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New IRS Tax Reporting Procedures for Capital Gains on Stocks and Mutual Funds

July 29, 2011 By

In 2008, the Energy Improvements and Extension Act passed into law. Part of this law required mutual fund managers, stockbrokers, and other fund managers to maintain a client record that indicated the original purchase price of the stocks and other assets so as to automatically show the capital gains on these assets. The law was passed to ensure more convenient filing for capital gains, as shareholders were required to make capital gain calculations that were complex in some instances. Besides this taxpayer convenience, this reporting requirement was also passed to ensure that no taxpayer would defraud Uncle Sam by indicating wrong purchase prices or by making erroneous calculations. This in turn, was expected to reduce the tax gap due to unreported or erroneous capital gains from stocks and mutual funds. Though passed in 2008, the act was set to take effect from January 1, 2011 and only affected the shares that were bought from this date forward.

What this Means for Stockbrokers

For stockbrokers and mutual fund managers, this requirement means that they are now expected to invest in various infrastructures that would generate the required reports to be forwarded to the taxpayer as well as the IRS. They will be required to indicate the details of the purchasing prices, sales prices and the capital gains in the Form 1099B, which are sent to their clients. Many stockbrokers and mutual fund managers had already made adjustments to their 1099B statements by 2011 and you may have noted these changes in your Form 1099B, sent by your stockbroker as far back as 2009.

What this Means for the Investors

The taxpayer on the other hand, will now need to separate stocks and mutual fund units purchased before 2011 and those purchased after 2011. For the lots purchased before 2011, the taxpayer will need to manually calculate the capital gains as they did formerly and pay the respective IRS taxes. For stocks purchased after 2011, the 1099B received from your stockbroker will include all the information you need to file your returns without needing to refer to the documentation of stock purchases or make capital gain calculations.

For the Dividend Reinvestment Plan (DRP), the calculation of the capital gains is usually more complicated. In these plans, the dividends received from various stocks are reinvested into stocks from the same counter. The extra shares bought will need to be considered as capital gain. However, these calculations will only affect stocks purchased before 2011; as for those purchased after this date, the stockbroker will be required to make the capital gain calculations in their Form 1099B.

New Draft Form Released by the IRS

The IRS has already released a draft of the reporting form to be used by taxpayers in their tax returns. The draft Form 8949-Sales and Other Dispositions of Capital Assets has three sections. One section is for scheduling the assets that do not have 1099B, the second section for assets that have a 1099B but that do not include cost basis – those bought before 2011- while the last section is for asset that have a 1099B that has the cost basis – those bought after 2011. The totals of the form 8949 will then be carried to Schedule D of the tax return Form 1040. If you have assets that fall in different sections of the Form 8949, you will have to fill out a different form 8949 for the assets that fall in a similar section. You may therefore need to fill out 2 or 3 form 8949s, depending on the type of assets sold and the date of purchase of these assets. However, the totals from these forms will all be forwarded to the Schedule D of your tax return form.

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Dirty Dozen Tax Cheat Schemes for 2010 IRS Tax Year

July 28, 2011 By

Every year, the IRS releases top tax scams that they identify on its website. The list is used to make taxpayers aware of rogue tax schemes that are being promoted by some dubious preparers, the internet, and other sources. In the 2010 tax year, the IRS published the leading 12 tax scams. These scams list is detailed below:

