In October of 2008 I received notice from the IRS that a tax audit was being done on my 2006 tax year filing. After you get a notice like this from the IRS you then set up an appointment to see the tax examiner who will be handling your case. My appointment was scheduled for November at the Deerfield Beach IRS office in Florida and I was told which documents to bring for the auditor to look at. I had not reported my entire income on the Form 1040 and that is what had triggered the examination. I would not have had to face this situation if I had not totally relied on Turbo Tax without checking things adequately. If you have to face an ordeal like this, remember that the IRS wants your money, not your excuses.

The IRS sent my adjusted tax return in January of 2009 and told me that I owed more than $20,000 dollars in unpaid taxes. That did not even include the 8 percent interest on top of a $3,200 dollar penalty. When I read that I began to feel very desperate.

I had been seeing these TV commercials for a company called American Tax Relief which had very well known people selling the idea that this company could help you reduce any tax liability you might have. I called the number on the screen and spoke with one of their slick sales people whose name was Bill. I told him my story and he confidently assured me that his company could greatly reduce my tax liabilities. What a relief! In order to get their service started, and also get the IRS off of me, they faxed me a power of attorney that I was supposed to sign and return to them. I gave them my bank account number and all the necessary information to handle the one-time 3,900 dollar fee. I told them to go ahead and fax me the paperwork and I agreed to the service.

Even though I had already agreed to hire them, I began to have second thoughts and went online to see if there were any complaints against American Tax Relief. I was really surprised to find hundreds of complaints against them. You can visit www.ConsumerComplaints.com to see it for yourself. The Better Business Bureau has given them an “F” rating in Southern California. After I read the complaints I put an immediate stop payment on the telephone check that I had given to American Tax Relief. Then I got a call from Bill who wanted to know why my fax of the power of attorney had not reached them. I let him know that I no longer wanted their service and that put an end to that situation.

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If a creditor writes off your debt, or even if you settle that debt with your creditor, the IRS may still count the amount as taxable income.

If you work out a deal to settle with a creditor for any less money than the exact amount that you owe, or if the creditor writes off the debt, the IRS may still regard you as owing money. The IRS will consider the forgiven amount of the debt as income, and you will continue to owe income taxes on it.

How does this work? Creditors will often wait for a pre-determined period of time after a default – one year, for example, or two years – to write off the debt. At this point, the creditor will stop all efforts to collect the debt, declare it as noncollectable, and in order to reduce the tax burden, will declare the uncollected amount to the IRS as what is considered lost income. This same standard is used when debt reductions are negotiated. The amount left unpaid will be reported by the creditor to the IRS also as lost income.

However, the IRS will naturally still want this money taxed, and it will expect the forgiven debtor to pay those taxes. Because the amount of the debt was reduced, and you are no longer expected to pay the forgiven amount, the IRS will treat that amount as gained income, and expect you to pay your income taxes on it.

This standard is also in operation for those debts that you owe after a property repossession or a foreclosure on a house. The law can seem inordinately cruel in these situations. Someone who has lost their home due to foreclosure not only has to suffer through the loss, but will be expected to pay income taxes on an amount of the forced sale. This amount, called the deficiency, is the difference between the amount that was originally owed to the lender, and the amount for which the lender was finally able to sell the property.

However, a 2007 congressional resolution eased this standard for some loans that were forgiven in whole or in part between the years of 2007 and 2012. If the amount of the deficiency arises from the sale of a primary residence (your current home), then the law will offer you some tax relief. These are the rules for when this does or does not apply:

Loans used for a primary residence – if you secured the loan through your primary residence, and used the loan to buy or to improve the house, you will be able to exclude as much as two million dollars of the forgiven debt. You will not have to pay taxes on the amount of the deficiency.

Loans on any other real estate – If a mortgage is secured through any property that is not your own home (like a vacation home, for example), and you default on this, you will continue to owe a tax on the amount of the deficiency.

A default on a loan secured through a primary residence but not used to buy it or to improve it will still leave you owing taxes on a deficiency.

If you find yourself not qualifying for any of the tax exceptions under these standards, there may be other relief available to you. If you can show proof that you were not legally solvent, you will not be held liable for paying taxes.

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The time has come and gone to file federal taxes and even if you haven’t yet filed with the IRS, it is still possible that backs taxes be filed for your benefit.

Obviously, it’s best to pay off IRS back taxes as quickly as you can. The current approach of the government is to allow each tax payer to file their returns voluntarily. However, this doesn’t mean that payment of those taxes isn’t mandatory. While participating in the voluntary filing of taxes, on time or otherwise, the tax payer has the option of applying a number of deductions and Earned Income Credit to their paperwork. If you do not participate in voluntary filing, the IRS has the option to file for you, and without any exemptions or qualified deductions. This means that the substitute return filed can hit your finances twice as hard. The estimated amount is probably going to be higher than the return you would’ve filed yourself. The IRS may then put liens on any property you own, or levys on your financial accounts and even wages until the amount owed is paid off.

