Eight Facts to Help Determine Your Correct Filing Status

Issue Number:    IRS TAX TIP 2012-09

Determining your filing status is one of the first steps to filing your federal income tax return. There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) with Dependent Child. Your filing status is used to determine your filing requirements, standard deduction, eligibility for certain credits and deductions, and your correct tax.

Some people may qualify for more than one filing status. Here are eight facts about filing status that the IRS wants you to know so you can choose the best option for your situation.

1. Your marital status on the last day of the year determines your marital status for the entire year.

2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.

3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.

4. A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.

5. If your spouse died during the year and you did not remarry during 2011, usually you may still file a joint return with that spouse for the year of death.

6. A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.

7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.

8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2009 or 2010, you have a dependent child, have not remarried and you meet certain other conditions.

There’s much more information about determining your filing status in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676). You can also use the Interactive Tax Assistant on the IRS website to determine your filing status. The ITA tool is a tax law resource on the IRS website that takes you through a series of questions and provides you with responses to tax law questions.

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Online Small Businesses Should Be Protected in Sales Tax Legislation

A new bill making its way through Congress has the potential to change the world of e-commerce quite drastically and hurt the viability of small businesses across the country to compete in a growing sector of our economy.

Currently, online sellers are required to charge sales tax when the end customer resides in a state in which the retailer has a physical presence, or “nexus.” The Marketplace Fairness Act aims to change that. If passed, this law would require online sellers to charge sales tax regardless of where they have a physical presence.

Supporters of this bill are working under the premise that virtual e-commerce retailers, like Amazon, have an unfair advantage over local mom-and-pop shops because they can sell products in many states without charging sales tax. (Technically, the end customers are supposed to report and pay “use tax” on these items, but less than 1 percent actually do.)

Small business owners are the heart and soul of the American economy. Let’s create the right conditions in this country for them to succeed and achieve the American Dream.

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IRS Offers Several Reasons to File Your Tax Return Electronically

Issue Number:    IRS TAX TIP 2012-10

IRS e-file: It’s safe. It’s easy. It’s time. Most taxpayers—nearly 80 percent– file electronically. If you haven’t tried it, now is the time! The IRS has processed more than 1 billion individual tax returns safely and securely since the nationwide debut of electronic filing in 1990. In fact, last year, 112 million people – 78 percent of all individual taxpayers – used IRS e-file to electronically transmit their tax returns to the IRS. The number of people who use a paper tax return or who mail a tax return dwindles each year – and for good reason .

1. Safety and security.  E-file providers must meet strict guidelines and provide the best in encryption technology. You receive an acknowledgement within 48 hours that the IRS received your return. If the IRS rejects the return, the receipt will explain why so you can quickly correct and resubmit.

2. Faster refunds. An e-filed tax return normally means a fast refund. If you combine e-file and direct deposit the IRS can typically issue your refund in as few as 10 days. About three of four taxpayers receive a refund and last year the average refund was approximately $2,900.

3. More payment options. If you e-file you can file early and set an automatic payment withdrawal date for any date on or before the April due date. You may also pay by paper check or even by credit card.

4. It’s easy. You can e-file through your tax preparer, use commercial tax preparation software or through Free File, the free tax preparation and e-filing service available exclusively at www.irs.gov.

Starting in January 2012, any paid preparer or firm that reasonably anticipates preparing and filing 11 or more Form 1040 series returns, Form 1041 returns or a combination of both generally must use IRS e-file.  These tax return preparers must be authorized IRS e-file providers so they can transmit tax returns electronically. More information for paid preparers is available at www.irs.gov.
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Don’t be Scammed by Cyber Criminals

The Internal Revenue Service receives thousands of reports each year from taxpayers who receive suspicious emails, phone calls, faxes or notices claiming to be from the IRS. Many of these scams fraudulently use the IRS name or logo as a lure to make the communication appear more authentic and enticing. The goal of these scams – known as phishing – is to trick you into revealing your personal and financial information. The scammers can then use your information – like your Social Security number, bank account or credit card numbers – to commit identity theft or steal your money.

Here are five things the IRS wants you to know about phishing scams.

1. The IRS never asks for detailed personal and financial information like PIN numbers, passwords or similar secret access information for credit card, bank or other financial accounts.

2. The IRS does not initiate contact with taxpayers by email to request personal or financial information. If you receive an e-mail from someone claiming to be the IRS or directing you to an IRS site:

• Do not reply to the message.
    
• Do not open any attachments. Attachments may contain malicious code that will infect your computer.
    
