Are you missing a tax refund? This video from the Internal Revenue Service explains how you can find out if you are owed a refund and how to get a missing refund.

Daniel Stoica Accounting Professional

Another school year is about to begin and families all across the country are buying new clothes and school supplies, yet most parents tend to forget that tax time is just around the corner, as well. There are some tips to help you stay organized and plan for April now, so you can get some credits and deductions when April arrives.

Fall

This is the time of year when taxpayers should really begin to think about their taxes. The year is nearly at an end and if you are working, you can make your best guess has to how much you have made this year. Once you have figured that out, you can determine which tax bracket you’re in and adjust your withholdings accordingly. If you think you haven’t paid enough, now is the time to talk to your employer about taking more taxes out of your pay check. Yes, it will mean less take-home money, but you also won’t end up owing the IRS in April. Although, if you have overpaid your taxes, you’ll be looking at a nice refund at tax time, which means you may be able to spend a little more at Christmas.

This is also the best time of year to make donations to qualifying charities because you will still have time to get those receipts before April.Winter

Winter

With all of the holiday preparation and events during winter, you are most likely not thinking about your taxes. Keep in mind, though, that December 31^st is the end of the tax year, so if you are going to make any large purchases in order to lower your tax liability, you should do it before time runs out. If you make donations during this time of year, get them done right away. You can also make your January mortgage payment or defer any extra income to keep your liability as low as possible.

January is when most people receive their tax forms in the mail and their W-2s from their employers. You can file your taxes after the middle of January, but many taxpayers begin paying in March or April. If you would rather not file early, you should get your financial records and receipts together so you are prepared.

Spring

If you are one of the few taxpayers who gathered everything early, when spring arrives you can file your taxes easily and quickly. April 15^th is the tax deadline. All tax returns must be postmarked by midnight on April 15^th, unless you filed for an extension. The sooner you get it done, the less you have to worry about it. If you have your tax return prepared by a professional, it’s best to get it done before April because once April arrives, they will be busy.

Thankfully, April 15^th is in the middle of spring, so, once your taxes are filed, you can enjoy the rest of the season. If you are expecting a refund, you will have some extra money in your pocket, as well. It’s never too early to plan for tax season. The sooner the better. You could use your refund to purchase something that will give you a deduction or credit on next year’s taxes.

Summer

The summer months are a time to relax, so if you filed your return on time and didn’t request and extension, you can enjoy your summer without the worry. If you missed that deadline and filed for an extension, you should really get on it now, otherwise, you could end up paying penalties and interest. Taking care of your taxes right away will allow you to enjoy a stress-free summer.

When you aren’t planning barbecues and other parties, you can get an early start on next year’s taxes. Keep all of you financial documents and receipts throughout the year in one place. It is a lot easier to keep track of your records if they are safe and in one place, it will also keep you from having to hunt everything down as it gets closer to tax time. 

Daniel Stoica Accounting Professional

The IRS has stated that one of their highest rates of tax return fraud comes from prisoners. In 2009 alone, prisoners got away with taking more that $39 million in phony refunds. Georgia, Florida and California had more that $19 million in fraudulent refunds. These 2009 figures are more than 3 times the amount prisoners claimed in fraudulent refunds in 2008.

How the Prisoners Execute the Fraud

Prisoners do not make enough to qualify to file a tax return, but some do have money from inheritances, business income, investment income, rental income, and other types of income. They must file tax returns on this income, but that often leads to many fraudulent returns being filed by the prisoners. The maximum penalty for tax fraud is imprisonment, so that’s probably not much of a deterrent for many who are already incarcerated.

Prisoners have found ways to hack into IRS databases and obtain Social Security numbers from unsuspecting taxpayers. They then use these social security numbers to file fraudulent tax returns and claim refunds. They have also been known to claim refunds on bankrupt companies. Once again, they find ways to hack into the database to look up lists of bankrupt companies and claim phony refunds under their names. They often make the tax returns look so genuine that the IRS doesn’t question them. Once they prisoner receives the refund, they enlist the help of friends or family members and have them cash the refund checks. The Treasury Inspector General for Tax Administration stated that the IRS needs to take action against this immediately.

Action against Prison Fraud

The IRS and lawmakers have taken strides to try to put a stop to these fraudulent tax returns. In 2008, a law was passed to make sure the IRS releases prisoner tax information to the Federal Bureau of Prisoners and other Federal and State Corrections departments. This law was put in place to help authorities keep track of tax returns filed by prisoners and keep them from filing false returns. Authorities are still in the process of reviewing the law to make it better so that confidential taxpayer information isn’t leaked. Until the entire system is stable, prisoners may be able to continue to get away with filing fraudulent tax returns and claiming refunds that belong to law abiding taxpayers.

