Tag Archives: Help with IRS

Tips for Taxes on Frequent Flier Miles

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Did you know that you could be taxed on your frequent flier miles? That’s what thousands of Citibank customers learned when they received a 1099-MISC from Citi, which reported their miles as income to the IRS. These miles would have to be reported on their tax  returns, or they could risk getting a notice from the IRS.

Understandably, some customers who were notified that 30,000 miles was considered $750 of income were furious and shocked that the bonus miles they earned from signing  up for a Citibank credit card could be taxable. Some even asked to have miles canceled and were told by Citibank that they should have asked before the end of 2011, even though customers were not aware of this tax liability until they received the form.

Frequent flier miles can be categorized in a six ways, but here is what it boils down to: rebates (not taxable), promotions (taxable), or prizes (taxable). Rebates aren’t taxable because they are seen as a purchase price reduction. However, promotions, such as those bonus miles for signing up for a card, and prizes, such as winning free miles from a sweepstakes, are considered income.

The IRS hasn’t given definitive rulings outlining how frequent flier miles should be treated, but here are some general guidelines from industry experts:

  • Miles earned from travel are considered a rebate.
  • Miles earned from purchases on a credit card are considered a rebate.
  • Miles earned from business travel are not taxable according to a 2002 IRS ruling.
  • Miles earned from opening a credit can be considered a taxable promotion.  However, some credit card companies consider it a rebate since there are spending requirements or annual fees associated with signing up.
  • Miles awarded for deposits to a mutual fund can be considered a promotion. While there is no definitive law, private-letter rulings have been found declaring that these miles are taxable.
  • Miles awarded from a sweepstakes are a taxable prize. Some winners have actually rejected their miles so they wouldn’t have to pay the taxes on them.

If you receive a tax form, it is very important to make sure that you take it into account when you are filing taxes, because this income has been reported to the IRS. Failure to do so could lead to tax debt, back taxes with interest, and penalties.

It can be confusing when you receive a surprise tax form. If you want to avoid mistakes while filing your return, or you have already filed and need an amended return, the tax professionals at professionaltaxresolution.com can help with your tax settlement. They have the expertise to help you navigate the intricacies of tax laws and regulations. If you need help with tax resolution, contact us at (877)-889-6527 or email info@protaxres.com to receive a free, no obligation consultation.

Tax Refunds May Be Delayed This Year

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The IRS website “Where’s My Refund” for checking refunds is up again after being down for the better part of a week. The website was back in action about midday last Wednesday after being out of service since Feb. 15.

Taxpayers who had received IRS acknowledgment that their tax returns were being processed were startled when they visited the website during the week and got a message that the IRS had no information regarding their return.

The IRS said it was an error message and that if the IRS said the filing had been received, it was being processed.

With the “Where’s My Refund” site back up, you can now check the website 72 hours after your e-filed return has been accepted to see the status of your refund. Those who mail in their returns can check four weeks after they send in their signed return.

The IRS did not say exactly what the problem was, but issued this statement:

“As with the start of any tax season, there were system validations that occurred requiring some fine-tuning of our systems. As part of this, in January, the IRS announced that some taxpayer refunds could be issued approximately one week later than initial projections they may have received, but these refunds were still in line with historical refund delivery times.”

The IRS said in most cases, it issues refunds 10 to 21 days after a return is received.

If you have tax debt issues and need help with tax settlement, our experienced tax professionals can provide you with the tax help you need. Our tax specialists can help you get your maximum refund and help you with back taxes owed. For more information about our tax debt resolution services, visit us today at professionaltaxresolution.com. Contact us by phone at (949)596-4143 or by email at info@protaxres.com to receive a free, no obligation consultation.

 

Tips on Saver’s Credit with an IRA

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IRA owners have until April 17, 2012 to make a 2011 contribution to their IRA. This year, it is not too late to get a Saver’s Credit for IRA contributions. A number of IRA owners may qualify for the Saver’s Credit of up to $1,000 ($2,000 if filing jointly) on their 2011 tax return for 2011 IRA contributions. The Saver’s Credit reduces the amount of income tax that may be owed dollar-for-dollar, but not less than zero.

Who is eligible for the Saver’s Credit?

To qualify for the Saver’s Credit (Retirement Savings Contributions Credit) for eligible IRA contributions, the IRA owner’s 2011 adjusted gross income cannot be more than:

• $56,500 when filing status is married, filing jointly

• $42,375 when filing status is head of household

• $28,250 when filing status is single, married filing separately. or qualifying widow(er)

Additionally, the IRA owner cannot be:

• Younger than age 18

• A full-time student

• Claimed as a dependent

The Saver’s Credit may also be taken for contributions to 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18), and governmental 457(b) plans, as well as voluntary after-tax employee contributions to qualified retirement and 403(b) plans.

If you are in need of any type of tax planning, tax preparation or tax settlement services, our experienced tax professionals can provide you with the tax help you need. Our tax specialists are familiar with all of the current and impending changes to the IRS tax code and can ensure that these changes are used to give you the maximum tax advantage for your specific financial situation. For more information about our tax debt resolution services, visit us today at professionaltaxresolution.com. Contact us by phone at (949)-596-4143 or by email at info@protaxres.com to receive a free, no obligation consultation.

Avoid IRS Penalties – Settle your IRS Tax Debt – Tax Settlement Tips

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If you have been disregarding a notice from the IRS, tax filing deadlines, or ignoring tax liabilities, it is probably time to think about filing those back tax returns and paying outstanding tax balances. Even though the Obama Administration’s 2012 Budget request for increased funding for the Internal Revenues Service was not approved, the ability of the IRS to enforce tax compliance has improved over time. System modernization and software improvements have made it harder for a taxpayer to stay under the IRS radar by making it easier for this powerful collection agency to track down individuals who fail to file tax returns or owe back taxes.

