You may generally deduct home equity debt interest as an itemized deduction if all of the following conditions apply:

• You are legally liable to pay the interest
• You pay the interest in the tax year
• The debt is secured with your home
• The home equity debt is limited to the fair market value of the home reduced by home acquisition debt, up to a total of $100,000.

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

To be deductible, charitable contributions must be made to qualified organizations. Payments to individuals are never deductible. See Publication 526, Charitable Contributions.

If your contribution entitles you to merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event, you can deduct only the amount that exceeds the fair market value (FMV) of the benefit received.

Charitable Contributions: Recordkeeping Requirements

For a contribution of cash, check, or other monetary gift (regardless of amount), you must maintain as a record of the contribution a bank record or a written communication from the qualified organization containing the name of the organization, the date of the contribution, and the amount of the contribution. In addition to deducting your cash contributions, you generally can deduct the FMV of any other property you donate to qualified organizations. See Publication 561, Determining the Value of Donated Property. For any contribution of $250 or more (including contributions of cash or property), you must obtain and keep in your records a contemporaneous written acknowledgment from the qualified organization indicating the amount of the cash and a description of any property contributed. The acknowledgment must say whether the organization provided any goods or services in exchange for the gift and, if so, must provide a description and a good faith estimate of the value of those goods or services. One document from the qualified organization may satisfy both the written communication requirement for monetary gifts and the contemporaneous written acknowledgment requirement for all contributions of $250 or more.

When to Use Form 8283

You must fill out Form 8283 (PDF), and attach it to your return, if your deduction for a noncash contribution is more than $500. If you claim a deduction for a contribution of noncash property worth $5,000 or less, you must fill out Form 8283, Section A. If you claim a deduction for a contribution of noncash property worth more than $5,000, you will need a qualified appraisal of the noncash property and must fill out Form 8283, Section B. If you claim a deduction for a contribution of noncash property worth more than $500,000, you also will need to attach the qualified appraisal to your return.

For more information refer to Form 8283 and its instructions, as well as Publication 526, Charitable Contributions. For information on determining the value of your noncash contributions, refer to Publication 561, Determining the Value of Donated Property.

Yes, unemployment compensation is includible in gross income. You must report unemployment compensation on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ.

Unemployment compensation generally includes any amounts received under the unemployment compensation laws of the United States or of a state. It includes state unemployment insurance benefits and benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund. It also includes railroad unemployment compensation benefits, disability benefits paid as a substitute for unemployment compensation, trade readjustment allowances under the Trade Act of 1974, and unemployment assistance under the Disaster Relief and Emergency Assistance Act of 1974. Unemployment compensation does not include worker’s compensation.

If you received unemployment compensation during the year, you should receive Form 1099-G (PDF) showing the amount you were paid. Any unemployment compensation received during the year must be included in your income, unless you contributed to the fund (see below).

If you received unemployment compensation, you may be required to make quarterly estimated tax payments. However, you can choose to have federal income tax withheld. For more information, refer to Form W-4V (PDF), Voluntary Withholding Request.

Unemployment Income: Exceptions

Supplemental unemployment benefits received from a company financed fund are not considered unemployment compensation for this purpose. These benefits are subject to income tax withholding as wages. They may be subject to social security and Medicare taxes as well. Supplemental unemployment benefits are reported to you on Form W-2 (PDF). For more information about supplemental unemployment benefits, see Publication 15-A (PDF) , section 5.

Unemployment benefits from a private fund (or, in some cases, public fund) to which you voluntarily contribute are taxable only if the amounts you receive are more than your total payments into the fund. This taxable amount is not unemployment compensation; it is reported as other income on Form 1040 (PDF).

For more information, see Unemployment Benefits in Publication 525.

The standard deduction is a dollar amount that reduces the amount of income on which you are taxed. In general, the standard deduction is adjusted each year for inflation and varies according to your filing status. You cannot take the standard deduction if you itemize deductions.

Your standard deduction consists of the basic standard deduction and any additional standard deduction for age or blindness.

Basic Standard Deduction

The basic standard deduction of an individual who can be claimed as a dependent on another person’s tax return is the greater of:

1. An amount specified by law, or
2. The individual’s earned income plus a specified amount (but the total cannot be more than the basic standard deduction for his or her filing status)

Additional Standard Deduction for Age or Blindness

The additional standard deduction consists of the sum of any additional amounts for age or blindness. The additional amount for age will be allowed if you are age 65 or older at the end of the tax year. You are considered to be 65 on the day before your 65th birthday. For the definition of blindness, refer to Publication 501, Exemptions, Standard Deduction, and Filing Information. The additional amount for blindness will be allowed if you are blind on the last day of the tax year. For example, a single taxpayer who is age 65 and blind would be entitled to a basic standard deduction and an additional standard deduction equal to the sum of the additional amounts for both age and blindness.

