College Tax Benefits for 2012 and Years Ahead

 

 

Parents and Students: Check Out College Tax Benefits for 2012 and Years Ahead
 

WASHINGTON — The Internal Revenue Service today reminded parents and students that now is a good time to see if they qualify for either of two college education tax credits or any of several other education-related tax benefits.
In general, the American opportunity tax credit, lifetime learning credit and tuition and fees deduction are available to taxpayers who pay qualifying expenses for an eligible student. Eligible students include the primary taxpayer, the taxpayer’s spouse or a dependent of the taxpayer.
Though a taxpayer often qualifies for more than one of these benefits, he or she can only claim one of them for a particular student in a particular year. The benefits are available to all taxpayers – both those who itemize their deductions on Schedule A and those who claim a standard deduction. The credits are claimed on Form 8863 and the tuition and fees deduction is claimed on Form 8917.
The American Taxpayer Relief Act, enacted Jan. 2, 2013, extended the American opportunity tax credit for another five years until the end of 2017. The new law also retroactively extended the tuition and fees deduction, which had expired at the end of 2011, through 2013. The lifetime learning credit did not need to be extended because it was already a permanent part of the tax code.
For those eligible, including most undergraduate students, the American opportunity tax credit will yield the greatest tax savings.  Alternatively, the lifetime learning credit should be considered by part-time students and those attending graduate school. For others, especially those who don’t qualify for either credit, the tuition and fees deduction may be the right choice.
All three benefits are available for students enrolled in an eligible college, university or vocational school, including both nonprofit and for-profit institutions. None of them can be claimed by a nonresident alien or married person filing a separate return. In most cases, dependents cannot claim these education benefits.
Normally, a student will receive a Form 1098-T from their institution by the end of January of the following year. This form will show information about tuition paid or billed along with other information. However, amounts shown on this form may differ from amounts taxpayers are eligible to claim for these tax benefits. Taxpayers should see the instructions to Forms 8863 and 8917 and Publication 970 for details on properly figuring allowable tax benefits.
Many of those eligible for the American opportunity tax credit qualify for the maximum annual credit of $2,500 per student. Here are some key features of the credit:

• The credit targets the first four years of post-secondary education, and a student must be enrolled at least half time. This means that expenses paid for a student who, as of the beginning of the tax year, has already completed the first four years of college do not qualify. Any student with a felony drug conviction also does not qualify.
• Tuition, required enrollment fees, books and other required course materials generally qualify. Other expenses, such as room and board, do not.
• The credit equals 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
• The full credit can only be claimed by taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less. For married couples filing a joint return, the limit is $160,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $180,000 or more and singles, heads of household and some widows and widowers whose MAGI is $90,000 or more.
• Forty percent of the American opportunity tax credit is refundable. This means that even people who owe no tax can get an annual payment of up to $1,000 for each eligible student. Other education-related credits and deductions do not provide a benefit to people who owe no tax.

The lifetime learning credit of up to $2,000 per tax return is available for both graduate and undergraduate students. Unlike the American opportunity tax credit, the limit on the lifetime learning credit applies to each tax return, rather than to each student. Though the half-time student requirement does not apply, the course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. Other features of the credit include:

• Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.
• The credit equals 20 percent of the amount spent on eligible expenses across all students on the return. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more in qualifying tuition and fees and has sufficient tax liability.
• Income limits are lower than under the American opportunity tax credit. For 2012, the full credit can be claimed by taxpayers whose MAGI is $52,000 or less. For married couples filing a joint return, the limit is $104,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $124,000 or more and singles, heads of household and some widows and widowers whose MAGI is $62,000 or more.

Like the lifetime learning credit, the tuition and fees deduction is available for all levels of post-secondary education, and the cost of one or more courses can qualify. The annual deduction limit is $4,000 for joint filers whose MAGI is $130,000 or less and other taxpayers whose MAGI is $65,000 or less. The deduction limit drops to $2,000 for couples whose MAGI exceeds $130,000 but is no more than $160,000, and other taxpayers whose MAGI exceeds $65,000 but is no more than $80,000.
Eligible parents and students can get the benefit of these provisions during the year by having less tax taken out of their paychecks. They can do this by filling out a new Form W-4, claiming additional withholding allowances, and giving it to their employer.
There are a variety of other education-related tax benefits that can help many taxpayers. They include:

• Scholarship and fellowship grants—generally tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
• Student loan interest deduction of up to $2,500 per year.
• Savings bonds used to pay for college—though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years old.
• Qualified tuition programs, also called 529 plans, used by many families to prepay or save for a child’s college education.

