When you are in the military and under the age of 30, retirement looks like a long way off, but saving for it now is crucial if you plan to retire early. The sooner you save, the sooner you can retire. By following these simple guidelines, you can enjoy life now and still have enough saved for later, when the time comes to retire.

1) Invest: Make your military pay work for you right away. Begin investing early so you can plan your retirement sooner. You will gain interest on your investment which will help your investment to grow quicker.

Interest earns money on your investment, so, basically, you are making money from the money you put in, without having to do anything. Because of this military personnel will have more savings available to them. If you only invest $100 a month at 18 years old, you could potentially be a millionaire by the time you reach retirement. It will also allow you to what you want to do as you keep track of the money you are investing.

2) Consistent investment plan: If you invest something every month, regularly, you can receive long-term gains. Military personnel have the potential to invest more over a longer period time because it is steady income. Plan to retire now by saving now and as your savings grow, so does your knowledge of investing, which will enable you to invest in something with bigger returns.

The perfect investment for a young soldier would be a low-cost broad market index investment. It is an easy investment and virtually no maintenance. It take very little knowledge and about an hour to make your investment work for you.

3) Diversification: When you diversify, you have less risk. If all of your money is invested in the stock market, you stand to lose all of your money if the market crashes. By placing your money in several different investments, you have a greater potential of making a substantial profit.

4) Tax benefit vehicles: Investment vehicles will give you benefits to help you towards retiring at a young age. Roth IRAs are great investments that help lower your taxes. 40% of your income goes to pay taxes, so if you invest in a Roth IRA, you can keep more of the money you earn.

Planning an early retirement now is the perfect reason to invest. Diversifying your investments will give you more security and more gains, plus affords tax benefits. If you begin now, you will be able to have the things you want in retirement without worry.  

 Daniel Stoica Accounting Professional

You can save on your taxes with several different tax credits. If you owe the IRS, you can figure how much you owe, then deduct the amount of your credits before you pay your taxes. If there is a balance after your credits, you will still have taxes to pay, but not as much. However, if the credit is more than you owe, you could end up with a refund.

There are two types of tax credits that will help with the cost of higher education. They are the American Opportunity Relief and the Lifetime Learning Relief.

American Opportunity Relief

This is an expanded version of the Hope Education Assistance Tax Relief that was put in place before this particular credit. It was expanded by the 2009 stimulus bill that was designed to help the economy get back on track. The American Opportunity Tax Relief is in the amount of $2500.00 and you can take the claim on the first four years of college or university for all costs. It is also 40% refundable, meaning, $1000.00 can be refunded to the taxpayer. All amounts above the $1000.00 will be transferred and used to offset any future tax liabilities. In order to qualify for this credit, the taxpayer must earn no more than $90,000.00 per year, or $180,000.00 for joint returns. The Hope Tax Relief was not refundable, so this new credit is an improvement on this older credit. The cap on the Hope Tax Relief Credit was $1800.00 and the maximum amount that could be earned was lower.

The American Opportunity Tax Relief is only a temporary credit which ends in December of 2012. Anyone wishing to take this credit must do so before the end of 2010. Unless Congress approves an extension, which is not likely, taxpayers must take action as soon as possible. The Hope Tax Relief will also end in 2012.

Lifetime Learning Relief

The Lifetime Learning Tax Relief is good for the taxpayer’s life. It can be used beyond the four years of education, so if you are looking into graduate school, this tax credit can be claimed. It includes undergraduate, graduate and post-graduate fees along with other career training and studies. The Lifetime Learning Tax Relief has less limitations than the American Opportunity Credit. The credits are more complex and the rules to qualify are a little more strict.

 Daniel Stoica Accounting Professional

Today’s post is by Michael Rozbruch,  Founder and CEO, Tax Resolution Services, Co. (@taxresolution)

Back tax debt happens to many people.  The IRS does not discriminate – they aim to collect overdue taxes from everyone, including celebrities. Famous people have IRS troubles just like average people.