If you or your spouse were age 65 or older or blind at the end of the year, be sure to claim an additional standard deduction by checking the appropriate boxes for age or blindness on Form 1040A (PDF) or Form 1040 (PDF). You may not use Form 1040EZ to claim an additional standard deduction.

Who Cannot Take the Standard Deduction

Certain taxpayers are not entitled to the standard deduction. They are:

1. A married individual filing a separate return whose spouse itemizes deductions
2. An individual who was a nonresident alien or dual status alien during any part of the year (note that residents of India may be able to claim the standard deduction if they meet certain criteria. Refer to Publication 519, U.S. Tax Guide for Aliens, for more information)
3. An individual who files a return for a period of less than 12 months due to a change in his or her annual accounting period, or
4. An estate or trust, common trust fund, or partnership

For more information, refer to Publication 501, Exemptions, Standard Deduction, and Filing Information.

Exceptions: Extended Statute of Limitations

In some cases a taxpayer’s debt may not expire exactly 10 years from the date of IRS assessment. There are a number of ways that the IRS Collection Statute can be extended. For example, filing a Bankruptcy or Offer in Compromise (OIC) will usually extend the amount of time the IRS has to collect a tax debt. Leaving the United States for a period of time or other factors can also extend this Statute of Limitations as well. A tax debt which is assessed as a result of a citizen being convicted of tax fraud will never expire.

Your Tax Resolution Strategy Depends on the Statute of Limitations

When working to resolve an IRS tax debt, the age of the debt and CSED date are very important factors to consider when coming up with a plan of action. If the debt is close to expiring, it is very important that both the taxpayer and any tax professional they are working with are careful not to take any action which will extend the IRS statute further into the future!

IRS Problems Resolved specializes in assisting individuals and businesses with past due tax debts. If you have an old tax liability that you would like to resolve or if you have questions about the IRS Collection Statute please fill out our contact form or contact one of our tax professionals today! 855-895-1892

How Long to Keep Records

Records such as receipts, canceled checks, and other documents that support an item of income or a deduction, or a credit appearing on a return must be kept so long as they may become material in the administration of any internal revenue law, which generally will be until the period of limitation expires for that return. For assessment of tax you owe, this generally is 3 years from the date you filed the return. Returns filed before the due date are treated as filed on the due date.

Other Statutes of Limitations

There is no period of limitations to assess tax when a return is fraudulent or when no return is filed. If income that you should have reported is not reported, and it is more than 25% of the gross income shown on the return, the time to assess is 6 years from when the return is filed. For filing a claim for credit or refund, the period to make the claim generally is 3 years from the date the original return was filed, or 2 years from the date the tax was paid, whichever is later. For filing a claim for a loss from worthless securities the time to make the claim is 7 years from when the return was due.

Business Recordkeeping Requirements

If you are an employer, you must keep all your employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later.

If you are in business, there is no particular method of bookkeeping you must use. However, you must use a method that clearly and accurately reflects your gross income and expenses. The records should substantiate both your income and expenses. Publication 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses, provide additional information on required documentation for taxpayers with business expenses. Publication 552, Recordkeeping for Individuals, provides more information on recordkeeping requirements for individuals.

You do need to be careful, though. Make sure that your expenses are truly related to business, and that your trip is more about business than about pleasure.

Your “Tax Home” and Temporary Work Assignments

You should also realize that you should only take expenses that occur away from your “tax home.” Your tax home is the general area where your main work, or main place of business is. So, if you travel to a different city, and work there during the week, and return to your family in the weekends, none of your travel is deductible. This is because your “tax home” for business purposes is the city in which your regular job is located, and when you travel home, you aren’t doing it for business purposes.

However, if you are on a temporary assignment (less than a year), or traveling to a convention or trade show for business purposes, you can deduct a number of your travel expenses.

Deductible Expenses For Business Travel:

• Car mileage: If you use your car to drive for business travel, the IRS will reimburse for each mile traveled. Make sure you keep accurate records of your mileage.
• Transportation costs: You can deduct your transportation costs if you don’t use your own car, including transport by airplane, bus and train. Additionally, you can deduct the costs of taxi rides and shuttle rides between the airport/station and your hotel, and between the hotel and your work location.
• Lodging: Your hotel costs are tax-deductible.
• Meals: In most cases your business meals while on a trip are limited to 50% of the cost, so keep that in mind as you eat out.
• Entertainment: If you entertain a client or potential partner, and discuss business, you can usually deduct 50% of the cost. Be careful, though, there is a fine line between business entertainment and regular entertainment.
• Laundry/dry cleaning: If you need to pay to have your clothes cleaned while on your business trip, you can deduct it.
• Tips: When you provide tips to service providers and drivers, you can deduct those expenses.
• Conference fees: Conference and trade show fees are also tax-deductible – as long as you can show that they are related to your business. As long as you are meeting potential clients or partners, making useful business contacts, or learning skills that will help you better run your business, you can deduct registration fees.
• Business communications: If you incur costs related to business communications (faxes, calls, extra cell phone charges, Internet access), you can deduct those costs.
• Other miscellaneous costs: If you have to pay fees for a stenographer, rentals, maintaining a house trailer, or some other cost that is related to your business activities, you can deduct those expenses.