  1. Unreported Offshore Incomes – The leading source of tax cheats was in unreported offshore incomes. Every year, taxpayers hide incomes from the IRS by keeping funds in overseas banks that provide strict privacy. However, the IRS has gained significant headway in getting account information for U.S. citizens from many overseas banks. The IRS has busied itself with tracking down foreign incomes as of late.
  2. Identity Theft – The 2010 tax year witnessed a five-fold increase in identity theft cases in just 3 years. Identity thieves file a return with stolen names and Social Security numbers and receive refunds that are actually due to the victims. When the actual people/the victims of identity theft file their returns, they get shocking news from the IRS, who informs them that their taxes have been already filed and a refund check had already been distributed. The IRS advises taxpayers to carefully guard their personal information to avoid these types of situations.
  3. Tax Preparer Fraud – There have been several cases of tax-preparer-fraud, including refund checks being cashed by preparers, excessive charges for services, preparers who file wrong returns, and preparers who promise large refund checks. The IRS has introduced new rules for tax preparers to strictly adhere to in order to protect taxpayers from such schemes. Tax preparers will now require a Preparer Tax Identification Number (PTIN) to operate their businesses/provide their services.
  4. Providing False Information on Tax Returns – The IRS also identified many tax returns that had deliberate false information that seek to claim fictitious credits for refund checks. The schemes use different ways of claiming refunds. In one scheme, a tax cheat used the names and Social Security numbers of dead people to file fictitious returns and claim refunds.
  5. Frivolous Rumors – The IRS has also identified many frivolous arguments being posed on the internet and in other forums that discourage individuals from filing tax returns. Some arguments claim that tax payment is voluntary or optional while others claim that the Federal Government does not have the authority to legitimately tax anyone. The IRS has provided a page on its website that addresses and debunks many (if not all) of these frivolous arguments.
  6. Social Security Fraud – The IRS has also identified a scheme where taxpayers inflate withholdings on non-taxable Social Security benefits. This way, the taxpayers end up with little to no income to report.
  7. Using Non-Profit Organizations to Avoid Taxes – There have also been a rise in the number of charity organizations that are being used as channels to hide taxes. Some of these charities are controlled by the donors. Others receive non-cash assets that are highly inflated for tax purposes. Others receive non-cash items from donors with a promise to resell the items back to the donor at a favorable price.
  8. Misuse of IRAs – There have been an increase in fraud through IRAs. Some taxpayers shift gained assets to IRAs at a lower than market value rate, thus paying a low IRS tax on the asset so that they can receive them back at retirement with no tax so as to avoid capital gain taxes.
  9. Disguised Corporations – There are taxpayers who are using corporations to claim fictitious deductions or to hide incomes for tax purposes.
  10. Filing Replacement Wage Returns – The IRS has also noted a scheme in the 2010 tax season where some taxpayers file a Form 4852 (Substitute Form W-2) to introduce fictitious changes to the correct income report filed to reduce the amount of income to be taxed.
  11. Hiding Assets in Trusts – Though Trusts can be correctly used for tax planning, there have been cases where foreign trusts have been set up to fraudulently reduce gift taxes or estate taxes. Others use such trusts to shift incomes or to have personal expenses deducted under the trust.
  12. Exaggerated Fuel and Mileage Claims – The IRS has also noted a high rate of exaggerations in the fuel and mileage tax deduction in the year 2010. Some taxpayers have claimed the deduction for mileage used for personal use of their cars rather than for strictly business use.

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TIGTA IRS Problems Report – The IRS Paid Out $513 Million Erroneously

July 27, 2011 By


A report released by the Treasury Inspector General for Tax Administration (TIGTA) has revealed that over $513 million was erroneously appropriated to taxpayers under the home-buyer tax credit. According to the report, the IRS gave refunds and allowed the credits for the erroneous claims without noticing the errors. This Home Buyer report is among a series of reports being released by the TIGTA following an audit on the IRS carried out for the 2010 tax year. Other reports already released include the Earned Income Tax Credit report and the Additional Child Tax Credit report. The TIGTA is yet to release the American Opportunity Credit report.

About the Home Buyer’s Credit

First time homebuyers who purchased their principal residence in 2008, 2009, and 2010 were entitled to a tax credit of up to $8,000.00. The 2008 First Time Homebuyer Credit was $7,500.00 and the credit was fashioned differently from the other years. For the 2008 credit, it was more of an interest-free loan from the IRS, as the taxpayers who claimed the credit were required to repay it beginning in 2010 in installments of $500.00 for 15 years. However, for 2009 and 2010, the credit was not refundable and the amount was increased to $8,000.00. The credit was even claimable by taxpayers who did not have a tax liability and therefore, they would receive a refund check for the amount. However, after the 2010 tax year, the First Time Homebuyer credit is no longer available for claim except for a few qualifying taxpayers, including military personnel and Federal workers working overseas who purchased their house before June 30, 2010.

Who Were the Recipients of the Erroneous Refunds?

