IRS

Hackers, fraudsters, and scammers are among the top reasons many people lose money in the world. The Internal Revenue Service (IRS) warns that people may be after your sensitive information and may contact you impersonating an IRS agent.

Here are warning signs that the IRS is not contacting you:

• You receive a call demanding immediate payment. The IRS never calls you about your taxes without first mailing out a bill. They usually follow up a month after sending it, so you’ll have an advanced notice if they would be calling you about it.
• Receive a call or letter demanding you pay taxes and they don’t offer you with a choice to question or appeal the stated amount owed.
• Demanding payment via prepaid visa debit card or western union. The IRS will never limit your payment options to these and it’s often a sign of a scammer.
• Requesting sensitive information such as social security number, credit or debit card number is not a policy of the IRS. They request payment either through mail or via their website. If you’re asked to pay over the phone, it’s a scammer.
• Receiving phones calls threatening local police or law-enforcement agencies on you if you refuse to pay. The IRS will take you to court if they want to take action against you, so don’t listen to anyone on the phone threatening to send you to jail. They are a scammer.

These are the most efficient tips to help you watch for scammers and fraudsters who are only interested in stealing your sensitive security information. The IRS will always send a letter out to you if they need correspondence. If you feel you’re unsure if it’s the IRS contacting you, it’s best to call and ask if they sent the letter to your home.

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Veterans Income

Income earned while working for the Federal government in the Military is not taxable once you have veteran status. Benefits paid to veterans’ families are also non-taxable. Education allowances, disability compensation, and grants for homes are also non-taxable.

Welfare Payments

Monies paid to you from a state-funded program, such as cash assistance and food assistance, are not taxed by the IRS. You will receive statements, and these should be kept for your records. In case of audit, these documents will be requested.

Child Support & Foster Care Payments

If you receive child support from a biological parent or foster care payments from the state, that income is tax-free. The child’s biological parent is already paying taxes on his or her income before it is distributed to you.

Worker’s Compensation Income

The Worker’s Compensation Act protects the income of injured workers from being taxed. You are unable to earn your regular income, and worker’s compensation is often less than your regular wage. A wage statement may be sent by worker’s compensation for your records.

Inheritances

The estate of your deceased loved one pays taxes. State taxes may be required on some inheritances. You will receive a form to file with your taxes, but this income cannot be taxed.

Final Thoughts

If you are unsure if you should report your income, view the IRS’ list of non-taxable income sources. A tax preparation specialist can answer additional questions. Don’t report income that you don’t have to.

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What Does Tax Avoidance Involve?

Although tax avoidance involves legal actions, public opinion sees such avoidance as unethical. Corporations which take part in tax avoidance receive backlash from once loyal customers and user communities online. Methods of tax avoidance include manipulating the company’s country of residence, legal entities, tax shelters, or transfer mispricing. Both tax evasion and some forms of tax avoidance can be seen as tax noncompliance.

What Is Being Done?

Since tax avoidance greatly reduces government revenue, many countries are framing tax rules to lessen the scope of avoidance. Australia, Canada, New Zealand, South Africa and Norway are just some of the countries to introduce the “General Anti-Avoidance Rules” also known as GAAR. In the United States, the Internal Revenue Service (IRS) helps determine which corporate schemes are abusing the system. US Court case Gregory v. Helvering helped to establish judicial doctrines which assist in this area.

Final Thoughts

Tax avoidance is considered by the public as dodging one’s obligations toward society. When big corporations perform tax avoidances, it is the citizens who suffer the consequences. In the last few years, there has been an increased government response to avoidances and this will only continue to grow in the future.

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Form 1040X

Form 1040X is two pages long. It cannot be filed electronically. Use pencil first, and when you are sure that your figures are correct, go over the return in pen. Make sure that you have the right address for the IRS branch that the form needs to be mailed to and send it with delivery confirmation.

Be Prepared to Pay Back Interest

Almost every amended tax return is going to be subject to some kind of back interest. Even amended returns in a current tax filing year can be subjected to interest payments. Set aside enough to be prepared for the interest, or make arrangements to pay the balance within a specific amount of time.

Amend the Right Return

It is a common mistake to amend the wrong year’s return. Make sure that you are amending the right year as you file for earnings of the previous year. If a document shows 2012 earnings, you will amend your 2013 return.

