Every so often I come across a news story that’s more enjoyable to read when I add a vindictive “ha ha ha ha ha” after each sentence. For example:
Rich Americans who have evaded taxes by hiding foreign holdings have about a week to turn themselves in to an Internal Revenue Service amnesty program or gamble they will not be caught.
Ha ha ha ha ha!
In fact, most of this news article is enhanced with a little maniacal laughter. That is, unless you’ve been in the habit of hiding money you owe the IRS in a Swiss bank account maintained by UBS AG. And since hiding money from the IRS is equivalent to stealing from your fellow citizens (in the form of, for example, making sure the bridges you all use never get the maintenance they need, and schools are using outdated books, etc.), I’m thrilled to see this moving forward.
It would’ve been better if we’d managed to get the names of all of the American cheaters hiding the needed pothole-fixing money in Switzerland (the original stated goal was to get the names of 52,000 account owners), but I won’t let that get me down. I never thought I’d see even this much go-get-em attitude from the IRS. (I should point out that this isn’t a Democratic or Republican plan – it started under Bush and Obama is simply continuing it.)
The fun part now is that nobody is saying yet who is on the list of about 4,400 account holders that will be turned over to the IRS, so the IRS started an “amnesty” program for volunteers who are willing to come forward now, instead of risking a worse punishment later.
The IRS said that, in one week of July, about 400 individuals turned themselves in under the amnesty program. That was four times higher than the number of tax evaders who stepped forward in all of 2008, according to the agency.
The risk of not joining in the amnesty program now is paying much more than you owe and possibly criminal prosecution. The deadline is September 23, 2009. Here’s the amnesty program Q&A page on the IRS web site, in case you think you might need it.
By the way:
At the same time, IRS officials have said other foreign banks are being queried for possibly helping the wealthy evade taxes, although they have declined to be specific.
Ha ha ha ha ha!
Tax evaders rush to beat amnesty deadline, Kim Dixon, Reuters, Sep. 24, 2009
Image credit: zolierdos
For those of you who have filed or are planning to file an amended income tax return (form 1040X) to receive the (up to) $8,000 first time homebuyer tax credit this year rather than waiting for next year, there is some good news.
Although the IRS is more than likely overwhelmed, the refunds are currently taking about eight weeks to receive. Here is a recent comment from a Consumerism Commentary reader:
Just wanted to let you know that I received my $8,000 (plus interest) from my 1040X by mail yesterday. I mailed my amended return around June 25, so I feel the turnaround was very acceptable. Even though our original refund came by direct deposit, this one came by check; I don’t know why.
There are a few interesting notes to take away from Kimberly’s experience.
The IRS is providing interest payments as if they owed money to the taxpayer since April 15. This is the normal case when the IRS underpays a refund. It’s good to see they are providing interest in the same manner here even though the law was not created until after many people had filed their 2008 tax returns.
Six weeks is a reasonable time frame to expect your credit. Many people I’ve spoken with expected the credits to take much longer, prompting some to suggest waiting until the 2009 income tax return is due. I see no reason to wait that long. Plus, it’s unlikely you’ll receive interest if you wait until April 2010.
Keep in mind that if your paperwork requires manual intervention, like an address change, or if the information you provide does not match what the IRS has on file, your credit could take longer to receive.
The refunds are sent by paper check. I warned of this in earlier articles. Even though you may have designated a bank account for direct deposit when you filed your original tax return, the IRS is sending the refunds through the U.S. Postal Service as if we were still living in the twentieth century.
Have you received your first-time homebuyer tax credit yet? How long did it take?
In February, I wrote that the United States was suing Swiss bank UBS in order to get the offshore institution to release the names of the wealthiest 19,000 of the 52,000 American bank account owners. These depositors have managed to evade paying United States income taxes on the interest earned within these foreign accounts.
The New York Times is now reporting that the U.S. Justice Department plans to drop the case due to lobbying pressure from the bank and the Swiss government. Many tax evaders, fearing the bank would release their name publicly, have already come forward to claim the interest they earned and perhaps pay the income tax owed to the government.
Some smaller accounts have been transfered to domestic banks.
Settlement Anticipated in UBS Case, Lunnley Browning, New York Times, June 22, 2009
The Internal Revenue Service is recognizing the increasing costs of transportation and has revised the rate that taxpayers can use for deducting business-related travel expenses. For miles driven between July 1 and December 31, 2008, the new rate is 58.5 cents per mile, up 8 cents from the rate used for the first half of this year.
I would expect businesses that reimburse their employees for miles driven will follow suit.
This method for deducting travel expenses from travel is only one option. If you like, you could track all of your travel expenses, including gasoline and tolls, but it’s much simpler to keep track of the miles you drive and use the rate determined by the IRS.
IRS Increases Mileage Rates through Dec. 31, 2008, Internal Revenue Service, June 23, 2008.
Over the weekend, I received a notification from the IRS about the economic stimulus. The notice isn’t personalized; it contains only general information about the new law. The text of the letter is straightforward. Rather than get into the details, particularly the facts that the law authorizes a new credit to 2008 income taxes and that the “payment” referred to in the letter is a pre-payment of that credit, estimated based on 2007 income taxes.
