YOU ARE NOT GOING TO BELIEVE THIS - THE IRS HAS BUGS

Bedbugs aren’t a problem just in hotels. The IRS has them too. The critters have infiltrated several IRS offices, so the agency and its employee union have reached an agreement on how to handle them. When an infestation is confirmed, a pest technician and a pest-sniffing dog will come in to find and kill the varmints.

At least taxpayers get better treatment from the Revenue Service than the bedbugs.

CELEBRITY TAX PROBLEM OF THE WEEK

Scorsese, Pacino Whacked by IRS Tax Liens

Movie director, Martin Scorsese and actor, Al Pacino have separately been hit by the Internal Revenue Service with tax liens.

Scorsese was slapped with a tax lien for $2.85 million from the IRS on February 14, according to the New York Post. Scorsese’s tax lien appears to be related to his former accountant, Kenneth Starr, who was convicted of fraud and sentenced last week to 90 months in prison. The Oscar-winning director’s lawyers are contesting the claims.

Scorsese’s reps have also said that the “Goodfellas” director has paid off the IRS tax lien, in addition to earlier tax liens totaling nearly $1.9 million from 2002-2003.

Pacino is another former client of Starr who is also facing tax liens from the IRS. The IRS filed a lien for $188,283.50 against the “Godfather” actor for unpaid taxes from 2008 and 2009. Pacino’s representative told TMZ that he has a new business manager who will pay off the Academy Award-winning actor’s tax debts.

DEBT FORGIVENESS - IS IT TAXABLE?

Q. The bank wrote off a portion of my home loan. I thought that was a good deal, but now someone told me that it was taxable. I thought if anybody could help me, you could. Please tell me it isn’t so!

A. First and foremost this can be complicated, so make sure you get commitment help to advise you on your particular circumstances. Here are the basic rules:

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.

• Mortgage debt that is partly or entirely forgiven during tax years 2007 through 2012, may allow you to be able to claim special tax relief and exclude the debt forgiven from your income. 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 but proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.

• Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision however in some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.

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.

As I said at the beginning, this can be confusing, so make sure you get help with you return.

DEDUCTING SPECIAL EDUCATION COSTS FOR CHILDREN WTIH SPECIAL NEEDS

Q. Our daughter that is in middle school has learning disabilities and we are sending her to a private school to take advantage of smaller classes. Are there any tax benefits? It is going to be expensive, so anything we can deduct will help.

A. I am sorry to hear that you have issues with your daughter. I know how frustrating and difficult that can be. I respect the commitment that you are making.

You have asked me whether you may deduct the special education costs you are incurring on behalf. It may be possible for some of the cost to be deducted as medical expenses, but there are hoops and limitations.

Expenses that you incur in order to enable your child to compensate for or overcome disabilities or to prepare your child for future normal education or normal living are deductible medical expenses. Thus, any expenses for therapy that helps your child's adaptation are deductible medical expenses. In addition, the expenses of your child's schooling at a “special school” for mentally or physically disabled individuals are deductible (including the cost of an ordinary education) if the resources of the school are the reason for your child's presence and the educational services provided are rendered only as an incident to the medical care provided.

The qualification of a school as a special school depends on the school's curriculum. Thus, a school qualifies as a special school only if the primary focus of its curriculum is to enable students to compensate for or overcome disabilities, and to prepare them for future normal education or normal living. For example, schools that provide special services for children with mental and/or physical disabilities, such as schools for the teaching of Braille or lip reading are special schools because the primary purpose of the schools is alleviating or treating a physical handicap. Similarly, schools with special programs for treating severe learning, mental, psychological or emotional disorders or dyslexia are special schools.

In contrast, a school that does not provide a special program, but is beneficial because of its small class size or because it provides added services within a normal academic setting, is not a special school, since the primary purpose of the school is academic. However, if an ordinary school is willing to develop a special program that meets your child's needs, the school will qualify as a special school, since the determination of whether a school is a special school is made on the basis of your child's curriculum, not the curriculum of the school as a whole.

In addition, the medical expense deduction is part of your itemized deductions and is limited to the amount that exceeds 7.5% of your adjusted gross income unless you have a health saving account; flex spending account or employer provided medical benefits. Make sure that you check with the school and your CPA for detailed guidance.

CELEBRITY TAX PROBLEM OF THE WEEK

Ja Rule Pleads Guilty to Tax Charges – Owes over $1 Million In Back Tax

Rap singer Ja Rule has admitted to failing to file tax returns for five years, causing a loss to the government of over $1.1 million.

The rapper, whose real name is Jeffrey Atkins, pleaded guilty Tuesday to three counts of failing to file tax returns with the Internal Revenue Service during a court appearance in Newark, N.J. Atkins, 35, of Saddle River, N.J., entered his guilty plea to three of the five counts of failing to file his tax returns before U.S. Magistrate Judge Patty Shwartz.

According to the charges filed against him and the statements made in Newark federal court, during the period in question, Atkins was the sole shareholder of ASJA Inc. and Rule Tours Inc. He admitted that during the five tax years from 2004 through 2008, he received music royalty income from ASJA Inc. and music tour and live performance-related income from Rule Tours Inc.

While Atkins has pleaded guilty to charges specifically related to tax years 2004, 2005 and 2006, the terms of his plea agreement state that the tax loss for all five years, including 2007 and 2008, will be taken into account at sentencing—a total loss to the government of approximately $1,137, 912.

