1. Your own home
2. Investment real estate
3. Exchange advantages

Today, I’m going to give you a few more legal tax havens you can tap into.

4. Business tax shelters

As long as you own a business whether full-time or part-time you can take advantage of some IRS-approved tax shelters. For example, you can deduct the cost of acquiring business assets in the tax year they are made, according to Section 179 of the tax code. If you don’t take advantage of this provision, the cost of assets like furniture, fixtures and fittings you buy for your business would have to be recovered through depreciation over several years.

If you work your business from home, you could take advantage of certain home office deductions. With this tax break, you can convert some of the maintenance cost of your home (like house repairs, householders insurance, cleaning bills etc) to tax deductions. But you have to comply with the conditions of this tax break set by the IRS. In fact, you can also hire your own family members in your business and by doing so, further save on your taxes by providing more deductions to the business.

5. Municipal bonds

Yesterday, we talked about investments in real estate. Maybe you’re not into real estate due to shortage of funds but you still want to take advantage of tax shelters through investments. I suggest municipal bonds, which are issued by state or local governments. Why? The reason is simple – some states do not tax interest on bonds issued by their municipalities. And as icing to the cake, the IRS does not tax municipal bond income at federal level.

6. Workplace tax benefits

Like most of the American tax-paying public, you are likely a wage earner. But that does not mean there are no tax havens for you. As a wage earner you can take advantage of workplace tax benefits. You can start a flexible spending account to help pay child care costs and out-of-pocket medical expenses. This pre-tax break can allow you to contribute money to your account before payroll taxes are figured. In addition this same tax benefit is also available for workplace 401(k) retirement plans.

7. Retirement plans

Other outside-the-office retirement savings can also you provide you with a tax haven. Some traditional IRA owners might get an immediate tax deduction on their returns, along with a deferral of taxes on the IRA earnings. Even your Roth IRA can help you reduce your taxes. You are not allowed to deduct your Roth contributions, but when you eventually take money out of the account, you don’t have to pay taxes on it.
If you are a business owner, you have a few retirement plans (like SEP and SIMPLE IRAs, Keoghs, Solo 401(k)s) that can help reduce your taxable business income and make life easier after you retire.

So there you have it. Various tax havens you can take advantage of right here and now. Do these and you will have more cash in your pocket at the end of the day.

IRS-approved Legas Tax Havens (part 2) is a post from: IRS Tax Problem Solver Blog - IRS Help

1. Your own home

As a home owner, you enjoy tax-cutting opportunities the moment you bought your house and they remain until you sell it. Among the tax benefits are deductions for all or part of your mortgage interest, interest on certain home equity loans, points paid to get the loan and your annual property tax payments. Use these tax benefits to reduce your taxes every year.

When you finally sell your house, you get tax benefits, too. You will be spared from taxes for up to $250,000 in profit for individual taxpayers and if you are a married couple filing jointly, your tax break is twice that amount. This tax shelter applies to every principal home you ever own as long as you have lived in the house at least two out of the five years prior to your sale.

2. Investment real estate

Real estate you buy for investment purposes also offers some chances for tax shelters. For example, you can write off the depreciation costs on such real estate. Furthermore, with this kind of investment, you can make a small down payment on the real estate yet base your depreciation deduction on the entire purchase price.

Besides depreciation on the investment real estate, you can also write off mortgage interest, have real estate tax deductions and maintenance costs. Obviously, when you finally sell this real estate, you are liable for capital gains tax based on the profit. But you might be able to delay that bill by taking advantage of the following tax law.

3. Exchange advantages

According to Internal Revenue Code Section 1031 you can postpone paying taxes on investment property by swapping it for another. Also known as a like-kind exchange, you sell a property and then use those proceeds to purchase another like one.

When you eventually sell the new property, you'll recognize the originally deferred gain plus any additional accrued since you purchased the replacement property. But if you don't need the proceeds and just want to get rid of the property, a 1031 exchange could help postpone an investment tax bill. In effect, you get an interest-free loan from the government in the amount you would have paid in taxes.

There are other pertinent details to this tax shelter, so if you're interested in a 1031 exchange, call us at (813) 229 7100 for a free consultation. We can help you navigate through the complex requirements you have to comply with in order to make this tax shelter work for you.
Stay tuned for more legal tax havens tomorrow.