According to the TIGTA report, various taxpayers were awarded unqualified credits due to errors that the IRS did not catch. The report indicated that 41 of the questionable returns with erroneous First Time Homebuyers Credit belonged to IRS employees. Others in the report included prisoners, taxpayers under the age of 18, taxpayers whose physical addresses remained the same as that of previous tax returns (showing that they had not moved their residence to a new home), taxpayers who indicated having bought houses from close relatives, and taxpayers who indicated a post office box address as opposed to the required physical address.

Some Taxpayers Under-Claimed

On the other hand, the report also indicated that there were 23,437 taxpayers who had claimed the 2008 IRS tax credit amount of $7,500.00 as opposed to the amended credit of $8,000.00. This means that they were possibly owed more by the IRS and could claim a further $500.00. Following the report, the IRS has sent notifications to these taxpayers to alert them of this error. The total amount of erroneous refunds from those who had understated their credit amount was $11.7 million.

IRS Reactions

The IRS has been increasing its guard against erroneous credit claims since the TIGTA Homebuyer Credit reports were released in 2008. Congress has also passed legislation to require homebuyers to provide support documentation with their returns when claiming the credit. Moving forward, the IRS says that it had learned its lessons from the First Time Homebuyer Credit and that they will seriously consider the TIGTA’s recommendations to improve on its controls and audits in future.

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IRS Tax Implications on Dependents

July 26, 2011 By


Children and other dependents can choose to either have their guardians or parents file a return on their behalf or file a tax return for themselves. However, there are various rules that apply to the taxation of dependents. Some of these rules are provided below:

  • Claims on Personal Exemptions – In 2010, the personal exemption for all taxpayers was $3,650.00. However, dependents cannot claim personal exemptions on their tax return. Instead, their parents or guardian claim the exemptions on their tax returns on behalf of their dependents.
  • Age Limit for Dependent – There is no age limit to being a dependent – there is no bottom or top limit. A child can file a return as a dependents as early as possible and people even beyond the age of 18 can continue to be dependents in qualifying circumstances.
  • Earned Income Cap – If a dependent’s income is only comprised of earned income, they are expected to file a return if the amount is more than $5,700.00. However, if they had withheld income and received W2 forms, it may be in their interest to file a return as they may be eligible for various tax breaks. Earned income includes income made from personal labor such as wages, salaries, tips, and fees and commission earned from services provided.
  • Unearned Income Cap – Unearned income on the other hand, are incomes that are made without providing personal labor. This includes incomes such as dividends, capital gains, interest, and distribution from a trust. If a child or dependent received unearned income above $950.00, they are expected to file a tax return.
  • Cap on Income Mix – If a child or dependent has both earned and unearned incomes, they will be expected to file a return if their total income is more than $950.00 or if their earned income is at least $5,400.00 and the unearned income is more than $300.00, whichever is higher.
  • Circumstances that Dependent Must file return – There are circumstances in which a dependent is required to file a return, even if their income is below the aforementioned minimum incomes. These circumstances include when the dependent owes taxes for Social Security and Medicare. If the dependent receives any Earned Income Credit paid in advance, they will also file a return, regardless of one’s incomes. Dependents who earn more than $108.00 from religious organizations that do not withhold Medicare and Social Security and dependents that make more than $400.00 from self employment are also required to file tax returns.
  • Tax Credits for Dependents – A child or dependent can claim various tax credits, including Making Work Pay tax credit available in the 2011 tax year and education related tax credits and deductions.
  • Standard Deductions for Dependents – Dependents who choose to file their own returns can claim standard IRS tax deductions to whichever has the higher value: between $950.00 or earned income plus $300.00, to a cap of $5,700.00.
  • Children’s Tax Returns – Children can file their own tax returns. However, any penalties and audits will be addressed to the child. If the child is very young, the IRS expects that the guardian provides his or her signature next to that of the child and indicate that they are the parent or guardian. This way, in case of any recourse, the parent can take responsibility. When children file their own taxes, they get an early start to knowing about taxation and personal financing.

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Are Same-Sex Married Couples Entitled to Tax Relief?

