Simply Junior

The IRS is seeking more and more information to close the tax gap that hovers in the $400 billion dollar range each year. One new technique is to gather data on the payments made to businesses through credit cards or debit cards. Starting in 2011, banks will have to tally and report these payments to the IRS for every business that transacts such business. That shouldn’t be much of a burden!

The IRS is being charged with closing the tax gap that supposedly exists in the United States. The agency has a problem, however. There are so many transactions in our modern digital economy that tracking the movement of the money can be very, very difficult. Unfortunately, the Agency has figured out a way to deal with the problem – it is shifting it to the taxpayers and entities handling the transactions.

Most businesses accept debit and credit card transactions these days. People are used to paying with plastic, so it is almost a necessity unless you want to send business to your competitors. These transactions are a bookkeeping nightmare in most cases because of the sheer volume of them. Well, the IRS suspects that businesses are letting the reporting slip and thinks tax revenues can be found in the mass of transactions.

With this in mind, the Agency has issued regulations that require banks to report the annual transactions of every business each year. Under revenue code section 6050W, banks will be required to create an annual summary of the charges, and provide reports to the business and IRS. This informational reporting will then be used in comparison with reported income from the business and during audits. Oh, joy. Fortunately, the new regulation doesn’t kick in till 2011. Still, businesses need to be fully aware of the situation.

This new reporting requirement is merely the tip of the iceberg regarding new tax regulations. Congress has issued a number of laws that require the IRS to become much nosier in both business and personal affairs. We stand on the cusp of a major invasion of privacy form a tax perspective that will simply boggle the mind of most people in a couple of years. The confusion and burden of dealing with the tons of new regulations reflect the desires of an out of control government that desperately needs revenues, but should be cutting expenses instead.

Like that will every happen.

New Years is a time for celebration as we turn time over into a new year full of promise. This will be no different as turn into 2011. Well, with one big exemption. Tax rates are going to be rising. You need to know about the big ones and plan for them.

In some ways, the federal government is like a business. It takes in revenues and pays expenditures. Unlike a business, the government is able to expend far more than it taxes in and do so for years so long as its lenders, known as bond holders, don’t lose faith in its ability to make payments on the debt it incurs. Well, 2010 is the first year our debt has surpassed $13 trillion dollars. On top of this, our national debt is now at GDP percentage that make it the highest since World War II. Thank you Great Recession!

Unsurprisingly, 2011 is also the year we see a burst of higher tax rates and new taxes. Part of it is the efforts of the Obama Administration to pay for healthcare costs and part of it is the “Bush tax cuts” expiring. Combined, the 2011 tax year is going to be a dozy for most taxpayers, one you need to plan for.

So, what increases should you know about? Well, how about the capital gains tax? The rate will increase from 15 percent to 20 percent. The top income tier will go from 35 percent to 39.6 percent. The top dividend tax rate will pop from the current 15 percent to 39.6 percent. In a real crusher, the estate tax will go from the 2010 rate of zero percent to a whopping 55 percent. To top it all off, the Alternative Minimum Tax will bite into more middle class families.

What can you do about this mess of increases? Well, plan ahead. Take capital gains in 2010 instead. Reconsider whether the dividend producing investments make sense under the new tax reality. Talk to a lawyer or accountant about planning to avoid the estate tax so that your family can actually reap something from your life’s work. In short, start considering changes now before it is too late.

For any Attorneys, CPAs, or Enrolled Agents looking to pursue resolutions and offers in comprise for their clients or potential clients in 2011, large growth in the resolution industry is a possibility.

The law for offers in compromise, as of right now, requires taxpayers to make certain nonrefundable payments with any initial offer in compromise submission. This new provision was introduced in 2006 and required taxpayers who request certain lump-sum offers in compromise to pay 20% of the offer amount with the initial request. In the case of an offer in compromise involving periodic payments, the initial offer must be accompanied by a nonrefundable payment equal to the first installment payment, and the nonrefundable installments must be continued while the offer is reviewed by the IRS.

The offer-in-compromise program is designed to settle cases in which taxpayers have demonstrated an inability to pay the full amount of a tax liability. The current law creates an opportunity for taxpayers who would like to pursue an offer in compromise but are not willing or are unable to pay the initial sums due.

As written in the Administrations fiscal year 2011 revenue proposals. The new proposal would eliminate the requirements that an initial offer in compromise submission include a nonrefundable payment of any portion of the taxpayer’s offer. The proposal would be effective for offers in compromise submitted after the date of enactment.

With this change, Attorneys, CPAs, and Enrolled Agents will potentially see a large increase in taxpayers willing and able to begin the resolution process with the IRS. Continual changes such as this are why every Enrolled Agent should go through routine EA training or take an Enrolled Agent course that reviews IRS collection procedures at least once a year.

1st July 2010 starts a new financial year in Australia. With the new year, a new reduced rates of income tax is has been implemented by the Government. The following savings are a sample of what can be expected, the major beneficiaries are the middle income earners as you can see from the amounts below.

$600 per week the savings are $2.00

$900 per week the savings are $8.00

$1,200 per week the savings are $7.00

For the low income earners the low income tax offset has increase to $1,350 from $1,200, this means that the taxpayer can have extra earnings of $1,000 with out effecting their tax payable.

The new tax brackets are set out below for the 2011 financial year.

Taxable income Tax on this income

$1 – $6,000 Nil
$6,001 – $37,000 15c for each $1 over $6,000
$37,001 – $80,000 $4,650 plus 30c for each $1 over $37,000
$80,001 – $180,000 $17,550 plus 37c for each $1 over $80,000
$180,001 and over $54,550 plus 45c for each $1 over $180,000

The above rates do not include the Medicare levy of 1.5%, which is subject to income thresholds. Nor does it include any income tax offsets, these apply to the taxpayers individual circumstances.

There is a common misconception that as you move into a higher tax bracket, all of your earnings are taxed at the higher tax rate, thankfully this is not the case, only the income above the tax bracket is taxed at that rate.

Using the chart above if your income was $85,000, only $5k would be taxed at 37% not the full $85k.

It’s time to get started on your Federal income tax return, and get your tax refund on its way into your bank account. You would be surprised at how fast you can get your refund by doing your Federal income tax filing online. Filing online is the easiest and fastest way to prepare and file your taxes.

Electronic income tax filing is a fast, accurate and convenient way to file your tax return with the IRS over the internet. Over 70 million taxpayers are expected to file their Federal income tax online this year. From tax calculators, to all the forms you’re likely to need, tax filing online has it all.

Here are a few Federal income tax filing tips:

1. Look for a tax filing website that offers a free trial of their services so that you can see if their program is right for you.

2. Look for a tax filing website that has tax information and help you can access, if you have questions about a particular deduction or credit.

3. Look for a tax filing website that has an easy to follow interview system for obtaining your information.

4. If you have a tax refund due, be sure to have the funds direct deposited into your bank account. You can usually have your money in 10 to 16 days from the time you file

Whether you are filing a 1040ez or a more complex tax form, most online tax filing programs will be able to handle all of your needs. Whatever the case, I’m sure you’ll find that Federal income tax filing online, is the best way to do your taxes. Happy Filing!