IRS-approved Legal Tax Havens (part 1) is a post from: IRS Tax Problem Solver Blog - IRS Help

The difference in how taxes are calculated can be substantial. If you classify your Ponzi loss as a capital loss, you can only deduct up to the extent of capital gains for the year, plus another $3,000 ($1,500 if you use married filing separate status). Any leftover capital losses get carried forward to the following year, and the same limitation rule applies all over again. This means it can take a long time to fully deduct capital losses, depending on how much you lost in the scheme.

But if you classify your Ponzi loss as an ordinary loss, they can be written off against any type of income (wages, investment income, interest income, capital gains, self-employment income etc). If you have a big ordinary loss that exceeds what you can deduct in the loss year, the excess can potentially create a net operating loss. You can carry a net operating loss back to previous years and recover taxes you paid earlier, or you can carry it forward to shield your income in future years, which will be especially helpful if tax rates go up.

The proviso that allows you to classify your Ponzi loss as an ordinary loss is if the money you invested in the scheme was not used for its intended purposes but instead was siphoned illegally to splurge on the lavish lifestyle of the perpetrators or some other expenses.

According to IRS Revenue Ruling 2009-9 and IRS Revenue Procedure 2009-20, the ordinary loss from a Ponzi investment scheme can be written off as an itemized deduction (on Schedule A of Form 1040) resulting in:

• Full deduction without regard to the limitations that apply to garden-variety personal theft losses.

• Full deduction without regard to other rules that reduce write-offs for other types of itemized deductions.

• Full deduction under the alternative minimum tax (AMT) rules.

• Deduction on Form 1040 for the year in which you discover the loss. However, the loss must be reduced by claims for reimbursement for which you have a reasonable prospect of recovery.

• A net operating loss that you can carry back to the three previous years or forward to the next 20 years. Even better, a special rule allows you to carry back a net operating loss created by a 2008 Ponzi loss for up to five years (vs. the normal three years).

• Deduction of a safe-harbor loss amount on the return for the year that the loss is discovered. The IRS will allow the safe-harbor loss with no questions asked, thus preventing lengthy and expensive disputes about the amount and timing of losses. Just keep in mind that the safe-harbor privilege is only allowed for losses discovered after 2007.

Tax Breaks can Help Ponzi Victims is a post from: IRS Tax Problem Solver Blog - IRS Help

Also, once a Form 668(Y) is issued to you, it goes on public record and the lien appears on your credit reports, and your FICO credit falls by up to 200 points. Besides that, even after your tax liability is fully settled, Form 668(Y) stays on your credit record for 7 years thereafter. Sucks, huh? So the best thing to do is to avoid a lien altogether.

Since prevention is better than cure in this case, it’s important to ensure that you are current in your filings. You have to file your tax returns every year regardless of whether you can afford payment or not. Then if you truly cannot afford to pay off your entire tax debt, you should negotiate with the IRS to make installment payments. When you have agreed on an installment plan, stick to it at all costs. This will prevent the IRS from issuing Form 668(Y) to you.

If you default on your installments, you should immediately re-negotiate your position with the IRS, explaining to them why you cannot honor your agreement. Worse comes to worse, you can make an offer in compromise where you propose to pay less than your total tax liability as full settlement. If the IRS accepts your offer in compromise, you can then have Form 668(Y) expunged from your tax case.

But if you have already been issued with Form 668(Y), what can you do about it?

The essential thing you must do is settle your entire tax debt. As stated above, you can do so via an installment agreement. When you have fully settled your taxes, then to annul Form 668(Y), you need to fill out Form 12277 Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. On Form Form 12277, make sure you have checked the box indicating that the request was in the best interest of the government and the taxpayer. Once the IRS is satisfied with your tax settlement, they will issue IRS form 10916(c), Withdrawal of Filed Notice of Federal Tax Lien to you.

Form 668(Y) by the IRS is a post from: IRS Tax Problem Solver Blog - IRS Help

If you have tried to settle your tax problems through the usual channels of correspondences, negotiation and discussion but to no avail, it’s time you try the TAS. Also if the IRS has been sending you notices demanding you pay up your back taxes and it appears like collection actions by the IRS is inevitable, you should seriously consider contacting the TAS. Essentially, if you have experienced a delay of more than 30 days to resolve your tax issue, or have not received a response or resolution to the problem by the date that was promised by the IRS, you should contact the TAS.

The TAS helps taxpayers and business taxpayers whose tax problems are causing them financial difficulty, which could include the cost of hiring professional representation, such as a tax attorney.

If you qualify for tax advocacy help, you will be assigned to an Advocate who will listen to your situation, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved.