When paying IRS back taxes, any form of credit card and loans are accepted, and you may even negotiate an installment account with them. When considering your options, the IRS recommends a bank loan or credit card payment, as the installment plan will usually end up costing more. The limit is three years to file IRS back taxes, starting from the day they were due to receive refunds. After this three year limit, your refunds will expire, so it is a good idea to file as soon as you can. Any refunds owed to you can even be used as payments toward IRS back taxes you may owe.

Not all of the IRS back taxes require payment. It is understood that sometimes people are late simply because of life occurrences or because they assumed they would owe money and then find out they don’t. Whatever the case, it is important to file all back taxes with the IRS quickly. Remember that the processing of back taxes doesn’t take place at every IRS location, so know the address where you need to send your returns or you may receive further penalties and interest in a mail delay. If you happen to have an official IRS notice about your back taxes, send your return to the address listed on that notice for fastest processing. The website www.irs.gov has prior instructions and forms dating as long ago as 1990, and the information on where to mail returns.

Filing taxes is always a fairly tiring experience, but uncertainty does not need to cause a delay in your filing. The IRS offers assistance for low to moderate income households via a Volunteer Income Tx Assistance Program. Also, all tax payers over the age of 60 can find help with a Tax Counseling for Elderly program. These two programs are of course free for anyone who qualifies, and offer you IRS tax filing training. This way, you can avoid filing IRS back taxes completely.

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Sometimes things go wrong and you cannot make those payments. I know a case where a fellow student defaulted on his student loan payments and paid the penalty at the hands of the IRS. The IRS was actually able to prevent him from accessing his income tax refund. This went on until the student loan amount was completely paid off. The IRS is indeed a very powerful organization.

IRS Garnishment is never an ideal situation for the tax payer. It is however very popular as a method to recoup funds owed to the state. In the case of student loans mentioned earlier, it should be noted that the state can only take a restricted amount of a student’s wages when ‘garnishing’ from such a student who has defaulted.

By law, the state can take a maximum of 15 percent of a student’s disposable income but it should be clarified that it cannot take an amount that is more than equal to 30 times what the federal minimum wage is at the time. If that sounds complicated it should not be a surprise since tax law can indeed be one of the most complicated genres within legal studies. This is why when faced with tax issues or even possible criminal charges, it is always best to seek the services of a qualified and experienced tax attorney.

It should not be assumed that the tax payer has no options. As it stands, one can actually object to the imposition of the wage garnishment. There are however certain guidelines that must be followed and an internet search should put you on the right path to finding out how such an objection can be made. If one is not keen on browsing the internet, one can always seek the services of an enrolled agent. It should be noted that these professionals are not authorized to represent you in the event you have to go to court but they are usually very helpful in any other matter related to tax issues and garnishment situations.

Another option open to those seeking to fight IRS garnishment involves loan management. Negotiating with your lending agency in the hope of getting a new repayment schedule can assist in keeping the IRS ‘at bay’ for a while. At the end of the day, it is never a bad idea to get advice from a professional. This writer is of the view that going to an enrolled agent or tax attorney for advice can never hurt. Even if you have to look for money to pay these professionals, the initial cost will most likely save your greater cost in the long run.

When faced with a power like the IRS why short change yourself. Yes, there are some in-built rules that give you the tax payer some protection. For example, the state is not allowed to ‘garnish’ any amount it sees fit. It cannot take an amount that leaves you with benefits which calculate to below $9000 a year or $ 750 a month.

To illustrate how it works, I had a friend who received $900 per month in federal benefits. The state could only take $150 which was the amount of my friend’s $900 benefit that was over $750; or the state could have taken $135 which was the calculated 15 percent of my friend’s total $900 benefit. In his case, my friend had to forfeit $135 each month which was the lesser amount.

On top of all these powers, the IRS can still sue you to collect funds owed. Of course no one wishes to have to face the law courts as a defendant in a tax matter. Being a student can be tough as it is and having to go to court does not make the student experience any easier.

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Who would not want to have a tax refund straight away? Every tax payer would love to know that their income tax will be refunded soon. What is a tax refund by the way? It is when the tax you owe is less than the total amount of refundable tax credits claimed and the amount of withholding paid. Individual taxpayers commonly receive their federal tax refund through Earned Income Credits, or through paying more than the required tax from previous years.

