The new year has just begun and it is worth taking note of the various changes the IRS has in store for you. Being aware of these changes could help you avoid a hefty penalty or reduce your risk of being audited.

The first change for this year is that the tax deadline submission date is deferred to April 17 due to the Emancipation Day holiday in DC that falls on April 16. This deadline extension applies not only to tax submissions and tax payments but also IRA contributions.

The second change is not as welcomed. The IRS is increasing its audits. This is especially for the more wealthy taxpayers. For those earning between $200,000 and $1 million in annual taxable income, the audit rate has risen up to 4% whereas for those earning above $1 million per year the audit rate is up to 12.5%. If you compare these rates to the approximately 1% rates we have been having for the last 10 years or so, the rise is significant.

Now for some changes in filing. If you own foreign money amounting to more than $10,000 in bank accounts, brokerage, mutual funds and trusts, you need to submit a Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts or FBAR. The FBAR needs to be submitted by June 30 and failure to do so will result in a $10,000 fine. The biggest change on the tax return is that Schedule B questions about foreign investments have been expanded, giving the IRS a means of crosschecking taxpayers against FBAR filers.

If you invest in stocks, listen up. The usual Schedule D is no longer used as before because it has been replaced with Form 8949. Form 8949 requires you to report capital gains and losses broken down into three types, and provide more information about each sale. Form 8949 requires you to classify sales into Types A, B and C. Type A sales are those with a 1099B with basis reporting, Type B sales are those with a 1099B and no basis reporting, and Type C sales are those with no 1099B or basis reporting, such as puts and calls and land investments. This information in total is reported in Schedule D. As usual, you can put all this information into a spread sheet but the three types of transactions must be reported in three separate spread sheets.

Finally, the mileage rate for 2012 changed as of July 1st, and the IRS representatives are expected to be scrutinizing returns that claimed exactly half of their mileage pre-July and half post-July.

Bearing in mind all these changes, it would be smart of you to keep good records of your income and expenses and get legal advice on how to reduce your taxes. If you want to discuss your tax situation, call us at (813) 229 7100 for a free consultation.

In my previous article, I shared 4 tax tips that can save you money in the long run by either helping you pay less taxes or not paying more on your tax bill. Here are the tips I shared:

1. Set out your tax calendar for the year
2. Update your name and address
3. File a fresh W-4
4. Send out 1099-MISC in January
Now I will share more tips for you to save costs.

5. Make your estimated tax payment
If you have investment income, unemployment income or any freelance income you should make your estimated tax payment by today, January 17. If you made over $400 in your business, you will owe self-employment taxes, even if you do not owe any income taxes.

6. Send your W-2s this January
If you pay household employees, you must send them W-2s this month. Your state will require full, year-end payroll tax returns. You can refer to the IRS’ Schedule H for guidelines on reporting and paying taxes on these employees.

7. Send 1098s this January
This is for lenders who charge interest on their loans or private mortgages. If you collect interest on loans or mortgages you disburse, you must declare them in Form 1098. This is because your borrower will be reporting the interest they pay on Schedule A. Schedule A will list your name, address and taxpayer ID number so the IRS would be able to cross-refer to it and trace you as the lender.

8. Claim your FSA money
Your flexible spending account (FSA) funds are available to you when you make any form of medical expenses. So submit your receipts from your doctor’s or dentist’s appointments, your bills from the pharmacy, therapists fees etc. If you have not spent enough to use up all your FSA funds, contact your FSA administrator or payroll department to find out if you have more time to make your submissions because some FSA plans give you until March 31 to claim on your FSA funds. If you have claimed from your FSA you are no longer eligible to claim these expenses in your itemized deductions.

9. No need to send out 1099-Ks

There is a new form for this year known as Form 1099-K “Merchant Card and Third Party Network Payments.” This is for banking-related organizations that settle payments related to merchant credit-card transactions. If you are an Internet affiliate marketer or if you are any kind of multi-level marketer, you are not the third-party network that this form refers to.

So take these 9 tips and use them to save yourself some tax money. If you are having any trouble with your taxes, please call us at (813) 229 7100 for a free consultation.

With every new year comes new goals and resolve. One of your new year’s goals must be to save money on your taxes. Here are some things you can do that can either cut your tax bill or help you save more money this year.

1. Set out your tax calendar for the year
The IRS has Publication 509 Tax Calendars that you can use (available at the IRS website www.irs.gov) to remind yourself of tax deadlines throughout the year. But the print version of the calendar is sold out and will not be reprinted for the rest of the year. However, you can also download a desktop version and integrate the calendar with other personal applications. The last thing you need is to be penalized for late payment because you missed an important tax deadline.

2. Update your name and address
If you moved or got married in 2011, do not forget to update your name and address with all the relevant parties that includes the IRS, your state tax agency, the Social Security Administration, former employers (W-2s), banks (1099-INT), lenders (1098), brokerages (1099-DIV, 1099-B), clients (1099-MISC), investments (K-1s) and trusts (K-1s).

This will prevent unnecessary snags later when you file your tax returns or claim tax refunds. You will not be able to file your taxes electronically if your name on file in the IRS does not tally with your Social Security records.

