1. If you get a bill this summer for late taxes, you are expected to promptly pay the tax owed including any additional penalties and interest.  If you are unable to pay the amount due, it is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS.

2. You can also pay the bill with your credit card. To pay by credit card contact either Official Payments Corporation at 800-2PAYTAX (also www.officialpayments.com) or Link2Gov at 888-PAY-1040 (also www.pay1040.com).

3. The interest rate on a credit card or bank loan may be lower than the combination of interest and penalties imposed by the Internal Revenue Code.

4. You can also pay the balance owed by electronic funds transfer, check, money order, cashier’s check or cash.  To pay using electronic funds transfer you can take advantage of the Electronic Federal Tax Payment System by calling 800-555-4477 or 800-945-8400 or online at www.eftps.gov.

5. An installment agreement may be requested if you cannot pay the liability in full.  This is an agreement between you and the IRS for the collection of the amount due in monthly installment payments.  To be eligible for an installment agreement, you must first file all returns that are required and be current with estimated tax payments.

6. If you owe $25,000 or less in combined tax, penalties and interest, you can request an installment agreement using the web-based application called Online Payment Agreement found at IRS.gov.

7. You can also complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill in the envelope that you have received from the IRS.  The IRS will inform you usually within 30 days whether your request is approved, denied, or if additional information is needed.  If the amount you owe is $25,000 or less, provide the monthly amount you wish to pay with your request.  At a minimum, the monthly amount you will be allowed to pay without completing a Collection Information Statement, Form 433, is an amount that will full pay the total balance owed within 60 months.

You may still qualify for an installment agreement if you owe more than $25,000, but a Form 433F, Collection Information Statement, is required to be completed before an installment agreement can be considered. If your balance is over $25,000, consider your financial situation and propose the highest amount possible, as that is how the IRS will arrive at your payment amount based upon your financial information.

8. If an agreement is approved, a one-time user fee will be charged.  The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account.  For eligible individuals with incomes at or below certain levels, a reduced fee of $43 will be charged, and is automatically figured based on your income.

For more information about installment agreements and other payment options visit the IRS Web site at IRS.gov.  IRS Publications 594, The IRS Collection Process and 966, Electronic Choices to Pay All Your Federal Taxes also provide additional information regarding your payment options.  These publications and Form 9465 can be obtained on the IRS.gov Web site or by calling 800-TAX-FORM (800-829-3676).

Links:

• Form 433-F, Collection Information Statement
• IRS Publication 594, What You Should Know About The IRS Collection Process
• IRS Publication 966, Electronic Choices to Pay All Your Federal Taxes

In an identity theft scam, a fraudster, often posing as a trusted government, financial or business institution or official, tries to trick a victim into revealing personal and financial information, such as credit card numbers and passwords, bank account numbers and passwords, Social Security numbers and more. Generally, identity thieves use someone’s personal data to steal his or her financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name and even file fraudulent tax returns.

The scams may take place through e-mail, fax or phone. When they take place via e-mail, they are called “phishing” scams.

The IRS does not discuss tax account matters with taxpayers by e-mail.

The IRS urges consumers to avoid falling for the following recent schemes:

Making Work Pay Refund

This phishing e-mail, which claims to come from the IRS, references the president and the Making Work Pay provision of the 2009 economic recovery law. It says that there is a refundable credit available to workers, consumers and retirees that can be paid into the recipient’s bank account if the recipient registers their account information with the IRS. The e-mail contains links to register the account and to claim the tax refund.

In reality, most taxpayers receive their Making Work Pay tax credit, which was designed for wage earners, in their paychecks as a result of decreased tax withholding, not as a lump sum distribution from a federal fund. Additionally, consumers and retirees who are not wage earners are not eligible for this tax credit.

Inherited Funds / Lottery Winnings / Cash Consignment

In this phishing scheme, recipients receive an e-mail claiming to come from the U.S. Department of the Treasury notifying them that they will receive millions of dollars in recovered funds or lottery winnings or cash consignment if they provide certain personal information, including phone numbers, via return e-mail. The e-mail may be just the first step in a multi-step scheme, in which the victim is later contacted by telephone or further e-mail and instructed to deposit taxes on the funds or winnings before they can receive any of it. Alternatively, they may be sent a phony check of the funds or winnings and told to deposit it but pay 10 percent in taxes or fees. Thinking that the check must have cleared the bank and is genuine, some people comply. However, the scammers, not the Treasury Department, will get the taxes or fees.

Form W-8BEN

In this scam, fraudsters modify a genuine IRS form, the W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, to request detailed personal and financial information. This could include nationality, passport number, bank account and PIN numbers, spouse’s name and mother’s maiden name, or other personal or financial information or security measures for financial accounts. The scammers may use the genuine form number and name or may make up a new form number, such as W-4100B2.

They either e-mail or fax the form or letter. If only a letter, the letter itself contains the request for the personal and financial information. The letter, which claims to come from the IRS, states that the recipient will face additional taxes unless he or she quickly faxes the required information to the number provided by the scammer.

