Tax Debt Help – IRS Issues Fall 2007 Statistics of Income Bulletin
IRS Issues Fall 2007 Statistics of Income Bulletin
WASHINGTON — The Internal Revenue Service today released the fall 2007 issue of the Statistics of Income Bulletin, featuring data from 134.4 million individual income tax returns filed for tax year 2005.
U.S. taxpayers reported $7.4 trillion of adjusted gross income less deficit in tax year 2005, up 9.3 percent from tax year 2004 when 132.2 million returns were filed.
Certain types of income posted strong gains between 2004 and 2005. Net capital gains climbed 41 percent and taxable interest rose 29.5 percent, while net partnership and S corporation income gained 27.3 percent.
Taxable income totaled $5.1 trillion in tax year 2005, up 10 percent from the prior year. Total income tax increased for a second straight year, rising 12.4 percent to $934.8 billion. Between tax years 2003 and 2004, total income tax rose 11.2 percent, the first increase in 4 years.
The alternative minimum tax (AMT) grew 33.7 percent between 2004 and 2005 to $17.4 billion. Four million taxpayers paid the AMT in 2005, compared to almost 3.1 million in tax year 2004.
This edition of the quarterly Bulletin also includes articles about:
- Growth trends in partnerships: Between tax years 2004 and 2005, the number of partnerships rose 8.5 percent to about 2.76 million. The number of partners increased just 4.2 percent to about 16.21 million in tax year 2005. Meanwhile, income rose at a much faster rate. Total partnership net income climbed 42 percent to $546.2 billion in tax year 2005.
- Municipal bond issuance: State and local governmental entities issued about $475 billion of tax-exempt bonds in calendar year 2005, up 11.9 percent from the prior year. Governmental bonds accounted for about three-quarters of the total, while private-activity bonds represented the remainder.
- A look at private foundations: The number of private foundations that filed Form 990-PF remained nearly the same between tax years 2003 and 2004, while the number of nonexempt charitable trusts treated as private foundations that filed the return increased by 12 percent. In tax year 2004, private foundations distributed $27.6 billion in contributions, gifts, and grants and other outlays for charitable purposes, while nonexempt charitable trusts distributed $314 million.
- Recent data on charities: For tax year 2004, nonprofit charitable organizations exempt from income tax under Internal Revenue Code Section 501(c)(3) filed more than 276,000 information returns, an increase of 5 percent from 2003. These organizations held more than $2.0 trillion in assets, a real increase of 5 percent from the previous year and 52 percent over the past decade.
- Corporate foreign tax credits: For tax year 2003, U.S. corporations claimed $50 billion in foreign tax credits. Corporations that claimed a foreign tax credit paid $140.5 billion in worldwide income taxes on $424.5 billion in worldwide taxable income.
- Historical data: The final article in the issue describes the availability and expansion of SOI’s published corporate data between 1917 and today and presents some corporate data highlights within a historical context.
The Bulletin also includes historical data on income, deductions and tax reported on returns filed by individuals, corporations and unincorporated businesses, with selected data.
From the Tax Stats page, select “SOI Bulletins” under “Products, Publications, & Papers” and click on “Historical Tables and Appendix.” Also on these pages are statistics presented on tax collections, including excise taxes by type, and refunds for recent years.
The Statistics of Income Bulletin is available from the Superintendent of Documents, U.S. Government Printing Office, P.O. Box 371954, Pittsburgh, PA 15250-7954. The annual subscription rate is $53 ($74.20 foreign), single issues cost $39 ($48.75 foreign).
For more information about these data, write the Director, Statistics of Income (SOI) Division, RAS:S, Internal Revenue Service, P.O. Box 2608, Washington, DC 20013-2608; call SOI’s Statistical Information Services at (202) 874-0410; or fax, (202) 874-0964.
S. Raines, Sr. Financial Advisor/Tax Preparer
TAX DEBT HELP – December’s Tax Talk Today Video – Filing Season 2008
December’s Tax Talk Today Will Focus on Filing Season |
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TAX DEBT HELP – IRS Announces 2008 Standard Mileage Rates
IRS has announced the 2008 Standard Mileage Rates: Rate for Business Miles Set at 50.5 Cents per Mile
IR-2007-192, Nov. 27, 2007 WASHINGON — The Internal Revenue Service today issued the 2008 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning Jan. 1, 2008, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:
- 50.5 cents per mile for business miles driven;
- 19 cents per mile driven for medical or moving purposes; and
- 14 cents per mile driven in service of charitable organizations.