July 25, 2011 By

In June 2011, New York State joined other states in having marriage equality rights that permit for same-sex marriages. The New York State Senate passed the same-sex marriage bill into state law. The recognition of same-ex marriages comes with quite some advantages for the affected couples. However, one of the advantages that the same sex couples in New York will still not enjoy is the IRS’s tax benefits for married couples. This is because U.S. Federal law does not recognize same-sex marriages. According to the Defense of Marriage Act (DOMA), the Federal law only recognizes a marriage as a union between people of different genders. Therefore, same-sex couples will still have to file tax returns as singles since their marriages are not recognized by the Federal law. This means that these couples will have to forfeit about 1,138 provisions in the tax code available to married couples according to a 2004 Government Accountability Office (GAO) report.

The provisions of the DOMA have been a point of controversy and debate for many years now. There have been various lawsuits that have been filed to challenge the legality of the DOMA; these suits are pending in court in which case, the Department of Justice is expected to defend the DOMA Federal law against the charge that it is unconstitutional. However, the Department of Justice has stated that the DOMA cannot be defended, leaving conservatives in Congress with the task of privately supporting this law in court. Besides these legal pursuits against the DOMA, there are also other same-sex activist groups that are stirring members to declare that they are legitimately married in their tax returns and “refuse to lie.”

However, in spite of the aggressive activism that is pushing towards recognition of same-sex marriages, filing jointly for the couples may not necessarily be advantageous. There are many tax circumstances that filing as singles or as head of households that will place the same-sex couples at an advantage over heterosexual couples. Some of these advantages are:

  • Marriage Penalty – The table for the tax rates of those that file jointly is less than doubled that of those that file as singles. Therefore, if two singles earn incomes at the same tax bracket, chances are that their tax bracket will shift upwards if they file jointly. This is especially significant for spouses that both earn high incomes.
  • The Unrelated Individual Advantage – Since the same-sex married couples remain as strangers in the eyes of the Federal government, they can take advantage of this and process various transactions for IRS tax purposes that would otherwise be unacceptable for married heterosexual couples. These transactions include selling a house from one spouse to another and claiming the first-time homebuyer credit, and the sale of a depreciated car at a loss to avoid paying back depreciation deductions, among other transactions. You can also pay one of the spouses a wage for child care and claim it in your tax return due to the “unrelated” factor.
  • Joint Responsibility – When a married couple files jointly, they are both held responsible for any tax liabilities that may arise from the return. This means that if one party has tax liabilities, both spouses are held responsible for these taxes. This can be really disadvantageous for the spouse not responsible for the liability. However, when a same-sex couples file as singles, they avoid such implications.
  • Tax Saving Situation – The tax code is very punitive to married couples who choose to file separately. However, singles do have relatively good tax opportunities. In some cases, the “single” filing can lead to some tax savings. If one spouse has huge capital gains and the other, huge capital losses, as opposed to canceling off these capital gains, one spouse will use the loss against tax liabilities while the other will get taxed at the lower capital taxation rate. The net effect will be a tax savings if filed as singles as opposed to jointly as a married couple.
  • Head of Household Advantage – If you are a married couple, you only have the options of filing as married jointly or married separately. However, couples of same-sex marriages can file as head of household and this comes with various tax perks as well.

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Extended Deadline for Truck Drivers Postpones IRS Payments

July 22, 2011 By

The IRS filed a Temporary and Proposed Regulations notice in the Federal Register on July 15th 2011 to officially postpone the deadline for the payment and filing of the Highway Use Tax. The Highway Use Tax was due on August 30th, 2011 but the deadline has now been pushed to November 30th, 2011. According to a press release on the IRS website, the reason for this postponement was because this Highway Use Tax is set to lapse on September 30th, 2011. Since Congress may enact new changes and modifications to this tax after its expiration, the IRS has chosen to extend the deadline so that truck owners will not need to file tax returns twice to accommodate any such changes, postponing their IRS payments due. Following this extension of the tax deadline, the IRS will not receive any payments for the Highway Use tax or accept any related tax returns prior to November 1st, 2011. The truck owners affected by this extension are those for trucks that were in used in July and trucks that were first used in August and September.

