How to Obtain a Transcript of Your Past Tax Information
Taxpayers who need their past tax return information can obtain it from the IRS. Here are nine things to know if you need copies of your federal tax return information.
- There are two easy and convenient options for obtaining free copies of your federal tax return information — tax return transcripts and tax account transcripts.
- The IRS does not charge a fee for transcripts, which are available for the current year as well as the past three years.
- A tax return transcript shows most line items from your tax return as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes you, your representative or the IRS made after the return was filed. In many cases, a return transcript will meet the requirements of lending institutions, such as those offering mortgages and student loans.
- A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data – including marital status, type of return filed, adjusted gross income and taxable income.
- To request either transcript by phone, call 800-829-1040 and follow the prompts in the recorded message.
- To request a tax return transcript through the mail, individual taxpayers should complete IRS Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript. Form 4506T-EZ is only for individuals who filed a Form 1040 series return. Businesses, partnerships and individuals who need transcript information from other forms or need a tax account transcript must use the Form 4506T, Request for Transcript of Tax Return.
- You should receive your tax return transcript within 10 working days from the time the IRS receives your request. Allow 30 calendar days for delivery of a tax account transcript.
- If you still need an actual copy of a previously processed tax return, it will cost $57 per tax year and take much longer. Complete Form 4506, Request for Copy of Tax Form, and mail it to the IRS address listed on the form for your area. Please allow 60 days for actual copies of your return. Copies are generally available for the current year as well as the past six years.
- Visit the IRS Web site, IRS.gov, to determine which form will meet your needs. Forms 4506, 4506T and 4506T-EZ can be found at IRS.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).
Ten Facts about Mortgage Debt Forgiveness
If your mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income. Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.
- Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
- The limit is $1 million for a married person filing a separate return.
- You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
- To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
- Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
- Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.
- If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
- Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.
- If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
- Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
“Show Me The Money”: A Look at Sources of Capital Available for Entrepreneurial Women
The Women of the Harvard Club of Boston and the Harvard Business School Women’s Association present “Show Me the Money”: A Look at Sources of Capital Available for Entrepreneurial Women
Wednesday, February 8, 2012
Main Clubhouse: 374 Commonwealth Avenue
6 pm Cocktail Reception and Networking; 7 pm Panel Discussion; 8 pm Q&A
Moderator: Amy Millman, President, Springboard Enterprises
Panel Members:
- Sheryl Schultz, Managing Director, Golden Seeds Angel Network
- Chuck Grigsby, President, Mass Growth Capital Corp.
- Maria Cirino, Co-Founder & Managing Director, .406 Ventures
According to the Kaufman Foundation, women receive between 4% and 9% of the venture capital funding available, even though women own about 29% of US businesses, according to US Census figures. Our panel will explore the reasons why so few female entrepreneurs access external financing, and how women starting or growing their own businesses can finance their ventures. Entrepreneurs will learn about early-stage financing options, the availability of capital to support expansion, and current trends in capital markets. Providers of capital will also have the opportunity to meet creative business people who will become leaders in Massachusetts’ economy of the future. This panel discussion, the first in a series of HBSWA programs focused on Women and Entrepreneurship, will address the needs of:
- Women who are considering starting their own business
- Women who are starting their own business
- Women who are exploring ways to expand their business
- Providers of capital
- Professionals who advise business owners across various stages
- Women who are interested in learning more about the early stage financing and entrepreneurship landscapes
Price per person: $35 (inclusive) includes light hors d-oeuvres and panel discussion. A member/cash bar will also be available. A special parking rate of $25 per car will be available for members and guests of this event. Charges will apply for cancellations received after Monday, February 6, 2012.
Reservations: Call Jennifer Cleary at the Harvard Club for reservations 617-450-8493
Five Important Facts about Dependents and Exemptions
When you prepare to file your tax return, there are two things that will factor into your tax situation: dependents and exemptions. Here are five important facts the IRS wants you to know about dependents and exemptions before you file your 2009 tax return.
- If someone else claims you as a dependent, you may still be required to file your own tax return. Whether or not you must file a return depends on several factors, including the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and, any advance Earned Income Tax Credit payments you received.
- Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,650 on your 2009 tax return. Exemption amounts are reduced for taxpayers whose adjusted gross income is above certain levels, depending on your filing status.
