by NFS | Mar 2, 2012 | Archives
WASHINGTON – The Internal Revenue Service today warned senior citizens and other taxpayers to beware of an emerging scheme tempting them to file tax returns claiming fraudulent refunds.
The scheme carries a common theme of promising refunds to people who have little or no income and normally don’t have a tax filing requirement. Under the scheme, promoters claim they can obtain for their victims, often senior citizens, a tax refund or nonexistent stimulus payment based on the American Opportunity Tax Credit, even if the victim was not enrolled in or paying for college.
In recent weeks, the IRS has identified and stopped an upsurge of these bogus refund claims coming in from across the United States. The IRS is actively investigating the sources of the scheme, and its promoters may be subject to criminal prosecution.
“This is a disgraceful effort by scam artists to take advantage of people by giving them false hopes of a nonexistent refund,” said IRS Commissioner Doug Shulman. “We want to warn innocent taxpayers about this new scheme before more people get trapped.”
Typically, con artists falsely claim that refunds are available even if the victim went to school decades ago. In many cases, scammers are targeting seniors, people with very low incomes and members of church congregations with bogus promises of free money.
The IRS has also seen a variation of this scheme that incorrectly claims the college credit is available to compensate people for paying taxes on groceries.
The IRS has already detected and stopped thousands of these fraudulent claims. Nevertheless, the scheme can still be quite costly for victims. Promoters may charge exorbitant upfront fees to file these claims and are often long gone when victims discover they’ve been scammed.
The IRS is reminding people to be careful because all taxpayers, including those who use paid tax preparers, are legally responsible for the accuracy of their returns, and must repay any refunds received in error.
To get the facts on tax benefits related to education, go to the Tax Benefits for Education Information Center on IRS.gov.
To avoid becoming ensnared in this scheme, the IRS says taxpayers should beware of any of the following:
- Fictitious claims for refunds or rebates based on false statements of entitlement to tax credits.
- Unfamiliar for-profit tax services selling refund and credit schemes to the membership of local churches.
- Internet solicitations that direct individuals to toll-free numbers and then solicit social security numbers.
- Homemade flyers and brochures implying credits or refunds are available without proof of eligibility.
- Offers of free money with no documentation required.
- Promises of refunds for “Low Income – No Documents Tax Returns.”
- Claims for the expired Economic Recovery Credit Program or for economic stimulus payments.
- Unsolicited offers to prepare a return and split the refund.
- Unfamiliar return preparation firms soliciting business from cities outside of the normal business or commuting area.
This refund scheme features many of the warning signs IRS cautions taxpayers to watch for when choosing a tax preparer. For additional information on tax scams, see the 2012 Dirty Dozen list. As always, if you have any questions, do not hesitate to contact our office at 800-560-4637 (4NFS).
IR-2012-29
by NFS | Mar 1, 2012 | Archives
A tax credit is a dollar-for-dollar reduction of taxes owed. Some tax credits are refundable meaning if you are eligible and claim one, you can get the rest of it in the form of a tax refund even after your tax liability has been reduced to zero.
Here are four refundable tax credits you should consider to increase your refund on your 2011 federal income tax return:
- The Earned Income Tax Credit is for people earning less than $49,078 from wages, self-employment or farming. Millions of workers who saw their earnings drop in 2011 may qualify for the first time. Income, age and the number of qualifying children determine the amount of the credit, which can be up to $5,751. Workers without children also may qualify. For more information, see IRS Publication 596, Earned Income Credit.
- The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, while you work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
- The Child Tax Credit is for people who have a qualifying child. The maximum credit is $1,000 for each qualifying child. You can claim this credit in addition to the Child and Dependent Care Credit. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
- The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).
There are many other tax credits that may be available to you depending on your facts and circumstances. Since many qualifications and limitations apply to various tax credits, you should carefully check your tax form instructions, the listed publications and additional information available at www.irs.gov. IRS forms and publications are available on the IRS website at www.irs.gov and by calling 800-TAX-FORM (800-829-3676). We are available to help you figure these tax credits and many others. Call us at 800-560-4NFS.
by NFS | Feb 29, 2012 | Archives
If there’s one thing everyone wants, it’s more time, and that’s exactly what we have this year. A once every four-year phenomena of the calendar known as Leap Year is providing us with 24 extra hours this February 29.