The new rate for business miles compares to a rate of 48.5 cents per mile for 2007. The new rate for medical and moving purposes compares to 20 cents in 2007. The rate for miles driven in service of charitable organizations has remained the same.The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile; the standard rate for medical and moving purposes is based on the variable costs as determined by the same study. Runzheimer International, an independent contractor, conducted the study for the IRS.The mileage rate for charitable miles is set by law.A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS), after claiming a Section 179 deduction for that vehicle, for any vehicle used for hire or for more than four vehicles used simultaneously.It should be remembered that the standard mileage rate always proves to be a better deduction than itemizing your actual expenses. And with the standard mileage you don’t have to worry about keeping all those gas, oil and repairs receipts in that shoebox in the closet.
S. Raines, Sr. Financial Advisor/Tax Preparer
www.effectur.com
Tax Debt Help – State Your Liability With Proof
As a full time tax preparer for a firm in Greensboro, NC, I see all kinds of omissions and mistakes on tax returns. Most of the cases that I work have not filed returns in years, some as many as six to ten years or more.
Most folks will keep their W-2s even if they don’t file a return for that year. But there are those who just simply discard them away. If you are one of those who do not see the monetary value of that form, let me give you some valuable information that could save you from double taxation, which can amount to thousands of dollars.
Employers who issue W-2s are required to report to the IRS your earnings and deductions (federal withholding, social security and medicare) each year. That is all that they are required to report.
The big misconception is that employers also report your State withholdings to the IRS. This is not the case.
There are only nine (9) States that actually track each individual taxpayer’s withholding contributions during the year. They are Delaware, Georgia, Louisiana, Maryland, Michigan, Minnesota, New York, Pennsylvania and West Virginia. These states track your payments from the quarterly deposits/payments made by the employer.
The remaining States leave the burden of proof on the taxpayer. And the proof is in the W-2 that you attach to your tax return each year when filing. If you do not have the proof then you are considered to have not withheld state taxes. You will then be taxed again on your earnings (double taxation) until you can provide adequate proof.
A W-2 is not the only proof that you can provide. Your final pay stub will also serve as adequate documentation.
If you have lost or misplaced your W-2 and you live in one of the states listed above, you can request a copy of your yearly withholding statement. And of course you can also go back to your employer and request a duplicate copy of your W-2.
Under estimating the importance of the W-2 can be detrimental to your State liability and can cost you thousands. There are thousands of delinquent filers who make that “assumption” each year and the individual States are lining their pockets with your hard earned money.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – Are You Sure That’s A Home Office…
If you use a part of your home regularly and exclusively for business purposes, you may be able to deduct a part of the operating expenses and depreciation of your home on your tax return.
Individuals claiming home office deductions on Schedule C are required to figure those deductions on Form 8829, Expenses for Business Use of Your Home. However, please remember that if you are an employee claiming unreimbursed job-related expenses, you must use Form 2106, Employee Business Expenses, if applicable, or include the amount directly on Schedule A.
Qualifying for a home office deduction requires the owner to meet two tests. First, the home office must be the principal place of business for the activity. It is not a requirement that the activity be full-time. A home office is determined to be a principal place of business if it is used for substantial managerial or administrative purposes such as scheduling appointments, ordering supplies and keeping records. There can be no other fixed location for such activities.
Second, the space used must be used regularly and exclusively for the activity. You are not required to dedicate a full room to the activity but the space allotted cannot be used for personal purposes. In 2007, the United States Tax Court did hold that keeping some personal papers in a home office will not void the exclusive use test.
An office in the home deduction cannot exceed the gross income derived from the home-based activity. Any unused losses can be carried forward until used.
Claiming a home office deduction does not eliminate the home sale exclusion of income for a homeowner when the home is eventually sold. Depreciation claimed after May 6, 1997 must be recaptured at 25 percent at the time of the sale of the home. In simplier terms, if you deduct depreciation, then you must add back the amount depreciated over the years when the home is sold.
Will the deduction of a home office cause the Internal Revenue Service to audit the tax return? While there is no statistical evidence to support a bona fide answer, you should be aware of the requirements to claim an office in home deduction and document the use of such home office. In doing so, you may want to discuss insurance coverage with their homeowner’s carrier. You should make certain that your coverage is sufficient to obtain the insurance liability of the office in the home.
The following is a list of pro-ratable deductible items which can be used on Form 8829: mortgage interest, real estate taxes, insurance, repairs and maintenance, utilities and of course depreciation.
Please, if you have doubts about whether you can accurately prepare your own return using this deduction. Solicit the help of a tax professional. The deduction can help reduce your tax liability, but if prepared incorrectly, you can find yourself in an audit and having to hire a tax resolution firm to help you out of the hole you have dug. By all means take advantage of the deduction but take great care in making sure you have it correctly entered on your return.
