Tax Evasion: Celebs under the radar of IRS?

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The end of the United States tax year has been and gone, so it is surprising to some that there are still a large number of celebrities who are believed to still owe the Internal Revenue Service (IRS) a great deal of money. But are the IRS oblivious to this? Are the celebrities in the US entirely under the radar?

Because there is a considerable amount of money still owed at such a late date by celebrities, it may seem easy to jump to the conclusion that the answer is most definitely ‘yes’. However there have been many highly publicized cases of celebrities being singled out for owing large sums of money, usually due to them not taking enough responsibility for their own tax preparation. One such example is former NFL athlete Warren Sapp, who in April of this year filed for bankruptcy due to his past failure to pay tax catching up with him. The bankruptcy documents indicate that Sapp owes $942,000 in taxes to the IRS which date back to 2006, which he is now unable to pay. Cases like this indicate that celebrities are not free to evade the tax they owe to the IRS. However it is extremely hard for celebrities such as Sapp to pay back money that they owe when they do not have any money to give – usually because they are past their heyday and no longer have a steady income.

The IRS have made it extremely clear that celebrities are far from under the radar. Back in 2007 an Issue Management Team was formed with the specific goal of retrieving unpaid income tax returns from athletes and entertainers within the United States. This has coincided with the laws regarding tax and the IRS becoming stricter and stricter. A bill currently going through the US House of Representatives will allow the federal government to revoke passports of US citizens who the IRS can prove owe them taxes. Also actions have been taken against celebrities who still have unpaid tax returns. Wesley Snipes, a well known movie star who is believed to owe the IRS a staggering $17 million in back taxes, and Rapper Ja Rule are both serving prison sentences due to unpaid taxes.

Unpaid tax returns are of high public concern due to the importance of tax money to the US treasury. Taxes provide income to all levels of government in order for them to be able to provide vital services. Examples of the services they provide are things such as highways, police and hospitals, which benefit all citizens in the US. Without this income, such public services suffer greatly. The problem with celebrities not paying tax is that there is a public perception that they have a great deal of disposable income, so by not paying tax they are portrayed in the media as immensely greedy.

However there are other reasons that celebrities may not pay their income tax, which all need to be considered. One issue is that celebrities tend to have a hard time keeping on top of their finances. This is because unlike the average American citizen who gets paid either weekly or monthly, celebrities tend to get paid in lump sums and often to have to manage this income throughout the year. Because of this issue celebrities often hire financial advisers, but if non-reputable firms or individuals are hired, the trust may not pay off and their finances may become increasingly complex. Actors Nicolas Cage and Wesley Snipes both laid the blame for their financial troubles upon the financial experts they hired.

Another issues is that unlike the average American employee, taxes are not automatically deducted from their wages. This means that the payment of income tax may be delayed, which is when the problems begin to arise. Many years of unpaid tax eventually add up to an incredibly large bill, which the celebrity may not be able to ever repay. To solve this problem, many have suggested that the IRS should put more pressure on celebrities to ensure that they file their income tax returns at the end of each tax year. Another issue of note is to ensure that celebrities hire reputable firms to deal with their finances and any ensuing legal issues, instead of  relying on people who they know without the relevant expertise.

Celebrities are far from under the radar of the IRS, but certain situations such as bankruptcy resulting from delayed payment may give this impression. Celebrities status often makes it impossible to avoid issues to do with tax due to the constant media attention which they receive. Before jumping to a hasty conclusion about celebrity greed and their tax evasion, the differences between public and celebrity taxes have to be considered and understood.

3 Ways Increasing Taxes on the Wealthy Could Affect Job Growth by David Veibl. David is a guest author for the CPA blog of WallaceAPC, a tax preparation company in Los Angeles with top quality tax consulting services.

All You Need To Know About Dealing With Tax Liability

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Do not let tax liability force you to pay more than your fair share of taxes. The IRS has been providing special reliefs to people who have not been able to meet their tax obligations for the last few years.

The tax revenue authority body through its “Fresh Start” initiative is taking target at small business owners and the unemployed to meet revenue collection targets set previously.

According to Doug Shulman, IRS Commissioner, the agency has an obligation to work with struggling taxpayers in order to find a workable solution for both parties.

Every taxpayer should know that failing to file returns or to pay taxes on time will attract penalties which will increase their tax liability.

» Failure to file on time will result in a penalty of five percent per month of the unpaid taxes until the amount is fully settled.

» Failure to pay taxes will lead to a penalty of half of 1 percent of the unpaid taxes every month.

