In 2009, the IRS processed close to 95.5 million individual tax returns electronically, which is about two-thirds of all individual tax returns filed that year. According to a Government Accountability Office (GAO) study of March 2011, the IRS estimated that each e-filed return saved about $3.10. This results from the price comparison of $3.29 to process a paper return and only 19 cents to process an e-file Form 1040.

If all tax returns of 2009 had been electronic, the IRS could have saved about $148 million in processing costs for that year only. As IRS has expanded and improved its electronic operations, its savings have increased steadily year by year. Some time back, the Treasury Inspector General for Tax Administration (TIGTA) examined IRS efforts to modernize paper tax return processing.  The report in September 2009 showed that it cost IRS 35cents to process an e-filed tax return when compared to $2.87 to deal with paper and paper-filed tax return, a $2.52 difference. This shows that the IRS savings increased by 58 cents per return in one year.

IRS Commissioner, Doug Shulman, declared last summer that an e-file return cost 20 times less to process than a paper return. This is probably why the IRS is urging and encouraging all to file their taxes electronically.

When the e-filing of tax returns commenced, it was simply a test project to gauge the public’s reaction and evaluate its costs. The entire e-filing system went live in 1990. By going electronic, the IRS has been able to process the returns faster, and achieve a significant level of revenue increase. The IRS spends almost 20 times less when processing an e-file return, as compared to paper filing. Ultimately, this leads to efficiency in its operations, and taxpayers having to cough less as far as maintaining the IRS operations are concerned.

During the 2012 tax filing season, taxpayers with 11 or more returns will be required to file their returns electronically. With this mandate in place, the IRS is set to achieve its 80 % e-file rate for personal tax returns.

With the e-file returns having clocked 1 billion, the IRS has indeed achieved notable achievements in the e-filing process. The system commenced 25 years ago, with only 5 taxpayers participating. At that time, the IRS could only process due refunds using the e-filing system. The IRS employees were engaged in a lot of manual processes, despite there being an electronic system in place. During that start-off season, about 25,000 e-file returns were processed. However, with the rapid developments of the IT world, tremendous improvements have been made to the system, and there is now very little human intervention in the e-filing process.

IRS has opened up multiple avenues for you to access tax information using the newest technology. There are applications for Smartphones and dozens of YouTube videos to watch from your phone or computer. Here are some of the ways IRS delivers the latest information, initiatives, products, and services through social media.

1. YouTube – There are many short and very informative videos on tax related topics on the IRS YouTube Video Channel. The videos are in English, sigh language and several foreign languages
2. Audio files for podcasts – These are short audio recordings that offer important information on tax-related topics. They are available on iTunes, or via the Multimedia Center on IRS.gov.
3. IRS2Go – This application for Smartphones lets you interact with the IRS using your mobile device. It helps you claim your refunds and get tax updates and is available for iPhone,  iTouch, and for Android phones.
4. Twitter – Using twitter handle @IRSnews, you can follow us and get IRS tweets including announcements, news form tax experts, and updates for job seekers.
5. RSS – Really Simple Syndication is a simple way to collect a variety of content in one place on your computer. IRS offers tax RSS feeds and news whenever they are updated, even not on the IRS website.
6. Widgets – These tools placed on weblogs, websites, and social media networks direct you to the IRS website for information. The widgets provide the newest tax programs and initiatives and are available on Marketing Express. This is the marketing site that lets IRS partners and tax preparers to customize their IRS communications products

It is important to note that the IRS uses these tools to share information with you so do not post confidential information like Social Security Number. IRS does not answer personal tax or account questions through the social network platforms.

The various online platforms have significantly helped the IRS in disseminating information to taxpayers in a fast and convenient way. At the click of a button, a taxpayer is not only able to view the processing status of his/her filed returns, but is able to raise any questions and concerns as well.

To be informed is to be empowered, and this is what taxpayers have become. Having the necessary information at the required time has led to many taxpayers cutting back on fines, penalties, and other surcharges. Join the IRS social roll today and become an e-formed taxpayer!