- If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.
- Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.
- Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.
Five Facts about the Home Office Deduction
The Home Office - What can you claim?
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 federal tax return.
Here are five important things the IRS wants you to know about claiming the home office deduction.
- 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
For certain storage use, rental use or daycare-facility use, you are required to use the property regularly but not exclusively.
- Generally, the amount you can deduct depends on the percentage of your home that you used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.
- There are special rules for qualified daycare providers and for persons storing business inventory or product samples.
- If you are self-employed, use Form 8829, Expenses for Business Use of Your Home, to figure your home office deduction. Report the deduction on line 30 of Schedule C, Form 1040.
- Different rules apply to claiming the home office deduction if you are an employee. For example, the regular and exclusive business use must be for the convenience of your employer.
If you are not sure whether you can deduct all or part of your home office expenses from your Federal income tax returns, talk with a qualified CPA who can ensure you get the proper information and can avoid being audited.
Abusive Home-Based Business Tax Schemes
Introduction
The IRS is providing information about abusive Home-Based Business schemes to help taxpayers avoid the pitfalls of these schemes:
- These schemes are abusive because they manipulate and misinterpret tax laws.
- The public should not be fooled by home-based business schemes that claim taxpayers can deduct most, or all, of their personal expenses as business expenses.
- Taxpayers should be wary of promoters who claim otherwise.
- The IRS and other federal agencies are aggressively pursuing and successfully prosecuting promoters of schemes and scams, including abusive home-based business schemes.
- Participating in these schemes can result in repayment of taxes owed with interest and penalties, and possibly imprisonment and fines.
- Even innocent taxpayers involved in these schemes can face a staggering amount of back interest and penalties.
Taxpayers involved in one of these schemes should correct any improper tax return filings.
Background
Most taxpayers with small businesses accurately report their income and expenses. However:
- Schemes involving inflated business expenses, deduction of personal expenses and misuse of purported home-based businesses have become prevalent.
- The IRS has become aware of several abusive tax schemes, which involve taxpayers erroneously deducting personal living or family expenses. Examples of these schemes are:
- Bogus home-based businesses: taxpayers attempt to create the appearance of having a home-based business – where none actually exists – and deduct personal, living or family expenses.
- Legitimate home-based businesses: taxpayers have a legitimate business operated from their home but erroneously attempt to deduct personal living expenses.
- These schemes have gained popularity due to aggressive marketing by promoters who sell such schemes as a means to reduce taxes.
- These schemes are abusive because they manipulate the interpretation of the tax laws.
- Some promoters market a package, kit or other materials that claim to show taxpayers how they can avoid paying income taxes but the arguments used have no merit.
- Abusive promoters typically advise taxpayers to maintain detailed records of their activities and the expenses they incur; however, detailed records do not convert personal, living or family expenses into deductible business expenses.
- Expenses must be “ordinary and necessary” in relation to a legitimate business activity, and satisfy all other requirements in order to be deductible business expenses on a tax return.
Taxpayers should beware of claims that are too good to be true and seek independent
professional tax advice.
Misuse of the Law
The IRS has uncovered a number of schemes that claim to allow deductions for personal living expenses. Taxpayers should consider these points before investing in a possible abusive scheme:
- Any investment scheme or promotion that claims to allow a federal income tax deduction for normal personal expenses should be considered highly suspect
- A business must truly exist prior to claiming expenses
- In order to be deductible, the expenses must be ordinary and necessary expenses paid or incurred in carrying on a trade or business
- Personal, family and living expenses are not deductible business expenses
- Forming an S corporation, partnership, or any other pass-through entity does not cause personal, living and family expenses to become deductible; nor do incorporation, the existence of board minutes, and partnership agreements authorizing personal, living or family expenses cause these expenses to become deductible
Examples of misuse of the law
- Travel – Deducting travel, meals, and entertainment under the guise that everyone is a potential client.
- Auto – Excessive car and truck expenses when the asset has been used for both business and personal use.
- Payments to Family Members – Deducting payments to family members for routine household tasks that are not ordinary and necessary to the operation of the business, such as taking out the trash, mowing the lawn, washing the car, answering the telephone, etc. Also payments to family members that are excessive in relation to the services performed.