About the Highway Use Tax

The Highway Use Tax is a tax paid by owners of heavy commercial vehicles including trucks, buses, and truck tractors that have a gross taxable weight of 55,000 pounds and over. These truck owners are required to annually pay a Highway Use Tax customarily on or before August 30th of every tax year. The tax is a levy for the use of interstate highways that are under the Federal government. According to the current tax code, qualifying vehicles pay a maximum of $550.00 annually. The tax payable increases with the weight of the vehicle. There are also lower rates applicable to various categories of vehicles, including those that use the highways in a minimal way, vehicles used for agricultural purposes, vehicles used for logging, vehicles transferred within a year, and those that are purchased after June 30th of a given year. The owners of these qualifying vehicles are required to file a Form 2290, “Heavy Highway Vehicle Use Form” and pay the required taxes on or before the August deadline. In 2010, the IRS collected a total of $886 million from about 650,000 truck and bus owners who filed a Highway Use Tax return.

State Regulations to Enforce the Tax

To ensure that the qualifying truck and bus owners pay the required Highway Use Tax, the Federal law requires the state authorities to confirm proof of payment of this tax before registering the vehicles. The IRS stamps the Schedule 1 on receipt of the Highway Use Tax and this stamped Schedule 1 is what is used as proof of payment when seeking state registration.

Adjustments to these State Regulations

Given that the tax deadline has been extended, the IRS has adjusted the state rules for the registration of qualifying trucks. Trucks requiring registration before the extended deadline of November 2011 can now use the prior year’s stamped Schedule 1 as proof of payment. For the qualifying vehicles purchased after June 30th 2011 – and therefore do not have the prior year stamped Schedule 1, the IRS has allowed states to register such vehicles without any payment proof for the Highway Use Tax. These truck owners are however, required to provide proof that the owner purchased the truck within a period of 150 days.

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Lower your Tax Debt by Deducting Qualifying Medical Expenses

July 21, 2011 By

Medical expenses, including mileage for medical travel, are an allowable IRS tax deduction. There are however, various rules that apply to this qualification. Firstly, the IRS provides a list of the medical expenses that qualify for the deduction. You can get this list from the IRS website. However, because the list keeps changing every now and then with new inclusions and exclusions, it is wise to check the website every so often to keep updated on these changes. Secondly, the medical expense deduction is an itemized tax deduction and can therefore, be claimed by a taxpayer who chooses to itemize their deductions. The amount of medical expense that is deductible is the excess of 7.5% of one’s Adjusted Gross Income (AGI).

History of Deductible Medical Expense

Tax deduction for medical expense was introduced into the tax code in 1942 under the United States Revenue Act, which began in President Franklin Delano Roosevelt’s regime. The initial deductible medical expenses were expenses that were termed as “extraordinary.” The law was passed during World War II and was more of a relief for those (namely the veterans of the war) who had gotten into medical complications and incurred medical expenses in relation to the battles. In fact, the law was ideally passed as a temporary law to cater for the war period. However, the deduction outlasted the war and was adjusted in both 1944 and 1954 to make it more of a general medical deduction claim as opposed to a war-related claim. In 1954, the deduction was also moved to Section 213 of the tax code, thus giving it a permanent status. Over the years, the lower limit of the medical expense that one can deduct has changed between 3% to the current 7.5% of the Adjusted Gross Income (AGI). Other changes that have occurred over the years affecting the medical expense deduction are what kinds of medical expenses “qualify” or are allowable for deductions.

Limitations of Deductible Medical Expenses

Only a small portion of taxpayers claim the medical expense deduction. There are various reasons for this. Firstly, there are few taxpayers who opt to itemize their tax deductions as opposed to having standard deductions; in the 2010 tax season, only 30% of those who filed returns choose to itemize their deductions. For you to itemize deductions on Section A of the tax returns on Form 1040, you will need to claim the amount that exceeds 7.5% of your AGI. This amount is set to be increased to 10% in 2013. Therefore, if your itemized deductions add up to less than the rate of the standard deduction, it is financially better to go for the standard deduction. For the 2010 tax year, the standard deduction was $5,700.00 for individuals, $11,400.00 for married filing jointly, and $8,400.00 for head of household. Many taxpayers’ itemized deductible expenses are less than that of the standard deduction thus, explains the reason for less people opting for itemizing.

Another reason why the medical expenses deduction is not common is that most of the higher-income earners with deductible expenses high enough for itemization will usually have their medical insurance provided by their employer and therefore, they cannot claim against the insurance premiums. However, for the individuals who pay for their own medical insurance, then the premiums can easily qualify as an itemized deduction under the medical expense deduction. The average health insurance premiums for 2009 for example, were at $13,375.00, which is much higher than the standard deduction rate.