Daniel Stoica Accounting Professional

The thought of a large refund will make anyone happy. But, as the saying goes, if it sounds too good to be true, it probably is, and there is usually a catch. The IRS makes a habit of looking for large refunds so they can be audited. If it turns out that your large refund was given to you as a result of your mistake, your large refund could become a large debt to the IRS.

There are some deductions and credit mistakes people make that can get them into trouble with the IRS when they file their taxes. Below is a list of some of the common areas where mistakes are commonly inadvertently made.

Child tax credit: This is the most common. In order to take this credit, the child must be related to you in one way or another, or you must be the child’s legal guardian. Also, you have to show proof that you cared for this child for at least six months out of the year you are filing.

Charitable Donations: When the IRS questions charitable donations, they are usually referring to large donations. If your donation was worth more than $500.00, you have to submit a receipt and a signed statement from the organization that proves your donation was made to an IRS qualified charity. If your charitable donation is deemed to be unqualified, you will owe the money you deducted for the charitable donation that resulted in the large refund.

Business Deductions: Many small businesses have a hard time figuring this one out. The IRS looks very closely at the differences between business expenses and personal expenses. Keep all of your receipts when you purchase anything for your business. You must also show the IRS proof that the expense was necessary for the running of your business. Computers and office equipment to keep your business running smoothly, especially if your business is growing, is considered a legitimate expense. Luxury items that do not enhance the growth of your business will not be accepted as a legitimate expense.

Travel expenses are tricky as well. You must submit your travel receipts when you are filing your taxes to prove that these expenses were made solely for business purposes.

These are only a few examples of credits and deductions that could send up a red flag with the IRS. It is very important to keep all of your receipts for everything you intend to take a deduction on or claim a credit for. If you have any doubts, talk to a tax professional. They will be able to figure out what you can and can’t claim, which will keep your refund from becoming a debt.

Daniel Stoica Accounting Professional

If you are thinking of taking one of those tax refund anticipation loans, you might want to think twice about it. It is probably better to just wait it out because you will get your money. These short terms loans end up costing American taxpayers over $900 million in fees every year. Over 12 million people shelled out high fees and percentage rates in order to get their refunds faster.

Here are 3 reasons to not even ask for this refund anticipation loan.

1. Large Fees: If you add up the loan fees, the tax preparation fees and the e-filing charges, the average refund of $2000.00 is reduced by nearly $300.00 just to begin the filing of your return. Every one of us wants to know when we will get our refunds and some of us need that extra money so badly we are willing to spend the extra money to get it faster.
2. Outrageous APR: In order to go take a loan on your refund, you could end up paying between 222.5% and 2000% in interest. This is no joke. We wouldn’t accept those terms for any other kind of loan, so why accept it for money that is already rightfully yours?
3. The IRS Could Hold Up Your Refund: If the IRS finds a problem with your tax return, they could take weeks, or sometimes even months to finish processing your refund. If this is the case, your short-term loan turns into a long-term loan and you will end up having to pay out those outrageous interest rates. If that happens, goodbye tax refund.

If you take the time to plan ahead, you won’t end up looking for a way to get your refund so quickly. You can wait it out and not stress over it. There are certain things you can do to not stress over the whereabouts of your refund:

3 Things You Can Do Next Year

1. You can reduce your tax withholding for next year.
2. You can file your taxes as soon as you get your W-2, file electronically and opt-in for direct deposit.
3. Try to change your financial circumstances (i.e. get yourself into a smaller tax bracket or look for deductions and credits).

If you have any questions about your refund or a refund loan, please contact a tax professional.

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

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

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

Information on taxes can be found on the IRS website at www.irs.gov and is accessible 24 hours a day, 7 days a week, 365 days a year. There, you will find answers to every income tax question and you are able to download forms at any time.

You will also find information on the benefits of e-filing. E-filing is the fastest and easiest way to file your tax return. The IRS has made it simple to file on their website, with secure forms, and   provides answers to questions regarding how and where to have your refund returned to you. Two out of three taxpayers who file are doing so electronically. Almost 70% of taxpayers qualify for free e-filing.

