxpayers need to fulfill. Failing to comply can lead to penalties or criminal prosecution. Visit IRS.gov for more information on the Voluntary Disclosure Program.
“Free Money” from the IRS & Tax Scams Involving Social Security. Beware of scammers who prey on people with low income, the elderly and church members around the country. Scammers use flyers and ads with bogus promises of refunds that don’t exist. The schemes target people who have little or no income and normally don’t have to file a tax return. In some cases, a victim may be due a legitimate tax credit or refund but scammers fraudulently inflate income or use other false information to file a return to obtain a larger refund. By the time people find out the IRS has rejected their claim, the promoters are long gone.
Impersonation of Charitable Organizations. Following major disasters, it’s common for scam artists to impersonate charities to get money or personal information from well-intentioned people. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds. Taxpayers need to be sure they donate to recognized charities.
False/Inflated Income and Expenses. Falsely claiming income you did not earn or expenses you did not pay in order to get larger refundable tax credits is tax fraud. This includes false claims for the Earned Income Tax Credit. In many cases the taxpayer ends up repaying the refund, including penalties and interest. In some cases the taxpayer faces criminal prosecution. In one particular scam, taxpayers file excessive claims for the fuel tax credit. Fraud involving the fuel tax credit is a frivolous claim and can result in a penalty of $5,000.
False Form 1099 Refund Claims. In this scam, the perpetrator files a fake information return, such as a Form 1099-OID, to justify a false refund claim.
Frivolous Arguments. Promoters of frivolous schemes advise taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These are false arguments that the courts have consistently thrown out. 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, scammers use a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 to improperly reduce taxable income to zero. Filing this type of return can result in a $5,000 penalty.
Disguised Corporate Ownership. Scammers improperly use third parties form corporations that hide the true ownership of the business. They help dishonest individuals underreport income, claim fake deductions and avoid filing tax returns. They also facilitate money laundering and other financial crimes.
Misuse of Trusts. There are legitimate uses of trusts in tax and estate planning. But some questionable transactions promise to reduce the amount of income that is subject to tax, offer deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits. They primarily help avoid taxes and hide assets from creditors, including the IRS.
For more on the Dirty Dozen, see IRS news release IR-2013-33.
Additional IRS Resources:
IRS YouTube Videos:
IR-2013-22: Parents and Students: Check Out College Tax Benefits for 2012 and Years Ahead
WASHINGTON — The Internal Revenue Service today reminded parents and students that now is a good time to see if they qualify for either of two college education tax credits or any of several other education-related tax benefits.
In general, the American opportunity tax credit, lifetime learning credit and tuition and fees deduction are available to taxpayers who pay qualifying expenses for an eligible student. Eligible students include the primary taxpayer, the taxpayer’s spouse or a dependent of the taxpayer.
Though a taxpayer often qualifies for more than one of these benefits, he or she can only claim one of them for a particular student in a particular year. The benefits are available to all taxpayers – both those who itemize their deductions on Schedule A and those who claim a standard deduction. The credits are claimed on Form 8863 and the tuition and fees deduction is claimed on Form 8917.
The American Taxpayer Relief Act, enacted Jan. 2, 2013, extended the American opportunity tax credit for another five years until the end of 2017. The new law also retroactively extended the tuition and fees deduction, which had expired at the end of 2011, through 2013. The lifetime learning credit did not need to be extended because it was already a permanent part of the tax code.
For those eligible, including most undergraduate students, the American opportunity tax credit will yield the greatest tax savings. Alternatively, the lifetime learning credit should be considered by part-time students and those attending graduate school. For others, especially those who don’t qualify for either credit, the tuition and fees deduction may be the right choice.
All three benefits are available for students enrolled in an eligible college, university or vocational school, including both nonprofit and for-profit institutions. None of them can be claimed by a nonresident alien or married person filing a separate return. In most cases, dependents cannot claim these education benefits.
