Save on 2011 taxes – new tax guide

IRS.gov – Taxpayers might be able to benefit from more recovery tax changes and get ahead on their 2011 federal income tax return preparation by reviewing a newly updated comprehensive tax guide currently available at IRS.gov.

Publication 17, Your Federal Income Tax, contains details on how to benefit from various tax-saving opportunities, such as the American opportunity credit for parents and college students, and the child tax credit and expanded earned income tax credit for low- and moderate-income workers. This helpful 303-page guide contains over 5,000 links to help taxpayers find answers to their questions rapidly.

Publication 17 has been published yearly by the IRS since the 1940s and on the IRS web site since 1996. This publication offers basic tax-filing info, as well as income-reporting tips and how to report revenue. It also explains how to calculate capital gains and losses, and reviews topics such as claiming dependents, selecting the standard deduction versus itemizing deductions, and understanding IRAs to save for one’s retirement.

In addition to Publication 17, IRS.gov has many other useful resources for those engaging in year-end tax planning. Many 2011 forms are already posted, and revised versions of other forms, instructions and publications are being put up online frequently. Forms already online include Form 1040, short Forms 1040A and 1040EZ, Schedule A for itemizing deductions and the new Form 8949 for reporting sales of stocks, bonds and other capital assets.

Facebook-linked pre-IPO scams – official warning

FINRA.org – The Financial Industry Regulatory Authority (FINRA) has issued a warning about scams that purport to offer investors’ access to pre-IPO shares of well-known social media companies, including Facebook. Seizing upon investor demand for shares of the private stock of high-profile companies, the con artists behind these scams are swindling the public by peddling non-existent shares of these companies.

As FINRA’s Investor Alert Pre-IPO Offerings — These Scammers Are Not Your Friends explains, pre-IPO speculation involves buying unregistered shares in a private company before the initial public offering (IPO) of securities. While a company can sell its unregistered shares in private transactions (often called “private placements”), these investments can be fraught with risk and are typically open to a select group of investors who meet certain income or asset thresholds.

While most pre-IPO offerings are legitimate, some are frauds in which con artists sell shares they do not actually have. Recently, FINRA became aware of potentially fraudulent schemes to sell purported shares of Facebook. Additionally, the Securities and Exchange Commission recently settled a civil action against a self-employed securities trader who allegedly bilked more than 50 U.S. and foreign investors out of more than $9.6 million in a series of pre-IPO scams involving purported shares of Google, Facebook and other well-known companies.

“Investors might think they are getting in on the ground floor of innovative social media companies, but instead find that they may have handed over real money for non-existent shares. Any investor who receives an unsolicited offer to invest in a pre-IPO company should walk away,” said John Gannon, FINRA Senior Vice President for Investor Education.

Pre-IPO Offerings helps investors separate legitimate private placements from pre-IPO scams by:

• avoiding any unsolicited pre-IPO offer – investors should ask themselves, “Why would a total stranger tell me about a really great investment opportunity?”;

• being alert to persuasion tactics – virtually all pre-IPO scams rely on the same recipe for a con: dangling the prospect of exclusive access to eye-popping returns at a discount if you act quickly;

• verifying whether the person touting the stock or investment is licensed;

• determining if you’re being conned by a convicted criminal by using the Federal Bureau of Prisons Inmate Locator;

• using search engines to learn as much as you can about a solicitation and those behind it; and

• getting an unbiased second opinion from a licensed investment professional or an attorney.

FINRA is asking investors who believe they have been defrauded – or treated unfairly by a securities professional or firm – to file an investor complaint.

Taking control of your financial future – tips from FINRA

FINRA.org – The Financial Industry Regulatory Authority (FINRA) Investor Education Foundation has made available “Take Control of Your Financial Future: Tips to Think About at Tax Time and Beyond,” which provides consumers with helpful advice on avoiding financial pitfalls and getting their finances on the right track.

The financial tips in Take Control of Your Financial Future are based on the findings of the FINRA Foundation’s State-by-State Financial Capability Survey, which revealed that only 16 percent of respondents nationwide reported being satisfied with their current financial condition. The State-by-State Financial Capability Survey compiled responses from 28,146 respondents from all 50 states and the District of Columbia.

“Many families use tax time to take stock of their finances. Using findings from the State-by-State Financial Capability Survey, we have identified concrete steps that people can take to gain control of their financial future,” said FINRA Foundation President John Gannon.

Although the traditional tax season has drawn to a close, it’s never too late for Americans to improve financial capabilities by using these tips:

Get a Grip on Saving Versus Spending. Sixty-one percent of survey respondents reported facing difficulties covering monthly expenses and paying bills.

Dial Back Your Debt. Fifty-six percent of credit card holders carried a balance and paid interest each month—and 40 percent reported paying only the minimum due.

Plan for Known—and Unknown—Expenses. Only 35 percent of American adults have set aside sufficient emergency savings to cover expenses for three months in the case of sickness, job loss, economic downturn or other emergency.