On the IRS website you are able to check the status of your refund. If you chose to have your refund direct deposited into your bank account or you requested a check in the mail, you can click on “Where is my refund?” . Simply enter your social security number (it’s secure), your filing status, and the amount you are expecting, and you get the status of your refund.

The website even shows you how to make electronic payments of any taxes you owe. You can use a credit or debit card, authorize electronic payments, or enroll in the Treasury Department’s Electronic Federal Tax Payment System to make your payment. Electronic payments are fast easy, and secure.

Just answer a few questions and give your tax information through the EITC Assistant to see if you qualify for the Earned Income Tax Credit.

The IRS website has made it very easy to request forms, documents, and any other paperwork you may need. Nearly every tax-related document can be downloaded from the IRS website.

You can even figure the exact amount of your withholdings by using the IRS Withholding Calculator, which is also found on their website.

If you have trouble paying your taxes on time, you even have the option to apply for a payment agreement on the website. Look for the Payment Agreement Application to set up a payment plan with the IRS.

You can look for charities to see if they qualify for exemption from federal taxes. If they do, look to see what percentage of your contributions are tax deductible.

The IRS website even allows you to find out about the updated changes to the tax laws. These change regularly, so you should check often. Some tax revisions are in place for certain parts of the tax year and some laws are amended by Congress. The site shows changes that affect both individuals and businesses.

Visit www.IRS.gov when you have questions or need more information on your taxes. It really is a great resource for many of your tax questions.  For all the rest of your questions, seek the help of a qualified tax professional. 

Daniel Stoica Accounting Professional

Most tax professionals will tell you that when individuals file their own taxes, they tend to make some common mistakes. Below is a list of those mistakes everyone should avoid.

1. Not Paying Estimated Taxes:  Most self-employed people don’t understand the filing requirements regarding self-employment taxes, which means they end up not paying them and are hit with a huge tax bill at the end of the year, or are charged with penalties for not paying them in the first place. Income tax is basically pay as you go and anyone who is self-employed who doesn’t pay federal taxes by payroll wage deductions has to pay taxes by quarterly estimated taxes throughout the year. Self-employment taxes that are paid by estimated tax payments is the way self-employed people also pay into social security. So it’s important for self-employed people to understand their tax filing requirements and make sure they pay them in order to avoid expensive tax bills later.

2. Being Happy About Big Refunds: A big check from the government is often a good thing, but in a number of taxpayers’ circumstances, the check they get is really just the money they worked for during the year and allowed the government to hold on to, interest free. The only true refunds you will get from the government are refundable credits like the earned income credit or additional child tax credit. For refundable credits, the government lets you use them to lower your liability to zero and keep what is left over after the credit. With planning and management of their payroll withholdings, taxpayers can keep any extra withholdings and make adjustments so they can keep as much of their money as possible.

3. Making Early Withdrawals from Retirement Plans: With the economy the way it is, taxpayers are taking money from their retirement plans just to make ends meet. They don’t realize they have caused a taxable event that will cost them at tax time. If a taxpayer is under the age of 59 ½,  any withdrawal they make from a retirement plan will result in an early withdrawal penalty that is figured on the tax return. However, there are exceptions to this and taxpayers need to understand them to see if they qualify. Taxpayers think that by paying the withholding in terms of the tax they need to pay, but they don’t know there are penalties that come with making that withdrawal.

4. Thinking That a Tax Return is a Product, not a Service: Tax preparation is the service; the tax return is the result of that service. Taxpayers go into tax preparation offices asking for the least expensive tax preparation fees. This is the exact opposite of what they should be asking for when it comes to their finances. The tax professional should be proactive and help their client hold on to the best tax position they can throughout the year. Should they end up with a large tax liability, the client needs to talk to their tax professional to figure out the problem and work on keeping the problem form happening again. There is no substitute for a knowledgeable, professional tax preparer.

5. Not Asking Questions: It is important for taxpayers to understand that the amount on their tax return is what the IRS will hold the taxpayer responsible for once it is filed. If you don’t understand the numbers on your return, ask what they mean. A professional tax preparer will explain them to you. If it still doesn’t make sense, or you aren’t comfortable with the return, you can always talk to another tax preparer. Two prepares who are given the same information should have the same numbers on the return. However, certain tax laws allow for differences in interpretations. If they aren’t the same, there could be a problem.

Usually your best route as a taxpayer is to make sure you understand everything and actively listen to a reputable tax preparer. It could mean the difference between a large refund or owing penalties.

Daniel Stoica Accounting Professional