Some celebrities seem to think they are immune from IRS trouble, but as countless celebrity tax cheats have learned, no one is beyond the long arm of the IRS sniffing out unpaid tax problems.  Let these celebrity tax cheaters’ pains be your gain. Here are some important tax evasion lessons you can learn from these celebrity tax cheaters:

Sophia Loren’s celebrity tax cheating lesson: Even an innocent spouse can end up doing jail time. The tax evasion case against the Italian screen siren had more to do with her celebrity tax cheater husband Carlo Ponti’s unpaid taxes, but Loren ended up doing 17 days of a 30-day sentence in a Naples jail for tax evasion. If you file a joint return, your neck is on the tax evasion line for your tax cheater spouse’s taxes. Many couples appoint one partner to handle the finances. If you feel your tax cheater spouse hasn’t been faithful with their taxes, take your returns to a tax attorney or tax resolution specialist to see if you qualify for innocent spouse relief. 

Abbott and Costello’s celebrity tax cheating lesson: Don’t let your nice guy image get in the way of avoiding a tax evasion problem. Although he played the fool in the movies, Lou Costello (the dumb one of the comedy duo) was the more astute businessman and Bud Abbott (the smart one) was constantly making bad business decisions.  

Sometimes our self or public image prevents us from being assertive with our business and financial advisers when it comes to the topic of tax evasion. This lack of follow-through cost the celebrity tax cheating comedy duo dearly. According to Wikipedia, in 1956, the Internal Revenue Service charged the celebrity tax cheaters with tax evasion, forcing them to sell their homes and most of their assets, including their lucrative film rights. In 1957 they formally dissolved their partnership. Don’t let a tax evasion problem destroy your partnerships, always asks tough tax evasion questions of your financial team!

Wesley Snipes’s celebrity tax cheating lesson: Write your politics on your blog, not on your tax forms. According to his tax evasion trial coverage, one of the reasons celebrity tax cheater Wesley Snipes didn’t file his tax returns was due to bad tax evasion advice that was politically motivated. Although failure to file your taxes is a misdemeanor, celebrity tax cheater Snipes was sentenced to three years of jail time and millions in back taxes and tax evasion penalties. You may have heartfelt political or religious feelings about how your taxes are used, or even the validity of the U.S. Government to levy taxes, but put those tax evasion thoughts in your blog, not on your tax forms. Once you file (or don’t file) your taxes, it becomes tax evasion, which can send you to jail.  

 Richard Hatch’s celebrity tax cheating lesson: Don’t “forget” to pay taxes on income (especially when 51 million people saw you get it). As the first winner on Survivor, celebrity tax cheater Richard Hatch argued that he wasn’t guilty of tax evasion because he believed that CBS had paid the taxes on his million-dollar win (despite clear language in his contract explaining that he was liable for paying all taxes). If you get advice that says you don’t have to pay taxes on income, get a second opinion. If you make serious bucks, have your financial team’s tax work audited by another firm.  

 Darryl Strawberry’s and Pete Rose’s celebrity tax evasion lesson: What part of INCOME taxes don’t you get? At one time, celebrity tax cheaters Darryl Strawberry and Pete Rose were baseball’s biggest stars, making their autographed memorabilia very valuable. While these celebrity tax cheaters could rattle off their statistics for every season, the one figure they forgot to include was the income from autograph and memorabilia shows. When they autographed their tax returns without that income, they became celebrity tax evaders. Celebrity tax cheater Strawberry was ordered to pay $450,000 in back taxes, while celebrity tax cheater Rose had to pay $366,000 and went to jail for five months for tax evasion. If you’ve “forgotten” some income (such as eBay profits), you’re a tax cheater.

To read more, here is the most recent round up of “Celebrity Tax Woes” stories shared on our blog. 

R&B star R.Kelly owes more than $837,000 in delinquent federal taxes

Rapper Ja Rule Sentenced for IRS Tax Problems

Wesley Snipes’ Appeal Rejected

Back Taxes Owed by “Celebrity Apprentice” Star Marlee Matlin

Tax Lien Filed Against Actor Nicholas Cage Who Owes Over $620,000 in Back Taxes

You may envy the fortune and glory of these celebrity tax cheaters, but if you take these celebrity tax evasion lessons to heart, you’ll have something more valuable than fame or fortune. You’ll have your financial and personal freedom.