Normally, a student will receive a Form 1098-T from their institution by the end of January of the following year. This form will show information about tuition paid or billed along with other information. However, amounts shown on this form may differ from amounts taxpayers are eligible to claim for these tax benefits. Taxpayers should see the instructions to Forms 8863 and 8917 and Publication 970 for details on properly figuring allowable tax benefits.
Many of those eligible for the American opportunity tax credit qualify for the maximum annual credit of $2,500 per student. Here are some key features of the credit:
- The credit targets the first four years of post-secondary education, and a student must be enrolled at least half time. This means that expenses paid for a student who, as of the beginning of the tax year, has already completed the first four years of college do not qualify. Any student with a felony drug conviction also does not qualify.
- Tuition, required enrollment fees, books and other required course materials generally qualify. Other expenses, such as room and board, do not.
- The credit equals 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
- The full credit can only be claimed by taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less. For married couples filing a joint return, the limit is $160,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $180,000 or more and singles, heads of household and some widows and widowers whose MAGI is $90,000 or more.
- Forty percent of the American opportunity tax credit is refundable. This means that even people who owe no tax can get an annual payment of up to $1,000 for each eligible student. Other education-related credits and deductions do not provide a benefit to people who owe no tax.
The lifetime learning credit of up to $2,000 per tax return is available for both graduate and undergraduate students. Unlike the American opportunity tax credit, the limit on the lifetime learning credit applies to each tax return, rather than to each student. Though the half-time student requirement does not apply, the course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. Other features of the credit include:
- Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.
- The credit equals 20 percent of the amount spent on eligible expenses across all students on the return. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more in qualifying tuition and fees and has sufficient tax liability.
- Income limits are lower than under the American opportunity tax credit. For 2012, the full credit can be claimed by taxpayers whose MAGI is $52,000 or less. For married couples filing a joint return, the limit is $104,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $124,000 or more and singles, heads of household and some widows and widowers whose MAGI is $62,000 or more.
Like the lifetime learning credit, the tuition and fees deduction is available for all levels of post-secondary education, and the cost of one or more courses can qualify. The annual deduction limit is $4,000 for joint filers whose MAGI is $130,000 or less and other taxpayers whose MAGI is $65,000 or less. The deduction limit drops to $2,000 for couples whose MAGI exceeds $130,000 but is no more than $160,000, and other taxpayers whose MAGI exceeds $65,000 but is no more than $80,000.
Eligible parents and students can get the benefit of these provisions during the year by having less tax taken out of their paychecks. They can do this by filling out a new Form W-4, claiming additional withholding allowances, and giving it to their employer.
There are a variety of other education-related tax benefits that can help many taxpayers. They include:
- Scholarship and fellowship grants—generally tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
- Student loan interest deduction of up to $2,500 per year.
- Savings bonds used to pay for college—though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years old.
- Qualified tuition programs, also called 529 plans, used by many families to prepay or save for a child’s college education.
Taxpayers with qualifying children who are students up to age 24 may be able to claim a dependent exemption and the earned income tax credit.
The general comparison table in Publication 970 can be a useful guide to taxpayers in determining eligibility for these benefits. Details can also be found in the Tax Benefits for Education Information Center on IRS.gov.
Proposition 30 California Tax Increase –Tax Penalty Waiver.
The Franchise Tax Board has announced that taxpayers affected by the retroactive personal income tax increase (Proposition 30), may pay the amount due with their 2012 tax return. Taxpayers subject to underpayment of estimated tax penalties may request relief by completing Form 5808 Underpayment of Estimated Taxes by Individual and Fiduciaries and completing Part 1, question 1 with the explanation that the underpayment is due to Proposition 30.
Lions and Tigers and IRS Notices Oh My
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.
- Don’t panic. Many of these letters can be dealt with simply and painlessly.
- 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.
- Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry.
- If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
- If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
- 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.
- 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.
- It’s important that you keep copies of any correspondence with your records.