Taxpayers with qualifying children who are students up to age 24 may be able to claim a dependent exemption and the earned income tax credit.
The general comparison table in Publication 970 can be a useful guide to taxpayers in determining eligibility for these benefits. Details can also be found in the Tax Benefits for Education Information Center on IRS.gov.

Five Tips to Running a Successful Family Business

Great family businesses share certain traits: loyalty among the team, vigilance and competitiveness in their fields. They have found ways manage conflict and figured out ways to make decisions when there are differences of opinion. Yet real pitfalls lurk. Avoid potential pitfalls with these tips. Establish good boundaries. Give family members clearly defined roles, specific job responsibilities and authority. Consider writing specific job descriptions. Talk openly about how you plan to keep family issues—like sibling rivalry or marital conflict—from spilling over into the family business. Write a list of do’s and don’ts for everyone to follow. Remember you have two ears and one mouth. While close family members tend to have insights into each other’s thinking that wouldn’t exist among business partners who aren’t related, it’s essential that they hear each other out on business matters, rather than assuming they know each other’s views. In a word—listen. Fight insulation from the outside world by seeking counsel. Start an advisory board to add knowledge, skills and experience that go above and beyond your family members. You don’t want to get in a situation where other family members are afraid to tell the truth and possibly lose out on the gravy train. An advisory board ensures you will have people tell you what’s in the best interest of your company Create a strategic plan. Create an action plan that answers these questions: Where is the business going? What are the goals? How will we get there? Who will do what? What are the timelines? Manage your conflict. A certain amount of conflict is healthy, but the trick is to manage conflict by managing expectations. Anticipate someone else’s reaction and anticipate the consequences to minimize conflict. For helpful lessons and success stories on family-based small businesses, check out How To: Run a Family Business on SUCCESS.com

What Happens When Someone Else Gets Your Tax Refund

Don't Get Caught, Know What To Do

If you usually wait until April to file your taxes, you might want to hurry up — before identity thieves beat you to it. Using stolen names and Social Security numbers, these criminals file fake tax returns with false wage and withholding information. This generates big — and fraudulent — refunds, before the real taxpayer gets around to filing.

The Internal Revenue Service says it's busy working to combat what prosecutors call a fraud epidemic.

IRS: Tips To Combat ID Fraud

• Don't carry your Social Security card or any documents with your Social Security number or Individual Taxpayer Identification Number on it.
• Don't give a business your SSN or ITIN just because they ask. Give it only when required.
• Protect your financial information.
• Check your credit report every 12 months.
• Secure personal information in your home.
• Protect your personal computers by using firewalls, anti-spam/virus software, update security patches and change passwords for Internet accounts.
• Don't give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.

Source: Internal Revenue Service

Most taxpayers don't have any idea something is wrong until they hit the send button on their taxes and get an error message.

"I was told somebody had already filed a return using my name and my Social Security number," says Todd Macy, a banker from Marin County, Calif. It happened to him last year.

"I was shocked, and I felt like I was a victim," Macy says.

A few hundred miles south in Bakersfield, a teacher wondered what happened to her refund.
"I just figured something was wrong with their system," says Joyce Hood.

Someone had filed a return in her husband's name, using his Social Security number. The identity thief likely falsified earnings and made off with thousands of dollars from the Treasury.

The problem has been growing fast.

"Our cases have increased by about 650 percent since 2008," says Nina Olson, the National Taxpayer Advocate, kind of the internal watchdog at the IRS. People go to her when they have a problem with their returns.

The IRS itself says the number of cases has doubled each year in recent years. And a lot of the fraud is coming out of South Florida.

"It catches on like fire. It spreads like a virus. Friends tell their friends," says Wifredo Ferrer, U.S. attorney for the Southern District of Florida.