About the author: Michael Rozbruch is a recognized tax resolution expert and the Founder and CEO of Tax Resolution Services, Co. To learn more,  visit www.taxresolution.com 

Posted by:  Daniel Stoica Accounting Professional

If you have a smartphone, you now have another way to connect with the IRS. The Internal Revenue Service is now utilizing social media and other methods in order to give you the most up-to-date information regarding your taxes.

1. IRS2Go: The IRS recently launched this application that allows taxpayers to access IRS services on their phones. It gives refund statuses and other tax updates. The IRS2Go app is available on iPhone, iTouch and Android phones.
2. YouTube: The IRS has their own channel on YouTube which provides informative videos regarding several different tax topics. The videos can be played in English, American Sign Language and several other languages.
3. Twitter: The IRS is on Twitter and they tweet about tax announcements, tax news for professionals and updates for those looking for a job. You can follow their tweets at @IRSnews.
4. Audio files for Podcasts: The IRS provides tax information on audio podcasts. They are available via iTunes or the Multimedia Center on www.irs.gov. On the IRS website, transcripts of the podcasts are available.
5. Widgets: Widgets can be placed on websites, blogs, social media sites, or can send others to www.irs.gov for tax information. It is the newest IRS feature in regards to tax initiatives and IRS programs. They can be found on Marketing Express, which lets IRS partners and tax preparers communicate with the IRS.

The IRS uses these social media platforms to provide information to taxpayers. Confidential information should not be shared on any of these sites. The IRS cannot assist taxpayers with any questions on any of these sites. For questions and further information, visit the IRS website.

For links to IRS media sites, visit www.irs.gov and click on “IRS New Media”.

 Daniel Stoica Accounting Professional

Today’s post is by Brian Mahany, Esq., from Mahany & Ertl, LLC

The phones continue to ring off the hook as the deadline for the IRS’ last chance offshore tax amnesty looms. (This amnesty program, called the Offshore Voluntary Disclosure Initiative or OVDI, is the third such “last chance” initiative offered by the IRS over the last 10 years.)  Frequently we are asked two questions, “Will I get caught if I don’t report my offshore accounts?” and “What are the penalties if I get caught?”  The answer to the first question has been well covered in prior blog posts. The short answer, however, is “Yes, you probably will get caught”.

So  what are the penalties for unreported offshore accounts and income?

First, it is important to realize that there can be both penalties for not reporting the account (foreign accounts are reported on a Report of Foreign Bank and Financial Accounts or “FBAR”) and for not reporting income from foreign accounts.  With that distinction in mind, let’s look at what Uncle Sam can do with unreported offshore income and accounts.

– The biggest penalty is prison. Failing to file an FBAR can be a felony. Not reporting offshore income is also a crime. Failing to properly mark that tiny box on schedule B that asks about signature authority or ownership interest in foreign accounts can land you in prison too.

–The civil penalty for not reporting an offshore account is the greater of $100,000 or 50% of the total balance of the foreign account per violation. If the violation was not “willful”, the penalty may be 10%. Don’t relax yet, the IRS takes the position that by filing a tax return, you have an obligation to read all the instructions and should have known that foreign accounts need to be reported. They say “willful blindness” is enough to establish willfulness.  Note also that the penalty is for each violation. FBAR’s are due yearly so one could easily owe far more than is in the account.

For this reason alone, the present amnesty program, as onerous as it appears, may be the only way of holding on to much of your money.

There are many other penalties too that can be imposed. Some are the traditional penalties applied whenever income is not reported.  Some are unique to special offshore arrangements. We will start with the common ones.

–Fraud penalties. Where an underpayment of tax, or a failure to file a tax return, is due to fraud, you can be assessed a penalty of 75% of the unpaid tax.

–Failure to File Penalty. Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5% of the balance due, plus an additional 5% for each month or fraction thereof during which the failure continues may be imposed. The penalties max out at 25%.

– Failure to Pay Penalty. If you don’t pay the amount of tax shown on the return, you can be assessed a penalty of 0.5% of the amount of tax shown on the return per month. The maximum penalty is capped at 25%.

–Accuracy & Negligence Penalties. If you have an underpayment due to negligence or disregard of the tax laws or your underpayment is substantial, you may be liable for a penalty of 20% or 40% of the underpayment.