Tax Credits to Help Offset College Costs
Tax Credits To Help Pay For College
Check out these tax credits to help offset the cost of college – presented below by the IRS from their tax tips series.
- American Opportunity Credit This credit, originally created under the American Recovery and Reinvestment Act, has been extended for an additional two years – 2011 and 2012. The credit can be up to $2,500 per eligible student and is available for the first four years of post secondary education. Forty percent of this credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment. The full credit is generally available to eligible taxpayers whose modified adjusted gross income is below $80,000 ($160,000 for married couples filing a joint return).
- Lifetime Learning Credit In 2011, you may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student, but to claim the credit, your modified adjusted gross income must be below $60,000 ($120,000 if married filing jointly).
- Tuition and Fees Deduction This deduction can reduce the amount of your income subject to tax by up to $4,000 for 2011 even if you do not itemize your deductions. Generally, you can claim the tuition and fees deduction for qualified higher education expenses for an eligible student if your modified adjusted gross income is below $80,000 ($160,000 if married filing jointly).
- Student loan interest deduction Generally, personal interest you pay, other than certain mortgage interest, is not deductible. However, if your modified adjusted gross income is less than $75,000 ($150,000 if filing a joint return), you may be able to deduct interest paid on a student loan used for higher education during the year. It can reduce the amount of your income subject to tax by up to $2,500, even if you don’t itemize deductions.
For each student, you can choose to claim only one of the credits in a single tax year. However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for your sophomore daughter and the Lifetime Learning Credit for your senior son.
You cannot claim the tuition and fees deduction for the same student in the same year that you claim the American Opportunity Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.
IRS Patrol – IRS Reminds Taxpayers that the Aug. 31 Deadline Is Fast Approaching for the Second Special Voluntary Disclosure Initiative of Offshore Accounts
Foreign Reporting
WASHINGTON — U.S. taxpayers hiding income in undisclosed offshore accounts are running out of time to take advantage of a soon-to-expire opportunity to come forward and get their taxes current with the Internal Revenue Service.
The IRS today reminded taxpayers that the 2011 Offshore Voluntary Disclosure Initiative (OVDI) will expire on Aug. 31, 2011. Taxpayers who come forward voluntarily get a better deal than those who wait for the IRS to find their undisclosed accounts and income. New foreign account reporting requirements are being phased in over the next few years, making it ever tougher to hide income offshore. As importantly, the IRS continues its focus on banks and bankers worldwide that assist U.S. taxpayers with hiding assets overseas.
“The time has come to get back into compliance with the U.S. tax system, because the risks of hiding money offshore keeps going up,” said IRS Commissioner Doug Shulman. “Our goal is to get people back into the system. The second voluntary initiative gives people a fair way to resolve their tax problems.”
The 2011 OVDI was announced on Feb. 8, 2011, and follows the 2009 Offshore Disclosure Program (OVDP). The 2011 initiative offers clear benefits to encourage taxpayers to come forward rather than risk detection by the IRS. Taxpayers hiding assets offshore who do not come forward will face far higher penalties along with potential criminal charges.
For the 2011 initiative, there is a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period. Some taxpayers will be eligible for 5 or 12.5 percent penalties in certain narrow circumstances.
Participants also must pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties. All original and amended tax returns must be filed by the deadline.
The IRS has made available the 2011 OVDI information in eight foreign languages for those taxpayers with undisclosed offshore accounts. The agency took this step to reach taxpayers whose primary language may not be English. These translations include the following languages: Chinese (Traditional and Simplified), Farsi, German, Hindi, Korean, Russian, Spanish and Vietnamese.
The IRS decision to open a second special disclosure initiative was based on the success of the first program and many more taxpayers coming forward after the program closed on Oct. 15, 2009. The first special disclosure initiative program closed with about 15,000 voluntary disclosures regarding accounts at banks in more than 60 countries. Many taxpayers came in after the first program closed. These taxpayers were deemed eligible to take advantage of the special provisions of the second initiative.