In reality, taxpayers file the genuine Form W-8BEN with their financial institutions, not with the IRS. Additionally, the genuine W-8BEN does not request the taxpayer’s passport number, bank account number, security or similar information.

Refund Scam

The bogus e-mail, which claims to come from the IRS, tells the recipient that he or she is eligible to receive a tax refund for a given amount. It instructs the recipient to click on a link contained in the e-mail to access and complete a form for the tax refund. The form requires the entry of personal and financial information. The refund scam is the most common one seen by the IRS. Several recent variations on this scam have claimed to come from the Exempt Organizations area of the IRS. Some others have included the name and purported signature of a genuine or a made-up IRS executive.

Taxpayers do not have to complete a special form to obtain a refund. Taxpayer refunds are based on the tax return they submit to the IRS.

How to Spot a Scam

Many e-mail scams are fairly sophisticated and hard to detect. However, there are signs to watch for, such as an e-mail that:

• Requests detailed or an unusual amount of personal and/or financial information, such as name, SSN, bank or credit card account numbers or security-related information, such as mother’s maiden name, either in the e-mail itself or on another site to which a link in the e-mail sends the recipient.
• Dangles bait to get the recipient to respond to the e-mail, such as mentioning a tax refund or offering to pay the recipient to participate in an IRS survey.
• Threatens a consequence for not responding to the e-mail, such as additional taxes or blocking access to the recipient’s funds.
• Gets the Internal Revenue Service or other federal agency names wrong.
• Uses incorrect grammar or odd phrasing (many of the e-mail scams originate overseas and are written by non-native English speakers).
• Uses a really long address in any link contained in the e-mail message or one that does not start with the actual IRS Web site address (www.irs.gov). To see the actual link address, or url, move the mouse over the link included in the text of the e-mail.

What to Do

The IRS does not initiate taxpayer contact via unsolicited e-mail or ask for personal identifying or financial information via e-mail. If you receive a suspicious e-mail claiming to come from the IRS, take the following steps:

• Do not open any attachments to the e-mail, in case they contain malicious code that will infect your computer.
• Do not click on any links, for the same reason. Also, be aware that the links often connect to a phony IRS Web site that appears authentic and then prompts the victim for personal identifiers, bank or credit card account numbers or PINs. The phony Web sites appear legitimate because the appearance and much of the content are directly copied from an actual page on the IRS Web site and then modified by the scammers for their own purposes.
• Contact the IRS at 1-800-829-1040 to determine whether the IRS is trying to contact you.
• Forward the suspicious e-mail or url address to the IRS mailbox phishing@irs.gov, then delete the e-mail from your inbox.

Genuine IRS Web site

The only genuine IRS Web site is IRS.gov. All IRS.gov Web page addresses begin with http://www.irs.gov/. Anyone wishing to access the IRS Web site should initiate contact by typing the IRS.gov address into their Internet address window, rather than clicking on a link in an e-mail.

A taxpayer is considered a first-time homebuyer if he or she (and spouse, if married) had no present ownership interest in a principal residence in the U.S. during the three-year period before the purchase of the home to which the credit applies. However, this credit is not available to high-income taxpayers and begins to phase out for married couples with adjusted gross incomes (AGI) in excess of $150,000 and for unmarried taxpayers with AGI in excess of $75,000.

The credit is available on a taxpayer’s 2009 return or amended 2008 return, which means that the funds are not available until after the refund is received from either of those filings. This can be a problem for some potential buyers who have difficulty coming up with funds for the required down payment and closing costs. Recently, however, the Department of U.S. Housing and Urban Development announced that the Federal Housing Administration (FHA) will allow homebuyers to apply the $8,000 first-time homebuyer tax credit toward the purchase costs of an FHA-insured home.

FHA-insured home mortgages require a minimum 3.5 percent down payment, and under the terms of this modified policy, lenders can now monetize the tax credit for use as additional down payment or for other closing costs, which can help achieve a lower interest rate. In addition to the borrower’s own cash investment, FHA allows parents, employers and other governmental entities to contribute towards the down payment.

The conventional strategy in the past was to offset as much of your gains as possible with losses from selling other assets in your portfolio.  If you have an overall loss, then it is limited to $3,000 ($1,500 for married taxpayers filing separately), and any excess carries over to the next year.  Keep in mind that losses from the sale of business assets are generally separately allowed in full in the year of sale, and not mixed with the losses from the sale of other capital assets.  So with this change in the law, a new strategy emerges: it may be more appropriate to take gains to the extent they would be taxed at zero percent.

What this zero tax means to you is that there is no tax on your long-term capital gains to the extent that your regular tax rate is less than 25%.  Before you make plans to sell everything in 2008 through 2010, remember that the gain itself adds to your income, impacts income-based limitations, and may possibly push you into a higher regular tax bracket, so it is a balancing act to take advantage of this zero rate.  Of course, you can also use losses to offset the gains, and contrary to past conventional strategy, you should only have enough losses to keep the gain within the zero tax rate.  If your income is too high to take advantage of the zero tax rate, then continue to employ the conventional strategies discussed above for 2008 through 2010.