If you have filed for an extension, you have more time to learn about the tax updates for the 2011 year. Here is a list of what is new for the 2011 tax regulations:

1. Schedule M and Making Work Pay Credit are no longer there – These were available in 2009 and 2010 but are not available in 2011 since there is no Schedule M to file and no additional credit for the year.
2. Payroll tax cut for employees – employees who receive form W-2 enjoyed a tax break of 2% on FICA contributions during the year. Contributions from Social Security taxes were 4.2% instead of 6.2%. Medicare contributions did not change. Presently, there is no need to fill forms, or schedules, since the break is automatic and will not affect your 2011 federal income tax return since it is tied to Social Security payroll taxes. Taxpayers who did not pay Social Security system during the year will not receive any benefit.
3. Payroll tax cut equivalent for self-employed taxpayers – for the self-employed, you will receive the benefit of the payroll tax cut when you file your federal income tax return in the form of an adjustment to your self-employment (SE) tax due. The SE tax rate reduces from 12.4% to 10.4%.
4. Federal 1099-K – this is the new form called Merchant Card and Third Party Network Payments making a debut in 2011. This is for taxpayers who have a credit card merchant account, PayPal account or similar account and otherwise meet the criteria.
5. Visible Health Care benefits on form W-2 – Companies with more than 20 employees must indicate the value of health care benefits they pay on the behalf of employees on the form W-2 in 2012. Do not panic if this amount shows on Box 12, using code DD. It has no effect on your taxable income.
6. Unchanged deductions – The Standard Deduction rates for 2012 have not changed from 2011. The rates are $5,800 for single taxpayers or those married but filing separately, $11,600 for married taxpayers, and $8,500 for taxpayers filing as head of a household. The additional standard rates allowed for senior citizens and taxpayers who are blind are $1,150 for married taxpayers filing jointly and $1,450 for single taxpayers.
7. Small change in Personal exemptions – This has increased from $3,650 to $3,700 in 2011.
8. Brokers report cost basis for certain stocks on 1099-B – The form 1099-B has new boxes indicating when you bought a stock, cost or basis, long-term or short-term gain or loss, or if the sale was a wash sale.
9. Alternative Minimum Tax – There is no reform for AMT. It is unadjusted for inflation
10. Report of Foreign Bank and Financial Accounts (FBAR) – IRS has made FBAR reporting a compliance issue. You need to check the applicable box on Schedule B when you send in your return.

This is a brief summary of the changes worth noting in the 2011 tax year. For more information, it would be advisable to approach a tax professional.

Your kids may not sort your tax receipts or refill your coffee as you try to sort your tax issues, but they could be very beneficial; your children could help you qualify for some valuable tax benefits. The IRS has provided a list of 10 things every parent should consider when filing taxes this year:

1. Dependents – a child can be claimed as a dependent from the year they are born. This information is available on IRS publication 501, Exemptions, Standard Deduction, and Filing Information.
2. Child Tax Credit- You can take this credit for your children who are under the age of 17. If you are unqualified for the full amount of Child Tax Credit, you may be eligible for the Additional Child Tax Credit. More IRS information is available on IRS publication 972, Child Tax Credit.
3. Child and Dependent Care Credit – This is applicable if you pay other people to take care of your child or children under the age of 13 so that you can work or look for work. The details on this are in the IRS publication 503, Child and Dependent Care Expenses.
4. Earned Income Tax Credit (EITC) – This is a tax benefit for certain people who work and have earned income from wages, self-employment, or farming. EITC reduces the amount of tax you owe and may give you a refund. More details are available in the IRS Publication 596, Earned Income Credit.
5. Adoption Credit – A tax credit is available if you qualify for certain expenses paid to adopt an eligible child. If you claim the adoption credit, you must file a paper tax return with the required adoption-related documents. The instructions and more information are on the IRS Form 8839, Qualified Adoption Expenses.
6. Children with earned income – If you have a child who is working for a an income, you are required to file a tax return as IRS Publication 929,Tax Rules for Children and Dependents details out.
7. Children with investment income – some circumstances dictate that a child’s investment income be taxed at their parent’s tax rate. This is available in the IRS Publication 929, Tax Rules for Children and Dependents.
8. Higher education credits – Education tax credits may aid you in offsetting the costs of higher education. The Lifetime Learning Credits and the American Opportunity are education credits that can reduce your federal income tax dollar-for-dollar. IRS Publication 970, Tax Benefits for Education gives better details on this.
9. Student loan interest – You do not have to itemize your deductions to be able to deduct interest paid on a qualified student loan. More information is available on IRS Publication 970.
10. Self-employed health insurance deduction – for the self-employed, if you paid for health insurance, you can deduct any premiums you paid for coverage for any of your children who was under 27 at the end of the year, even if the child as not your dependent at that time. More information is on IRS website.

