Monday, April 18th, 2011
In the wake of tax season, the Internal Revenue Service has issued a statement warning Americans about how to spot and rectify identity theft that may affect their taxes. Identity theft can be a difficult crime to deal with, and can cost victims hours of time and even money to repair.
Here’s a look at what you need to know about identity theft and your taxes.
- The IRS does not initiate contact by email. If you receive an email from someone claiming to be the IRS, report it as spam and do not click on any links or provide any of your personal information.
- Pay attention to any snail mail contact. If the IRS contacts you by postal mail and indicates that multiple tax forms were filed in your name or that records show you received wages from an employer you don’t know, you should suspect possible identity theft.
- Contact the IRS. If and when you receive a notice from the IRS by mail that indicates unusual or suspicious activity, you should contact the IRS by responding to the address or number provided on the form you received.
- Check your credit report. If you’re interested in knowing more about whether your identity might be at risk, visit www.AnnualCeditReport.com to check your credit report for any suspicious activity. You are entitled to view a credit report from each of the three major reporting bureaus for free once per year.
It’s best to act quickly if you suspect identity theft related to your taxes, because if someone else filed a tax return in your name (or using your Social Security Number), that person could be eligible for a return – and you might not get one.
Online Resources to Protect Yourself
One of the best ways to combat identity theft is to prevent it. And, seeing as identity theft can cost serious money (and even triggers bankruptcy filings for some victims), it’s never too soon to start protecting yourself, your sensitive information and your money.
The Federal Trade Commission, the IRS and a number of other government organizations have teamed up to create the web site OnGuardOnline.gov, which offers information, tools and tips for staying safe in the digital world.
The site’s online resources include:
- Detailed instructions for dealing with identity theft (tax-related or otherwise);
- Pointers for keeping your information, accounts and passwords safe at WiFi hotspots;
- A number of games designed to educate users about various digital risks and how to protect against them;
- Informative videos that include expert interviews and how-tos designed to help people stay on top of digital and cyber safety; and
- Tools to use to protect yourself in your everyday life.
Posted in Credit Report, Identity Theft, Legal Info, Taxes, prevent identity theft | Comments Off
Thursday, January 28th, 2010
With tax season coming up, everyone is looking for new ways to save, either to get a larger refund or to afford paying taxes owed. Thanks to a new ruling, some graduate students may find extra breathing room come tax time.
The Wall Street Journal reports that, thanks to the persistence of Lori Singleton-Clarke, a Maryland woman, students pursuing a Masters in Business Administration degrees (MBAs) may now find their tuition is tax deductible.
Several aspects of the case could be important to MBA students and others looking to save money this tax season.
- Know the code. The Internal Revenue Service’s tax code is complex and detailed, so knowing where to look for potential deductions can help. Tax deductions for education can be found in IRS Publication 970 (see below).
- Ask for help. If you aren’t tax-savvy yourself, you may want to enlist the help of a professional tax-preparer or commit to learning how to work at-home tax software like TurboTax.
- Stay organized. The WSJ reports that Singleton-Clarke’s case was successful in part because she kept all her paperwork organized and was able to provide adequate documentation for her claim.
- Be persistent. Singleton-Clarke’s case was not always easy, sources note. But she stuck it out and ended up saving herself some serious money – and potentially paving the way for other graduate students to do the same.
Does Your Education Qualify?
Educational expenses eligible to be considered tax-deductible must meet certain specific criteria, including the following.
- Income limits for single and married individuals affect how much tuition can be deducted.
- Parents may deduct certain expenses for children whose education they fund, but only if the parents claim the children as dependents.
- Certain institutional fees (like health care and books) are not considered part of tuition and so are not eligible for the tax deduction.
- Even a single college- or graduate-level class could qualify you for the tax deduction.
A more detailed review of these regulations is available here, or you can browse this year’s version of Publication 970 (below, as a PDF).
Other Tax Concerns
Whether or not you pursued further education this year, stay alert during tax season. Certain predatory loans in disguise tend to crop around this time of year, including RALs (refund anticipation loans) and RACs (refund anticipation checks).
If you do wind up owing taxes that you can't afford to pay, you can file an extension and possibly work with the IRS to pay your taxes over time. Paying taxes owed is important since they typically cannot be discharged in bankruptcy.