The notification is a waste of money. Here is the final paragraph:
All individuals receiving payments will receive a notice and additional information shortly before the payment is made. In the meantime, for additional information, please visit the IRS website at www.irs.gov.
(Interestingly, the web address is underlined as if it were a hyperlink, but as this letter appears on paper. “Clicking” on the link will get you nowhere.)
If the IRS is sending out a second notification right before the payments are sent, I would say that this pre-notification notification is pointless. The opposite side of the letter contains some instructions for calculating this tax credit. Unfortunately, the instructions are far too simplistic to provide an accurate answer for most people. Even the calculator on the IRS website provides only an estimate. I’d have to say that the only calculator that follows the letter of the law is the one posted on Consumerism Commentary and provided by a reader. Of course, since the IRS is calculating the final credit amount on their own, and they probably won’t be using the calculator found here, we can’t guarantee that what you receive will be the same as the result from our calculator.
Here’s a schedule showing when the IRS will send payments to individuals, via check or direct deposit.
The IRS has posted a schedule indicating when tax payers, if eligible, will receive their tax payments. Keep in mind that these are estimates and the IRS could very well not meet this schedule. The schedule is based on the final two digits of your Social Security number. If you file jointly, use the last two digits of the primary filer’s Social Security number.
If the IRS has your banking information on file, as they would if you entered the information on your 2007 tax return in anticipation of a refund via direct deposit, these are the dates by which you will (most likely) receive your refund.
00 through 20: May 2
21 through 75: May 9
76 through 99: May 16
If the IRS does not have your direct deposit information on file, then you can expect a check to arrive based on this schedule (approximately).
00 through 09: May 16
10 through 18: May 23
19 through 25: May 30
26 through 38: June 6
39 through 51: June 13
52 through 63: June 20
64 through 75: June 27
76 through 87: July 4
88 through 99: July 11
More information on the economic stimulus tax rebate at Consumerism Commentary:
Here are links to official IRS information regarding the new tax credit:
“The check is almost in the mail.” Shortly, the IRS will send letters to everyone who filed a tax return for 2006 to let them know about the economic stimulus rebate checks. The actual checks won’t be in the mail until at least May. On one hand, it’s good to get information into the hands of people across the country who have been living under a rock, but it comes at a great expense — an expense of $42 million.
The letter will also explain how the tax rebates “work,” but I have no doubt the text in the letter will raise more questions than it will answer. Still not sure how much of a rebate you will receive due to this new stimulus package? You can calculate your refund here. This calculator has been viewed by over 240,000 people.
Let’s get away from taxes for a little bit and look at a few articles posted elsewhere: [click to continue…]
When you work for a company that manages its payroll properly, federal and state taxes are withheld every pay period. The companies estimate your total tax bill based on your annual salary and divide that amount by the number of pay periods within the year. They get some help from the W-4 form you filled out when you were hired, which includes important tax information like your filing status and the number of claimed dependents.
This calculation almost never works out well. Either you don’t pay enough tax throughout the year, thanks to, among other possibilities, income you receive unknown to your company, or you pay more than you owe, thanks to deductions unknown to your company.
This underpayment or overpayment results in tax due to the IRS or a refund due to you. These differences are reconciled when you file your taxes.
You know all this, but the basics bear repeating in order to pose this question. Since it’s almost impossible to predict to the penny how much tax you will owe, is it better to err on the side of black or red? That is, is it better to owe money to the IRS or allow the IRS to owe money to you?
Owing money to the IRS for underpayment of taxes
If you have to write a check when you file your taxes, it means you got to use or keep and earn interest on the government’s money throughout the year. That’s not a bad thing; it’s like an interest-free loan. However, if you don’t plan, you could end up owing money that you don’t have, causing a major cash flow problem. If you underpay significantly, you could end up owing penalty fees as well.
Expecting a refund from the IRS for overpayment of taxes
If you receive a refund, you gave the government an interest-free loan throughout the year. Politicians will be happy to take your money to fund various programs while you work, but it doesn’t have to be that way. By not keeping money that is rightfully “yours,” you lost the opportunity to invest and earn interest on that cash. However, there is a psychological advantage to receiving a check from the government.
Not only that, but overpayment of taxes can act as a “forced savings plan,” albeit not a very good one. The forced savings can be beneficial to anyone who struggles with spending less than they earn.
I would prefer to owe the government money when it comes time to reconcile tax liability every year. The benefits of using the government’s money for free outweigh the benefits of letting the government hold my money, at least for me. I think most Consumerism Commentary readers, who probably have no need for a “forced savings plan,” would agree. But I’d like to hear other opinions, so feel free to share your thoughts.
This post is a part of the MoneyBlogNetwork Group Writing Project focusing on taxes. Here are the contributions to the writing project so far: The Value of Doing Your Own Taxes (Five Cent Nickel); My Best Piece of Tax Advice (Free Money Finance); Mr. Lawyer and Mr. Accountant Chat About Taxes (Get Rich Slowly); A tax tip from my pastor (Mighty Bargain Hunter); A Taxing Situation – My Biggest Financial Regret (No Credit Needed); Certainties: Death, Taxes, And Change (Wise Bread).
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