Further details about this initiative are provided in a series of questions and answers
Tax Guidance – Election of Reduced Research Credit
TD 9539 contains final regulations that amend the regulations concerning the election to claim the reduced research credit. The final regulations simplify how taxpayers make the election and affect taxpayers that claim the reduced research credit.These final regulations simplify the section 280C(c)(3) election to have the provisions of section 280C(c)(1) and (c)(2) not apply by requiring the election to be made on Form 6765, “Credit for Increasing Research Activities.” The form must be filed with an original return for the taxable year filed on or before the due date (including extensions) for filing the income tax return for such year. An election, once made for any taxable year, is irrevocable for that taxable year.
My morning drive with Rush Limbaugh – OMG His Tax Knowledge Cracks Me Up
Love My Morning Drive With Rush
By Stacie Kitts, CPA
I’ve considered myself a bleeding heart liberal Democrat ever since I knew what a Democrat was, an interesting political choice for a successful business owner / Certified Public Accountant living in the OC. But an even more interesting dichotomy is how much I enjoy my morning drive listening to the lunatic ravings political commentary of Rush Limbaugh.
I can’t help myself. It’s like comedy hour really.
Now I know there are a lot of people who like Rush and that’s okay, I’m not judging. However, this morning he was so over the top that I couldn’t resist making him the subject of this blog post.
In the spirit of full disclosure, I must admit I arrived at work before Mr. Limbaugh’s ranting commentary concluded so he may have redeemed himself later in his broadcast.
Here is what I thought I heard – no quotes here because I am recalling this from memory.
- Obama wants to tax the rich by increasing the 15% tax rate that many wealthier Americans enjoy on the sale of their investments. ( I have also heard this point made on several other news broadcasts)
- The 15% tax rate is a double taxation because wealthy Americans have already paid taxes at a 35% rate on the money they invested.
**********
First, I want to start this discussion by helping my readers to understand that different types of income are taxed at different rates. (I promise I will get to Rush’s points – I can hardly wait to tackle those) This varies from the regular tax rates that you might be familiar with.
So the basic tax rate schedule looks like this for 2011:
|
Tax Rate |
Single |
Married Filing Joint |
Married Filing Separate |
Head of Household |
| 10% | Up to $8,500 | Up to $17,000 | Up to $8,500 | Up to $12,150 |
| 15% | $8,501 – $34,500 | $17,001 – $69,000 | $8,501 – $34,500 | $12,151 – $46,250 |
| 25% | $34,501 – $83,600 | $69,001 – $139,350 | $34,501 – $69,675 | $46,251 – $119,400 |
| 28% | $83,601 – $174,400 | $139,351 – $212,300 | $69,676 – $106,150 | $119,401 – $193,350 |
| 33% | $174,401 – $379,150 | $212,301 – $379,150 | $106,151 – $189,575 | $193,351 – $379,150 |
| 35% | Over $379,150 | Over $379,150 | Over $189,575 | Over $379,150 |
But here is what you may not know – tax law has all kinds of exceptions. In addition to the “regular” tax rates mentioned above, there is a whole host of other tax rates that might apply to your income.
Many of these “exceptions” are a decrease to the regular tax rates. For example:
- Qualified dividend income starting in 2003 and ending in 2012 has a maximum tax rate of 15%.
- Long Term Capital Gains income (selling stock you held for more than 12 months for example) is taxed at a maximum rate of 15% from years 2003-2012. The maximum rate increases to 20% in year 2013.
Income types that will increase your tax above the regular rate are:
- Self employment income (so if you are a business owner, you will likely pay more than the “regular” rates)
- Penalty taxes for early withdrawals of retirement investments (so if you pull money out of your 401K before you are eligible you will pay more than the “regular” rates)
Other exceptions to the regular tax include:
So what is the argument?
It is simply this – working American’s, the ones who “work for a living” and are likely receiving a paycheck and Form W2 at the end of the year are paying taxes at a higher rate than individuals who make most of their income from investments. In addition, those American’s receiving a paycheck are also paying Social Security and Medicare taxes on top of the regular tax.