There are taxpayers who use their Internal Revenue Service tax refund saving plans and continue to get much of their money back every single year. Having an IRS refund is much better than owing money to the government. There are several options which you can use to get a refund on your taxes. Examples are electronic filing which has a direct deposit feature, standard paper filing, and through rapid refunds. IRS with the help of the fast paced advancement in technology is able to deliver quickly to the electronic filing. With the help of online facilities, income tax returns are presently filed easier and faster compared to the old system of paper tax filing. Other than that, refunds are also made quicker.

Fast tax refunds using the electronic method will allow you to receive your IRS refund in a matter of 10-14 days compared to the old system where you should anticipate getting your refund in about six weeks. This is the reason why many taxpayers these days file their income tax using the electronic tax preparation software programs, for them to deposit their funds directly to their bank accounts in less than 10 days.

If you are a taxpayer, all you have to do is to find and choose the proper method of filing your taxes. Filing your tax return precisely and accurately plus the tax deduction that you only qualify for will give you a lesser chance of being needlessly audited by the Internal Revenue Service. It is a must that you correctly prepare your papers because the IRS is firm on any sort of fraudulent acts. If you are caught being deceitful with your documents, you will be required to pay additional taxes and face penalties for this unlawful act.

The advantages of filing your taxes online include getting a confirmation notice from the IRS within a period of 48 hours. Submitting your returns through e-file before your deadline will guarantee that your file will be processed much earlier. Furthermore, submitting your tax return in a form of electronic file will be easier for the IRS because they don’t need to re-type your forms, which will save time for both of you. In addition, the Direct Deposit option is the best choice to get a fast tax refund directly into your bank account.

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Tax preparation time can be stressful for people who hold their breath until they find out the damage or the good news when the final figures are in. If the news is good–the government owes them back some of their money–those who want those funds as soon as possible may request a tax refund advance.

Annually, a friend of mine goes to H&R Block for preparation of his state and federal returns. The taxes withheld each payday from his paychecks typically exceed his tax liability at the end of the year. When H&R Block calculates taxes, each time they determine that he is entitled to get some money back from the government. They then offer him the option to receive his tax refund immediately through their tax refund advance loan.

What are Tax Refund Advance Loans?

These loans, also known as tax refund anticipation loans, allow you to receive the money you will get back eventually from the government in your tax refund much sooner. This is very tempting–having the money right now, so you can pay urgent bills or buy things you really need sooner rather than later can always be a very inviting proposition. But should you jump at this chance?

There is no free lunch–whether talking about food or a tax refund advance. The tax preparers or payday loan companies incur expenses in connection with issuing these loans, including the value of their money that will not be repaid for days or weeks by the government refund. They want a fee for their services, and the fee charged by some of these places that give tax refund advances can be exorbitant.

You are in effect paying a very large chunk of your own money to someone else, in return for lending you some of your own money. The lenders incur virtually zero risk in return for giving you money you are due anyway.

What should you pay to someone so that they will lend you your own money? If the refund due you is around $1,000, the tax preparer who you have just paid a fee to prepare your returns may entice you to accept a loan to get that money immediately, and then charge you another fee which he assures you will be a modest or “token” additional fee.

This “modest” fee varies among different tax preparing services and loan companies. Sometimes the fee is $30; however, some loan companies charge fees up to $100. They then may tack on “administrative” and electronic bank transfer fees charges. These additional charges can run the total cost of getting your own money to $100 to $200. You are saying farewell to up to 20 percent of your refund, just for the pleasure of getting it a bit sooner.

The time you are saving by getting this up-front tax refund advance is probably only 10 to 14 days if you file electronically. There are few emergencies that cannot wait 14 more days, if you have already waited several months for your return. Even a return sent by mail has a turnaround time of as little as three or four weeks if the return is mailed early in the tax season.

Probably the only real justification for paying so much to get money a little sooner is a genuine, unexpected emergency that cannot wait until the government processes the return and issues the refund.

One way to avoid the issue is to submit a new W4 form to your employer that adjusts your withholding status so that you receive your money as soon as you earn it, rather than waiting until you file your tax return. Otherwise you are giving a free loan of your money to the government!

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Tax deductions are a great way to save money on regular purchases within certain categories. The standard deduction alone saved some 85 million American’s a little over 0.5 trillion dollars in 2009. But the real way to claim deductions is by filing a Schedule A along with your 1040 long form. Categories of deductions available on the Schedule A include Medical, Taxes, Charity, Education, Mortgage and Causalities.

Deductions for Medical Expenses: Medical expenses are deductible on your tax return once you clear a certain level of your income in expenses, 7.5%. For this reason it is a good ideal to group major medical procedure in the same year to allow for them to be deductible. Items such as doctor’s bills, hospital visits, operations, prescriptions, premiums, and health care for dependents are deductible.