There is at least one local Taxpayer Advocate office in every state, the District of Columbia, and Puerto Rico. You can obtain the number of your local Taxpayer Advocate from your local phone book, in Pub. 1546, Taxpayer Advocate Service – Your Voice at the IRS and on the IRS website at www.irs.gov/advocate. You can also call TAS toll-free at 1-877-777-4778.

TAS also handles tax problems that may have a broad impact on more than just one taxpayer. You can report these "systemic" issues to TAS through the Systemic Advocacy Management System at the IRS website.

Tax Advocacy Help is a post from: IRS Tax Problem Solver Blog - IRS Help

Tip #1 – Do not ignore the IRS

Whatever letter or notice you receive from the IRS needs to be responded to. You should try to make payment to the IRS as soon as you can with whatever little you have because the interests and penalties they charge add up very quickly. The IRS will use whatever means necessary to get their money back, including wage and asset garnishments. Even if you don't have the money to pay on time, there are ways to get tax help today to avoid financially crippling liens and levies in the future.

Tip #2 – File your returns on time

This goes hand in hand with not ignoring the IRS. When it comes time to file your tax returns, make sure you file your taxes on time even if you cannot afford to pay the tax bill. Do not let your financial constraints deter you from filing your tax returns. Do this right now even if you have missed the deadline for this year or previous years. This will put on record what you truly owe, which will ultimately save you money and help you avoid significant long-term consequences. If you do not, the IRS will file a return on your behalf without any claims for credits or tax breaks. This will significantly raise your tax liability.

Tip #3 – Pay the IRS first

The IRS can impose very intrusive collection tactics like levies, liens and garnishments, so you must make sure you pay your tax debt first before paying anyone else. If you cannot pay in cash, pay by credit card. The credit card company’s interest is lower than the IRS interest.

Tip #4 – Ask for a waiver of the penalties

Since penalties can be a high percentage of the total amount owed to the IRS, you can ask the IRS to waive your penalties before you pay the IRS. To do this, you need the help of an experienced tax attorney who can help ensure you don't pay more than you are liable for.

Tip #5 – Negotiate with the IRS

Once your tax attorney or tax relief firm has negotiated away the penalties, there are other options to address your back taxes. Get your tax attorney to negotiate one of the following available options:

• A payment plan
• An offer in compromise
• A currently not collectable status

Call us at (813) 229 7100 for a free consultation on how to pay off your back taxes.

Tips on Paying Back Taxes Even When You're Broke is a post from: IRS Tax Problem Solver Blog - IRS Help

If you are a US citizen with income or assets overseas, you have to comply with FATCA. Is there a way to avoid FATCA? No, not so long as you are an American citizen. The only way to avoid FATCA is to cease being an American. Are there people who would go to that extent just to avoid the requirements of FATCA? You bet there are.

In the first quarter of this year, the government reported that 670 Americans have given up their citizenships, mostly to avoid FATCA reporting. But while the law has proven to be a nuisance to many Americans, giving up your citizenship does not make the problem of paying taxes go away. The IRS says that you are still liable for any taxes you may owe.

For people who have intentionally violated the foreign reporting laws, the IRS has an amnesty program you can participate in. Under this program, you will face no audit, no criminal prosecution and a one-time penalty. For others, however, there may be better alternatives. Special programs exist for expatriates living offshore with no US income, for “accidental” Americans (those born overseas but are technically US citizens) and for those with a combined balance of less than $75,000 in offshore accounts.

So if you have not been paying your taxes from offshore accounts, you should participate in the IRS’ amnesty program voluntarily. Although there are no guaranties, for those who can demonstrate that their actions were not willful may receive a single $10,000 penalty or no fine at all. Because the risks are so high, however, waiting is never a good move. This is because the new FATCA law dramatically increases the risk of getting caught. But if you want to participate in the IRS voluntary amnesty program, you should consult a tax attorney to help you in the process.

Call us at (813) 229 7100 for a free consultation on these matters.

How to Avoid FATCA is a post from: IRS Tax Problem Solver Blog - IRS Help

This will undoubtedly increase the small business owners’ expenses just to comply the requirements of the tax code. There will be increase in cost of paperwork and administration for every additional 1099 form prepared. If you do not already have a finance department to handle this kind of reporting your cost of doing business will definitely increase. Another area of increased costs comes in mailing any additional 1099 forms and for hiring additional staff to ensure that the business complies with the law.

