Tax Debt Help – Tax Prep 101 – Lesson #1
In the course of the next few weeks, I’m going to be guiding you through the preparation of a “basic” tax return. And along the way, I’m going to throw in some vital information that will help you to understand the process.
These guidelines will be based on simple or basic returns and will both educate and enlighten you on some of the things that the IRS will be looking for and could help you to avoid the possibility of an audit.
First and foremost, always have your return prepared each year. I know that some of those 1099′s, W-2 G’s (gambling) and 1099-B (stock sales), not to mention the dreaded 1099-R (withdrawal from pension plans) can scare you to death at tax time. But generally, I have found that the fear is worse than the outcome of the return. Have your return prepared to see what that outcome is first, then panic if you must.
Failure to file a return is one of the worse scenarios that you can find yourself facing. No, the IRS may not get you in the first or second year, but you can bet on the fact that within a couple of years they will be sending out those SFR’s (Substitute For Returns) which they have graciously filed for you.
If a taxpayer has not filed a return and the IRS feels it can collect from the money earned, an IRS Revenue Officer may file a SFR. When a SFR is filed, the agent lists all of the income reported to the IRS for that year, but only gives the taxpayer one exemption and only the standard deduction (i.e. nothing is itemized). Even if for the past 10 years the taxpayer has itemized, the IRS prepares the return in their favor. If the taxpayer has children the IRS tries to file the return based on the information from the previous years (i.e. married filing joint with 2 children), but IRS will only file this way if they have previous returns showing this information.
Waiting years to file a return will land you with late filing penalties and interest that have accumulated from the date the return was due. At that point, you will be find that you have dug a hole that only a tax professional can help correct.
Ironically, most of the delinquent returns that I prepare resulting from fear or neglect, result in refunds. Say for instance that you have not filed since 2000 and you need to file six years worth of returns. In 2000-2003 you would have received a refund and the remaining years you owe. Under IRS regulations, you can only receive your refund for the past three years (2004-2006). Hence, you have lost four years worth of refunds to the IRS. In most cases, they will also not let you apply what you would have received to what you now owe.
Trust me when I say that it is not worth the procrastination or the fear. Be proactive and no reactive, get the facts first and then decide what you want to do. You might find that things aren’t quite as bad as you thought they would be.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – “Disabled Veteran Payments Ruled Tax-Free”
IRS Newswire [irs-newswire@lists.qai.irs.gov]
Certain Payments to Disabled Veterans Ruled Tax-Free;
Some May Be Due Refunds
WASHINGTON — Payments under the Department of Veterans Affairs (VA) Compensated Work Therapy (CWT) program are no longer taxable and disabled veterans who paid tax on these benefits in the past three years can now claim refunds, the Internal Revenue Service said today.
Recipients of CWT payments will no longer receive a Form 1099 from the Department of Veterans Affairs. Disabled veterans who paid tax on these benefits in tax-years 2004, 2005 or 2006 can claim a refund by filing an amended return using IRS Form 1040X. According to the VA, more than 19,000 veterans received CWT in Fiscal Year 2007.
The IRS agreed with a U.S. Tax Court decision issued earlier this year, which held that CWT payments are tax-free veterans’ benefits. In so doing, the agency reversed a 1965 ruling which held that these payments were taxable and required the VA to issue 1099 forms to payment recipients.
According to the VA, the CWT program provides assistance to veterans unable to work and support themselves. Under the program, the VA contracts with private industry and the public sector for work by veterans, who learn new job skills, re-learn successful work habits and regain a sense of self-esteem and self-worth.
Related Item: Revenue Ruling 2007-69
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
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