He calls this crime an epidemic. Fraudsters come from all walks of life: hospital workers, former Marines, white collar professionals and former gang members who have switched from street violence to tax fraud.

"I'm seeing from a lot of the local police departments in South Florida that the violence in their communities is being substituted for stolen identity tax refund fraud," he says.

The victims are as diverse as the perpetrators: rich, poor, young, old, alive and dead.
Ferrer says a Social Security number attached to a name now sells on the street for as much as $1,000. Scammers think they can get far more than that from a fraudulent refund.

For the victims, it means aggravation and long waits for a refund that's rightfully theirs.
Joyce Hood, the teacher in Bakersfield, says she spent hours at the IRS office. Officials told her it could take up to a year to get her refund.

"And I just looked at them, and I said, I can't, I really need this money. I have a daughter starting college," says Hood.

As she waited, she paid part of her daughter's tuition with a credit card, racking up interest charges until the refund finally came last fall.

The IRS says it has stopped 5 million attempts to get fraudulent refunds, saving taxpayers $20 billion. And it says it's using more aggressive screening technology to try to weed out scammers.

"We've at least doubled the number of filters that we have. The filters work very well," says Steve Miller, the IRS acting commissioner. He declined to elaborate for security reasons.

The IRS also says it took action last month against nearly 400 people suspected of refund tax fraud. Miller says the agency is working on its online security, and better ways to identify the real filer.
"I think we'll get there," he says.

But critics say the IRS could do more. Last year, a Treasury official estimated refund fraud could cost the government $21 billion over the next five years.

The IRS also has some work to do to get its computer systems talking to each other. Banker Todd Macy says someone used his Social Security number in February 2012, but when he filed an extension in April, there was no warning. It wasn't until October that he discovered the fraud. Now, he's still waiting for his refund.

"And I probably won't see that refund for, I'm told, at least six months or a year," Macy says.
He's not alone. Even some IRS workers have been victims of refund fraud.

By, Dan Bobkoff
www.npr.org

Oregon Corporate Scam

Oregon warns of deceptive corporate finance mailing

Staff Portland Business Journal

 

The Secretary of State's Office is warning businesses about a deceptive mailing seeking confidential information.

According to the warning, a number of businesses have reported receiving an official-looking invoice with the title "Compliance Filings Center - Annual Minutes Compliance Notice." The notice requests detailed information about the businesses and a $150 processing fee.
You can view an example here.

The mailing is not an official state document and Secretary of State Kate Brown said only a careful reading reveals that the organization is not government affiliated.

100th Birthday of US Federal Income Tax

The first known written record of taxes dates back to ancient Egypt when grain,

livestock or oils were used instead of money to pay what was owed to the

government. Even then, the surviving hieroglyphic tablets records how people

complained about high taxes. Some things never change.

 

This year on February 3, 2013 is the 100th birthday of the 16th amendment

which is the recognized birth of US Federal Income Tax. The history of the 16th

amendment actually dates back to 1861 during the civil war, when Congress

passed the Revenue act of 1861. This act included a 3% tax on personal

incomes over $800 to help pay war expenses. Ten years later, in 1872, this act

was repealed. The idea stuck around though, and in 1894 Congress enacted a

4% tax on income over $4,000. The U.S. Supreme court immediately struck this

down in a 5-4 decision. In 1909, Congress tried again with the idea of an income

tax. This time, however, it stuck and on February 3, 1913 the 16th amendment

was ratified stating "The Congress shall have power to lay and collect taxes on

incomes, from whatever source derived, without apportionment among the

several States, and without regard to any census or enumeration."

 

In 1913 the first Form 1040 was documented. Congress placed a 1% tax on net

personal income over $3,000, and 6% surtax on any income greater than

$20,000. The first year no taxes were collected; the IRS only checked the forms

for accuracy. During World War I the income tax rose to its highest point at 77%

to help finance the war. Improvements to the system were made during World

War II when congress introduced payroll withholding and quarterly tax payments.

 

The alternative minimum tax (AMT) is another type of federal income tax that

was enacted in 1969. This tax was established so that any taxpayer who wasn't

paying their fair share due to deductions and credits would still have to pay an

income tax.

