Archive for Wednesday, March 11, 2009

Tips on avoiding tax trouble

March 11, 2009

Advertisement

For many of us, it’s hard to believe things could get worse financially. Well, a tax audit by the Internal Revenue Service could make things worse.

Even if you didn’t do anything bad, a slight mistake on your tax return could kick off an audit.

SmartMoney.com offers these five tips to keep you out of tax trouble:

1. Make sure you show all of your income. In addition to salary and bonuses, make sure to include proceeds from sales and stocks and bonds, dividend earnings, brokerage and bank accounts and all other interest-earnings investments. Unemployment income needs to be included too.

2. Pay taxes even on forgiven debt. Even if a credit card company or other lender agreed to reduce a debt, you still must pay taxes on it. If your debt was cut from $10,000 to $6,000, you still must pay taxes on the $4,000 worth of forgiven debt.

3. Show documentation if you claim a small business loss. Such claims may raise a red flag for the IRS. Make sure you show bank statements, receipts and invoices.

4. Be cautious about claiming a home-office deduction. In order to qualify for such a deduction, the office in question must be your principal place of business and used exclusively for business. You are not eligible, for instance, if you use the office for business during the day but as a family room at night.

5. Pay close attention to reports of real estate gains and losses. If you lost your home to foreclosure or managed to eke out a profit on a sale, you’ll need to include the transaction on your tax returns.

Comments

gr 6 years, 1 month ago

"2. Pay taxes even on forgiven debt. Even if a credit card company or other lender agreed to reduce a debt, you still must pay taxes on it. If your debt was cut from $10,000 to $6,000, you still must pay taxes on the $4,000 worth of forgiven debt."

"Still"? What do they mean by, "still"? If you paid the credit card company the amount you owed, you would not have to pay any taxes. On income you make, to pay the company, you would have to pay taxes on. But, if they forgave the debt, you still would have to pay taxes on the income you make. Just in this case, you would not only have to pay taxes on the income you make, you would have to pay taxes the second time on the debt forgiven. How does that make sense? The IRS isn't missing out on any taxes by debt being forgiven. Sounds like a Gestapo tactic of kicking you while you're down.

BorderRat 6 years, 1 month ago

6. Don't get nominated for a Cabinet position.

jmadison 6 years, 1 month ago

Actually get nominated by Obama or be a powerful congressman ala Charles Rangel. Your tax troubles are solved and swept under the rug. Whatever happened to Nancy Pelosi's most ethical Congress' Ethics Committee investigation of Rangel's tax problems. She's had plenty of time to do the investigation by now. Also why are the newspapers giving Rangel a pass on his failure to pay his taxes?

gr 6 years, 1 month ago

Sebelius really hurt us by rejecting the power plant. She cost us immediately, and in the long run. What are we going to do for power, now? What about all the jobs it would have created? It wasn't that the plant would violate any laws. It was cleaner than existing plants. Rather than rejecting it because it didn't meet requirements, she rejected based upon or own personal belief system. This cost us greatly. I would put a value on it for at least 2 billion dollars.

What if I forgave the amount she owes, whether at $2 Billion or some other amount? What if I forgave that debt along with filing a 1099 or other form with the IRS?
Would she owe taxes on that amount?

Commenting has been disabled for this item.