• Do not click on any links. If you clicked on links in a suspicious e-mail or phishing website and entered confidential information, visit the IRS website and enter the search term ‘identity theft’ for more information and resources to help.

3. The address of the official IRS website is www.irs.gov. Do not be confused or misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on the suspicious site and report it to the IRS.

4. If you receive a phone call, fax or letter in the mail from an individual claiming to be from the IRS but you suspect they are not an IRS employee, contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Report any bogus correspondence.  You can forward a suspicious email to phishing@irs.gov.

5. You can help shut down these schemes and prevent others from being victimized. Details on how to report specific types of scams and what to do if you’ve been victimized are available at www.irs.gov. Click on “phishing” on the home page.

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Ten Tips to Help You Choose a Tax Preparer

Issue Number:    IRS TAX TIP 2012-06

Many people look for help from professionals when it’s time to file their tax return. If you use a paid tax preparer to file your return this year, the IRS urges you to choose that preparer wisely. Even if a return is prepared by someone else, the taxpayer is legally responsible for what’s on it. So, it’s very important to choose your tax preparer carefully.

This year, the IRS wants to remind taxpayers to use a preparer who will sign the returns they prepare and enter their required Preparer Tax Identification Number (PTIN).

Here are ten tips to keep in mind when choosing a tax return preparer:

1. Check the preparer’s qualifications. New regulations require all paid tax return preparers to have a Preparer Tax Identification Number. In addition to making sure they have a PTIN, ask if the preparer is affiliated with a professional organization and attends continuing education classes. The IRS is also phasing in a new test requirement to make sure those who are not an enrolled agent, CPA, or attorney have met minimal competency requirements. Those subject to the test will become a Registered Tax Return Preparer once they pass it.

2. Check on the preparer’s history. Check to see if the preparer has a questionable history with the Better Business Bureau and check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Enrollment for enrolled agents.

3. Ask about their service fees. Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers.  Also, always make sure any refund due is sent to you or deposited into an account in your name.  Under no circumstances should all or part of your refund be directly deposited into a preparer’s bank account.

4. Ask if they offer electronic filing.  Any paid preparer who prepares and files more than 10 returns for clients must file the returns electronically, unless the client opts to file a paper return.  More than 1 billion individual tax returns have been safely and securely processed since the debut of electronic filing in 1990.  Make sure your preparer offers IRS e-file.

5. Make sure the tax preparer is accessible.  Make sure you will be able to contact the tax preparer after the return has been filed, even after the April due date, in case questions arise.

6. Provide all records and receipts needed to prepare your return. Reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items. Do not use a preparer who is willing to electronically file your return before you receive your Form W-2 using your last pay stub. This is against IRS e-file rules.

7. Never sign a blank return. Avoid tax preparers that ask you to sign a blank tax form.

8. Review the entire return before signing it.  Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.

9. Make sure the preparer signs the form and includes their PTIN.  A paid preparer must sign the return and include their PTIN as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return.  The preparer must also give you a copy of the return.

10. Report abusive tax preparers to the IRS. You can report abusive tax preparers and suspected tax fraud to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 from www.irs.gov or order by mail at 800-TAX-FORM (800-829-3676).

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IRS Reopens Offshore Voluntary Disclosure Program

The Internal Revenue Service reopened its Offshore Voluntary Disclosure Program to encourage more taxpayers with assets in undeclared foreign bank accounts to come forward.

The IRS has introduced a series of such programs in recent years, and this is the third program. Unlike the two previous iterations, the program is set to last for an indefinite period of time. The IRS needed to extend both of the previous OVDP programs beyond their original deadlines in 2009 and 2011.

However, the IRS said that hundreds of taxpayers are continuing to come forward with disclosures. So far, the IRS has collected $4.4 billion under the two programs, with $3.4 billion under the 2009 program and $1 billion under the 2011 program. The IRS is continuing to collect money under both programs, though it has already closed about 95 percent of the cases still left over from the 2009 program.

The 2011 program had stiffer penalties for taxpayers than the 2009 program. The new program also has higher penalties for some taxpayers than the 2011 program, which was originally set to expire last September.

The IRS said it has reopened the OVDP after seeing continued strong interest from both taxpayers and tax practitioners in the earlier programs. One reason for that strong interest has been the IRS’s ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. They recently charged a trio of Swiss bankers with conspiring with U.S. taxpayers to hide more than $1.2 billion in assets from the IRS

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More Innocent Spouses Qualify for Relief Under New IRS Guidelines

Issue Number:    IR-2012-3

The Internal Revenue Service today released new proposed guidelines designed to provide relief to more innocent spouses requesting equitable relief from income tax liability.