 

The deadline for filing taxes wasn't always April 15th. When the 16th amendment

was first enacted the deadline was March 1st. In 1918 that date was pushed

back to March 15th, then to April 15th in 1955.

 

Today, the IRS collects more than $1.2 billion in taxes and processes more than

133 million returns annually. And of course, people still complain about high

taxes.

IRS Intensifies National Crackdown on Identity Theft;
Part of Wider Effort to Protect Taxpayers, Prevent Refund Fraud

IRS Tumbler

WASHINGTON – Continuing a year-long enforcement push against refund fraud and identity theft, the Internal Revenue Service today announced the results of a massive national sweep in recent weeks targeting identity theft suspects in 32 states and Puerto Rico, which involved 215 cities and surrounding areas.

The coast-to-coast effort against 389 identity theft suspects led to 734 enforcement actions in January, including indictments, informations, complaints and arrests. The effort comes on top of a growing identity theft effort that led to 2,400 other enforcement actions against identity thieves during fiscal year 2012.

The January crackdown, a joint effort with the Department of Justice and local U.S. Attorneys offices, unfolded as the IRS opened the 2013 tax season. IRS Criminal Investigation expanded its efforts during January, pushing the total number of identity theft investigations to more than 1,460 since the start of the federal 2012 fiscal year on Oct. 1, 2011.

“As tax season begins this year, we want to be clear that there is a heavy price to pay for perpetrators of refund fraud and identity theft,” said IRS Acting Commissioner Steven T. Miller. “We have aggressively stepped up our efforts to pursue and prevent refund fraud and identity theft, and we will continue to intensely focus on this area. This is part of a much wider effort underway for the 2013 tax season to stop fraud.”

The national effort with the Justice Department and other federal, state and local agencies is part of a larger, comprehensive identity theft strategy the IRS has embarked on that is focused on preventing, detecting and resolving identity theft cases as soon as possible.

The identity theft effort – which intensified in January as the 2013 filing season opened – involved 734 enforcement actions related to identity theft and refund fraud. The effort led to actions taking place throughout the country involving 389 individuals. The effort included 109 arrests, 189 indictments, informations and complaints, as well as 47 search warrants.

In addition to the criminal actions, IRS auditors and criminal investigators conducted a special compliance effort starting on Jan. 28 to visit 197 money service businesses to help make sure these businesses are not assisting identity theft or refund fraud when they cash checks.  The compliance visits occurred in 17 high-risk places identified by the IRS covering areas in and surrounding New York, Philadelphia, Atlanta, Tampa, Miami, Chicago, Houston, Phoenix, Los Angeles, San Diego, El Paso, Tucson, Birmingham, Detroit, San Francisco, Oakland and San Jose.

A map of the locations and additional details on the January enforcement actions and compliance visits are available on IRS.gov. The latest updates on the identity theft enforcement efforts and individual cases are available on a special Identity Theft Schemes page on IRS.gov. More information on enforcement actions can be found on a DOJ Tax Division page.

The identity theft push over the last several weeks reflects a wider effort underway at the IRS. Among the highlights:

• The number of IRS criminal investigations into identity theft issues more than tripled in fiscal year 2012. The IRS started 276 investigations in fiscal year 2011, a number that jumped to 898 in fiscal year 2012. So far in fiscal year 2013, there have been more than 560 criminal identity theft investigations opened.
• Total enforcement actions continue to rapidly increase against identity thieves. This category covers actions ranging from indictments and arrests to search warrants. In fiscal year 2012, enforcement actions totaled 2,400 against 1,310 suspects. After just four months in fiscal 2013, enforcement actions totaled 1,703 against 907 suspects.
• Sentencings of convicted identity thieves continue to increase. There were 80 sentencings in fiscal year 2011, which increased to 223 in fiscal year 2012.
• Jail time is increasing for identity thieves. The average sentence in fiscal year 2012 was four years or 48 months – a four-month increase from the average in fiscal year 2011. So far this fiscal year, sentences have ranged from 4 to 300 months.

More information on IRS Criminal Investigation efforts is available on IRS fact sheet FS-2013-12.