- Business Use of Home – Abusive promoters often advise taxpayers to deduct excessive costs associated with the operation of the home. The promoters claim that the “exclusive use” restriction can be avoided by placing business related items in each room of the house. A deduction for the business use of a home is limited to that area of the home that is used regularly and exclusively for business purposes (Internal Revenue Code Section 280A). For example, merely placing a calendar or file cabinet in a room does not satisfy the “regular and exclusive business use” requirement.
- Education Expenses – Some schemes advise taxpayers that they may claim up to $5,250 per year in educational expenses for each family member.
There are specific requirements that preclude virtually all investors in this scheme from qualifying for this deduction (Internal Revenue Code Section 127).
- Medical Reimbursement Plans – Abusive promoters assert that taxpayers can make their family’s medical expenses 100 percent deductible merely by employing their family member(s). In order for the medical expenses to be deductible under a self-insured medical reimbursement plan, a bona fide employer-employee relationship must exist. In addition, the plan has to meet other requirements (Treasury Regulation Section 1.105-11).
- Record Keeping – Taxpayers in these schemes are advised to maintain detailed records of all expenses incurred. The existence of such records does not negate the requirement that expenses be “ordinary and necessary” in relation to a legitimate business activity. The expenses must also satisfy any other deductibility requirements (Internal Revenue Code Section 274).
Before you make these serious mistakes on your home-based business, consult a qualified CPA to ensure you are abiding by the latest tax laws.
Ten Tips for Taxpayers Making Charitable Donations
Charitable Contributions - What You Need To Know
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.
- Be sure to keep good records of any contribution you make, regardless of the amount. For any contribution made in cash, you must maintain a record of the contribution such as a bank record – including a cancelled check or a bank or credit card statement – a written record from the charity containing the date and amount of the contribution and the donor’s name, or a payroll deduction record.
- Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, your deduction would be $200.
- Include credit card charges and payments by check in the year they are given to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.
- For any contribution of $250 or more, you must have written acknowledgment from the organization to substantiate your donation. This written proof must include the amount of cash and a description of any property you contributed, and whether the organization provided any goods or services in exchange for the gift.
- To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attached the form to your return.
10. An appraisal generally must be obtained if you claim a deduction for a contribution of noncash property worth more than $5,000. In that case, you must also fill out Section B of Form 8283 and attach the form to your return.
For more information see IRS Publication 526, Charitable Contributions, and for information on determining value, refer to Publication 561, Determining the Value of Donated Property. These publications are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).
The IRS’ 20 Questions for Independent Contractors
Are you really an independent contractor?
Are you Really an Independent Contractor?
Independent contractors who don’t know about — or who ignore — the relevant aspects of current contractor tax law are endangering their own livelihood and pose a significant threat to companies.
The IRS is currently funding California’s Employment Development Department (EDD) to conduct twice as many independent contractor-related corporate tax audits as they did last year. Such audits routinely last 18 months and the resources required to prepare for them frequently put small and even mid-size companies out of business. If you the fight, the penalties (for failure to withhold employment taxes and provide you with benefits, etc.) can amount to 50 percent of the
money paid to the subcontractor.
That’s right — the Franchise Tax Board and IRS come after you and, at the very least, disallow your related business deductions. They’re complex, arbitrary, and inconsistently applied, but knowing the rules can keep you safe.
So here they are, in a nutshell:
Under United States common law, a worker is an employee if the person for whom he or she works has the right to direct and control the way he or she works, both as to the final result and as to the details of when, where, how, and in which sequence the work is to be done. It is the IRS’ view that the employer need not actually exercise control. It is sufficient that it has the right to do so.
In the absence of laws that override the safe harbor provisions detailed in Section 530 of the Revenue Act of 1978, IRS has adopted 20 rules to determine whether workers are employees. In brief, these rules are directed at the following questions; the answers most favorable to contractors follow in parentheses.