And why does this equate to the wealthiest Americans pay less tax? As Warren Buffett pointed out, working Americans don’t have the “extra” funds to invest. Middle America spends the money earned from their jobs on day-to-day living, not on investments that could earn income at a lower rate.
I like visual aides so here is one to help make the point:
If you are married and filing jointly and your taxable income after everything you can deduct, is $70,000 (and assuming all your income came from your paycheck) you will pay to our government in the form of Federal Taxes 25% of your income – on top of the social security taxes withheld from your check.
| Married Filing Joint |
Income |
Total tax including social security) |
| Joe Tax Payer | 70,000 |
$21,700 |
| Warren Buffett | 70,000 |
$10,500 |
Now that you know a bit more about how the tax system works – I hope – here are my answers to what Rush implied:
- Obama wants to tax the rich by increasing the 15% tax rate that many wealthier Americans enjoy on the sale of their investments .
Well, no Obama wants to tax income earned from investments similar to the way working Americans are taxed. Does this equate to taxing the rich more? More than what? -If most of your income is coming from investments – More than now – YES. More than the average American – well DUH NO.
- The 15% tax rate is a double taxation because wealthy Americans have already paid taxes at a 35% rate on the money they invested.
First, how does Rush know that wealthy Americans paid 35% on the income they invested? As we have learned, there are all kinds of ways income is taxed. And second, you only pay tax on the net profit – the increase in the value of the investment after you sell it and have control of the cash. The amount used to purchase the asset is subtracted from the profit to come up with the taxable amount and therefore is NOT taxed twice. (see post script)
Post Script: It appears Rush’s comment on the 35% rate relates to income that is taxed at the corporate level before being distributed out at dividends or capital gains.
The tax policy blog explains:
The reality is that capital gains and dividends are taxed at a lower rate at the individual level because this income has already been taxed at 35 percent at the corporate level before it was distributed to shareholders. Both Mr. Obama and his tax advisor Warren Buffett seem unaware that the U.S. has the 4th highest overall tax rate on dividend income among the largest industrialized countries in the OECD at 49.5 percent. Only Denmark (56.5 percent), France (55.9 percent) and the United Kingdom (54 percent) tax dividends at a higher rate.
So here is my take on the argument above:
If I earn money from my job (for which I pay taxes) and I take my money (lets say $1.00) to the grocery store and buy my dinner, then the grocery store takes my $1.00 and adds it to their profits (for which they pay taxes) leaving oh say $.85 – and then they buy merchandise from a vender using my $.85 and that vender adds it to their profits (for which they are taxed) and so on and so on. My dollar, or portions of my dollar were taxed over and over and over.
When a corporation makes a profit it pays taxes, just like I do. A corporation is considered a separate person distinct from its shareholders. So in the same manner as the rest of us, it takes some of the money it makes and its spends it. When it distributes its “profits” to pay investors (investors get dividends – its a perk of ownership and an incentive for them to buy the stock) those investors pay taxes on the income they receive in the same manner (all be it the investors get a tax break) as the grocery store does when I take my $1.oo profit (for which I have already been taxed) and buy my dinner.
I’m still struggling to understand why the profits that I distribute from my job to others are different than the profits distributed by the corporation.
Related articles
- Buffett Rule: Not so simple (money.cnn.com)
- Are rich taxed less than secretaries? (msnbc.msn.com)
- Buffett’s blunder (opinion.financialpost.com)
- Buffett Rule: Easier Said Than Done (businessweek.com)
- ‘Buffett Rule’ for Millionaire Tax Seen as Easier Said Than Done – San Francisco Chronicle (news.google.com)
- The Buffett Rule and Taxing the Ultra-Wealthy (fool.com)
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:
- File a completed Participation Agreement form with us between August 1, 2011 and October 31, 2011.
- 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.