The above forms and publications are accessible via www.irs.gov, or calling 800-TAX-FORM (800-829-3676).

The self-employed have countless advantages that come with being their own bosses. Working for yourself, as an independent contractor, or as a sole proprietor, earns you the title “self-employed.” The IRS offers some key tips for the self-employed about self-employment taxes:

1. Self-employment includes work you do in addition to your fulltime business, or income generating activities; it includes part-time work you do at home or as a bonus to the regular employed job.
2. The self-employed have to pay self-employment tax in addition to the regular income tax. The self-employment tax is a form of Social Security and Medicare tax fundamentally for persons who work for themselves. In many ways, it is like the Social Security and Medicare taxes in remission from the pay of most income earners. Form 1040 Schedule SE if used to compute self-employment tax. You can deduct an employer’s equivalent portion of your self-employment tax in figuring your adjusted gross income. In previous years, the deduction was equal to a half of self-employment tax.
3. Form 1040 is used to file an IRS Schedule C, details of profit or loss from your business, C-EZ, and net profit from business.
4. When self-employed, one sometimes has to make estimated tax payments. This is applicable even if when on a full-time or part-time job, and the employer withholds taxes from the regular income. This estimated tax method is used to pay tax on income that is not subject to withholding. Failure to make quarterly payments can lead to underpayment penalties at the end of the tax year.
5. Self-employed people incur costs when running their businesses. These are known as business expenses and are subject to deductions. These costs must be recurrent in nature.
6. For a business expense to qualify to be deductible, it must be both ordinary and necessary. An ordinary expense is one that is universal and accepted in your domain of business. A necessary expense is one that is supportive and fitting for your business. An expense does not have to be indispensible to be considered necessary.

The IRS has more on these details from the Self-employmentTaxCenterin IRS Publication 334, Tax Guide for Small Business, IRS Publication 535, Business Expenses, and Publication 505, Tax Withholding and Estimated Tax. One can visit their website www.irs.gov, or call 800-TAX-FORM (80-829-3676).

Without even the IRS knocking at your door, or sending a stern letter saying you cannot “pull a fast one this time,” tax time is already irritating enough. Nevertheless, IRS audits are to make sure everyone pays their fair share. The IRS has several measures that automatically trigger an audit and process millions of tax returns in a short time. It may not necessarily mean that you have done anything unlawful; maybe the return you filed failed to show convincingly that you are not out to defraud the IRS. If you file your return correctly, you should be able to prove that you are paying all your taxes. The IRS will have to agree with you and leave your return as such, leaving your audit without any fine, or worse, jail time.

An audit is conducted either by mail or in person with three possible outcomes:

1. The IRS finds out the return is correct and hence it stays unchanged.
2. The IRS finds irregularities and you agree to the changes hence pay more taxes, interest, or a penalty (maybe forfeiture of property and jail time in rare extreme cases)
3. The IRS makes changes to the return and though you understand it, you do not agree to it. You can then appeal or enter into mediation with the IRS.

The following are some top reasons for the IRS to audit your return, how to identify if you are wrong, and what proof you will require to deter a total audit, fines, and often, humiliation:

1. Reporting Incorrect Taxable Income

Your W-2 and 1099 forms are available to both you and the IRS for both full-time and freelancer employees, so you cannot cheat about your taxable income. It is perfectly okay to cite a small math error since the IRS will correct it. It is however not okay to estimate how much you make even if you are a freelancer. To avoid this compare the 1099 you receive with your records. If it is wrong, inform your company and ask they file the correct 1099 with the IRS.

