IRS is doing fewer no-change exams on filers

Now that IRS audit formulas have been updated to incorporate data from a recent set of random audits they will be doing fewer no-change exams on filers. For tax year 2006 returns, the no change rate is 13% down from 18% five years ago. And the average additional tax recommended per examination also went up 16%.

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Ten Facts about the First-Time Homebuyer Credit

Many taxpayers who purchase a home this year will qualify for an $8,000 federal tax credit. The refundable first-time homebuyer credit is a major tax provision in the American Recovery and Reinvestment Act of 2009. But time is running out to qualify for this credit.

Here are ten things the IRS wants you to know about the first-time homebuyer credit:

•  To be considered a first-time homebuyer, you – and your spouse if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.

•  You cannot claim the credit before there is a completed sale and purchase of the residence. The sale and purchase are generally completed at the time of closing on the purchase.

•  To qualify for the credit, the completed purchase must occur before December 1, 2009.

•  The home must be located in the United States.

Click here to get the rest of the Homebuyer Tax Credit

The odds of tax rate hikes are likely. What should you do?

You may want to reconsider the form of your business. The top rate on both individuals and corporations is 35%, smoothing the income tax differences among proprietorships, partnerships, regular corporations, S companies and LLCs.

The top rate on individuals will likely top 40%. Congress is almost certain to let the Bush tax rate cuts lapse after 2010, which would make the top rate 39.6%. It could climb to 45% if a surtax being talked about by House Democrats is approved.

Higher rates provide a big a big tax incentive to operate as a regular corporation, despite the two layers of tax. With such a big spread between the maximum tax rate on corporations and individuals, many people would avoid operating businesses as S firms, partnerships or sole proprietorships. The reverse happened in 1986, when the top rate on individuals was lower than the maximum corporate tax rate.

Learn more about business formation and the many tax advantages.

IRS to send millions of tax payers letters and notices.

Every year, the IRS sends millions of letters and notices to taxpayers. Many taxpayers will receive this correspondence during the late summer and fall. Here are eight things every taxpayer should know about IRS notices – just in case one shows up in your mailbox.

Eight Things to Know If You Receive an IRS Notice
•  Don't panic. Many of these letters can be dealt with simply and painlessly.

See the rest of the IRS Notices to Taxpayers

Hanky panky with your IRA will cost you the bankruptcy exemption.

Although creditors typically cannot grab IRA funds, that rule does not apply when the debtor engages in prohibited transactions with the account. In this case, the owner of a self-directed IRA borrowed money from it and used the account to pay off a mortgage on property he wanted to acquire. His self-dealing with the IRA allowed his creditors to tap it (Willis, D.C., Fla.). Oddly enough, although his IRA lost its tax exemption due to his shenanigans, making the entire account taxable to him, IRS never came after him for back taxes.

A New Tax Savings Begins January 1, 2010

Claiming new add-ons to the standard deductions? IRS wants details.

Starting with returns for 2009, filers who add real estate taxes, sales tax on vehicles or disaster losses to their standard deduction must file new Schedule L and list the extra amounts. For 2009, married nonitemizers can add up to $1,000 of property taxes paid to their standard deduction. The cap for single filers is $500. Those who purchasing a vehicle after February 16th, 2009 and before 2010 can add sales tax paid on the first $49,500 of cost to their standard deductions. And nonitemizers who live in federal disaster areas can boost their standard deductions by any casualty loses.