For all of you who home school your children, please don’t try to use this deduction, it is strictly for business and not educational use. I can assure you that the IRS will send you back to tax school.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – Can We Find A Home For $110 Million?
On November 14, 2007, the IRS released, “IRS Has $110 Million In Refund Checks Looking For A Home”, which should make every taxpayer take notice.
The announcement stated that there were 115,478 taxpayers who are due refund checks worth about $110 million. Why? It’s simple, the checks have been returned as undeliverable.
The refund checks averaged about $953 each. Claiming these refunds is as easy as updating your address. The alarming statistic is that some taxpayers have more than one check waiting.
“Taxpayers should not miss out on getting their money back,” said Richard Morgante, commissioner of the IRS Wage and Investment Division. ”The IRS makes it as easy as possible for taxpayers to update their addresses and claim their refunds.”
The IRS.gov tool on their website called “ Where’s My Refund?” enables you to check the status of your refunds. You will be required to provide your social security number, filing status and amount of refund shown on your 2006 return. This tool will give the status of your refund and will provide instructions on how to resolve delivery problems. The telephone version of “Where’s My Refund?” requires calling 1-800-829-1954.
To date (2007), the IRS has processed nearly 105 million refunds, totaling about $240 billion, either by mail or direct deposit. Undeliverable refunds account for less than one-tenth of one percent of all refunds, or about one in a thousand.
Normally a refund check is returned as undeliverable due to taxpayers moving and not updating their address with either the U.S. Postal Service or the IRS.
According to the IRS, the list of taxpayers due undeliverable refunds this year rose about 21 percent from 95,746 last year. The increase is due in part to the Telephone Excise Tax Refund. The refund was a one-time payment available on 2006 federal income tax returns. It was designed to return to individuals, businesses and tax-exempt organizations previously collected long-distance telephone taxes.
Refund checks are mailed to a taxpayer’s last known address. Checks are returned to the IRS if a taxpayer moves without notifying the IRS or the U.S. Postal Service. Updating your address is easy, just access the “ Where’s My Refund?” feature at www.irs.gov. Taxpayers checking on a refund will be asked to provide an updated address if there is an undelivered check outstanding within the last 12 months. Taxpayers checking on a refund over the phone will be given specific instructions on how to update addresses.
A taxpayer can also ensure the IRS has his or her correct address by filing Form 8822, Change of Address (Download the form) or request it by calling 1-800-TAX-FORM (1-800-829-3676). Those who do not have access to the Internet and think they may be missing a refund should first check your returns or contact your tax preparer if the returns are not available, then call the IRS toll-free assistance line at 1-800-829-1040 to update your address.
Requesting Direct Deposit can put an end to undelivered refunds, as well as lost or stolen refund checks. Taxpayers can have refunds deposited directly into their personal checking or savings accounts. Direct Deposit is available for filers of both paper and electronic returns. For paper returns, just fill out the routing and account information on the bottom of Page 2 of the 1040 above the signatures spaces.
How often do you hear the government say that they owe you? Working with clients on a daily basis at Effectur, Inc., I find myself having to tell folks how much they owe. Now is the time for me to give the IRS a hand in letting millions know that they can claim what is rightfully theirs. Have you moved in the last year to two, if so, it’s definitely worth making that call or going online. Remember, every day that this money is not claimed is another day of interest that the IRS is making off of your money, and at $110 million, that’s a lot of interest.
Sharon Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – “The Top 5 of the Dirty Dozen List of Mistakes”
After receiving the November, 2007 issue of the FEDERAL TAX ALERT from the National Society of Tax Professionals and reading this article, I felt that I really needed to pass this information along. And trust me, it is the most valuable information that you can receive for the 2008 tax season or for any tax year.
Checkout “Ten Ways To Annoy An IRS Agent” first.
http://www.youtube.com/watch?v=5NkG2Ho39iU
“The IRS announces each year what they are going to be looking for in their annual “Dirty Dozen” report. They also make the audit statistics available in order to see that they are auditing taxpayer’s returns.
The following are the top five red flags for audits. They include:
Location. Where you live makes a difference in determining whether you are more at risk from an audit. You are more likely to get an audit if you live in one of these places:
Los Angeles, North Central District (ND, SD, MN), Southern California, Northern California, Manhattan, Central California, Brooklyn, Southwest (AZ, NV, NM), South Florida and Houston.