- 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.
WooHoo Mileage Rate Increases to 55.5 Cents for Last 6 Months of Year
Katherman Kitts & Co. LLP Mileage Rates Update
WASHINGTON — The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.
The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011, as set forth in Revenue Procedure 2010-51.
In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2011. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.
“This year’s increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices,” said IRS Commissioner Doug Shulman. “We are taking this step so the reimbursement rate will be fair to taxpayers.”
While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.
The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.
The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.
The new rates are contained in Announcement 2011-40 on the optional standard mileage rates.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
Mileage Rate Changes
| Purpose | Rates 1/1 through 6/30/11 | Rates 7/1 through 12/31/11 |
| Business | 51 | 55.5 |
| Medical/Moving | 19 | 23.5 |
| Charitable | 14 | 14 |
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- IRS not likely to bump up optional standard mileage deduction rates … yet (dontmesswithtaxes.typepad.com)
IRS Patrol – FBAR Filing Deadline Extended for Certain Financial Professionals
Financial Crimes Enforcement Network
WASHINGTON — The Internal Revenue Service and the Financial Crimes Enforcement Network (FinCEN) today announced that a small subset of individuals with only signature authority required to file the Report of Foreign Bank and Financial Accounts (FBARs) will receive a one-year extension beyond the upcoming filing date of June 30, 2011.
FinCen today issued Notice 2011-1 that extends the deadline until June 30, 2012, for the following individuals:
- An employee or officer of a covered entity who has signature or other authority over and no financial interest in a foreign financial account of another entity more than 50 percent owned, directly or indirectly, by the entity (a “controlled person”).
- An employee or officer of a controlled person of a covered entity who has signature or other authority over and no financial interest in a foreign financial account of the entity or another controlled person of the entity.
All other U.S. persons required to file an FBAR this year are required to meet the June 30, 2011, filing date. Unlike with federal income tax returns, extensions of time to file are not available.
Today’s notice was issued to facilitate more accurate compliance of FBAR filings in the wake of recent finalization of regulations. The FBAR filing requirements, authorized under one of the original provisions of the Bank Secrecy Act, have been in place since 1972.
On Feb. 24, 2011, FinCEN published a final rule that amended the Bank Secrecy Act regarding FBARs.
The FBAR form is used to report a financial interest in, or signature or other authority over, one or more financial accounts in foreign countries.
U.S. persons are required to file FBARs Form TD F 90-22.1 annually if they have a financial interest in or signature authority over financial accounts, including bank, securities or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year.
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Messing with Their Taxes Creates All Kinds of Bad for a San Juan Couple
Avoid a Crime Scene and hire the right accountant
By Stacie Kitts, CPA
When I read a story about someone who appears to have been messing with the tax system for some thirty years, it makes me wonder…..who in the heck did their taxes, and why did it take so long to get busted.
The Orange County District Attorney is reporting that James and Dorothy Klinger, owners of Jamo’s Gardening and Modern Tree Services Inc. are charged with 28 counts of failing to file a return with intent to evade tax, 28 counts of willful failure to pay taxes, and some felony counts for lying about their business to a worker’s compensation insurance company.
These two are looking at spending the rest of their lives in prison if convicted.
They appear to have used an old school tax crook technique and kept two sets of books. You know, one that showed the “real” dollars and one that was a work of fiction.
Was it worth it? You decide….
They are accused of underreporting about $3.6 million in income and $3 million in wages. This translates to about 1.9 million that should have been paid over in taxes (give or take) that they got to keep – for a little while anyway.
I don’t know about you, but $2 million isn’t enough money to risk a 40 year prison sentence. Am I Right!?
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- IRS Reminds Taxpayers How To Provide Earthquake Relief For Japan (staciesmoretaxtips.wordpress.com)
- 2011 Depreciation Deduction Limitations – (and a classic video from The Cars) (staciesmoretaxtips.wordpress.com)
Stacie's Tax Tips and Other Stuff 