2. The Home Buyer Credit

The first-time homebuyer credit was made available to those who bought a home for the first time after April 8 2008 and before January 1 2010. This is like an interest-free loan of up to $8,000 from the government. If you claimed the credit in 2008, you pay back the loan over a period of 15years by paying an additional tax. If you took the credit in 2009 and 2010 (and 2011 for service members), you do not have to pay it back.

Some people trying to defraud the IRS have misused this credit. So the IRS will scrutinize anyone claiming this credit to exclude people who are flipping homes or speculating in real estate. They check to see if you have lived in the home for more than 36 months as per the requirements. It is okay if you bought your first home and will be living in it for a while. It is not ok if you bought your first home and sold it within three years for a profit, or made another home your primary residence. You need to pay back the credit in full when you pay your taxes that year. Always keep all records about the purchase of your home as proof of legitimacy.

3. Huge Donation on a Small Budget

The IRS will be suspicious if you make large charitable donations when you do not have much income. It is ok if you gave a generous donation to your alma mater but lost your job suddenly, thus making your income lower. It is not ok if you trying to give made up charitable deductions. Make sure you keep all charity receipts and follow IRS’s tips for charitable donations. Appraise your donations.

4. A Steak Dinner with the Clients

It is ok to deduct 50% of the cost of a reasonably priced meal where you entertained potential clients for your business. It is not ok to deduct that cost by citing travel expense. Keep all receipts and record the dates and times, descriptions of the expense, the business purpose, and business relationship.

5. Using Your Car for Business

It is ok to use the car to make minor deliveries to clients using your car, but it is not ok to drop off deposits at the bank on your way to personal errands. Keep a record of mileage and calendar entries for every time you use the car for business.

6. Your Home office

It is ok to have a study where you keep your work accessories and do majority of your work, but it is not ok to have a desk at one corner of a room where you work a few hours a week.

7. Errors

This is one of the top reasons for audits. The IRS fixes small math errors. However, claiming wrong deductions and credits, stating the wrong income and filing wrong statuses are not ok. You need to double and triple check all your returns before filing them Keep copies of your returns and records.

8. Round Numbers

Avoid having little tidy numbers since the IRS may assume you are making things up. Round of to the nearest dollar. Do not do things from memory and rounding off to the nearest $25. Have documentations for your deductions and credits, and use actual numbers on your forms.

9. A Business That Loses Money

If someone with a business reports losses for two consecutive years, the IRS have reason to look closer. It will be ok if the business did not do well for some time but you have something else generating income for you. It is not ok to show losses in a business yet you have no other source of income. You should have proper documentation for the business to prove it made a profit or loss at least three of five years.

Understanding tax information in any language is a difficult task, but it could not get any tougher if it is not in your first language. There are a variety of free simple products and services the IRS offers, which make it easy to understand tax terms for in Spanish-speaking taxpayers. These include the following list of ways from the IRS that offer assistance in Spanish for federal taxes needs.