Atkins has also agreed to file true and accurate tax returns and to pay all taxes and penalties owed to the IRS. Judge Shwartz set bail at $500,000 and permitted Atkins’ release pending sentencing, currently scheduled for June 13, 2011.

IRS HAS NO CURRENT PLANS TO INCREASE STANDARD MILEAGE RATES

Normally, when gas prices go through the roof, the IRS does a midyear increase to the standard mileage rate, but apparently not this year. During its May 12th payroll industry conference call, an IRS spokesperson said that IRS has no current plans to increase the standard mileage rate of 51¢ per mile for business miles driven, despite the big boost in gasoline prices.

DO YOU KNOW THE DANGERS OF TAKING PICTURES WITH YOUR PHONE?

This is not about tax or business, but thought it was important. If you have children or grandchildren, you NEED to watch this. I had no idea this could happen from taking pictures on the blackberry or cell phone. It's scary.

http://www.youtube.com/watch?v=N2vARzvWxwY



To learn how to turn off this feature, check with your phone carrier or go to:

http://icanstalku.com/

BIN LADEN AND INCOME TAXES

You wouldn’t think that with the end of Osama Bin Laden, it would bring taxes to mind, but what can I say, I’m a tax guy.

There was an award of up to $25 million for information leading to his location. I had to ask myself, “I wonder if anybody qualified for the reward.” Then I got thinking... “would this be taxable?” “Would the guy get a 1099?” “Would this be foreign income subject to foreign tax?” Shoot, I actually lost some sleep thinking about this.

For those of you who also wondered about this, here are my thoughts: Payments to informers aren’t specifically exempt, and would therefore be included as taxable income. There’s a bit of “who’s going to know?” going on. Payments made to informers for terrorism are generally kept anonymous under the Rewards for Justice Program. They’re also not required to be reported to the IRS if they meet certain criteria. According to the instructions on form 1099-MISC:

A payment to an informer as an award, fee, or reward for information about criminal activity is not required to be reported if the payment is made by a federal, state, or local government agency, or by a nonprofit organization exempt from tax under section 501(c)(3) that makes the payment to further the charitable purpose of lessening the burdens of government. For more information, see Regulations section 1.6041-3(l).

So in summary, the reward would be considered taxable, but you will not get a 1099 so if you are the informant you are going to have to remember to include the reward on your 2011 tax return.

By the way… if you happen to be the informant… Thank You!

AMERICANS WORK 2 HOURS, 13 MINUTES A DAY TO PAY TAX

According to the Tax Foundation, in 2011, Americans will devote 2 hours and 13 minutes of every eight-hour workday, or over a quarter of their working hours (27.7%), to paying taxes. In a nine-to-five workday, it takes until 11:13 a.m. to earn enough to pay that day's share of taxes at the federal, state and local level.

If we add the federal deficit to the picture—that is, if the federal government were planning to collect enough in taxes during 2011 to finance all of it’s spending—Americans would work until lunchtime, 12:07 p.m., for the government, before keeping any of their earnings for themselves.

FULL HOME SALE EXCLUSION FOR SURVIVING SPOUSE

Q: My husband passed away 1 ½ years ago. Can I still claim the joint home sale exclusion if I roll over funds into another place?

A: Yes. The full $500,000 home sale exclusion (which is reduced to $250,000 for single filers) is still available for up to two years after the death of a spouse. But both spouses must meet the requirements of use and ownership of the home as a principal residence for at least two out of the five previous years. Also, a surviving spouse can’t remarry before the sale.

Tip: You don’t have to “roll over” funds into another home. The rollover requirement was eliminated years ago.

OBAMA FLOATS PLAN TO TAX CARS BY THE MILE

As a member of the State Chamber of Commerce Board of Directors, we often get into discussion on funding highway improvement and repairs. There just is not enough money to go around. Since the road budget is funded by the gasoline tax part of the problem is that people are buying hybrid and electric cars which don’t use as much gas and therefore do not pay as much in gas tax.

TheHill.com reports, "The Obama administration has floated a transportation authorization bill that would require the study and implementation of a plan to tax automobile drivers based on how many miles they drive." The story notes this comes after "a March Congressional Budget Office report that supported the idea of taxing drivers based on miles driven."

Among other things, CBO suggested that a vehicle miles traveled (VMT) tax could be tracked by installing electronic equipment on each car to determine how many miles were driven; payment could take place electronically at filling stations. The issue is that if there are GPS devises in our vehicles the government could keep tabs on where we are at all time. Kind of like George Orwell’s Big Brother.


http://thehill.com/blogs/floor-action/house/159397-obama-floats-plan-to-tax-cars-by-the-mile

RECEPTIONIST PAY

Q. My partner wants to let our current front desk person go and hire a person that will work for minimum wage. We pay our current receptionist $12.00 and she is really good. I would hate to lose our current girl. My partners says we can save a lot of money with the cheaper person. What do you think?

A. Pay peanuts and you get monkeys.

HAPPY MOTHERS DAY – WHAT MOTHER HAD THE MOST CHILDREN

Can you beat 69? The most children born to one mother, according to the Guinness Book of World Records, was a woman from Russia who gave birth to 16 pairs of twins, seven sets of triplets, and four sets of quadruplets. Don't expect the reality show too soon as this happened between the years 1725-1765.

WHERE DID MY TAX DOLLARS GO???

Have you ever wondered where it goes- and I don't mean for food and in your gas tank.

Check this out:
http://wheredidmytaxdollarsgo.com