3. File a fresh W-4
If you file a fresh W-4 you can take advantage of some of the new regulations passed by Congress and reduce your taxes in the long run. For instance, Congress extended the 2% reduction of Social Security taxes from paychecks for January and February and for this year there is no longer a deduction for the private mortgage insurance (PMI) payments, worth several hundred to several thousand dollars a year. So if you file a fresh W-4, you can increase your withholding to maximize your deductions. This will help you avoid the temptation of spending your disposable income and having to pay a hefty tax bill later.

4. Send out 1099-MISC in January
You need to send Form 1099-MISC to service providers you paid at least $600 to last year. This requirement does not include vendors providing goods or merchandise. You do not need to send 1099s to corporations, except attorneys and medical-care providers. For companies that operate as LLCs, you cannot be certain if they are filing as a corporation. So, get a Form W-9 from each vendor and have them tell you.

Stay tuned for part 2 tomorrow where I will share more tips you can take to help you save money on taxes.

In the continuous fight against tax fraud, the IRS plans to implement new measures designed to reduce identity theft and prevent tax refunds being stolen. However, the National Taxpayer Advocate, Nina Olson cautions that several planned measures might be counter-productive in that they may also penalize genuine taxpayers seeking tax refunds along with tax cheats.

Areas like Tampa has seen a spike in tax refund fraud cases as identities of innocent taxpayers are stolen to claim tax refunds by the hundreds of millions of dollars. It is said that the number of crimes in the streets has even fallen periodically because drug dealers and other criminals stay indoors using their computers to steal tax refunds. Some thieves even go to the extent of contacting the IRS to claim refunds that are delayed or blocked.

And one couple in Largo has sued the IRS hoping theirs will become a class-action lawsuit against the government. They are not alone as hundreds of taxpayers wait for long periods of time and sometimes in vain for their tax refunds. Even US Attorney Robert O’Niell has expressed his frustration at the slow and ineffective screening methods the IRS uses to combat tax fraud.

In addition to these woes, the National Taxpayer Advocate also expressed disappointment in the IRS’ inability to attend to taxpayers sufficiently well with the basic services such as answering phone calls and sending letters when issues arise. Compounding the problems is the budget cut imposed on the IRS by Congress as part of cost-cutting measures.

According to Olsen’s annual report to Congress, the IRS is “under tremendous pressure to protect Treasury revenue from improper refund claims,” and is “understandably deploying front-end verification procedures to prevent suspicious refunds from going out.” The report cites the case of the Florida couple who is suing the IRS. Olsen went on to say, “For the 2012 filing season, the IRS plans to implement a set of identity theft filters it developed by analyzing a population of tax refunds that included 'verified' false returns along with known legitimate returns.”

However, Olsen cautions that such filers are “inherently imprecise” and will likely weed out legitimate tax refunds along with fraudulent ones. At the same time, she feels the exercise may not be effective due to lack of staff workers.

In response to the problem of stolen tax refunds, the IRS is now working with software developers and other relevant parties to weed out fraudulent tax refund cases.

Nancy Olson, the National Taxpayer Advocate which is the IRS watchdog service charged the IRS of reneging on its promise to cap penalties on taxpayers for offshore disclosures of their income. Accusing the IRS of “bait and switch”, Olsen said the IRS in its most recent Offshore Voluntary Disclosure program has seen scores of taxpayers participating in the program and paying more than what they were supposed to pay in taxes and fines. Such taxpayers are typically those who have inherited accounts or work overseas.
Olson warned that dissatisfaction in how the IRS is conducting the voluntary disclosure program might seriously undermine the trust in the IRS in future compliance programs. However, the IRS through its spokesman Dean Patterson strongly refuted Olson’s comments saying, “If at any time during the certification process, a taxpayer disagreed with the results provided for under the program the taxpayer could opt out of the program and make their case for lower penalties. This option is still available today.”

On Monday, the IRS announced the start of another Offshore Voluntary Disclosure program like the two held in 2009 and 2011 in which about $4.4 billion was collected in taxes and fines from more than 33,000 US taxpayers who had taxable assets in overseas bank accounts.

In Olsen’s annual report to Congress, she wrote that the penalty on taxpayers for non-willful or accidental failure to file a record of foreign bank and financial accounts, or FBAR, was not to be above $10,000. On the other hand, willful failure to file an FBAR would carry a draconian penalty, of 50% of the highest account balance for each year covered.

But in the Voluntary Disclosure program of 2009, the IRS said the maximum amount of penalty imposed would be 20%, whereas in 2011, the maximum amount was capped at 25%. Olson wrote that in what has come to be known as “FAQ 35” in tax circles, the IRS also said it would never assess a penalty greater than what the law would permit. However in February 2011, the IRS said it would no longer entertain arguments from taxpayers that their compliance was not willful.

So based on the IRS statement on “FAQ 35”, many taxpayers especially those with Holocaust accounts they had inherited from ancestors made the claim that they were not willfully hiding their money to avoid taxes, assuming that they would not have to pay the 20 or 25% but instead would be fined the maximum of $10,000. But this would be to no avail after the February 2011 statement by the IRS. In fact, since that time, IRS officers would even tell people that bringing up the non-willful argument is in effect opting out of the program and allowing the IRS to bring the full force of the law against the taxpayer.

In effect, this completely nullifies “FAQ 35” thus reneging on the promise the IRS made therein. Yet tax lawyers still view participation in the voluntary disclosure program as the best option if you have offshore taxable income.