Some business owners think that this Form 1099 reporting does not involve them because it is about healthcare seeing that it is in the healthcare law. But, in actual fact the new requirement was added to the healthcare law in an attempt to raise $17 billion to help cover the nearly $1 trillion cost of the new law. Unfortunately, the burden will fall on tax-compliant small businesses.

Besides that the IRS itself cannot handle the massive volume of paperwork resulting from this proposal. Its budget has already been cut, so they cannot hire more workers to cope with the additional forms that will come in. Furthermore, many companies’ fiscal years are different than the calendar year in which 1099 forms are filed. With insufficient manpower, this will surely result in substantial errors by the IRS as they attempt to match information accurately.

Another form of wrong thinking is that Form 1099 reporting will recoup lost tax revenue. This is commonly known as the tax gap a.k.a. the amount of tax revenue the government is owed compared to how much it actually collects. Estimates place the tax gap at about $290 billion. The thing is there is no evidence that the tax reporting requirement will actually reduce the tax gap because

1. Current data is not available to portray an accurate picture of underreporting of companies.
2. The 2001 National Research Program data from the IRS only focused on the individual taxpayer. The data for corporations is much older.
3. Data does not prove whether the business-to-business transactions are the problem or if underreporting is more prominent in payments over or under $600.

Tax Reporting Requirements for Small Businesses is a post from: IRS Tax Problem Solver Blog - IRS Help

1. Set a budget to donate regularly
2. Choose a cause that you are passionate about
3. A tip if you’re donating money
4. A tip if you’re donating gifts in kind

Once you have drawn up your budget and decided on what and where to give, it’s time to actually make the donation. Here are the rest of the tips.

5. Fill in the correct forms

To qualify for a charitable donation tax deduction, you must file Form 1040 and itemize your deductions on Schedule A. Any donation of cash, check, or other monetary gift has to be verified with a bank record, payroll deduction records or a written confirmation from the charity organization that bears the name of the organization, the date of the contribution and amount of the contribution.

6. Itemize your donations

Itemizing your taxes will only makes sense for people whose deductions would be greater than the standard amount, a category that can include property owners, business owners and people with numerous medical expenses.

7. For bigger donations

To claim a deduction for contributions of cash or property worth at least $250 you must have a bank record, payroll deduction records or a written confirmation from the charity organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. If your total deduction for all noncash contributions for the year is over $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.

8. For even bigger donations of gifts

If you donate an item or a group of similar items valued at more than $5,000 you must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.

8 Charity Donation Tips from IRS (part 2) is a post from: IRS Tax Problem Solver Blog - IRS Help

1. Set a budget to donate regularly

It makes financial sense to budget all your spending so charity donation is no different. Most people set aside between 2 – 4 percent of their income for charitable giving. When determining your budget, set an amount that you can manage without using your emergency fund or retirement savings. If you cannot afford it for any particular year, you may consider donating in kind instead of cash.

2. Choose a cause that you are passionate about

In choosing where to donate, you should consider your personal priorities, interests and what you’re passionate about. Some are into cancer research, others in raising AIDS awareness while still others in promoting organic food. But here’s the thing – you must make sure the charity you wish to donate to is a qualified organization, otherwise you will not be eligible for tax deductions. A qualified charity organization is one that is registered as a 501(c)3 organization, i.e. a tax-exempt organizations. Bear in mind that your donations to individuals, political organizations and candidates do not qualify for tax deduction. See IRS Publication 526, Charitable Contributions, for information on qualified organizations.

3. A tip if you’re donating money

If you have to choose between donating money and attending a fund raising event for the charity, it’s better to donate money. This will make it easier to claim your tax deduction. All you need to do is itemize your deductions and you can deduct the full amount of your donation. On the other hand, if you were to attend a fund raising event, you have to deduct the fair market value of the benefit you receive out of the event (dinner, alcohol, etc.) from your donation. In other words, you cannot deduct the full amount you donated from your taxes.

4. A tip if you’re donating gifts in kind

Your gift is usually valued at the fair market value at the time of donation. Fair market value means the price between a willing buyer and a willing seller, with both having reasonable knowledge of all the relevant facts. Clothing and household items must generally be in good used condition or better to be deductible. If you make a vehicle donation, other special conditions would apply.

Stay tuned for the next 4 tips next week. Thanks for reading!

8 Charity Donation Tips from IRS (part 1) is a post from: IRS Tax Problem Solver Blog - IRS Help