Look Around—and Look Out—Before Making Financial Decisions. Most Americans either do not comparison-shop or conduct only limited searches for the best prices or terms when choosing financial products. For example, 62 percent of survey respondents said they did not compare credit card offers.

Know Yourself and Resolve to Keep Learning. On average, individuals answered only 3 out of 5 financial literacy questions correctly. Among those aged 18 to 34, the results were grim: This group answered only 2.6 questions correctly on average.

More details about each of these financial advisory tips is available on this FINRA page:

Take control of your financial future

Make your home more energy efficient – 4 tips

As gas price soar, many people are looking for ways to pinch pennies in other parts of their budgets. By making your home more energy efficient, you can lower your utility bills and keep more money in your wallet. Consider these tips below to find ways to save around the house.

Find energy savings: With a variety of calculators, you can find the best ways to save money on energy in your home, learn how much money you could save by swapping old appliances for Energy Star appliances, and estimate how much money you lose because of leaky faucets.

Install a programmable thermostat: If your home stands empty for most of the day, you could be wasting a lot of money keeping your house warm or cool. Use a programmable thermostat to automatically cut your heating or cooling back when no one is home and then raise or lower the temperature when you’re there. That way you stay comfortable, but you don’t pay extra when no one is there.

Clean or replace your air conditioner’s filter: A dirty filter will make your air conditioner run much less efficiently, blocking the flow of air and making the machine work harder. Find out where your system’s filter is located and then clean or replace it, and you can reduce your air conditioner’s energy consumption from 5 to 15 percent.

Greenscape your yard: By making some simple changes to your landscape, you could save money on water and fertilizers. Pick plants that grow well in the climate where you live because they will require less maintenance, and learn how to take advantage of the rain so you water your yard less frequently.

By making some of these small changes, you can make your home more energy efficient and save money in the long run.

After the tax return has been filed

IRS.gov – Now that the federal income tax filing deadline is in your rear-view mirror, what happens after you file? A lot of taxpayers have post tax-filing questions such as what records do I keep and more importantly, “Where’s my Refund?” The IRS has provided answers you can find here:

Tax Refund Information

You can go online to check the status of your 2010 refund 72 hours after IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after you mail a paper return. Be sure to have a copy of your 2010 tax return available because you will need to know your filing status, the first Social Security number shown on the return, and the exact whole-dollar amount of the refund. You have three options for checking on your refund:

• Go to http://irs.gov and click on “Where’s My Refund”
• Call 800-829-4477~24 hours a day, seven days a week, for automated refund information
• Call 800-829-1954 during the hours shown in your tax form instructions
• Use IRS2Go. If you have an Apple iPhone or iTouch or an Android device you can download an application to check the status of your refund.

What Financial Records Should I Keep?

Normally, tax records should be kept for three years, but some documents – such as records relating to a home purchase or sale, stock transactions, IRAs and business or rental property – should be kept longer.

You should keep copies of tax returns you have filed and the tax forms package as part of your records. They may be helpful in amending already filed returns or preparing future returns.

Change of Address

If you move after you filed your return, send Form 8822, Change of Address, to the Internal Revenue Service. If you are expecting a paper refund check, you should also file a change of address with the U.S. Postal Service.

What If I Made a Mistake on my Tax Return?

Errors may delay your refund or result in notices being sent to you. If you discover an error on your return, you can correct your return by filing an amended return using Form 1040X, Amended U.S. Individual Income Tax Return.

Visit the IRS website at IRS.gov for more information on refunds, recordkeeping, address changes and amended returns.

Where’s My Refund

Recordkeeping for Individuals – Publication 552

Managing tax records, documents to keep – 5 tips

IRS.gov – After you file your taxes, you will have many financial records that may help document items on your tax return. You will need these documents should the IRS select your tax return for examination. Here are five tips from the IRS about keeping good tax records.

1) Normally, tax records should be kept for three years.

2) Some documents – such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property – should be kept longer.

3) In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return.

4) Records you should keep include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.

5) For more information on what kinds of records to keep, see IRS Publication 552, Recordkeeping for Individuals, which is available on the IRS website at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Tax-related Record-keeping for Individuals – Publication 552

Filing an amended tax return – 9 facts

IRS.gov – An amended tax return generally allows you to file again to correct your filing status, your income, or to add income tax deductions or tax credits you may have missed.

Here are nine facts the IRS wants you to know about amending your federal income tax return:

1. Use Form 1040X, Amended U.S. Individual Income Tax Return, to file an amended income tax return.

2. Use Form 1040X to correct previously filed Forms 1040, 1040A or 1040EZ. An amended return cannot be filed electronically, thus you must file it by paper.

3. Generally, you do not need to file an amended return due to math errors. The IRS will automatically make that correction. Also, do not file an amended return because you forgot to attach tax forms such as W-2s or schedules. The IRS normally will send a request asking for those.