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Ways of Avoiding an IRS Audit

July 20, 2011 By


The IRS has a legal right to audit any of your tax returns for up to three years after you have filed them. The time frame is also extendable for up to 6 years if the IRS determines that you understated your income by over 25%. The IRS can also audit any tax year with no time limitations in the case of a fraudulent tax return or if there was no tax return made. Therefore, if you are a taxpayer and have been filing returns, you are subject to an IRS audit at any point in time. IRS audits need not be gruesome. However, an audit is inconveniencing and can lead to new tax liabilities, including various penalties and interests, if the audit reveals that you made an error on your returns. Unfortunately, this applies even for errors that were not intentional. Therefore, it is best to do all you can to avoid an IRS audit.

The IRS conducts various different types of audits. Some audits are done to verify information that is not clear while other audits are conducted if the IRS suspects irregularities with your tax returns. The IRS also conducts random spot-check audits to various taxpayers every tax year. For the latter, there is very little you can do to avoid an audit since it is a random pick and you can always fall in the sample group. All you can do is ensure that your support documentation is always ready in case you are earmarked for such an audit. However, these random audits are much rarer, especially for individual tax returns and returns for lower income earners. However, for the other types of IRS audits, there are various steps that you can take to avoid them. Some of these steps are:

  • Carefully Include All Your Incomes – The IRS has a system that checks all the entries made by various tax returns. If you received a gambling winning or made some money from a sideline activity, the person or entity that paid for the income will report it as an expense on their end. Therefore, if you do not report such an income, you can be sure of an IRS audit or a letter requesting for explanation. If the IRS finds mismatching information in later years, you may need to pay for any interests and penalties that may have accrued from neglecting to include the income in your returns. Therefore, always keep a record of all your income and be sure to include them in your taxes.
  • Provide Full and Clear Information – The IRS will always seek further clarification, especially for incomes and deductions made on tax returns that are not clearly delineated. Therefore, ensure you provide proper information and put entries in the right places.
  • Avoid Red Flag Deductions – The IRS warns against claiming various red flag deductions but does not explain which deductions are considered “red flags.” Therefore, it is up to the taxpayer to deduce what a “red flag” deduction is. In other words, do not claim deductions that are obviously going to raise eyebrows, such as claiming a business expense that is noticeably a personal expense or deductions for rental income for property that is only partially used by the owner.
  • Crosscheck Your Returns – Errors of overstating or understating can cost you a lot in terms of penalties and interests. Therefore, ensure that you crosscheck the math, entries made, and the amounts indicated on your returns.
  • Scrutinize Your Preparer – If your tax preparer is found having filed returns for another client that were erroneous, and especially so if they claimed fictitious deductions, then you are most likely going to be audited. Therefore, verify the dependability and integrity of your tax preparer before taking up his or her services.
  • Consider Form Inclusions – Various forms, such as Form 5213 (filled when converting a hobby into a business to keep the IRS from conducting an audit in the first 5 years of business), may get you audited immediately after the 5 year audit break. Therefore, you should ensure that your tax claims are reasonable and provable. The IRS has a way of identifying returns that deviate from normally-expected numbers. If you earn a low income for example, making a large donation that does not correspond to your income will get you easily audited. Therefore, carefully examine the entries you make and forms you attach to your taxes.
  • Change Your Business Model – Operating as an S-type corporation highly reduces your chances of being audited as compared to filing returns for your business under individual returns under Section C. Therefore, consider changing your business to an S-Corporation to lower your chances of being audited.