For some, the day will come and go with little to show for it. However, with a little forethought, people can use the extra hours to make a difference in their financial lives. Financial advisors suggest that consumers dedicate this gift of time to tackling the financial tasks they may have been putting off.
- Prepare federal income taxes. Gather all 1099s, W-2s, and receipts related to eligible deductions. Whether filing on your own or through a professional, these items will be needed to prepare an accurate return.
- Create or organize a home financial center. Since the financial documents are out, create files for each category. This step will help you stay organized all year long, and will make preparing next year’s tax return much simpler.
- Review all insurance policies. The time to become familiar with insurance policies is not when you make a claim. Insurance is not something to buy and forget, as life changes often dictate adjustments to the policy. Make an appointment with your insurance provider to confirm that your current needs match your coverage.
- Review retirement contributions. Due to the payroll tax cut, working Americans now have extra money in their paychecks. The best use of this money could be increasing the retirement contribution at work. Make sure to maximize the benefits of an employer match and age-related allowable contribution increases.
- Order your credit report and score—With good reason, people are very interested in their credit score. However, many do not realize that the score is based on the information in the credit report. In spite of it being free through www.annualcreditreport.com, studies revealed that 65 percent of Americans had not ordered their credit report in the last 12 months. The credit score didn’t fare any better, with 63 percent of respondents indicating they’d not ordered their score. Even though there will be a small fee charged to obtain the credit score, it will be money well-spent, as these three numbers dictate much of your financial future.
Those who use the extra time afforded by Leap Year to accomplish these five financial moves will wake up March 1st with a well-earned sense of accomplishment. The efforts they put forth on this bonus day will yield rewards throughout the year.
If you need assistance in putting your financial house in order, reach out to us today…call 800-560-4637.
by NFS | Feb 28, 2012 | Archives
Taxes and inflation erode the return you make on your investment portfolio. If you are in a 30% tax bracket and inflation is 4%, you need to earn 5.7% to earn nothing.
Any effective plan to minimize your income taxes requires an ongoing effort on your part. That means you have to plan and make adjustments year-round, not just when you fill out your tax forms. Most tax preparers are just scorekeepers. They are reactive rather than proactive. You should work with a firm available throughout the year, not just one time a year.
There are three broad categories of tax-favored investments that reduce your income taxes. These are: “Tax-Exempt”, which offers income that is not taxed by the federal government; “Tax Deferred”, which defers taxes on accumulation until it is withdrawn; and “Tax Advantaged” instruments, which provide a tax credit against taxes.
Municipal bonds and Tax Free Money Market funds are two types of tax exempt vehicles.
The most popular tax-deferred investments are 401k plans, and IRA’s – both Traditional IRA’s and Roth IRA’s. Other tax-deferred alternatives are annuities, life insurance, and individual stocks and mutual funds.
Tax advantaged alternatives legally shelter income from taxes by creating a tax credit versus a tax deduction. The 3 primary Tax advantaged vehicles are: Rental Real Estate, Low Income Housing and Historic Rehabilitation Properties.
Older annuity and life insurance contracts can be exchanged for newer, higher paying interest contracts by using a 1035 exchange. This IRS section allows you to re-position these investments without incurring any tax liability.
The tax law allows married couples to exclude up to $500,000 of capital gains on the sale of their personal residence. This benefit can be used every two years.
There are numerous options available for all of these strategies and a tax and financial professional should assist you in selecting one that properly fits your specific needs.
by NFS | Feb 23, 2012 | Archives
WASHINGTON — Refunds totaling more than $1 billion may be waiting for one million people who did not file a federal income tax return for 2008, the Internal Revenue Service announced today. However, to collect the money, a return for 2008 must be filed with the IRS no later than Tuesday, April 17, 2012.
The IRS estimates that half of these potential 2008 refunds are $637 or more.
Some people may not have filed because they had too little income to require filing a tax return even though
they had taxes withheld from their wages or made quarterly estimated payments.