When tax amounts are owed over an extended period of time, the financial burden can become overwhelming due to the continued accumulation of penalties and interest. It is not unusual for these additional amounts assessed by the IRS to total as much as 50% of the original tax amount owed.  The financial consequences of failing to file a tax return or owing back taxes are outlined below:

  • Failure to File Penalty The Failure to File Penalty is calculated on the tax balance due as shown on the tax return. This penalty is 5% of the tax amount due for each month the return is late, with a maximum penalty of 25%. Although it is seldom invoked, a taxpayer who fails to meet a filing deadline can also be charged with a misdemeanor, which carries a maximum fine of $25,000 and up to a one-year prison term.
  • Failure to Pay Penalty The Failure to Pay Penalty is calculated on the tax balance due as shown on the tax return. These penalty charges are assessed at the rate of 0.5% for each month that the tax balance is not paid in full, beginning from the original April 15th filing deadline. The Failure to Pay Penalty has no limit on the maximum percentage amount that can be assessed.
  • Interest Interest is charged on the balance of any tax liability for each day the back tax balance is not paid in full. The interest rate, which is variable and set quarterly, is currently 4%.

With the downturn of the economy, even more taxpayers have missed filing deadlines or have found themselves with outstanding tax balances that they are unable to pay. When these tax debts or unfiled tax returns are left unresolved, the IRS will initiate collection activities to enforce compliance and collect the tax amounts owed. Unpaid tax debt or unfiled tax returns will result in collection efforts by the IRS. These collection activities begin with the assessment of interest and penalties and are followed by more aggressive actions including the filing of tax liens or tax levies and the initiation of wage garnishments. On a positive note, there are many tax settlement options available to taxpayers who are unable to pay the tax balances they owe. The important thing is to begin the resolution process immediately before penalties and interest accumulate further or the more severe consequences of owing the tax debt are imposed.

A licensed tax professional will be familiar with all of the tax settlement alternatives available and can be invaluable asset to a taxpayer who is the subject of collection attempts by the IRS. If you have failed to meet tax filing deadlines or have an unresolved tax liability, our experienced tax professionals can help you become tax compliant. For more information about our tax settlement services, visit www.professionaltaxresolution.com. The members of our staff have a thorough understanding of tax law together with the experience to know which tax settlement option will most effectively resolve your specific back tax issues. Contact us today at (877) 889-6527 or info@protaxres.com to receive a free, no obligation consultation.

 

Mortgage Debt Forgiveness Act Set to Expire in 2012

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Under ordinary United States tax law, the forgiveness of mortgage debt results in a tax liability for the taxpayer whose debt is either entirely or partially forgiven. When a lender forecloses or agrees to accept a short sale or a loan refinance agreement to a lower loan amount, the amount of mortgage debt forgiven is considered to be income for the borrower and is therefore subject to taxation by the IRS. However, since the passage of the Mortgage Forgiveness Act in 2007, homeowners have been protected from this potential burden to their tax settlement. The Mortgage Debt Forgiveness Act excludes forgiven mortgage debt from becoming a tax liability in the following specific instances:

• Short Sales There is no tax on the difference between the loan balance and the selling price.

• Foreclosures There is no tax on the canceled loan amount.

• Refinancing to a Lower Loan Balance There is no tax on the difference between the original and the new loan amounts.

Although the Mortgage Debt Forgiveness Act protects taxpayers from most tax liabilities incurred from the forgiveness of mortgage debt, it includes the following exclusions and limitations:

• It does not forgive mortgage debt incurred through a home equity loan.
• It applies only to the sale, refinance, or foreclosure of a primary residence, not a rental property or a second home.
• It caps the amount of debt forgiveness it will exclude from taxation at $2 million for a married couple filing jointly or $1 million for a single person or a married individual filing separately.

The Mortgage Debt Forgiveness Act is set to expire at the end of 2012 unless Congress votes to extend it. This means that any amount of mortgage debt that is forgiven after January 1, 2013 will be considered taxable income. With this deadline in mind, a taxpayer who is considering applying for any type of mortgage debt relief should set the process in motion as soon as possible. All lenders take time to process debt forgiveness decisions and the time remaining to take advantage of the tax relief provisions of the Mortgage Debt Forgiveness Act is running out.

There are many factors to consider before making a decision to seek relief from mortgage debt. Foreclosures, short sales, and certain loan restructuring agreements have a negative impact on a taxpayer’s credit score. The lower credit score will then affect the taxpayer’s ability to purchase another home at any time in the near future. In addition, any income realized from one of the mortgage debt relief alternatives could push a taxpayer into a higher tax bracket which carries with it other tax implications. Probably the best approach to take when considering any type of mortgage debt forgiveness is to enlist the services of a qualified tax professional. Such an individual will be able to accurately weigh the effects of all of the factors affected by the decision and make a recommendation that will best fit with the taxpayer’s specific set of circumstances. The tax relief provision provided by the Mortgage Debt Forgiveness Act that is set to expire at the end of 2012 is certainly not the only point to consider.

If you have experienced a foreclosure, sold your home in a short sale, or refinanced your mortgage for less than the balance on the original loan, our experienced tax professionals can ensure that you receive the tax relief benefits you deserve. If you are considering one of these mortgage debt relief alternatives, our professionals can advise you of the potential advantages and disadvantages. Visit www.professionaltaxresolution.com for more information about debt forgiveness and other tax settlement services. Contact us by phone at (877)-889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation.