IRS Commissioner Cautions Americans on Next Filing Season

If you think your tax filings this year have been confusing, just wait until next year’s.

That was the warning IRS Commissioner Doug Shulman gave taxpayers. He said if Congress waits until after the November elections to determine next year’s tax rates, the 2013 filing season could be a disaster.

The 2011 tax filing season gave a preview of what could come. The IRS delayed the start of the filing season for some taxpayers because Washington made changes to the tax code the previous December, during a lame duck session of Congress.

The delay lasted weeks with some taxpayers having to wait until mid to late-February to file their returns.

Tax filing seasons typically begin at the beginning of the new year, but the IRS had to reprogram its processing system due to the late-2010 changes.

With the Bush tax cuts and payroll tax cuts set to expire at the end of this year, Congress isn’t expected to do anything with an election season approaching. Action on those rates will likely come until after Nov. 6 Presidential election.

Also on Washington’s need-to-do list: the Alternative Minimum Tax and other tax breaks for research and development, ethanol production and those for teachers who buy supplies for the classroom.

If Congress doesn’t get its act together and resolve those matters, individual and some corporate taxpayers won’t know how high or low their tax burden will be, a situation Commissioner Shulman labeled “total confusion” for taxpayers.

Only time will tell whether Congress resolves these matters swiftly and allow taxpayers to plan ahead with a bit more certainty.

But if you’re certain you owe back tax debt to the IRS, hiring a tax attorney can help bring your financial situation out of limbo and into safe waters.

Tax rates may change after the election, but a tax attorney knows all the ins and outs of the tax codes and what the changes mean for you. That can help you avoid “total confusion” when dealing with an IRS agent.

Inflation Changes Tax Brackets, Deductions for 2012 Tax Year

The IRS announced new changes affecting taxpayers for 2012, and you’re more likely to notice them compared to recent years. Personal exemptions and deductions will rise, and tax brackets will expand, all because of inflation.

Analysts think the IRS’ indexing formula is computing a 2012 inflation rate at just over 3.8%. It’s a pretty big difference compared to last year’s 1.4% and 2010’s 0.18%. For about 25 years, federal income tax brackets have taken inflation into account. The tax code requires inflation adjustments for more than 50 provisions.

The changes will impact the tax returns we’ll file in April 2013. Here’s a look at some of them:

• The exclusion for the state tax will rise from $5 million to $5.12 million. The annual gift tax exclusion remains at $13,000.
• Income tax brackets will increase. For a married couple filing jointly, the 25% bracket kicks in at $70,700, up from last year’s $69,000 figure. Single filers will reach the 25% bracket at $35,350 instead of 2011’s $34,500.
• The personal and dependent exemption increases $100 from $3,700 to $3,800.
• Married couples who file jointly will see their standard deduction jump $300 to $11,900. For single filers, it rises $150 to $5,950.
• If you’re the head of the household, the standard deduction will rise $200 to $8,700.
• Income earned abroad will see its deduction rise $2,200 to $95,100.

While inflation can mean a small drop in the value of a dollar, it can help you at tax time if your income doesn’t increase too dramatically. But while tax brackets and deductions change, the IRS’ enforcement and collection actions do, too.

IRS agents are becoming more aggressive against those who owe back tax debt, making wage garnishments and bank levies more likely. To help you resolve your back tax debt with the IRS, make sure to hire a tax attorney. Inflation or not, it’s a good hedge against your tax debt getting too out of control.

Making Amends with the Taxman

If you submit your tax returns to the IRS and later find out you made a mistake, amending your return is a simple process that sweeps your error under the rug quickly and easily.

But if the IRS already did it for you, don’t worry. They fix taxpayers’ math errors all the time, so save amended returns for when you forgot to include important information.

The process is simple. The Form 1040X you’ll have to snail mail to the IRS amends your previously filed Form 1040, 1040A or 1040EZ. The process is complete in about two to three months.

Form 1040X has three columns: A is for the original figures; C shows the corrected figures, and B is for the difference. On the back of the form is where you explain specific changes and the reasons. If changes have to be made to other schedules or forms, just attach them to your 1040X.

