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.
Each year the Internal Revenue Service (IRS) reports the most common tax deductions taxpayers forget about when submitting their income tax return. Among one of the most common mistakes taxpayers make is they forget to place their Social Security number on the form or they make a mistake when entering the information.
It is possible for some taxpayers to be overpaying so it helps to make sure you review deductions available and understand how to claim them correctly to obtain the credit. Below is a list of the most common deductions overlooked by taxpayers:
State sales tax: Taxpayers who live in a state that doesn’t impose an income tax often forget to claim this deduction. The IRS has a table that can be used to help you figure out the amount to deduct.
Charitable contributions: This includes charitable deductions from your paycheck, items purchased for a charitable event such as a fundraiser or if you drove your vehicle for charity, the IRS lets you deduct a certain amount per mile. Save all receipts and if you make a donation of 250 or more, get written confirmation from the charity.
Student loan interest: If mom or dad paid for a student loan for a child not claimed as a dependent, the interest can be claimed on your return.
Moving expenses: If you moved to take a new job, the expenses related may be deductible.
Child care credit: Having a credit can help reduce taxes owed. If your expense is paid through an account at work, it is easy to overlook but if you pay several thousand for child care it helps reduce taxes owed.
Earned income tax credit: While the rules to this may be complex, many taxpayers don’t claim it. This is considered a refundable tax credit instead of a deduction.
State tax paid last spring: If you paid state income taxes in quarterly payments or had them withheld, they can be deducted on your current return.
Energy-saving home improvement credit: This is a credit that is 30 percent equal to the cost of energy-saving improvements. The IRS provides details on qualifications for this credit.
Jury duty payments: If your employer required you to give them payments you receive for jury duty, you can claim the amount on your return.
Refinancing points: There are points that can be deducted when you refinance your home at one time. This depends on how many years are on your mortgage and you can deduct points that are remaining if you sell you r home after paying if off or refinance again.
Andrew writes frequently about personal finance as well as issues effecting both consumers and small businesses, covering everything from credit cards to mortgages to loans.
While many financial experts claim you should avoid borrowing from your 401k as much as possible, it may be your only financial life line in certain situations. Because so many people often don’t have enough or anything at all saved toward retirement, financial experts claim you could be setting yourself up for financial disaster when you are ready to retire. On the other hand, depending on your situation, it may make sense to borrow.
If you have considered other financial options such as borrowing from friends, family or home equity line of credit, a loan against your 401k may be your last option. An emergency that may be okay to borrow includes the need of living essentials such as food, grocery items and keeping utilities from being disconnected. If you have other obligations or are being harassed by debt collectors for items such as medical bills or credit card bills, negotiate a payment plan that will give you time to make payments before considering using 401k funds to pay them off.
It you have a secure job it may be safe to borrow because it helps in repaying the loan amount. You may have to consider payment amounts that would be applied to what you borrowed if they are automatically deducted from your paycheck. Also keep in mind; you may be required to pay it back during a set time period. If you leave your job before the loan is repaid, you’ll have 60 days to pay what is due. At this point, the money taken out may be subject to a 10 percent tax penalty.
You plan to use what you borrow for a smart investment. This includes using the money to purchase a home, start a business or further your education. For homebuyers, the repayment period is extended. Make sure business decisions are thoroughly researched and educational credentials will have additional value for the workplace.
If you are unable to obtain a loan at an affordable rate, borrowing from your 401k may be a low-cost loan option. People who have filed bankruptcy in the past, for example, may not qualify for a loan at a lower rate. Remember, you may still have to pay penalties for touching your 401k before your retirement age. You may save interest in choosing to borrow against your 401k but it may not make up for taking the funds out in the beginning.
Andrew writes frequently about personal finance as well as issues effecting both consumers and small businesses, covering everything from credit cards to mortgages to tax reduction.
Innocent Spouse Relief has always been available as a way for taxpayers who file joint tax returns and who were not aware, nor had any kind of reason to be aware, that her or his spouse had underpaid or understated their liability for income taxes. It was designed to offer the innocent taxpayer some protection from the faults of their partners and spouses and details of how it works were to be found in Publication 971 which was entitled Innocent Spouse Relief.