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Tax Relief for Summer Camps and Childcare

July 19, 2011 By

For most parents, summertime is an opportunity to allow their children to enjoy their favorite summer camps and childcare services. This can, however, be a hefty cost for the parents and guardians. However, there can be some tax relief. Thanks to the childcare tax deduction benefits, parents can deduct the cost of childcare for summer camp from their Adjusted Gross Incomes and therefore, not pay taxes for their childcare expenses. For the childcare expense to qualify for a deduction, some requirements must be met. Some of these qualifications are:

  • Payment Has to be Made – For the childcare cost to qualify for a deduction, actual payment has to be made to a summer camp or childcare organization. You cannot make your own camp for your children and deduct the expenses as childcare. The childcare must also not be run by your spouse or by your children, unless your child is over 19 years old and not your dependent.
  • Payment Has to be for Qualifying Dependents – To qualify for the deduction, the children of the taxpayer claiming it need to be dependents of the taxpayer. Therefore, you cannot claim deductions for your neighbor’s or friend’s children.
  • Overnight Camps Do Not Qualify – Overnight camps do not qualify for the deduction under childcare tax deductions.
  • Claim Costs of Childcare Only – You can only claim the costs of the actual childcare and not other expenses. Expenses such as food, clothing expenses, and self-incurred transport expenses to the camp cannot be claimed. However, if the childcare organizers transport the children from an agreed destination, they may include this in their bill to you, which would be deductible. Similarly, if the camp organizers do not separate the costs of food and other expenses with those of childcare and only provide a lump sum bill, then one may deduct the whole amount.
  • Include the Social Security Number of Your Children – To qualify for the deduction, you must include the Social Security numbers of the children or dependents that you are claiming for. Failing to include a Social Security number may lead to having the deduction being denied.
  • Must File IRS Form 2441 – To qualify for the childcare deduction, the taxpayer must file IRS Form 2441 and attach it to the Form 1040, 1040A, or 1040NR. You cannot claim the deduction if you have filed form 1040EZ or 1040NR-EZ.
  • Deduction Allowed After Actual Childcare – You can only claim the deduction if your child or dependents actually get to go to camp. If the camp is canceled for whatsoever reason and you have incurred fees such as booking deposits, you cannot deduct such costs, even if you did not get a refund. Furthermore, if you prepay for the summer camp, you cannot claim the deduction until your children have actually attended the camp.

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IRS Payment Options for Those Who Cannot Meet the Deadline

July 18, 2011 By

Taxes due in a given tax year are to be paid on or before April 15th of the following year. However, if you ever find that you cannot pay your due taxes before this deadline, you can still apply for other options of tax payments. You should also ensure that you file your tax returns by the due date. There are 4 options that the IRS provides to individuals who are unable to pay their due taxes by the 15th of April:

1. Extension of the Payment Period

Depending on your financial circumstances, the IRS can extend the tax payment period by 60 to 120 days. To get such an extension, you can apply online via the Online Payment Agreement application section of the IRS website. You can also call the IRS telephone number and request for such an extension. Interests are charged on the tax liability for the period of the extension. However, such interests are very low, especially when compared to other options for extended payments.

2. Installment Payment for Taxes below $25,000.00

The IRS also provides another option for payment specifically for those whose tax debt is significantly large and cannot manage to pay off the tax liability in a lump-sum payment. If the taxes owed are less than $25,000.00, including penalties and interest, then one can apply for an Online Payment Agreement to have the tax liability paid over a period of 5 years. For this type of installment agreement, the approval is almost immediate and one can designate the amount of installments to pay as long as the installments will allow the debt to be paid off within 5 years. The agreement does not require any paperwork, such as remittance of financial information, to the IRS. Apart from applying online, you can also apply for this type of installment agreement by calling the IRS telephone number, by making a written request to the IRS, or by filing Form 9465, “Installment Agreement Request Form”.

3. Installment Payment for Taxes above $25,000.00

If you owe more than $25,000.00 in taxes, you will need to contact the IRS and provide all your financial details in a financial statement. These details include your paystubs, bank statements, list of assets and debts, and other financial documentation. The IRS then reviews your financial portfolio and determines the amount of tax payments that you will pay per installment.

4. Credit Card and Debit Card Payments

The IRS has also provides a platform where any taxpayer can now pay their taxes by either debit card or credit card. Therefore, if you still owe taxes by the tax deadline, you can use your credit card to make the payments. The IRS has outsourced the facilitation of the credit and debit card payment to three private companies. These companies are Link2Gov Corporation, Official Payments Corporation, and RBS WorldPay, Inc. You can make your tax payments through the websites of these companies. The IRS does not charge any fee for credit card and debit card payments. However, each of these private companies charges a convenience or flat rate fee.

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