1. Tax Forms and Publications – There are several tax forms and publications available from www.irs.gov/espanol , which you can either view or download directly at any convenient time
2. Free File – This is available at the IRS official website, www.irs.gov with which you can let the brand-name software or online fill-able forms do the extra work for you. There are options to prepare tax return and e-file for everyone and all is free. For those who make $57,000 or less per year, you automatically qualify to use the free tax software on offer via private-public partnership with manufacturers. There is an En Espanol option from www.irs.gov/freefile to review your options
3. TeleTax – This is a toll-free automated telephone service that provides resourceful pre-recorded tax topic messages and refund information. There is a list of more than 125 TeleTax topics available in both English and Spanish, in the instructions for Form 1040, 1040A, or 1040EZ. If at least four weeks have passed since you last filed your return and you perhaps want to check on the status of your federal refund, all you need is a copy of your return. Call 800-829-4477 and respond to the TeleTax automated system prompts available all day and everyday of the week.
4. Everyday resource page – The specially made webpage, www.irs.gov/espanol is accessible all day and everyday to everyone who needs all tax information in Spanish. On this webpage, you will find includes tax-related information, identity theft, disaster relief, and warnings about common tax scams that victimize taxpayers. “Donde esta mi reembolso” is an online tool that enables one to check the status of your tax refund and find out if you qualify for the Earned Income Tax Credit. This is a refundable tax credit for many people who earned less than $49,078, using the Asistente EITC on the IRS secure website.
5. Toll-Free Telephone Assistance – The IRS customer service number is 800-829-1040, and through it, you can speak to Spanish-speaking IRS representatives by dialing the number 8 after reaching the customer service line number.
6. IRS Spanish Newsroom – You can keep yourself up-to-date by pressing “Noticias en Espanol” into the search box of the IRS website, www.irs.gov. This provides you with the most recent announcements, tips, and information on recently implemented tax laws that could affect you.
7. Multilingual Assistance at IRS Taxpayer Assistance Centers – Taxpayers have the choice of over 150 languages, including Spanish that offer multilingual services through bilingual employees or an Over-the-Phone Interpreter. For more information on TAC locations, hours, and services, go to www.irs.gov.individuals then click the link for Contact My Local Office in the left tool bar section.
8. Twitter – Follow IRS on twitter handle @IRSenEspanol for the latest information and tax tips in Spanish
9. IRS e-file – With more than 78% – 112million people – of taxpayers using IRS e-file last year, it still proves to be secure, easy, and time-bound. This year, many taxpayers filing out options using e-file will be a prerequisite. Visit www.irs.gov/espanol and select Opciones Electronicas to review your options in Spanish.
10. Multimedia Center – There are a variety of video tax tips and podcasts on available in English and Spanish on several IRS topics. Enter the keywords “Centro Multimediatico” into the search box of the IRS website.

Starting 2011, the IRS requires tax preparers to undergo testing, annual training and meet other requirements to keep their practicing license. However, for CPAs, attorneys, and Enrolled Agents, the IRS does not have such strict requirements, as it believes that these professionals are well trained to handle any tax issues. Most taxpayers know and understand the CPA (accountant) profession and attorneys. However, there are few taxpayers who understand the profession of Enrolled Agent. This article seeks to shed more light on these professionals.

According to the IRS, an Enrolled Agent is a professional who is “recognized to practice before the IRS.” What this means is that an Enrolled Agent is a professional of whom the IRS is satisfied that he or she is trained to handle all tax related issues on behalf of taxpayers. An Enrolled Agent undergoes comprehensive training and testing in U.S. taxes.

Qualifications of an Enrolled Agent

To qualify as an Enrolled Agent, one first needs to pass a professional exam on taxes. The Enrolled Agent test is in three parts. The test examines the candidates’ knowledge of various IRS procedures and rules, tax return forms, and the various deductions, credits, and entries. Former IRS agents and workers are provided various exemptions from this test. Upon passing the test, a candidate applies to the IRS to get an Enrolled Agent’s license. Before approving the application, the IRS performs a background check to confirm that the applicant does not have a felony charge and does not have issues of professional misconduct. The applicant also needs to be updated with their personal taxes.

Once the IRS approves an applicant, the applicant is licensed to operate as an Enrolled Agents for 3 years. Within this time, the agent is also required to undertake a 72 hours continuous training to keep them up to date with all tax issues. Failure to meet these training requirements will have the agent lose his or her license after the 3 year term. The training and examination of Enrolled Tax Agents is much more comprehensive than that of “non professional” tax preparers. Tax preparers who are not attorneys, CPAs, or Enrolled Agents only undertake one exam on 1040 tax returns and are only required to have an annual continuous training of 15 hours to keep their licenses.

What Can an Enrolled Agent Handle?

