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Automaker average wage comparisons (click image for source article)

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Department of Treasury

$266 million is the amount of money the Internal Revenue Service is holding because the refunds checks were returned to the IRS due to the address for the taxpayer not being deliverable according to the post office.

Here is a four minute audio from the IRS explaining how you can track down your missing refund and how to avoid this from happening in the future.

Download audio file (undelivered_refunds_pod_110702.mp3)

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There is a lot of confusion about Limited Liability Companies (LLCs) versus other types of business entities.  From strictly a tax standpoint, a limited liability company is not recognized in the Federal tax code.  In other words, a LLC can be a sole proprietorship, a partnership or a corporation (S or C type) for tax purposes.

Generally speaking, a business entity forms a LLC to get the benefits of being protected from lawsuits against your personal assets without having to go through the hassle of forming and maintaining a corporation.

But there are still reasons to incorporate rather than or in addition to forming an LLC.  The circumstances unique to your situation need to be analyzed in order to determine the most beneficial way to operate your business.

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Tax Code and Regs

Effective for the tax year 2008 (and now 2009 with the bailout bill), taxpayers who normally do not itemize deductions because their mortgage interest and other deductions do not exceed the standard deduction will get a little tax relief from payment of their property taxes.

Specifically a single taxpayer gets an additional standard deduction amount of $500 ($1000 for married filers) as long as their property tax payment exceeds the deduction amount.

Seems to me that people who rent rather than own should also be entitled to a similar deduction.  After all, part of their rent payment is certainly paying the owner of the property for the underlying property tax cost.

But I don’t make the tax laws, I just try to make sense out of them.  And sometimes that is impossible.

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Donations and Tax-Exempt Organizations

Taxpayers who make donations to tax-exempt organizations, such as charities and churches, have some new rules to follow regarding the deductibility of their donations. And, tax-exempt organizations themselves are faced with sweeping changes that affect donations as well as filing and record-keeping requirements. Here is some information to help you learn more about how the new rules may affect you:

Q. What do I need to do in order to claim a deduction for money I donate to charity?
A. For any cash contribution – which includes donations made via cash, check, electronic fund transfer or credit card – you must obtain and keep either a written communication from the charity or a bank record (such as a bank statement, cancelled check or credit card statement) that includes the date, the amount of the donation, and the name of the charity.

Q. How about donations of used clothing or household goods? How do I make sure I can claim a deduction when I donate these items?
A. In order to qualify for a tax deduction, the clothing or household goods you donate to a tax-exempt organization must be in good used condition. The exception to this rule is an item for which a deduction of more than $500 is claimed if you submit a qualified appraisal of the item along with your tax return.

Q. When do I need a “qualified appraisal” for an item I donate?
A. For a contribution of property with a claimed value over $5,000, a qualified appraisal is required. Under the new tax laws, a qualified appraisal must be conducted in accordance with generally accepted appraisal standards, by a qualified appraiser who has either earned an appraisal designation from a recognized professional appraisal organization or has minimum education experience. The appraiser must also have experience in appraising the type of property in question.

Q. I am responsible for a small charity run by a handful of volunteers. In past years, we had no federal filing requirement. Has that changed?
A. Yes. Now, all tax-exempt organizations except churches are required to file some version of Form 990 annually. Small charities may only have to file the e-postcard version of this form. Keep in mind that the penalty for non-filing can be serious: a tax-exempt organization that fails to file for three years can have its tax-exempt status revoked.

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Image from Wikipedia

If you’re trying to beat the tax deadline, there are several options for last-minute help:

• Receive a six-month extension of time to file using Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.

• Payment options are available to taxpayers having trouble paying their tax bill.

Filing an extension will give you extra time to get the paperwork to the IRS and avoids the late-filing penalty, but it does not extend the time you have to pay any tax due. You must estimate your tax liability when you apply for an extension.

You will owe interest on any amounts not paid by the April deadline, and you also will be charged a penalty for late payment unless at least 90 percent of your tax liability is paid by the regular due date of your tax return.

You can also e-file an extension request using tax preparation software on your own computer or by going to a tax preparer.

If your return is completed but you are unable to pay the tax due, do not request an extension. File your return on time and pay as much as you can. The IRS will send you a bill or notice for the balance due and will charge interest and penalties only on the unpaid balance.

If you cannot pay the full amount due with your return, you can ask to make monthly installment payments for the full or a partial amount.

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The IRS recommends reviewing your entire tax return to be sure it is accurate and complete. Even a simple mistake can cause problems which might lead to delays in processing your return and receiving your refund.Here are some ways to avoid common tax return errors:

• File electronically. If you choose to e-file, many common errors are avoided or corrected by the computer software.
• Use the peel-off label if you choose to mail a paper return. You may line through and make necessary corrections right on the label. Be sure to fill in your Social Security number in the box provided on the return. If you do not have a peel-off label, fill in all requested information clearly, including the Social Security numbers.
• Check only one filing status on the tax return and check the appropriate exemption boxes. Enter the correct Social Security numbers for each of those exemptions.
• Use the correct Tax Table column for your filing status.
• Double check all figures on the return. Math errors are common mistakes.
• Make sure that the financial institution routing and account numbers you have entered on the return for a direct deposit of your refund are accurate. Incorrect numbers can cause the refund to be delayed or misdirected.
• Sign and date the return. If filing a joint return, both spouses must sign and date the return.
• Attach all Forms W-2, Wage and Tax Statement, and other forms that reflect tax withheld to the front of the return. Attach all other necessary forms and schedules.
• Do you owe tax? If so, enclose a check or money order made payable to the “United States Treasury” and Form 1040-V, Payment Voucher, if used. Or, you may choose to pay by credit card by contacting one of the credit card service providers.

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It has always been a bone of contention for me that people think tax preparers decide how much of a refund that you get on your individual returns. Folks, your refund is determined by how much you had deducted from your earnings during the year and how much your various deductions and credits reduce your tax liability. A good preparer can help you find missed deductions and credits you otherwise might miss but he or she cannot determine how much you obtain for a refund.

The Columbian has an article today about the importance of choosing a good preparer. I once represented, in an IRS audit, a very nice couple who went to a tax preparer because a friend told them that the preparer had a tax shelter that would substantially reduce their taxes. Well it turns out that the preparer was identified as someone who was getting people to sign up for a fraudulent tax shelter. The IRS not only went after the preparer, they also went after the clients of the preparer.

My new client ended up having to pay back all the taxes saved, plus interest, plus penalties. Since the IRS takes a couple years to sort out these kind of messes, the penalties and interest ending up doubling the actual amount that would have been owed had the nice couple never used this preparer.

Take the Columbian’s good advice and don’t fall for this:

Does the guy who does your income tax boast that he can get bigger refunds than anyone else?
Does your tax preparer say she’s so good that her fee is based on a percentage of how much she gets you?
If so, you may be cruisin’ for a bruisin’, says the Internal Revenue Service.

If it sounds too good to be true, it is.

By the way, people often go to the national preparer chains thinking their fees are more reasonable. This is not necessarily the case. I would be glad to quote your fee in advance once reviewing your tax materials and you can see for yourself if this is true. And with my services you are getting someone that has been doing this successfully for a very long time. Can you be sure that is the case when you go to a retail tax chain?

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Forms 941,  State Unemployment and Workman’s Compensation Insurance taxes are due

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