In addition to the national “sweeps” effort announced today, IRS work on identity theft and refund fraud continues to grow. For the 2013 filing season, the IRS has expanded these efforts to better protect taxpayers and help victims.

To stop identity thieves up front, the IRS has made a significant increase for the 2013 tax season in the number and quality of identity theft screening filters that spot fraudulent tax returns before refunds are issued. The IRS has dozens of identity theft screens now in place to protect tax refunds.

These efforts helped the IRS in 2012 protect $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.

By late 2012, the IRS assigned more than 3,000 IRS employees — over double from 2011 — to work on identity theft-related issues. IRS employees are working to prevent refund fraud, investigate identity theft-related crimes and help taxpayers who have been victimized by identity thieves. In addition, the IRS has trained 35,000 employees who work with taxpayers to recognize identity theft indicators and help people victimized by identity theft.

“We are strengthening our processing systems to watch for identity theft and detect refund fraud before it occurs,” Miller said. “And we continue to put more resources on helping people who are victims of identity theft and resolve these complex cases as quickly as possible.”

Taxpayers can encounter identity theft involving their tax returns in several ways. One instance is where identity thieves try filing fraudulent refund claims using another person’s identifying information, which has been stolen. Innocent taxpayers are victimized because their refunds are delayed.

To help taxpayers, the IRS has a special section on IRS.gov dedicated to identity theft issues, including YouTube videos, tips for taxpayers and a special guide to assistance. For victims, the information includes how to contact the IRS Identity Protection Specialized Unit. For other taxpayers, there are tips on how taxpayers can protect themselves against identity theft.

If a taxpayer receives a notice from the IRS indicating identity theft, they should follow the instructions in that notice. A taxpayer who believes they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. The taxpayer should contact the IRS Identity Protection Specialized Unit at 800-908-4490.  The taxpayer will be asked to complete the IRS Identity Theft Affidavit, Form 14039, and follow the instructions on the back of the form based on their situation.

Issue Number:    IR-2013-16

IRS Extends Tax Relief to Some New Jersey and New York Victims of Hurricane Sandy; Return Filing and Tax Payment Deadline Extended to April 1, 2013

WASHINGTON –– In the aftermath of Hurricane Sandy, the Internal Revenue Service announced additional tax relief to affected individuals and businesses. The IRS today is further extending tax deadlines of that relief until April 1 for the following localities:

• In New Jersey (starting Oct. 26): Monmouth and Ocean counties.
• In New York (starting Oct. 27): Nassau, Queens, Richmond and Suffolk counties.

Beyond the relief provided by law to taxpayers in the FEMA-designated counties, the IRS will work with any taxpayer who resides outside the disaster area but whose books, records or tax professional are located in the areas affected by Hurricane Sandy. All workers assisting the relief activities in the covered disaster areas who are affiliated with a recognized government or philanthropic organization are eligible for relief.  Taxpayers who live outside of the impacted area and think they may qualify for this relief need to contact the IRS at 866-562-5227.

The IRS also announced today that Taxpayer Assistance Centers in several New York and New Jersey locations will be open additional hours to provide help to taxpayers impacted by Hurricane Sandy. There will also be special assistance available at several New Jersey and New York locations on Saturday, February 23 from 9 a.m. until 2 p.m. More information will be available on irs.gov.

The tax relief postpones various tax filing and payment deadlines that occurred starting in late October. As a result, affected individuals and businesses will have until April 1, 2013, to file these returns and pay any taxes due. This includes the fourth quarter individual estimated tax payment, normally due Jan. 15, 2013. It also includes payroll and excise tax returns and accompanying payments for the third and fourth quarters, normally due on Oct. 31, 2012 and Jan. 31, 2013 respectively, and calendar year corporate income tax returns due March 15. It also applies to tax-exempt organizations required to file Form 990 series returns with an original or extended deadline falling during this period. 

The IRS will abate any interest, late-payment or late-filing penalty that would otherwise apply. The IRS automatically provides this relief to any taxpayer located in the disaster area. Taxpayers need not contact the IRS to get this relief.
The tax relief is part of a coordinated federal response to the damage caused by the hurricane and is based on local damage assessments by FEMA. For information on disaster recovery, individuals should visit disasterassistance.gov.