Keeping Good Tax Records (Part I)

In a tax emergency, would you be ready? Well-organized records not only help you prepare your tax return, but they also help you answer questions if your return is selected for examination or prepare a response if you are billed for additional tax. Fortunately, you don't have to keep all tax records around forever. Normally, tax records should be kept for three years, but some documents - such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property - should be kept longer.

If you are an employer, you must keep all your employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later.

If you are in business, there is no particular method of bookkeeping you must use. However, you must clearly and accurately show your gross income and expenses. The records should substantiate both your income and expenses.

Fed Issues New Lending Rules

Daily Real Estate News | July 15, 2008
Fed Issues New Lending Rules

The Federal Reserve on Monday adopted rules designed to protect homebuyers from the kind of loans that drove many into foreclosure.

The new rules apply to all lenders and not just to banks supervised by the Fed. Most are expected to take effect Oct.1, 2009. Escrow requirements won’t go into effect until April 1, 2010.

Here are the new requirements:

1.Prevent loans made without documenting borrower’s income.
2. Require lenders to escrow money to pay taxes and insurance for risky borrowers.
3. Limit and in some cases ban prepayment penalties.
4. Prohibit lenders from making a loan without considering a borrower's ability to repay a home loan from sources other than the home's value.
5. Require mortgage advertising to contain information about rates, monthly payments and other features of the loan.
6. Insist lenders credit a mortgage payment to a home owner’s account on the day it is received.
7. Brokers and others are forbidden from "coercing or encouraging" an appraiser to misrepresent the value of a home.

Source: The Associated Press, Jeannine Aversa (07/14/08)

Topping the Tax Scam List

The Internal Revenue Service recently issued its 2008 "Dirty Dozen" list: the 12 most egregious tax schemes and scams, nine of which affect or are often perpetrated by business owners. Here are those that small business owners should be on the lookout for:

1. Phishing—Phishing is a tactic used by web-based thieves to trick unsuspecting victims into revealing personal information that they can then use to access the victims' financial accounts. These criminals use the information obtained to empty victims' bank accounts, run up credit card charges and apply for loans or credit in their names. Phishing scams often take the form of an email that appears to come from a legitimate source. Some scam emails falsely claim to come from the IRS. To date, taxpayers have forwarded more than 33,000 of these scam emails, reflecting more than 1,500 different schemes, to the IRS. The IRS never uses email to contact taxpayers about their tax issues. Taxpayers who receive unsolicited email that claims to be from the IRS can forward the message to a special electronic mailbox, phishing@irs.gov, using instructions contained in an article titled "Protect Yourself from and Report Suspicious emails or Phishing Schemes."

2. Fuel tax credit scams—The IRS is receiving claims for the fuel tax credit that are unreasonable. Some individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit was recently added to the list of frivolous tax claims, potentially subjecting those who improperly claim the credit to a $5,000 penalty.

3. Hiding income offshore—Individuals continue to try to avoid paying U.S. taxes by illegally hiding income in offshore bank and brokerage accounts or using offshore debit cards, credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities or life insurance plans. The IRS and state tax agencies continue to aggressively pursue taxpayers and promoters involved in such abusive transactions.

4. Abusive retirement plans—The IRS continues to uncover retirement plan abuses, including transactions that taxpayers are using to avoid the limitations on contributions to Roth IRAs. Taxpayers should be wary of advisers who encourage them to shift appreciated assets into Roth IRAs or companies owned by their Roth IRAs at less than fair market value. In one variation of the scheme, a promoter has the taxpayer move a highly appreciated asset into a Roth IRA at cost value, which is below annual contribution limits, even though the fair market value far exceeds the amount allowed.

5. Zero wages—Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Typically, a Form 4852 (Substitute Form W-2) or a "corrected" Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer also may submit a statement rebutting wages and taxes reported by a payer to the IRS. Sometimes fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any of the variations of this scheme.

6. False claims for refund and requests for abatement—This scam involves a request for abatement of previously assessed tax using Form 843 ("Claim for Refund and Request for Abatement"). Many individuals who try this have not previously filed tax returns. The tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program. The filer uses Form 843 to list reasons for the request. Often, one of the reasons given is "failed to properly compute and/or calculate Section 83-Property Transferred in Connection with Performance of Service."

7. Return preparer fraud—Dishonest tax return preparers can cause many problems for taxpayers who fall victim to their schemes. These scam artists make their money by skimming a portion of their clients' refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Some preparers promote the filing of fraudulent claims for refunds on items such as fuel tax credits to recover taxes paid in prior years. Taxpayers should choose carefully when hiring a tax preparer, especially one who promises something that seems too good to be true.

8. Disguised corporate ownership—Some people are going as far as forming domestic shell corporations in certain states for the purpose of disguising the ownership of a business or financial activity. Once formed, these anonymous entities can be used to facilitate underreporting of income, non-filing of tax returns, engaging in listed transactions, money laundering, financial crimes and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance.

9. Abuse of charitable organizations and deductions—The IRS continues to observe the misuse of tax-exempt organizations. Misuse includes arrangements to improperly shield income or assets from taxation, attempts by donors to maintain control over donated assets or income from donated property and overvaluation of contributed property. In addition, IRS examiners are seeing an upturn in instances where taxpayers try to disguise private tuition payments as contributions to charitable or religious organizations.

Will Tax Rebates help Economy?

President Bush said tax rebates will start going out Monday, earlier than previously announced, and should help Americans cope with rising gasoline and food prices, as well as aid a slumping economy.

Please leave your comments here, Marina

Reasons to Buy Real Estate in Utah

Reasons to Buy Real Estate in Utah
1. Tax Savings: You can write off the interest paid on the home loan and real estate property taxes if the home is your primary residence. You can write off mortgage insurance!
2. Fixed payment: Rent keeps going up. If you buy, with a fixed rate mortgage, your monthly payment only increases as property taxes and home owner’s insurance increase.
3. No Landlord. When you rent, you write a check and the money's gone forever. Why make your landlord rich?
4. Do it your way with your style. Plant a Garden, tile the floor, help your kid build a tree house, paint your kitchen green. When it's yours, you can do it your way and increase the value of your home.
5. Be part of a neighborhood!
6. Create stability: Moving sucks, nobody likes it and besides that, its nice to find an area you like and put some roots down.
7. Build Equity as the overall market increases & as you pay off your mortgage. A home is the biggest purchase most people make and for many their biggest investment.
8. Your equity can add up over time and be used to purchase a bigger home, an investment property or cover other big expenses if you need it.
9. Forced Savings.
10. Retirement: It may be a long way off, but owning your home free & clear is a major step toward retiring. Especially if your want to retire early.