These are some of the common ones. Unfortunately there are many more. Some additional penalties unique to offshore accounts and business interests are shown below.

–Foreign Trusts and Foreign Gifts. There are penalties for failing to file IRS Form 3520, “Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.” If a foreign trust, the penalty is the greater of $10,000 or 35% of the gross reportable amount. If a gift, the penalty is 5% of the gift per month up to a maximum penalty of 25%.

– Foreign Trusts. There is a related penalty for failing to file Form 3520-A, Information Return of Foreign Trust With a U.S. Owner. Even if you have no transactions with a foreign trust you must still report your interest in the trust. If you don’t the penalty is 5% of the gross value of trust assets.

–Foreign Corporations. There is a penalty for failing to file Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations. If you are an officer, director or shareholder in certain foreign corporations, you may have to file the form 5471 information return.  The penalty for failing to file is $10,000 per month for each month the return is late to a maximum of $50,000 per return.

–Foreign Owned US Corporations. By now you are figuring out that if the word “foreign” is any way associated with your investment or account, there are many special returns and penalties. This one is quite complex so I wont go into the details but the penalties are also $10,000 per month.

–U.S. Transferor of Property to a Foreign Corporation Penalties. Taxpayers must report transfers of property to foreign corporations. The penalty is 10% of the value of the property transferred, up to a maximum of $100,000 per return. If the failure to report the transfer was intentional, the penalties can be much higher.

– Foreign Partnerships. Again, complex rules but if you are a U.S. taxpayer and invest in, transfer property to or sell an interest in a foreign partnership, Uncle Sam wants to know. Failing to properly report involves a penalty of $10,000 per month.

There are of course provisions to seek an abatement of penalties. Don’t expect the IRS to be very sympathetic with offshore investments, however. One notable exception is for taxpayers who relied on the advice of a CPA or lawyer. Unfortunately the offshore rules are so complex that even professionals have a hard time keeping track of the thousands of pages of regulations. If you received bad advice from your preparer, they may be on the hook for your penalties.

What I call “accidental” Americans – people born to U.S. parents but living abroad – and people that inherited a foreign account can sometimes obtain relief as well.

If you have any type of foreign or offshore account or investment, you really should speak with a lawyer or accountant well versed in offshore reporting.  If you have an unreported foreign account, consider the offshore amnesty but remember that time is running out. You must act NOW. The program expires August 31^st.

For more information and a completely confidential consultation, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at brian@mahanyertl.com.

Mahany & Ertl, LLC -America’s tax lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & San Francisco, California. Services nationwide.

The IRS has stated that it is continuing to help innocent spouses by getting rid of the two-year time limit on relief requests.

Innocent Spouse Relief was designed to alleviate clearly unjust situations where one spouse was the victim of fraud perpetrated by their spouse or ex-spouse.

The change to the innocent spouse relief is a major step toward improving the IRS’s process by making it more fair to this exclusive group of taxpayers. There are many types of situations that taxpayers may face and this change will allow innocent spouses to find relief from past victimization.

The IRS began a review of relief provisions regarding innocent spouses this year. Policy changes will be in operation by the fall and help will be there for taxpayers. The IRS will be expanding the program, as well, in order to help innocent spouses.

- The two-year limit will no longer apply, according to the IRS. There will be no more new equitable relief request regarding this.

-Taxpayers who were previously denied relief can now reapply with the the 8857 Form, Request for Innocent Spouse Relief. As long as the statute of limitations have not run out, current applicants will automatically be granted the relief.

-The IRS is not going to apply the two-year limit with regards to litigations that are currently pending, until they are finalized. The IRS will then suspend collections efforts on a case-by-case basis.

These changes will take effect immediately. For details, find Notice 2011-70 or www.irs.gov.

The existing regulations were put in place in 2002 and required innocent spouses to file within two years after the IRS takes collections action against the innocent spouse. The time limit was put in place after a public hearing. It was created to resolve these issues in a timely manner after all evidence was presented. The IRS will formally remove this time limit in the near future.

