“If people get these things and toss them, they won’t be eligible,” says Ron Sturzenegger, the Bank of America executive charged with providing solutions to borrowers in need of mortgage assistance.

But the offer is real, and eligible borrowers could get as much as $150,000 knocked off the balance of their mortgages. It is all part of the $25 billion settlement reached this year between federal and state agencies and the nation’s five largest mortgage servicers over fraudulent foreclosure document processing (so-called “robo-signing”).

Bank of America (BAC), in a deal with state attorneys general and the U.S. Department of Justice, committed $11 billion to mortgage principal reduction, but executives say they will go beyond that if enough borrowers respond to their offer. Five thousand borrowers have already received a collective $700 million in principal reduction through a pilot program for those already in a modification negotiation. The 200,000 borrowers being targeted now may have already exhausted modification options or may have yet to contact the lender.

Executives say borrowers receiving the letters are eligible, but they still have to prove they qualify. In order to be eligible, a borrower must be 60 days late on the mortgage payment as of Jan. 31, 2012. The borrower has to owe more on the mortgage than the home is currently worth, commonly known as being “underwater” on the mortgage, and the borrower’s loan must either be owned by Bank of America or serviced by Bank of America for an investor who is allowing the modifications.

In order to qualify for the modification, the borrower must answer the letter with full documentation of income, showing that under the terms of the modification they can still make the monthly payment. A borrower with no income would therefore not qualify. A borrower’s current monthly payment must be  more than 25 percent of gross income, and the borrower must show they are unable to afford that.

“If you can afford to make your monthly payment and are choosing not to, you will not get this principal modification,” says Sturzenegger.

If the borrower qualifies, Bank of America will bring the monthly mortgage payment down to 25 percent of the borrower’s gross income. That could mean principal forgiveness well over $100,000, as there is no limit to the amount of the mortgage. If enough borrowers respond, it could cost Bank of America far more than it committed to in the settlement.

“Yes, we have the capability to go well beyond the $11 billion,” adds Sturzenegger.

Bank executives say that before choosing which borrowers will get the offer, they performed a net present value test on each loan, making sure that the principal reduction modification would net Bank of America or the investor who owns the loan more than foreclosing on the home. “It has to be fair to the investor as well,” says Sturzenegger.

Not all of the 200,000 borrowers who receive the letters are expected to respond. Executives say there is a level of fatigue among delinquent borrowers who have already received several notices or who may have gone through a failed modification process already. Some borrowers simply don’t want to stay in their homes, while others may think the offer is a scam.

“They have been contacted by a lot of other people, and this offer may appear too good to be true,” says Sturzenegger.

That’s why Bank of America is sending the letters by certified mail and trying to make the language as simple as possible. A sample letter obtained by CNBC shows a bring red box in the top corner labeled, “IMPORTANT” and simple language stating, “Qualifying customers may reduce their monthly payment by an average of 35 percent.”

Some 6,500 letters should be arriving in mailboxes across the country this week, with a wave of new letters going out every week until the end of the summer, when all 200,000 should have been mailed. Bank of America is staggering the mailings in order to handle the expected response. The bank has staffed up to handle the task, with 50,000 employees manning servicing desks, but the process will clearly take a lot of time. That’s why Bank of America has suspended any foreclosure actions against these 200,000 borrowers until the process is complete.

There are currently 5.59 million U.S. loans that are either delinquent or in the foreclosure process, according to Lender Processing Services. Bank of America services one million of those loans, but many of them are owned by Fannie Mae and Freddie Mac. Their regulator, Edward DeMarco of the Federal Housing Finance Agency, has yet to agree to principal reduction in loan modifications, despite harsh criticism from some lawmakers on Capitol Hill and increasing pressure from the White House.

