Tips For Reducing Stress Ahead of Tax Time

Although most people won't be filing their tax returns for several months, the dog days of summer are actually a great time to start planning for the tax filing season by ensuring your records are organized.  Whether you are an individual taxpayer or a business owner, you can avoid headaches at tax time with good records because they will help you remember transactions you made during the year.

Here are a few things the IRS wants you to know about recordkeeping.

Keeping well-organized records also ensures you can answer questions if your return is selected for examination or prepare a response if you are billed for additional tax. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, you should keep any and all documents that may have an impact on your federal tax return.

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Ten Tips for Taxpayers Making Charitable Donations

Every year, millions of taxpayers itemize their deductions on their federal tax return. One of the most common itemized deductions is a donation made to a charitable organization.

Here are the top ten things the IRS wants every taxpayer to know before deducting charitable donations.

•  Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization and most will be able to tell you. You can also check IRS Publication 78, which lists most qualified organizations. IRS Publication 78 is available at IRS.gov.

•  Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.

•  You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.

•  If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.

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Eight Tips For Taxpayers Who Owe The IRS Money

The vast majority of Americans get a tax refund from the IRS each spring, but what do you do if you are one of those who received a tax bill? Here are eight tips for taxpayers who owe money to the IRS.

1. If you get a bill this summer for late taxes, you are expected to promptly pay the tax owed including any additional penalties and interest.  If you are unable to pay the amount due, it is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS.

2. You can also pay the bill with your credit card. To pay by credit card contact either Official Payments Corporation at 800-2PAYTAX (also www.officialpayments.com ) or Link2Gov at 888-PAY-1040 (also www.pay1040.com ).

3. The interest rate on a credit card or bank loan may be lower than the combination of interest and penalties imposed by the Internal Revenue Code.

4. You can also pay the balance owed by electronic funds transfer, check, money order, cashier's check or cash.  To pay using electronic funds transfer you can take advantage of the Electronic Federal Tax Payment System by calling 800-555-4477 or 800-945-8400 or online at www.eftps.gov .

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Five Facts about the Home Office Deduction

With technology making it easier than ever for people to operate a business out of their house, many taxpayers may be able to take a home office deduction when filing their 2009 federal tax return next year.

Here are five important things the IRS wants you to know about claiming the home office deduction.

1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:

• As your principal place of business, or


• As a place to meet or deal with patients, clients or customers in the normal course of your business, or


• In the case of a separate structure which is not attached to your home, it must be used in connection with your trade or business

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The IRS Service can seize funds in a health savings account for unpaid taxes.

In a private ruling, the agency says that even though HAS funds are held in a trust, the broad powers granted IRS to grab assets for tax debts allow it to tap the account.

Worse, there is a double whammy if IRS taps the account: Payouts are taxed as income to the owner of the HAS. And there’s a 10% penalty on the distribution unless the HAS owner is age 65 or older or is disabled when the Service takes the money.

The rule is different for seizures from IRAs and 402(k)s. There, no penalty is owed, even if the employee is under the age of 591/2. Congress specifically barred any penalty in those cases, figuring that punishing an involuntary payout adds insult to injury. Unfortunately, there’s no such expectation for involuntary withdrawals from HSAs.

IRS will put more suspected under-reporters on the honor system next year.

It will send notices to another 30,000 filers to tell them about discrepancies between 1099 forms and what was shown on their 2009 returns. IRS will suggest that these taxpayers either amend their returns or have 1099 issuers fix any errors. It will check the 2010 tax returns of these filers to see if the underreporting stopped. If they report the money on their 2010 returns, IRS will give them a pass for 2009. It's already monitoring 30,000 taxpayers who got notices about their 2008 returns.

Gifts made via powers of attorney continue to create tax woes.

The problem arises when the document is silent about making gifts, as this case shows. An elderly father in poor health gave his son power of attorney over his assets. Just before the father died, the son wrote checks for $11,000 (the maximum amount of the annual gift tax exclusion then) to 17 family members. The gifts must be added back to the estate for federal estate tax purposes, as a district court says, rejecting the son's deathbed estate planning. The gifts he made weren't specifically authorized by the power of attorney are unauthorized (Barnett, D>C>, Pa.) The problem could have been avoided had the document said gifts were OK.

TAX SECRETS FOR TRADERS – STOCK AND OPTIONS SERIES (NEW)

If your firm sponsors a simple plan and is short on cash, take note:

Your cost saving options are limited by IRS rules. Plans can't be shut down until the end of the year. Plus, employers that promised a nonelective contribution or a matching pay-in for 2009 can't reneg on that commitment. But a delay is OK: Deposits can be deferred till the extended due date of the firm's business tax return.

The rules are less strict for 401(k) plan sponsors. Those that contribute 3% or more of pay to participant accounts to avoid nondiscrimination testing are allowed to reduce or suspend pay-ins. They must give employees prior notice of the change and permit them to modify their own plan contributions to make up for the loss.

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