Here’s some other information you’ll need to know to file your amendment:

• If you incorrectly reported your filing status, total income, dependents or your deductions and credits, make sure to file an amended return.
• Sometimes people file an amended return to receive an additional refund. Wait until you receive your original refund before filing Form 1040X. The period to file is within three years of filing your original return or within two years from when you paid any tax.
• If you’re filing an amended return because you found out you owe additional tax, file your Form 1040X as soon as you can to avoid as much interest and penalties as possible.
• Multiple years’ returns being amended? Just file a separate 1040X for each return.

Tax time can become messy and disorganized. With so many forms and documents to store and keep track of, a missing piece of paper can lead to a missing income receipt and an inaccurate tax return. Don’t let your small problems with the IRS become big. If the IRS wages collection action against you, make sure to get a tax attorney on your side to protect your rights.

Picking that Special Someone for Tax Season

Tax season is just around the corner and before you know it, your W-2 form will arrive in the mail. In just a few months, it’ll be April 15, and if you don’t have one already, you’ll need a qualified and skilled tax preparer to help with your tax return.

Don’t choose your preparer hastily. While he or she may do all the math, you’ll be responsible for what gets submitted to the IRS. Make sure to do your due diligence so you don’t end up on the IRS’s radar.

Make sure to use these tips when choosing your tax preparer:

• Get references: The best source of information on a tax preparer is a customer. Ask enough questions to determine the preparer’s competence.
• Research: Just like you wouldn’t want to loan your car to a bad driver, you wouldn’t want to entrust your financial information to an unscrupulous tax preparer. Check for questionable history with the Better Business Bureau, your state’s governing board for Certified Public Accountants (CPAs) and the state bar association.
• Be skeptical: Watch out for preparers who promise unrealistically high refunds compared to other preparers. If it sounds too good to be true, it probably is.
• Find the right preparer for you: This depends on your needs. Some preparers can represent you before the IRS in audits regarding a return they signed as a preparer. If the preparer is an Enrolled Agent, CPA or tax attorney, then they can represent you for all matters, including audits, collection actions and appeals.
• Approve what’s in your return: If a preparer asks you to sign a blank return or submit false information to get a bigger refund, choose another preparer. Remember: you’re responsible for what’s submitted to the IRS, so don’t be held responsible for any law breaking.

Hiring and using the wrong tax preparer can bring you a boatload of IRS legal trouble. If you submit an inaccurate return, the IRS can take legal action against you and possibly seize your assets with a wage garnishment. Make sure to hire a tax attorney so you can settle and rebuild your finances.

IRS Extends Deadline for Those in Natural Disaster Areas

If you requested an extension to file your tax returns, your time is about to run out.

The Oct. 17 deadline for income tax return extensions is fast approaching for the 11 million taxpayers nationwide who requested one. About 10.1 million still hadn’t filed five days before the deadline, according to the IRS.

If you were recently affected by the wildfires in Texas, Hurricane Irene in the Northeast or by Tropical Storm Lee along the Gulf Coast, you’ll have a little more time. The IRS is granting two extra weeks – with a special Oct. 31 deadline – for those who live or have businesses in areas affected by those natural disasters. In all, taxpayers in parts of nine states and Puerto Rico are eligible.

The IRS is also granting extra time to members of the military and others serving in combat zones, including Iraq and Afghanistan. The IRS typically gives them 180 days after they leave the combat zone to file their returns.

If you’re in the rush to meet the deadline, don’t forget about the tax benefits created by the Patient Protection and Affordable Care Act. Thanks to the healthcare reform law, small businesses that employ less than 25 workers with an average income of $50,000 or less have until the October 17 deadline to calculate the small employer health credit and claim it as a general business credit. The credit is good for small businesses, including sole proprietorships and farmers, and can knock off a part of a business’s healthcare costs.

Taxpayers may automatically be granted an extension every April, but nice IRS gestures come in short supply for those with back tax debt. If you have back tax debt, hiring a tax attorney can help you obtain an extension for paying your balance or help get your penalties and interest abated.