4. Be sure to enter the year of the return you are amending at the top of Form 1040X. Generally, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.

5. If you are amending more than one tax return, prepare a 1040X for each return and mail them in separate envelopes to the appropriate IRS campus. The 1040X instructions list the addresses for the campuses.

6. If the changes involve another schedule or form, you must attach that schedule or form to the amended return.

7. If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.

8. If you owe additional 2010 tax, file Form 1040X and pay the tax before the due date to limit interest and penalty charges that could accrue on your account. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.

9. Your state tax liability may be affected by a change made on your federal return. For information on how to correct your state tax return, contact your state tax agency.

Form 1040X Instructions (PDF download)
Amended Tax Return – Tax Topic 308 at IRS.gov

 

Received an IRS notice? 8 things to know

IRS.gov – Each year, the Internal Revenue Service sends millions of letters and notices to taxpayers for a variety of reasons. Here are eight things to know about IRS notices – just in case one shows up in your mailbox.

1. Don’t panic. Many of these letters can be dealt with simply and painlessly.

2. There are a number of reasons why the IRS might send you a notice. Notices may request payment of taxes, notify you of changes to your account, or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.

3. Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.

4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.

5. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise.

6. If you do not agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.

8. It’s important that you keep copies of any correspondence with your records.

For more information about IRS notices and bills, see Publication 594, The IRS Collection Process. Information about penalties and interest is available in Publication 17, Your Federal Income Tax (For Individuals). Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Further information:

Understanding the Collection Process – Publication 594
Your Federal Income Tax – Publication 17
Notices — What to Do – Tax Topic 651

Tax penalties from the IRS – eight facts

IRS.gov – When it comes to filing a tax return – or not filing one – the IRS can assess a penalty if you fail to file, fail to pay or both. Here are eight important points the IRS wants you to know about the two different penalties you may face if you do not file or pay timely.

1. If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty.

2. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return on time and explore other payment options in the meantime. The IRS will work with you.

3. The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.

4. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

5. If you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.

6. If you timely filed a request for an extension of time to file and you paid at least 90 percent of your actual tax liability by the original due date, you will not be faced with a failure-to-pay penalty if the remaining balance is paid by the extended due date.

7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

8. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

More information:
Avoiding Tax Penalties and the Tax Gap

3 ways to pay federal income tax

IRS.gov – People who owe taxes but can’t pay the full amount owed by the April deadline should still file their return on time and pay as much as they can to avoid penalties and interest. If you can’t pay the full amount, you should contact the IRS to ask about alternative payment options.  Here are some of the alternative payment options you may want to consider:

1. Additional Time to Pay – Based on your circumstances, you may be granted a short additional time to pay your tax in full. A brief additional amount of time to pay can be requested through the Online Payment Agreement application at IRS.gov or by calling 800-829-1040. Taxpayers who request and are granted an additional 30 to 120 days to pay the tax in full generally will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time.

2. Installment Agreement – You can apply for an IRS installment agreement using the Web-based Online Payment Agreement application on IRS.gov. This Web-based application allows taxpayers who owe $25,000 or less in combined tax, penalties and interestto self-qualify, apply for, and receive immediate notification of approval. You can also request an installment agreement before your current tax liabilities are actually assessed by using OPA. The OPA option provides you with a simple and convenient way to establish an installment agreement and eliminates the need for personal interaction with IRS and reduces paper processing. You may also complete and submit a Form 9465, make your request in writing, or call 1-800-829-1040 to make your request. For balances over $25,000, you are required to complete a financial statement to determine the monthly payment amount for an installment plan. For more complete information see Tax Topic 202, Tax Payment Options on IRS.gov.

3. Pay by Credit Card or Debit Card – You can charge your taxes on your American Express, MasterCard, Visa or Discover credit cards. Additionally, you can pay by using your debit card. However, the debit card must be a Visa Consumer Debit Card, or a NYCE, Pulse or Star Debit Card. To pay by credit card or debit card, contact one of the service providers at its telephone number or Web site listed below and follow the instructions. There is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee or flat fee. If you are paying by credit card, the service providers charge a convenience fee based on the amount you are paying. If you are paying by debit card, the service providers charge a flat fee of $3.89 to $3.95.Do not add the convenience fee or flat fee to your tax payment.

The processing companies are:

Official Payments Corporation:
To pay by debit or credit card: 888-UPAY-TAX (888-872-9829),
www.officialpayments.com/fed

Link2Gov Corporation:
To pay by debit or credit card: 888-PAY-1040 (888-729-1040),
www.pay1040.com

RBS WorldPay, Inc.
To pay by debit or credit card: 888-9PAY-TAX (888-972-9829),
www.payUSAtax.com

For more information about filing and paying your taxes, visit IRS.gov and choose 1040 Central or refer to the Form 1040 Instructions or IRS Publication 17, Your Federal Income Tax. You can download forms and publications at IRS.gov or request a free copy by calling 800-TAX-FORM (800-829-3676).

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