The good news is that the agency is giving a half-year grace period to some self-employed people and eligible unemployed people. During this period, these groups of taxpayers will not incur penalties for late payment or failure to file returns. However, taxpayers who fall into these two categories will have to fill out the IRS Form 4868 to ask for an extension.

Under the Fresh Start initiative, eligible taxpayers will have up to 15th October to pay their taxes. Self-employed individuals who have seen their income drop by more than 25 percent due to the economic crisis in 2011 can also qualify for this deadline extension.

How to Avoid an IRS Tax Audit

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Tax season is upon us, and people seem to react to tax season with mixed feelings. Of course, if you are expecting a refund this year, then you are probably excited to file your taxes. But be honest – there is that little voice in the back of your head worrying about being audited, right? After all, people rank the experience of an IRS audit right up there with a root canal. If you want to do your best to steer clear of the worst come tax time, here are some tips for how to avoid an IRS tax audit:

Double check your work. Silly mistakes can cost you a lot of time and frustration down the road. Always go over your finished tax forms with a fine-tooth comb, especially if you prepared them using your own software. You can’t take back what you send the IRS once you hit that submit button, and just one extra zero where there’s not supposed to be one is all it takes to trigger that dreaded phone call from the IRS.

Meet your deadlines. When it comes to dealing with the IRS, you want to avoid drawing any unnecessary attention to yourself. When you file late or fail to make a payment on time, it’s like holding a big red flag up and hoping the IRS doesn’t see it.

Report everything. The IRS cross-references everything, so don’t leave anything out – no matter how insignificant it may seem. For example, that ten dollar interest amount you earned on your small savings account may not mean a lot to you . . . but it’s certainly not worth an IRS audit, is it?

Overshooting your deductibles. Only claim what you can legally claim, and be completely honest. The deductibles portion of your tax returns is one of the most likely areas you can expect the IRS to scrutinize. If anything looks off, or even slightly questionable, you are in danger of being audited.

Keep records. If you are going to claim something – anything, from income to expenses to deductibles – keep records of it. Invest in a small file folder and maintain your receipts and records throughout the year in order to make an easy job of it. That way, you can be sure that you are filing correctly when you send in your returns, and you can rest assured that you did everything within your power to avoid an audit.

There is no guarantee that you won’t be audited by the IRS. It is possible to everything the “right” way only to come under investigation, while others seem to slide under the radar. What you can do is set your mind at ease that an audit is as unlikely as possible, and these tips should help you do just that.

About the Author: Francine Ersery is an accountant in the windy city and often has to help her clients sort through audit issues. When she’s not working she can often be found looking at Chicago daily offers for hot deals and weekend entertainment opportunities.

What is the Federal Residential Renewable Tax Energy Credit?

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If you have made renewable energy improvements to your home, or you are considering them, you should know about the Federal Residential Renewable Energy Tax Credit. The Federal Residential Renewable Energy Tax Credit is a program that gives a huge tax incentive to people who install solar-electric systems, solar water heaters, geo-thermal heat systems, fuel cells and/or wind turbines. If you have installed a renewable energy system, or you are planning to install one, the tax credit can help you recoup a large portion of your initial investment.

A Brief History

The Energy Policy Act of 2005 was the first act to establish tax credit for residential renewable energy installations. The Energy Improvement and Extension Act of 2008 and The American Recovery and Reinvestment Act of 2009 further strengthened and extended the original act. As of this writing, the tax credit is available until 2016, although there is a good possibility that this deadline will be extended as it has in the past.

Who Is Eligible?

If you have a solar-electrical system, solar water heater, geo-thermal heat system or wind turbines that were installed after 12/31/2008 then you are eligible for a 30% tax credit with no maximum amount. If you had your system installed before 1/1/2009, then there is a maximum credit of $2,000. In the case of wind turbines installed before 1/1/2009, the maximum credit is $4,000. Additionally fuel cells need to have been installed after January 1, 2006 and the maximum credit is $500 per half kilowatt. There are certain federal Energy Star requirements for renewable energy systems, so if you are planning an installation, then you should consult with a professional about which systems are eligible to receive the tax credit. If you already have a renewable energy system installed, you should consult with a tax account to find out if you can still claim the credit.

Other Caveats

The home or homes served by the solar panal installation system do not have to be the taxpayer‘s primary residence, except in the case of fuel cells, where only the taxpayer‘s primary residence is eligible. For solar water-heating systems, the Solar Rating Certification Corporation (SRCC) or a comparable state agency must certify the system for performance. Additionally, the solar water-heating system must heat at least 50% of the home’s water. Hot tubs and swimming pools with solar water heat are ineligible for the tax credit. Fuel cells must generate at least .5 kilowatts and have electricity generation efficiency greater than 30%.