As always, whenever you plan to claim a tax deduction, you need to make sure that you have plenty of documentation. Keep receipts. You might even want to take notes about the people you talked to, and the business discussions you had (especially important if you want to deduct entertainment expenses).

US income tax operates on a pay-as-you-go basis. That means we pay our tax as we earn or receive income during the year, either by withholding or by making estimated tax payments each quarter. If you have income not subject to withholding, you probably need to make these payments. This includes self-employment income, interest, dividends, capital gains, alimony, and rental income. If you expect to owe at least $1000, you may need to make estimated tax payments. And if you pay too little tax during the year, you may have to pay a penalty. Normally you pay estimated tax in four equal quarterly payments, but there are some exceptions. So if you have income from anywhere that doesn’t withhold tax from you, it’s a good idea to see if estimated tax payments apply to your situation.

Safe Harbor Rule for Estimated Payments

The majority of taxpayers who pay estimated tax rely on the “Safe Harbor Rule” in
order to avoid any potential penalties. Regardless of your income level, there will be no underpayment penalty if you pay at least 90% of whatever the current year’s tax bill turns out to be.

It’s usually hard to guess what a person or business will earn during the year, so most taxpayers find it easier to use the Safe Harbor Rule. The first “safe harbor” applies to taxpayers whose adjusted gross income is $150,000 or less. You will not be assessed penalties in 2012 if you pay at least the amount of the tax liability on your 2011 tax return (Note: there are some exceptions for farmers, fishermen, and higher-income taxpayers).

How We Can Help With Estimated Tax Deposits

Whether you’re unsure if you need to make estimated tax deposits, or if the IRS has already applied late-payment penalties for failure to make estimated tax payments, we offer comprehensive tax planning services to make sure that you stay up-to-date on your tax payments — we provide the necessary forms and voucher slips with your payment information automatically generated. We can also help you get set up with electronic payments to the Department of the Treasury. And if you do owe tax penalties, there are a few options you have to try to reduce or remove them, including IRS penalty abatement. Call us toll-free at 855-895-1892 to learn more about how we can help manage your tax situation throughout the year.

The terms “real estate taxes” and “property taxes” are often used to mean the same thing. The problem lies specifically with the term “property taxes.” Property taxes can refer to both “personal property taxes” and “real estate taxes.” There is a big difference, though, between what the government considers real and personal property.

Real Estate Taxes

Tax-Assessed Value

Personal Property

Personal Property Tax

Mobile Homes and Exemptions

Second Residences

The mortgage interest on a second home which you use as a residence for some portion of the taxable year is generally deductible if the interest satisfies the same IRS requirements for deductibility as interest on a primary residence.

• The limitation for mortgage interest on your primary and secondary residence is $1,000,000 for acquisition indebtedness and $100,000 for home equity indebtedness.
• Real estate taxes paid on your primary and second residence are, generally, deductible.
• Deductible real estate taxes include any state, local, or foreign taxes based on the value of the real property levied for the general public welfare.
• Deductible real estate taxes do not include taxes charged for local benefits and improvements that increase the value of the property, such as assessments for sidewalks, water mains, sewer lines, parking lots, and similar improvements.

The IRS has over 150 different types of tax penalties that they can apply to your original tax debt amount.  Tax penalties allow the IRS to take advantage of you for failure to file, failure to pay on time, combined penalties or underpaying estimated taxes.  In most cases of taxpayers with multiple years of back taxes, the interest and penalties can accumulate to over fifty percent of what you owe originally.

How to Get Tax Penalties Removed:

There are many different ways to reduce penalties and interest with the IRS.  One way is to go through the IRS penalty abatement process.  With this process you will be able to eliminate a good portion, if not all of the penalties, but not the interest.  You may also file an Interest Abatement if you can show reasonable cause.

The IRS likes to work with a taxpayer who is being proactive and following the right procedures with them to resolve their unpaid taxes.  Sometimes the IRS will waive the penalties for the taxpayer before they put them on an Installment Agreement.  It is always better to consult with a tax professional before you proceed with the next step. Call us today at 855-895-1892 to learn more or fill out our tax settlement qualification form to have a consultant call you.