The two-year period for innocent spouses who are seeking relief under section 6015 of the Internal Revenue Code still applies. The refund statute of limitations also applies to the tax years that are covered by the innocent spouse request.

This relief is only available to taxpayers who filed joint tax returns. The innocent spouse relief is in place to assist taxpayers who didn’t know their spouse under paid their income tax. Publication 971, Innocent Spouse Relief, provides more information about the new program.

Please contact a tax professional if you have questions about Innocent Spouse Relief.

Daniel Stoica Accounting Professional

The Department of Treasury and the IRS announced the implementation of the requirements for the Foreign Account Tax Compliance Act (FATCA). This new law is for the non-compliance of U.S. taxpayers with foreign accounts. Financial institutions in foreign countries and United States holding agents will be given enough time to get documentation together in order to be compliant with the new law.

The implementation of FATCA will aid in U.S. efforts to fight for compliance with offshore account holders. The IRS is fully aware that taking action on this is huge for all financial institutions. It reflects how serious the IRS and the Treasury Department is about enforcing this law, but they also understand how challenging it will be for the financial institutions that are affected. They will need to adjust how they do business to make compliance as easy as possible for everyone.

As part of the Hiring Incentives to Restore Employment (HIRE), the FACTA was made into law in 2010. It required all FFIs (foreign financial institutions) to report all information about their accounts held by U.S. taxpayers to the IRS. The FFIs that participate will enter into an agreement with the IRS to:

-Identify all U.S. taxpayer accounts,

-Report information to the IRS regarding U.S. accounts, and

-Withhold a 30% tax on payments to non-participating FFIs and account holders who are unwilling to provide the required information.

Should an FFI not enter into this agreement, they will have to withhold some payments such as U.S. interest and dividends, gross proceeds from U.S. taxpayer deposits on securities, and all pass-thru payments.

IRS Notice 2011-53. The IRS and the Treasury will provide a feasible time frame for FFIs and U.S. agents to put into action the requirements of the FATCA. The FATCA notices specifies the following:

-An FFI must enter into an agreement with the IRS by June 30th, 2013, to make sure it is identified as a participating FFI in enough time to let withholding agents stop withholding beginning on January 1st, 2014.

-Withholding on U.S. source dividends and interest paid to non-participating FFIs will begin on Jan. 1st, 2014, and withholding on all allowed payments will be fully in place on Jan. 1st, 2015.

-Requirements for identifying new and pre-existing U.S. accounts will begin in 2013. Reporting requirements will begin in 2014.

-High risk accounts include private banking accounts with a balance that is equal to or greater than $500,000.

The IRS and the Department of Treasury are working with businesses and foreign government to make sure the FATCA is effective.

If you have any questions about the FATCA, please contact a tax professional.   

Daniel Stoica Accounting Professional

If you don’t withhold enough in taxes each pay day, you may end up owing more money than you had planned come tax time. If you withhold too much, you may end up getting a large refund, but you, ultimately, give up more money each payday.

You have the option of working with your employer to adjust your withholdings each pay period. You can also figure your withholding if you have gotten married or divorced during the year, added a dependent, bought a house, changed jobs, or retired.

On the IRS website, there is a withholding calculator that will help you figure how much should be taken out of your pay each pay period. It will figure out the accurate amount of federal withholdings and gives you information to help you fill out your W-4, the Employee’s Withholding Allowance Certificate.  To find the calculator, go to the IRS.gov website and search for “withholiding calculator”. 

In order to use the withholding calculator, have the following items handy.

-Your most recent pay stubs.

-Your most recent federal income tax return.

 More tips for using the withholding calculator:

 -Fill in any information that applies to you.

-Make an estimate, if necessary. The results are only as accurate as the information you give.

-Check any links in the program if you have questions.

-Print the last screen. It gives you a summary of everything you entered with your calculations. You can use this to fill out a new W-4 if you need to, then give it to your employer.

-Keep the form you printed and a copy of your W-4 for your tax records.

The withholding calculator is a helpful resource for most people because it makes the process of figuring out your withholding so much easier.

If you are self-employed or are required to have an alternative minimum tax, or if your job is ending before the end of the  year, you will get a more accurate figure by taking a look at Publication 919, How Do I Adjust My Tax Withholding. The publication can be found at www.irs.gov or by calling 1-800-829-3676.