Many small business owners and landlords overlook this requirement during the year, and when the end of the year arrives and it is time to issue 1099s to contractors, they realize they have not collected the required documentation. Often it is difficult to acquire the contractor’s information after the fact, especially from those contractors with no intention of reporting the income.

As example, you have a repairman out early in the year, pay him less than $600, then use his services again later, and as a result, the total you’ve paid him for the year exceeds the $600 limit.  You realize you overlooked getting the information needed to file the 1099s for the year, and so will have to spend your valuable time contacting the repairman to obtain the information.  Therefore, it is good practice to always have individuals who are not incorporated complete and sign the IRS Form W-9 the first time you use their services.  Having a properly completed and signed Form W-9 for all independent contractors and service providers eliminates any oversights and protects you against IRS penalties and conflicts.

IRS Form W-9, “Request for Taxpayer Identification Number and Certification” is provided by the government as a means for you to obtain the data required from your vendors in order to file the 1099s. It also provides you with verification that you complied with the law should the vendor provide you with incorrect information. I highly recommend that you have a potential vendor or independent contractor complete the Form W-9 prior to engaging in business with him or her.

Cash for Clunkers – As an incentive to have older gas-hogging vehicles scrapped instead of being sold after trade-in, the government will give a nontaxable cash allowance of $3,500 or $4,500 in lieu of the normal trade-in allowance for individuals and businesses.  To qualify for this program, the new vehicle must be purchased (or acquired on a five-year lease) between July 1 and November 1 of 2009 from a participating dealer.

CAUTION: At press time, the government’s initial $1 billion allocation of funds for this program has almost been used up and Congress was moving to add another $2 billion in funding. Watch for further developments.

The trade-in car (clunker) must be drivable, get no more than 18 miles per gallon, have been built in 1984 or after, and have been owned (registered to) and insured by the purchaser for at least a year prior to the trade-in.

A consumer will receive a $3,500 voucher towards the purchase of a new car with a manufacturer’s suggested retail price (MSRP) of $45,000 or less and getting at least 22 mpg.  The voucher will increase to $4,500 if the new car is 10 mpg higher than the trade-in.

The terms “cash allowance” and “voucher” may be a bit misleading: In actuality, the dealer will receive an electronic payment from the government equal to the $3,500 or $4,500 subsidy, which is credited as all or part of the down payment on the vehicle’s purchase. The consumer does not receive either greenbacks or a paper voucher.

For personal-use vehicles, there are no tax implications.  Since the voucher is not treated as income, a business that utilizes the voucher program is treated as if it traded in the old vehicle and received zero for it.  Its basis in the new vehicle would be the amount paid net of the voucher and any other rebates.

Special Sales Tax Deduction – For 2009 only, taxpayers can deduct the sales or excise taxes on up to the first $49,500 for the purchase of a new vehicle, including motorcycles and light trucks, purchased after February 16 and before January 1, 2010 whether their deductions are itemized or not.  The deduction is not limited to one vehicle, and the $49,500 limit is per vehicle.  This special deduction is phased out for higher-income taxpayers with a gross income between $125,000 and $135,000 for individual filers (between $250,000 and $260,000 for joint filers).

The tax benefit of this deduction depends upon your individual tax bracket.  Let’s say that you are in the 25% tax bracket, purchased a $35,000 vehicle, and the sales tax was 8%.  You would save $700 in taxes ($35,000 x .08 x .25).  Keep in mind that this deduction can only reduce your tax liability to zero, so you may not receive the full benefit if you already pay a minimal amount of tax.

Hybrid & Lean Burn Credits – Although credits are no longer available for Toyota, Lexus or Honda hybrid vehicles, they are still available for the purchase of Ford, GM, Nissan, Mazda and Chrysler qualifying hybrid vehicles. (The credit on qualifying Ford models is being phased out, and no credit will be allowed for Ford hybrids purchased after the end of the first quarter of 2010.) The credit amounts vary by vehicle model based upon their efficiency with some currently available models providing a credit up to $3,000.  In addition to the hybrid credit, there is a lean burn credit available for the purchase of certain diesel-powered Volkswagens and Mercedes Benz vehicles with some models providing a credit as high as $1,800.

For personal-use vehicles, these credits are nonrefundable personal credits, which mean that your 2009 tax can only be reduced to zero, any excess is lost, and you may not receive full benefit of the credit.  For the vehicle’s business-use portion of the credit, the credit is a general business credit and the unused portion can be carried back two years and forward twenty.  Both credits are deductible against the alternative minimum tax beginning in 2009.

Plug-In Electric Vehicle Credits – Congress recently created a $2,500 credit to stimulate the manufacture of plug-in-electric vehicles.  Currently, the chances of finding a four-wheeled highway vehicle that qualifies for this credit is slim.  There is also a low-speed, motorcycle and three-wheeled vehicle credit available.  Please call this office if you anticipate qualifying for either of the credits and wish more information.