How Much You Make. This statistic is fascinating. It would seem to make sense that the IRS is more likely to audit people who make more money. But, the fact is that they are actually more likely to audit people who make LESS money. In fact, the most likely return to be audited is a return that includes a business that makes less than $25,000 per year. If you do not have a business, you have the most chance for an audit if you file a Form 1040A and make less than $25,000 per year. Business Entities. If you have a business, you are much more likely to be audited if you operate in a Sole proprietorship, Schedule C. In fact, you are ten times more likely to be audited as a Sole Proprietorship than if you are an S Corporation or C Corporation. Why? That is because most Sole Proprietorships do not have great recordkeeping systems and the IRS knows that.Under-reporting Income. the IRS receives copies of your K-1s form Limited Partnerships and S Corporation, 1099s from interest, dividends and sales, and W-2s. If you do not report these items on your return, or you report a different amount, your return will get pulled for inquiry.Who Files Your Return Matters. If you have a complex return and prepared it yourself or if your return was prepared by someone on the IRS’s problem preparer list, you are more likely to be audited.”The most important advice that you need to remember is “once you have been audited, then you cannot go back and amend a return for changes”. Once the audit has taken place you will have to live with the IRS’s decision and finding. And once that happens, most folks find themselves having to solicit the help of Tax Resolution services such as Effectur, Inc to help with audit representation and negotation of payments. “What is the difference between a taxidermist and a tax auditor?” The taxidermist takes only your skin!”…………
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – “A Generation of Plastic Babies!”
Having read some of Kevin Rosen’s articles, columnist for the Kansas City Star. He writes high quality columns about kids and money on a regular basis. However, one of his recent articles has drawn a lot of heat. In the article, Kevin made the following statement:
“Wouldn’t it be nice if our children grew into adulthood in a world without credit cards? Look at all the problems that would be solved in a cash-and-carry society — no gut-wrenching debt overloads, no junk mail from credit card issuers, and perhaps most important, fewer opportunities for cyber thieves to steal our identities.”
It’s an interesting idea – could your children live without credit cards? Do you wish society didn’t have credit cards? I’m positive that banks and credit card companies would fight you tooth and nail.
I was raised by “children of the depression”. I was taught that if we didn’t have the money, don’t even think about asking for it! You certainly won’t get in financial trouble. I have tried to live up to this, but I never thought I would see our society in such overwhelming indebtedness due credit cards. The truly sad part is that Americans carry the mindset that if they don’t have those little plastic cards, then they have no clout. Do you leave home without your American Express Card?
If you have a child who has graduated from high school then you can remember all those gifts that came in the mail from credit card companies. My daughter received two dozen or more. We agreed that one card with a limit of $300 would suffice for extreme emergencies. But the number of graduates to fell into the plastic trap is astounding and unfortunately some of them are still paying the price, along with those never ending student loan payments.
A group of Maryland bankers are visiting high schools in an effort to teach students to be credit smart. Check out the video.
http://youtube.com/watch?v=8xcFGxd9pUU
After reading various reports by student loan providers who surveyed graduate-school students about credit-card usage, I believe that we now have a “generation of plastic babies”. Among other things, the report found that 93 percent of these highly educated students try to pay at least the minimum monthly requirement, but only 20 percent acknowledged paying off their credit card bills in full each month.
But you know the old saying, children learn by example. Take a look at the example these children have learned from in the past courtesy of Credit Counseling Biz:
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It is estimated that, on average, 20% of Americans have “maxed out” their credit cards. |
| About 25% of adults in the United States have a history of credit problems. |
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| Americans’ average credit card debt is $8400 per household. |
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| Roughly 24% of personal expenditures in the United States are made using bank credit cards, retail cards, and debit cards. |
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| In the first quarter of 2002, total credit debt was $660 billion. Total credit card debt was approximately $60 billion. |
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| Approximately 185 million American consumers have at least one credit card. |
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| Of those 185 million consumers with credit cards, 1.3 million credit card holders declared bankruptcy in 2002. |
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| Americans pay, on average, an 18.9% interest rate on credit cards. |
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| The average household pays $83.33 in credit card interest per month. |
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| On average, the typical credit card purchase is 112% higher than if using cash. |
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| More than 40% of American families spend more than they earn. (Federal Reserve). |
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| As of 1995, 92% of American family disposable income is spent on paying debts, up from 65% in 1975. (Federal Reserve) |
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| An $8,000 debt, at a rate of 18% interest, will take over 25 years to pay off and cost more than $24,000 in the long run. |
These are absolutely astounding and maddening figures, and signals a need for credit education in classrooms, but most of all, on the home front.