Conclusion

As with any tax return, when you are re-filing an old return, it is important to double and triple check your numbers. It is also important to know that you may be subjected to an audit simply for the amendment, especially if it is one of a substantial amount.

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John Gotti

John Gotti is one of the most famous people who have ever been sent to jail because of taxes. One of the reasons he is so famous for the tax evasion arrest is because the government was trying him on major charges as a mobster. The tax issue was the only thing the government was able to prove, however, and so this issue was used to put him behind bars.

Heidi Fleiss

One of the curiosities about the case of Heidi Fleiss is that she was jailed for taxes even though her business of being a madam was an illegal one. The government has determined that no matter how you get money, legal or illegal, you must still pay taxes on your income.

Wesley Snipes

Snipes was one of the biggest actors in Hollywood and also had one of the largest tax debts during the height of his fame. Wesley owed the government around 17 million in taxes at the time. He was sentenced to three years in federal jail in 2008.

Ja Rule

Rapper Ja Rule rode the billboards in the early 2000s with his label Murder Inc., however, he was sentenced to jail in 2013 for not paying his fair share of taxes during his time in the limelight.

Lauryn Hill

Known for her soulful songs, it was a shock when Lauryn Hill was sentenced to 3 months in jail over her 1-million-dollar tax bill in 2013. In 2014, she received yet another tax bill to work out.

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Use a Secure Banking Institution

It is best to use a well-known and reputable banking institution. This helps provide some reassurance that your bank will not be hacked and funds stolen. Security breaches do not happen often, especially with banking institutions, but using a larger institution is often a better idea due to the increased security measures put in place.

File Electronically

Filing electronically really is the safest way to file your taxes. When you file electronically, select the direct deposit option. This is the most secure option. The IRS computer system is very secure.

Paper Checks

Paper checks are the most vulnerable. These can get lost or stolen during mail delivery. Mistakes do happen where mail is delivered to the wrong home, and in most cases, the checks are returned for redelivery. If you do not receive your refund by the estimated date given, contact the IRS to inquire.

Always know when your refund is expected. Allow an extra 48 hours in case there is a backup in the mail system or computer processing of your refund. When your refund is definitely late, you can view the status of your refund on the IRS website. When additional questions exist, contact the IRS via phone and patiently wait for your turn in line as wait times are substantial.

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Big Charitable Donations

When making large charitable donations, make sure that you are donating to a 501(c)(3) organization. Only donations made to these organizations are tax deductible. Larger donations used for tax deduction purposes are scrutinized a bit more than smaller donations.

Being Rich

Being wealthy alone is reason for audit. The IRS is going to make sure that all of your earnings are reported and that major reported expenses are justified. Of course it’s not a bad aim to acquire wealth, however if you do become rich you should be aware that you are more likely to face an audit.

Sold Investments

When you sell an investment, your broker is now required to report the cost basis directly to the IRS. You must report the exact same numbers that your broker submits to the IRS. If the numbers do not match exactly there is a high probability of facing an audit.

Withdrawing from Retirement Funds Early

When you withdraw from a retirement fund early – i.e. before age 59 and a half – you must pay an additional 10-percent tax. Moreover, withdrawing early can also trigger an audit in certain cases.

Auto Mileage Usage Reports

Improper reporting of mileage when using your own vehicle for work purposes can trigger an audit. You are permitted to deduct $0.575 per mile for work travel. The vehicle must be used solely for work purposes to qualify.

The best advice is to make sure your figures are correct and that you report absolutely everything. Leaving out the most miniscule detail can trigger an audit. Keeping immaculate records throughout the year helps prevent these mistakes.

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Missing Payments

As long as all of your payments are made on time, you should not experience higher interest. This changes when you miss a payment. The credit card company is going to charge you a higher rate of interest on the next payment you have to make.

Higher Interest via Credit Card Company

The federal government does charge interest when a payment plan is required to pay tax debt. This is often lower than the interest rate on your credit card. Many taxpayers obtain a new credit card with an introductory interest rate period. The hope is often to pay the tax debt prior to that introductory interest rate period expiring, but that does not always happen, thus leaving you paying more in the end.

Bottom Line

When you realize that you are going to have to pay taxes and not receive a refund, it is important to decide what you can pay each month. If your options are better paying the IRS via their payment plan, that is the better route to take. Those that owe small amounts really are better off working with the IRS directly. The IRS offers a 120-day fee and interest free period to pay your owed taxes.

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