The 20 Questions
- Are you required to comply with instructions about when, where, and how the work is to be done? (No)
- Does your client provide you with training to enable you to perform a job in a particular method or manner? (No)
- Are the services you provide integrated into your client’s business operation? (No)
- Must the services be rendered by you personally? (No)
- Do you have the capability to hire, supervise, or pay assistants to help you in performing the services under contract? (Yes)
- Is the relationship between you and the person or company you perform services for a continuing relationship? (No)
- Who sets the hours of work? (You do)
- Are you required to devote your full time to the person or company you perform services for? (No)
- Is the work performed at the place of business of the potential employer? (No)
- Who directs the order or sequence in which the work must be done? (You do)
- Are you required to provide regular written or oral reports to your client? (No)
- What is the method of payment — hourly, commission or by the job? (Contingency or project milestone-based payments are ideal)
- Are your business and/or traveling expenses reimbursed? (No)
- Who furnishes tools and materials used in providing services? (You do)
- Do you have a significant investment in facilities used to perform services? (Yes. The more substantial your investment, the better)
- Can you realize both a profit and a loss? (Yes)
- Can you work for a number of firms at the same time? (Yes)
- Do you make your services available to the general public? (Yes. It’s a good idea to have a business listing in the phone book, for example.)
- Are you subject to dismissal for reasons other than nonperformance of contract specifications? (No. Also, your client should provide at least a week’s notice. At will termination makes you look like an employee.)
- Can you terminate your relationship without incurring a liability for failure to complete a job? (Yes, assuming you’re working on a time-and-materials basis. If you’re working on a project, or milestone, basis, you are obligated to deliver on your commitments if you wish to be paid for your efforts.)
If you didn’t answer these 20 questions as indicated, then it’s possible you are not an independent contractor and you should review your tax liabilities.
Who is going to get audited by the IRS?
IRS Audit
All taxpayers are potential subjects for an audit. The IRS supposedly uses a secret method to identify returns for audits. However, there are some situations that seem to “flag” an audit more than others.
- What others report to the IRS on your behalf. This is a very simple one. If someone is sending the IRS notification with your social security number, the IRS will be looking for you to report it on your tax return, exactly as it has been reported to them. For example, if you get a Form 1099 Interest, make sure you report it on your taxes in exactly the same amount. This is an automatic check that is done systemically without any “auditors” having to get involved. It is obvious, you missed something.
- For closely held small corporations, be sure to pay yourself as the owner a reasonable salary. Sometimes, it is clear that the owner’s compensation is not “reasonable” so they conclude you may be trying to hide something.
- Hobby Losses. If you have a business and it is not making a profit, the IRS may conclude that you are simply trying to create losses. The losses may cause you to pay less tax against the other income you have earned. There are rules about how many years you can actually have a loss before it is deemed a “hobby”.
- Cash Businesses. Many businesses, by its nature, are simply a cash business. If you operate one of those businesses, an auditor will find other ways to prove what income you should have reported. For example, a pizza restaurant showed that they sold $182,250 in pizza sales, at an average of $10 per pizza, they sold 18,250 pizzas per year. However, upon review of the pizza box purchases, the auditors found that 50,000 pizza boxes were purchased in that year. So the auditors, either wanted to see the remaining 32 thousand boxes or to negotiate on what their real income was.
- Mileage, Meals and Entertainment. The rules for these deductions are very specific and most tax payers do not follow all the rules. A taxpayer who deducts mileage for business must keep a “contemporaneous” record of their daily mileage. Meals and Entertainment expenses in some cases may need to be detailed enough to document who was present at the meal and what the purpose of the meeting was.
- Charitable Contributions. Non-Cash donations have many rules relating to the “value of the donations” and the type of donation. For cash donations, many taxpayers use to automatically deduct cash donations to their church. Depending on the amount, the church may be required to document the donation, and the taxpayer cannot simply claim they paid it in “cash”.
Keep an eye on these types of deductions on your next tax filing for your business. If you keep the red flags from your returns, you will be more apt to keep the IRS away from your door.
Eight Things to Know If You Receive an IRS Notice
Eight Things to Know If You Receive an IRS Notice
Did you receive a notice from the IRS this year? Every year the IRS sends millions of letters and
notices to taxpayers but that doesn’t mean you need to worry. Here are eight things every
taxpayer should know about IRS notices – just in case one shows up in your mailbox.
- Don’t panic. Many of these letters can be dealt with simply and painlessly.
- There are number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
- Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry.
- If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
- If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
- If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
- Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call, to help us respond to your inquiry.
- It’s important that you keep copies of any correspondence with your records.