Taxes for State and Local: The state and the local government in your area collects income taxes, that’s the bad news. The good news is that the Federal government allows to deduct these tax expenses. Check the IRS website for a list of local and state taxes that you can deduct as not all taxes are deductible. Turbo Tax also is a good resource for what taxes you can deduct when preparing your tax return.

Charity Donations: Donations to charitable organizations, such as churches, are deductible without limit. When you provide transportation for a charitable event you can deduct the mileage. And when you purchase a ticket to a charitable event that is more expensive than the value of the service or entertainment provided, you can deduct the difference. Keep records of all your gifts.

Education Expenses: The federal government wants to support education and therefore gives tax deductions for expenses incurred while obtaining education degrees. The rules have changed recently with ARRA (the American Recovery and Reinvestment Act) but generally provides $2,500 per student in deductions for education.

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Your business is starting to grow. You’re hiring new employees. You’re considering adding a health plan. You might even move from your cramped storefront to a more luxurious space across town. This growth is good news. But it also comes with a price. Your business is gobbling up your free time like never before. You need relief. It might be time to hire an outside bookkeeping business to provide it.

Your talents lie in finding the right employees for your business, crafting marketing plans that attract attention and securing new clients and customers. Spending too many hours balancing your books, tracking unpaid invoices and crafting expense reports is not a good use of your time. You should always be concentrating on income-producing activities. Bookkeeping work, while critical to the financial health of your business, is definitely not an income-generating activity.

That’s why hiring an outside bookkeeping business is a financially wise move for you and your business. A bookkeeping service will handle your financial matters, tracking invoices, revenues, expenses and wages. It will compile the information you’ll need to file your taxes every way. And it will help you decide on whether it makes financial sense to move to a new location or stay put for another year.

Hiring a bookkeeping service will cost you money. But you’ll have to decide if this expense is covered by the amount of free time outsourcing your bookkeeping needs will leave you. Your time is valuable, remember. If you have more time to work on new advertising campaigns or develop new products or services, your business will grow all that much faster. If you have more time to interview potential new employees, the odds are better that you’ll land workers who are as passionate about your business as you are.

Not all bookkeeping businesses are built equally. Some may be operated by Certified Public Accountants (CPAs) while others may be staffed with high-school dropouts. Before outsourcing your bookkeeping, you’ll definitely want to investigate the quality of the employees. Having CPAs around is one indicator that this company knows what it’s doing.

Business owners never enjoy adding a new expense to their bottom lines. But businesses thrive when their owners make the right investments in them. Hiring an outside bookkeeping service is one of those expenses that more than pays for itself in the future.

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TurboTax – A Free step by step Tax Program

Preparing for tax season can be a challenging time for many people in the United States. The US tax code is extremely lengthy filled and with tons of small print. Since this is such an involved process many people today decide to have their taxes prepared by professionals. However, thanks to tax software programs like TurboTax they don’t have to spend extra money to have their taxes prepared correctly.

Using TurboTax’s software makes it easy for anyone to prepare their taxes themselves. This software will walk you step by step through the tax process. This unique process ensures the user that they are getting all the tax benefits they qualify for. It also ensures that the taxes they prepare are true and accurate when they are filed.

By preparing their taxes themselves using TurboTax people also save money since they aren’t paying someone else to do their taxes for them. It also gives them the convenience of being able to do their taxes at home. This can be a great time saver for a busy family. They don’t have to take time out of their busy schedule to visit a tax preparer giving them more time to focus on other needs their family may have.

Another advantage that TurboTax offers is their online tax service. Users can go to http://www.turbotax.com and register on the site for free. Again they offer a step by step process for filing out the tax forms. After answering a few questions the site will automatically determine which form is best for their particular tax needs. As each step is completed the user is asked to double check the information to make sure it’s correct, then the information is saved and they will be moved to the next step. Once everything is filled out TurboTax will calculate any refunds or payments for the user. Finally, the taxes can be filed with the IRS automatically through their site.

Anyone that uses any of the services offered by TurboTax will be impressed with the accuracy and ease of use they offer. Their services help people to save time and money as well as give them peace of mind that their taxes are being filed correctly the first time.

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First Time Home Buyers Video from TurboTax

Great information from TurboTax about the First Time Home Buyers Tax Credit. This tax tips video tells of the expanded and extent tax credit that provides $8,000 to first time home buyers and $6,500 to long term home owners that are purchasing a new home before April 30th. Discover the fine points of the tax law including income limits, home qualifications, and ownership responsibilities after claiming the tax credit.

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