A Notice proposing a new revenue procedure, posted today on IRS.gov, revises the threshold requirements for requesting equitable relief and revises the factors used by the IRS in evaluating these requests. The factors have been revised to ensure that requests for innocent spouse relief are granted under section 6015(f) when the facts and circumstances warrant and that, when appropriate, requests are granted in the initial stage of the administrative process. The new guidelines are available immediately and will remain available until the finalized revenue procedure is published. The IRS will immediately begin using these new guidelines when evaluating equitable relief requests.

“The IRS is significantly changing the way we determine innocent spouse relief,” said IRS Commissioner Doug Shulman. “These improvements should dramatically enhance our process to make it fairer for victimized taxpayers facing difficult situations.”

This is the second major change made to the innocent spouse program. In July, the IRS extended help to more innocent spouses by eliminating the two-year time limit that previously applied to requests seeking equitable relief.

The IRS invites public comment on the proposed revenue procedure. There are three ways to submit comments.

·         E-mail to: Notice.Comments@irscounsel.treas.gov. Include “Notice 2012-8” in the subject line.

·         Mail to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2012-8), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

·         Hand deliver to: CC:PA:LPD:PR (Notice 2012-8), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.

The deadline is Feb. 21, 2012. 

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IRS Increases Audits of High-Income Taxpayers

The Internal Revenue Service has increased its audits of taxpayers at upper-income levels.

According to IRS statistics released on Thursday, 12.48 percent of taxpayers with income of $1 million or higher were subjected to audits in fiscal year 2011, compared to 8.36 percent in fiscal year 2010. Those with incomes of $200,000 or higher were audited at a rate of 3.93 percent in fiscal year 2011, compared to 3.10 percent in fiscal year 2010.

 

In contrast, 1.02 percent of taxpayers with incomes below $200,000 a year were audited in fiscal year 2011, compared to 1.04 percent in fiscal 2010.

Large corporations were also audited at a higher rate last year, with 17.6 percent of those with assets of $10 million and higher audited in fiscal 2011, compared to 16.6 percent in fiscal year 2010.

Those with assets of $250 million and higher were audited at a rate of 27.6 percent in fiscal 2011, compared to 25.3 percent in fiscal 2010.

Smaller corporations with assets under $10 million were also audited at a greater rate, with examinations of 1.02 percent of them in fiscal 2011, compared to 0.94 percent in fiscal 2010.

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Monthly Social Security Benefits Increase 3.6%

 

Retirees will be receiving a 3.6 percent increase in their monthly Social Security and Supplementary Security Income benefits in 2012.

The cost-of-living adjustment is the first since 2009 and was originally announced in October. It takes effect for nearly 55 million Social Security beneficiaries in January. Increased payments to more than 8 million SSI beneficiaries began on December 30.

Some other changes that take effect in January of each year are based on the increase in average wages.  Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $110,100 from $106,800.

Of the estimated 161 million workers who will pay Social Security taxes in 2012, approximately 10 million will pay higher taxes as a result of the increase in the taxable maximum.

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Treasury Stops Selling Paper Savings Bonds

The Treasury Department has stopped selling paper U.S. savings bonds at banks, ending a tradition stretching back to 1935.

The action was originally announced back in July and is estimated to save taxpayers approximately $120 million in the next five years as part of an effort to increase the number of electronic transactions with citizens and businesses. Sales of paper savings bonds ended on January 1. Instead of selling the savings bonds on paper, the Treasury will instead sell electronic versions of Series EE and I will through purchase TreasuryDirect, a Web-based system operated by the Bureau of Public Debt, where investors have been purchasing savings bonds online since 2002.

Ending over-the-counter sales of paper savings bonds at financial institutions is part of the Treasury’s all-electronic initiative announced in April 2010. As part of the initiative, Treasury stopped the sale of paper bonds through traditional payroll plans, effective Dec. 31, 2010. It is estimated that ending the sales of paper payroll and new issues of OTC bonds will save a total of $120 million over the next five years in areas such as printing, mailing, storing bond stock and fees paid to financial institutions for processing bond applications.

Instead, investors are encouraged to open a free TreasuryDirect account. Once it’s established, investors can buy, manage, and redeem Series EE and I electronic savings bonds; convert Series EE and I paper savings bonds to electronic through the SmartExchange feature; purchase electronic savings bonds as a gift; enroll in a payroll savings plan for purchasing electronic bonds; and invest in other Treasury securities such as bills, notes, bonds, and TIPS (Treasury Inflation-Protected Securities).

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