In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim a refund within three years, the money becomes property of the U.S. Treasury.
For 2008 returns, the window closes on April 17, 2012. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund.
The IRS reminds taxpayers seeking a 2008 refund that their checks may be held if they have not filed tax returns for 2009 and 2010. In addition, the refund will be applied to any amounts still owed to the IRS, and may be used to offset unpaid child support or past due federal debts such as student loans.
By failing to file a return, people stand to lose more than refunds of taxes withheld or paid during 2008. Some people, especially those who did not receive an economic stimulus payment in 2008, may qualify for the Recovery Rebate Credit. In addition, many low-and moderate-income workers may not have claimed the Earned Income Tax Credit (EITC). The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2008 were:
- $38,646 ($41,646 if married filing jointly) for those with two or more qualifying children,
- $33,995 ($36,995 if married filing jointly) for people with one qualifying child, and
- $12,880 ($15,880 if married filing jointly) for those with no qualifying children.
For more information, visit the EITC Home Page on IRS.gov.
We can help you file your current and prior year tax returns. Contact us at 800-560-4NFS for an appointment to get started.
by NFS | Feb 22, 2012 | Archives
Congress has voted in favor of extending for the entire year of 2012 the temporary reduction in the employee’s portion of the Social Security tax. Currently, employees pay 4.2% of their wages in Social Security taxes, a rate that has been in effect since January 2011 and was scheduled to expire at the end of February 2012. HR 3630, the Middle Class Tax Relief and Job Creation Act of 2012, extends this 4.2% rate through the end of 2012. The House voted in favor of HR 3630 by 293 to 132; the Senate approved the legislation by a vote of 60 to 36. President Obama has not yet signed the bill into law.
Employers still pay the normal rate of 6.2% of wages into the Social Security program. For 2012, Social Security taxes are assessed on wages up to the annual wage base limit of $110,100.
Self-employed persons will pay a combined 10.4% in Social Security taxes, instead of the normal 12.4%, reflecting both the employer’s and the employee’s share of Social Security taxes.
This payroll tax holiday does not change Medicare taxes, which are assessed on all wage and self-employment income at a rate of 2.9%, with half paid by the employee and half paid by the employer.
The payroll tax holiday began has a one-year rate reduction for the employee-portion of Social Security taxes in 2011 (HR 4853, the Tax Relief Act). This was then extended for two months through the end of February 2012 (HR 3765). It has now been extended through the end of 2012 (HR 3630).
To prevent Social Security from losing tax revenue, Congress mandated that revenues be transferred from the general fund to the Social Security trust funds to make up for the tax reduction.
The rate reduction also applies to employees covered by the Railroad Retirement System.
The previous, two-month extension of the payroll tax holiday passed in December 2011 (HR 3765) contained a pay-back provision designed to prevent higher-income persons from timing the receipt of salary in January and February in order to obtain a reduction in Social Security tax. That recapture tax has been repealed by HR 3630 since the Social Security rate reduction applies to the whole year of 2012.
Prior to the payroll tax holidays of 2011 and 2012, the last time America saw a 4.2% rate for Social Security coverage was the years 1969 and 1970. (Source: SSA.gov.)
Tax planning tips for the payroll tax holiday
This is now the second, and perhaps final, year for the temporary reduction in the rate of tax paid for Social Security coverage. 2012 is also the last year (under current law) for the reduced tax rates on income. Thus 2013 may witness a double increase in taxation from the expiration of the Bush-era tax cuts and the expiration of the temporary reduction in Social Security taxes.
Wage earners may want to consider negotiating for bonuses to be paid out in 2012 so as to take advantage of the lower Social Security tax rate. Similarly, self-employed persons may want to accelerate income into 2012 by increasing revenues or deferring deductions. Deductions can be deferred, for example, by depreciating property over its normal depreciation schedule rather than expensing the entire amount through Section 179.
Accelerating income in this fashion can create a permanent tax reduction if the wages or self-employed income are over the $110,100 Social Security wage base, since any earnings over that limit are not subject to Social Security taxes.
