Ascertaining taxes that are due to be paid is not a simple job. This is especially true if the taxpayer concerned has multiple sources of income at hand. The fact is that having multiple sources of income is the current trend in our economy, and this in turn can be attributed to the revolutionizing effect of technology to the society in general and the economy in particular.
Top Ten Biggest Tax Breaks
A lot of speeches have been given of late about tax cuts, tax breaks, deductions, etc. So, who gets the biggest tax breaks? According to New York Tax Attorney at Thorgood Law Firm, the Top Ten tax breaks are:
- $181 billion – Employer contributions towards workers’ medical insurance premiums and medical care
- $165 billion – Various retirement plan contributions and earning not taxed
- $101 billion – Mortgage Interest deduction
- $84 billion – Lower tax rates on long-term capital gains and qualified dividends
- $69 billion – Deduction for state and local taxes
- $46 billion – Deduction for charitable contributions
Debt Forgiveness and the Fiscal Cliff
According to New York Tax Attorney Shamsey Oloko, if the country goes over the fiscal cliff, the average taxpayer, and the real estate industry, may feel the pain in yet another way – debt forgiveness.
Normally, if a lender forgives a portion of a loan, the beneficiary is required to pay taxes on the forgiven portion of the loan, as it would on an income.
However, in 2007, Congress passed a law, the Mortgage Forgiveness Debt Relief Act of 2007, which allowed taxpayers to avoid paying such taxes. Thus, if a lender agrees to a short sale or agrees to take less than you owe on your mortgage, you would not have to pay taxes on the unpaid balance of the loan.
TIPS FOR YEAR-END GIVING
With the year about to come to an end, taxpayers may want to make charitable contributions, including clothing and household items, to good causes, and take deductions on their tax returns in the process. It is helpful to keep in mind IRS requirement in making these contributions, to avoid audit problems along the way.
To deduct clothing and household items, they generally must be in good used condition or better. If you think the item is worth more than $500, you should get an appraisal and keep records.
BUSINESS OR HOBBY? Will the IRS allow you to deduct losses?
At one time or the other, most of us get involved in one kind of venture or another, sort of trying your hand at something different. Sometimes we make money in these ventures and the IRS can be counted on to expect its share of the profits. But what if you lose money in the venture, will you be entitled to a deduction on your return for the loss?
TOP TEN WAYS TO GET YOUR RETURN AUDITED
1. Unreported 1099 Income – This is perhaps the easiest way IRS can track down non-complying taxpayers. Every single Form 1099 issued to a taxpayer is only but a copy of the one in IRS records – IRS is aware of the income as it is also reported to them by the third party payer of compensation, interests, dividends, etc. Failure to report this income is one of the easiest flags for further review of tax returns.
WHY YOU NEED EFFECTIVE REPRESENTATION DEALING WITH THE IRS
When appearing before the IRS, for audits, collection actions and appeals, it is extremely critical to have effective representation to state and defend your interests.
Generally, only three classes of professionals are qualified to represent taxpayers before the IRS – Attorneys, Certified Public Accountants and Enrolled Agents. (Enrolled Agents are tax professionals who have successfully completed a set of examinations given by the IRS). Other professionals may represent taxpayers before the IRS but only relating to tax returns they prepared.