 If you have additional questions about tax withholding, contact a tax professional. 

Daniel Stoica Accounting Professional

When someone in the Armed Forces dies in combat from wounds, injury or disease, his or her tax liability is forgiven by the Internal Revenue Service.

It is granted for the year of death and the previous tax year that ended before the soldier began their service in active duty in a combat zone. The same applies to unpaid taxes for the years ending before they began their tour. If the spouse pays any taxes due after the time of death, the IRS will issue a refund.

If a soldier died outside of a combat zone, but was in a support position, the forgiveness rules also apply.

If a member of the military dies from wounds or injuries that occurred due to terrorist or foreign military action, their tax liability is also forgiven.

How to claim the forgiveness or refund.

A 1040X form is used to claim a refund.

Once the tax liability is forgiven, the deceased military person’s representative must do the following:

-File a 1040 form if a return has not yet been filed. A 1040X should be filed if the return has been filed. The 1040X must be filed for each year that is requesting a forgiveness. A description on the line for “total tax” should be placed on the return.

-An attachment showing total tax liability of the deceased must be provided before a forgiveness can be granted. The Department of Defense or Department of State will provide the representative with a certification. It must be attached to the request. A 1310 form should be attached as well. This form is a statement from the person who is claiming the refund on behalf of the deceased military member.

-If there is not enough tax information to file a claim, but the certification is received, the representative will need to file a 1040X form as well as a 1310 form. There is a filing deadline for these claims. The time frame is three years from the date of filing or two years from the tax payment, whichever date is later.

All returns and claims must be filed and one of these addresses:

For U.S. postal service: Internal Revenue Service, PO box 4053, Woburn, MA 01888.

For a private delivery service: Internal Revenue Service, stop 661, Andover, MA 05501

Please consult with a tax or accounting professional if you have any questions about this information.

Daniel Stoica Accounting Professional

Real estate and property taxes are different in each state and city. Nearly three-fourths of our country’s home owners pay over half of their mortgage payments to real estate taxes every year. In several states, the taxes on property and real estate make up for the fact that the state does not charge income taxes. Other states have high property taxes simply because they can take advantage of the taxpayers, at least, that is what the residents of those states claim. A real estate broker will hire someone to determine if a home has been over appraised by taking into account the number of bathrooms and bedrooms a home has, the age of the home, the quality of construction on the home, the square footage, and if there are any up-scale amenities nearby.

Many home owners overpay for their homes. Now is the time to learn about lowering real estate taxes. If you look at the American Homeowner’s Association, you will find an abundance of information about your home, such as, the number of bedrooms and bathrooms your home has, the lot size, your home’s square footage, and so much more. Following is a list of things you can do to help lower your property taxes.

1. Go to your tax assessor’s office and request a copy of your real estate tax rate card. This card will have information regarding your home and will show what improvements have been made to your property. Make sure there are no errors. If there are, get them corrected right away.

2. Don’t make any improvements on your home just before it is assessed, especially if you will need permits. Improving on your home will increase your property value, which will increase your taxes.

3. Make sure you know what home improvements will cost you in taxes. Call the tax assessor’s office to find out how much more your taxes will be if you make home improvements.

4. A beautiful and well maintained home will raise the value of your home. Try not to “beautify” your landscape too much, as it will also raise your taxes.

5. Find out how much your neighbours pay in taxes. If your home is assessed much higher than theirs, ask the assessor’s office why. You can also ask for your home to be re-assessed.

6. If the assessor comes to your home and needs to look around, let him or her. They will always use the highest rate if they cannot properly assess your property. If you have made improvements and they find out about it later, you could be penalized with higher taxes anyway.

7. When the assessor does come to your home, point out what work needs to be done. They generally take into account the improvements that have already been completed and base their rates on those. They won’t look at a cracked foundation or a roof that needs repairs. If they are able to look at the things that still need work, your taxes may be less.

8. If you still believe your property taxes are too high, ask the assessor’s office how to challenge the assessment, or ask for your home to be re-assessed. There is a formal process to appealing the assessment.

Daniel Stoica Accounting Professional