The regulations detailed in Publication 971 state that innocent spouse requests that are seeking relief from liability need to be filed within 2 years from the time that the IRS begins action for collection against the spouse. The point of this time limit was always that it was established to encourage early and swift resolution while there was still evidence remaining. However it has been announced that the IRS now intends to issue new regulations stating that they will be removing this two year time limit. In doing so they have stated that the reason for its removal is that they wish to extend the period in order to assist more innocent spouses in their relief requests.
From now on the IRS will not be applying that 2 year limit to any equitable relief cases and any taxpayers who have previously been denied relief requests purely on the basis of the two year limit are now eligible to reapply if they wish to. To do so they need to fill out IRS form 8857. In addition, those taxpayers who have ongoing cases currently held in suspension are now going to be afforded the benefits of the new rules and need not restart their application. Similarly they will not be applying the two year restriction to any cases that are pending litigation that involve equitable relief and if litigation has become final, they will suspend collection under many circumstances.
All changes are effective immediately and can be found in Notice 2011-70.
Alex is a freelance journalist and financial blogger. He loves to write about football and jazz but spends most of his days writing about mortgages, credit cards and tax reduction.
More and more consumers are choosing to make purchases online today. Retailers lure them on line with web sites or even mobile apps for smart phones that compare prices and features on items from diverse sources. One selling point is that such transactions are usually free of state sales tax. In Massachusetts, though, that may not be the case for long.
Even as members of most committees of the legislature leave town for the summer break, the Committee on Revenue quietly sent legislation that would let Massachusetts start collecting sales tax on transactions that take place on the Internet. Supporters say this sort of tax would increase revenues by $335 million every year. The proposal has sparked intense debate on the propriety of the practice as well as the specifics of the legislation. Wal-Mart is a major funding source for groups looking to add similar legislation in other states.
The bill, H 3672, was voted out of committee with an eight to two majority. Its purpose is to permit the state to collect the already established sales tax of 6.25 per cent from vendors who sell by mail otherwise taxable items to anyone in the state by phone or on the Internet without any physical facilities in Massachusetts. Implementing the new law would require enabling legislation from the US Congress. Massachusetts would be the 24th of 50 states to request such laws from Congress. In other states, revenue has not increased as expected as the retailer Amazon has ended ties with affiliates in those states, putting them out of business, and eliminating any taxable body in the state.
Critics paint the proposal as a new tax and a barrier to economic growth. Proponents point out that it merely seeks to collect taxes due but currently not paid. The additional money would supplement revenue streams from income tax and corporate and property taxes. The dollar amounts received from existing taxes is steadily decreasing, and coupled with unpaid taxes the decreasing revenues create a need for a new revenue source. Activists also point out that online tax free sales by Internet retailers are overwhelming brick and mortar retailers in Massachusetts and elsewhere.
The recent economic recession has compelled a lot of people to seriously think about their financial condition, including their lives after retirement. With the uncertainties in the economy today, it is but logical to make sure you are putting all your resources to good use. Thanks to convenient retirement plans such as Roth IRA, you can now get some sleep.
Roth IRA is relatively a young retirement plan, debuting on 1997. It was patterned after the traditional IRA except that it provided more benefits to workers. Employees approaching the retirement age are greatly considering making IRA investments because it has helped thousands of people all over United States since its inception.
How Roth IRa Works
In a nutshell, Roth IRA is just like any other savings account. But unlike regular bank accounts that you have, the savings that goes into your Roth IRA accounts are and can be used in several ways. When you have a Roth IRA account, you can contribute a portion of your annual income to that account. That amount will then be deducted from your annual tax return, and you will only pay the taxes on interest once you retire.
The biggest advantage that Roth IRA has over any other savings account is that, all the money in your Roth IRA can be used to make investments. You can use your Roth IRA money to invest in real estate, stocks, bonds, precious metals, and so on. But given the extremely affordable mortgage rates Florida these days, you might want to consider investing in real estate first.
Life After Retirement
There is nothing more rewarding that enjoying the fruits of your labor. Do not let yourself become one of those people who live an uncomfortable and difficult life after retirement. As early as now, consider your savings and investment options. Do not let the product of your years of hard work go to waste. You deserve no less than the best.