Although determining your eligibility may seems confusing, it is actually not that difficult. Most renewable energy systems installed after 12/31/2008 are eligible. However, you should check with the IRS or with a tax accountant if you are not certain. If you are planning on installing a new renewable energy system, than you should definitely consult with the company doing the installation to make sure that you get a system that will get you the tax credit so that you can offset your initial investment.

About the Author: Odette Maupredi has spent months researching residential solar panel benefits and highly recommends everyhomeowner look into both state and federal energy programs. You could stand to save quite a bit of money if you can afford to participate.

Requirements for Alimony to be Deductible

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Individuals that pay alimony (also known as “spousal support” or “spousal maintenance”) to a former spouse can deduct these payments on their personal federal income tax returns. In turn, the alimony recipient is required to claim the payments as income.

Before a payor takes an alimony deduction they should make sure that their payments meet the IRS qualifications for alimony. Ideally, this was addressed and discussed in detail with their divorce attorney to ensure that the alimony was structured in a way that would allow a deduction. If you are not sure whether your payments are deductible you should consult with a family law or tax attorney. Here are some tips regarding what does and does not meet the general requirements for payments to qualify as alimony under the Internal Revenue Code.

Alimony is Formally Mandated

According to the IRS, alimony payments must be mandated by a legal settlement agreement or court order to qualify for the tax deduction. This means that there must be a legally binding agreement, such as a temporary support order, separation agreement or divorce decree, that describes and mandates the support provided by one spouse to the other. The IRS does not consider voluntary, informal payments of money to a spouse or former spouse to be alimony.

Child Support Is Not Alimony

Child support is not alimony and those who pay child support cannot deduct these payments from their income. Under federal tax laws, child support is not tax deductible by the parent who pays it, and does notneed to be reported as taxable income by the parent who receives the payments.

Cash Payments Only

Non-cash property transfers don’t count as alimony and cannot be deducted from one’s taxable income. Alimony must be paid in cash, or by check or money order, in order to satisfy the statutory requirements.

Third Party Payments

In some cases, court-ordered payments to third parties can be considered alimony and are therefore tax deductible. Examples of this include rent or medical expense payments. In addition, payments made on taxes, mortgages or insurance may also be entirely or partially tax deductible if treated as alimony under a divorce or separation agreement.

Complications Can Arise if You Still Live With Your Ex-Spouse

According to the IRS, a person who is legally separated from his or her spouse, yet still lives in the same home with him or her cannot normally claim a tax deduction on alimony payments. An exception to this rule exists when one spouse leaves the home within one month after receiving an alimony payment. In those states that recognize legal separation, those who are still living with their former spouse and have a legally binding support agreement but are not legally separated, should talk to their attorney or tax adviser to find out whether their payments qualify for a deduction.

About the Author

Scott Morgan is a board certified Austin divorce lawyer who regularly blogs on the subject of divorce and family law. You can read his blog at AustinDivorceSpecialist.com.

The Findings Of An IRS Watchdog

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Some reports from an IRS watchdog have indicted the federal tax agency for certain practices regarding offshore account disclosure. An arm of the IRS known as the Taxpayer Advocate Service has been responsible for reporting these kinds of voluntary disclosure policies aimed at wealthy Americans. According to the watchdog report, the IRS has failed to cap penalties in cases of this kind of disclosure.

A standard practice of the IRS has been to reduce the penalties for those who willingly disclose that they have hidden offshore bank accounts. These taxpayers have often accumulated this wealth from overseas jobs or from family inheritances. The discovered lack of penalty caps has been linked to higher-than-necessary tax payments for some American taxpayers. Some experts believe that this lack of consistency could undermine the IRS’s credibility in the future if the agency implements similar types of programs.

Prior IRS voluntary disclosure programs have netted over $4.4 billion USD in unpaid taxes from these kinds of offshore accounts over a recent two-year period. A renewal of this disclosure is expected to bring in more names of wealthy Swiss bank account clients who have avoided their obligatory tax payments.

Information from this IRS watchdog report reveals that the ordinary cash penalty is supposed to be a maximum of $10,000 for account holders who accidentally fail to report these assets. Willful withholding of information on foreign bank accounts can carry a penalty of up to 50% of the highest account balance for each covered year of tax nonpayment.