The training of Enrolled Agents enables them to provide various services including but not limited to the following:

• Representation – An Enrolled Agent can represent a tax preparer before the IRS on any tax issue. Since the agents are nationally registered, they can represent a taxpayer in any of the IRS offices throughout the country.
• Preparation and Filing – Like any other tax preparer, the Enrolled Agents also provide tax preparation and tax filing services.
• Advisory – Since these agents are well vast with knowledge regarding taxes, they are able to provide sound advice as far as taxes are concerned. However, depending of the advice being dealt, attorneys or accountants may be better positioned to provide such required advice.

Tax time is never the happiest time in any taxpayer’s life, when the taxman comes knocking on your door or the IRS sends you a stern warning. But these audits are done for a reason, which is to ensure everyone is taxed fairly.

In order to quickly process tax returns for millions of people, the IRS has a number of things that will automatically call for an audit. That does not necessarily qualify you as an offender; it may just be that your filed return has something suggesting that you are trying to defraud the taxman. However, if you did everything correctly, you should have proof that you are honest and diligent in paying all your taxes. Then the IRS will agree with you and not alter your return, and you will be free from fines or even worse, a jail term.

Below is the list of the top audit- trigger factors, how to determine if you could wrong, and the proof you need to steer clear of an audit, frustration, and fines:

1. Reporting Inaccurate Taxable Income

Lying about your taxable income is just impossible because both the IRS and you received your W-2 and 1099 forms. If you make a mall math error, the IRS will understand and correct that, but making an estimate or fudging the amount you have made, regardless of being a freelancer, may land you in deep trouble.

To be on the safe side, compare your records with the 1099 form you receive from the company and ask for corrections where necessary

2. The Home Buyer Credit Issue

If you were a first time home buyer after April 8, 2008, and just before January 1, 2010, you probably got the first-time home buyer credit. This is like an interest-free government loan. Those who claimed the credit in 2008 are expected to pay it back over 15 years with an additional tax whereas the 2009 and 2010 claimers do not need to pay it back.

Unfortunately, tax fraudsters have used and abused this credit, and so the IRS will keenly scrutinize all claimers to see if you satisfy the requirement of having stayed in that home for more than 36 months (3 years).

It is okay if you lived in the first home you bought for a while. However, if you promptly resold it for a profit within three years or found another primary residence, you will repay the credit in full. The proof you need is just the records on the purchase of your home.

Whenever the tax season nears, almost everybody cringes. However, did you know that your kids can be helpful when dealing with your tax headache? Here are the 10 critical tax benefits the IRS is reminding you of:

1. Dependents – The IRS allows parents to claim a child as a dependent mostly in the year they were born. To be certain, get more information- see the IRS Publication 501.
2. Child and Dependent Care Credit – This credit is claimable if you leave your child or children below 13 years under care of someone while working or looking for work. The IRS Publication 503 spells out the conditions.
3. Child Tax Credit – This credit can be claimed for each under 17 year old child but if you do not get its full benefits, try the Additional Child Tax Credit.
4. Earned Income Tax Credit – Abbreviated as EITC, this is a tax benefit for specific people working and earning from wages, farming and self-employment. This credit lowers the tax burden and may grant you a refund. For more details check out IRS Publication 596.
5. Children earning income – If your child is earning from working, they may have to file a tax return. IRS Publication 501 has more information on the same.
6. Adoption Credit – If you have an adopted child, you could get a tax credit for qualifying expenses of adoption of an eligible child. You can claim this credit but be sure to present accurate adoption-related documents when filling the form. Check out Qualified Adoption Expenses and IRS Form 8839 for the instructions pertaining to the filling of the forms.
7. Children having investment income – Sometimes a child’s investment income may undergo taxation at the parent’s rate. For more details see IRS Publication 929.
8. Self-employed health insurance deduction – In case you are self-employed and paying health insurance, you could deduct any premiums initially paid for coverage for any of your child under age 27.
9. Interest on student loan – You could be able to deduct interest on a qualified student loan even without itemizing your tax deductions.
10. Credits on higher education – Tax credits on education expenses can significantly lower the costs for higher education. For instance, the American Opportunity and/or the Lifetime Learning Credits can both lower your income tax bit by bit. The IRS Publication 970 has the relevant details, and so does the Tax Benefits for Education.