Remember to keep your sensitive information (like bank account numbers and Social Security Number) private!
Additional Resources
IRS Publication 970 (2010)
Posted in Legal Info, Taxes, students, tax deductions, tuition | Comments Off
Friday, October 9th, 2009
Thomas Ajava asked: Filing bankruptcy is obviously not something most people want to do. Given the current economic times, however, it goes without saying that many people simply do not have much of a choice. If you are considering it, learn a lesson from the tax implications of the recent Nortel bankruptcy filing.
Nortel Networks is one of the largest communications makers in North American and, indeed, the world. How big? Well, it had both assets and debts of nearly 11 billion dollars when it recently filed bankruptcy. Why file bankruptcy if the ledger looked nearly balanced? The answer is found in debt repayment obligations coming due the company simply could not meet.
Why should you care about the bankruptcy of Nortel Networks? Well, you don’t really have to, but you should take into account something that happened from a tax perspective. Specifically, the IRS filed a claim for unpaid taxes with the Bankruptcy Court handling the matter. The amount of the unpaid taxes? A staggering three billion dollars. Making matters all the more interesting, it seems as though the powers that be at Nortel did not realize taxes would be an issue before making the bankruptcy filing.
So, what is the lesson? The issue at hand is how debt is treated in our archaic and odd tax code. It is treated as debt unless it is forgiven. At that point, it converts to income under the tax code. You know what that means. Yes, you owe taxes on that income! Let’s look at an example.
I started a business during the boom times earlier this decade. I sold an app for iPhones that shot a flame out the end so bank and stock market executives could light $100 bills to light their cigars. Business was so brisk that I ordered $1 million dollars of the product from China and financed it with a loan from a bank. Well, the economy blew up in 2008 and so did my business. I filed for bankruptcy protection and asked the court to eliminate the $1 million dollar loan debt. The court agrees, but here comes the IRS. They view that relief as income. What does that mean? It means I owe income tax on the million dollars!
This is obviously an extreme example, but it does highlight the fact tax issues need to be considered when filing bankruptcy. In getting rid of debt, you might end up with a tax problem..
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Tuesday, March 31st, 2009
Chintamani asked: ·
InsolvencyCash flow insolvency is the inability to pay debts upon demand. Balance sheet insolvency simply means that you have more debts than assets. It is possible to be cash flow insolvent at the same time you are balance sheet solvent. This happens when you have money bound up in non-liquid assets. Many taxpayers have experienced this recently, when they have been forced into foreclosure due to the inability to pay their mortgage.
When your liabilities exceed your assets, you are insolvent. If a lender forgives your debt under insolvency, you can file for insolvency exclusion in that amount on your income tax. Otherwise you will have to enter the forgiven debt on your income tax report. Recently many homeowners realized that the cost of their mortgage exceeded the value of their home. These homeowners qualified for the insolvency exclusion on their taxes.
The amount you can exclude can be no higher than the amount by which your liabilities exceed your assets. If the debt forgiven qualifies under the tax code and is used for running a farm, it might not be income at all.
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Chapter twelve or thirteen bankruptcyIf you file a chapter twelve or thirteen bankruptcy, you will file the same income tax report. Include your entire income, as is normal procedure. But do not include any cancelled debt on your federal income tax return. Losses in property must be reduced by the total cancelled debt.
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Chapter seven or eleven bankruptcyUnder chapter seven or eleven bankruptcy filings, a separate estate is created from your estate prior to filing. You, as a taxpayer and your bankruptcy estate are two distinct entities. Under chapter seven, a trustee is appointed to your estate. The trustee sees to the liquidation of your non-exempt assets. Under chapter eleven, you stay in charge of the estate. You are given debtor-in-possession status. All monies earned after the bankruptcy filing are yours and not part of the bankruptcy requirements. If your bankruptcy petition is rejected, you are responsible for filing an Internal Revenue Service tax form 1040X and become responsible for your income taxes as if you had never made the bankruptcy petition.
You have to file an income tax return during the bankruptcy process. You will not include, deductions, credits, or income belonging to the bankruptcy estate, as it is an entity separate from you. You can choose to end your tax year the day before you file your bankruptcy petition.
If you file for bankruptcy after the first of January, any refund you receive from taxes that year, even if you have yet to file, is an asset in your bankruptcy.
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