First and foremost, don’t even think about giving them a card until they can handle cash responsibly and have a firm understanding of the benefits and dangers of using credit cards. It also doesn’t hurt to help them set up something like an automatic withdrawal from their checking account to pay off the balance each month.
We all love the convenience and purchasing power that credit cards offer. But without the proper education, credit cards can turn into your worst nightmare and you’ll find yourself needing professional “tax help”. Let me give you my “throw it back at them” “tax debt help”.
When you find yourself unable to make that minimum payment, don’t be surprised when you get a call from the credit card company wanting to settle for pennies on the dollar. Sure, their offer sounds great at the time, “if you’ll settle with us for this amount” (normally 1/3 to ½ of the balance), “then we’ll write off the remaining balance”. What they don’t tell you is that you’ll be getting a 1099-C Cancellation of Debt at the end of the year to report to the IRS. The IRS considers the write-off amount to be reportable income, and of course, you’ll be taxed on that amount.
Be prepared for the call, when they make you that offer, before you agree, ask them if they are going to 1099-C you for the balance. If they say yes, tell them that you will agree to the payoff if they will “forgive” the remaining balance and of course get it in writing!
In the past year, I have worked with a staggering number of clients who have unfiled tax returns due in part to these high balance write-offs. Not only do they have to pay the tax on the write-offs, but, failure to file penalties compounded with interest can result in garnishments and an eventual IRS Levy. The final result could be, having to contract a Tax Resolution firm such as Effectur, Inc. to help alleviate the financial burden of the plastic. There are great non-profit credit counseling agencies such as In Charge Debt Solutions who can help you with budgeting and repairing credit problems.
As parents, it is our job to educate, protect and prepare our children for the future. They may kick, scream and yell, but let’s steer them in the right direction and make them the “plastic-less generation”.
Sharon Raines, Sr. Financial Planner/Tax Preparer
IRS want $1.6 Billion in Taxes, Penalties from Bankrupt NYRA
Associated Press
Updated: November 1, 2007, 6:17 PM ET
NEW YORK — The Internal Revenue Service is seeking $1.6 billion in taxes and penalties from the bankrupt New York Racing Association, a major hurdle for the group’s bid to exit Chapter 11.
But in a filing Tuesday with the U.S. Bankruptcy Court in Manhattan, NYRA, which owns and operates the three biggest race tracks in New York state, said it owes the IRS no more than $5 million.
“The claim … far exceeds any amount NYRA could potentially satisfy,” the association said in a court filing. “Because of its magnitude, [the claim] presents a significant impediment to NYRA’s ability to accurately analyze any proposed creditor distribution scheme that would be part of a plan of reorganization.”
NYRA wants the bankruptcy court overseeing its Chapter 11 case to intervene in the dispute and estimate the amount it owes the government. The agency, which has run thoroughbred horse racing in New York since 1955, oversees operations at Aqueduct, Belmont Park and Saratoga.
Under bankruptcy law, a company operating in Chapter 11 can ask a bankruptcy judge to estimate a disputed creditor claim blocking its exit from Chapter 11.
The IRS claim dwarfs NYRA’s total assets, which according to its November 2006 bankruptcy filing, were $153.3 million.
A hearing on NYRA’s bid for bankruptcy Judge James Peck to estimate the claim is scheduled for Nov. 28.
As part of its three-year audit of the association, the IRS requested 16 adjustments to the group’s tax returns filed before the NYRA went into bankruptcy, for the years 2000 through 2005. The IRS said the adjustments would result in an increase of the NYRA’s taxable income by more than $1.3 billion.
Among other things, the IRS said the NYRA should have reported the “handle,” or all the money bet at race tracks and offsite betting locations as income on its tax return. The NYRA only reported a portion of those proceeds, its “takeout,” as income on its returns.
According to court documents, the IRS believes NYRA understated its taxable income by some $761 million during the five-year period. The IRS also said NYRA improperly deducted about $443 million on its income tax returns.
NYRA said the IRS does not fully understand its business.
Last month, NYRA filed a Chapter 11 reorganization plan under which the association agreed to surrender its claim of ownership over the three racetracks in exchange for the right to run the state’s racing franchise for 30 years.
NYRA’s franchise to operate racing at Aqueduct, Belmont and Saratoga expires in two months. New York Gov. Eliot Spitzer has said he prefers a 30-year extension for NYRA over other bidders for the franchise, but a final deal hasn’t been struck with New York state lawmakers.
A key bankruptcy court hearing on NYRA’s outline of its reorganization plan is scheduled for Nov. 20 in Manhattan.
Copyright 2007 by The Associated Press
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