By Diana Olick | CNBC

4. Student-Loan Interest Paid by Mom and Dad
Generally, you can only deduct mortgage or student-loan interest if you are legally required to repay the debt. But if parents pay back a child’s student loan, the IRS treats it as though the money was given to the child, who then paid the debt.
So, a child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student-loan interest paid by Mom and Dad. And he or she doesn’t have to itemize to use this money-saver.
Mom and Dad can’t claim the interest deduction even though they actually foot the bill since they are not liable for the debt.
5. Job-Hunting Costs
If you’re among the millions of unemployed Americans who were looking for a job in 2011, we hope you kept track of your job-search expenses … or can reconstruct them.
If you’re looking for a position in the same line of work, you can deduct job-hunting costs as miscellaneous expenses if you itemize. Such expenses can be written off only to the extent that your total miscellaneous expenses exceed 2% of your adjusted gross income.
Deductible job-search costs include, but aren’t limited to:
• Food, lodging and transportation if your search takes you away from home overnight.
• Cab fares.
• Employment agency fees.
• Costs of printing resumes, business cards, postage, and advertising.
Job-hunting expenses incurred while looking for your first job don’t qualify.

6. Moving Expenses to Take Your First Job

As we just mentioned, job-hunting expenses incurred while looking for your first job are not deductible. But, moving expenses to get to that position are. And you get this write-off even if you don’t itemize.
To qualify for the deduction, your first job must be at least 50 miles away from your old home. If you qualify, you can deduct the cost of getting yourself and your household goods to the new area.
If you drove your own car, your mileage write-off depends on when during 2011 you moved. For moves from January 1 through the end of June, the standard mileage rate is 19 cents a mile; for moves during the second half of the year, a 23.5 cents a mile rate applies. In either case, boost your deduction by any amount you paid for parking and tolls.

7. Military Reservists’ Travel Expenses
Members of the National Guard or military reserve may tap a deduction for travel expenses to drills or meetings. To qualify, you must travel more than 100 miles from home and be away from home overnight.
If you qualify, you can deduct the cost of lodging and half the cost of your meals, plus an allowance for driving your own car to get to and from drills. For qualifying trips during January through June, 2011, the standard mileage rate is 51 cents a mile; for driving during the second half of the year, the rate is 55.5 cents a mile. In any event, add parking fees and tolls. And, you don’t have to itemize to get this deduction.
8. For the Self-Employed: Deduction of Medicare Premiums
Folks who continue to run their own businesses after qualifying for Medicare can deduct the premiums they pay for Medicare Part B and Medicare Part D and the cost of supplemental Medicare (medigap) policies. This deduction is available whether or not you itemize and is not subject the 7.5% of AGI test that applies to itemized medical expenses.
One caveat: You can’t claim this deduction if you are eligible to be covered under an employer-subsidized health plan offered by your employer (if you have a job as well as your business) or your spouse’s employer.
9. Child-Care Credit
A credit is so much better than a deduction; it reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that’s subject to tax.
You can qualify for a tax credit worth between 20% and 35% of what you pay for child care while you work. But if your boss offers a child care reimbursement account – which allows you to pay for the child care with pre-tax dollars – that might be a better deal. If you qualify for a 20% credit but are in the 25% tax bracket, for example, the reimbursement plan is the way to go. (In any case, only expenses for the care of children under age 13 count.)
You can’t double dip. Expenses paid through a plan can’t also be used to generate the tax credit. But get this: Although only $5,000 in expenses can be paid through a tax-favored reimbursement account, up to $6,000 for the care of two or more children can qualify for the credit. So, if you run the maximum through a plan at work but spend even more for work-related child care, you can claim the credit on as much as $1,000 of additional expenses. That would cut your tax bill by at least $200.

10. Estate Tax on Income in Respect of a Decedent
This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax. Basically, you get an income-tax deduction for the amount of estate tax paid on the IRA assets you received. Let’s say you inherited a $100,000 IRA, and the fact that the money was included in your benefactor’s estate added $45,000 to the estate-tax bill.
You get to deduct that $45,000 on your tax returns as you withdraw the money from the IRA. If you withdraw $50,000 in one year, for example, you get to claim a $22,500 itemized deduction on Schedule A. That would save you $6,300 in the 28% bracket.

11. State Tax Paid Last Spring
Did you owe tax when you filed your 2010 state income tax return in the spring of 2011? Then, for goodness’ sake, remember to include that amount in your state-tax deduction on your 2011 federal return, along with state income taxes withheld from your paychecks or paid via quarterly estimated payments.

12. Refinancing Points
When you buy a house, you get to deduct in one fell swoop the points paid to get your mortgage. When you refinance, though, you have to deduct the points on the new loan over the life of that loan. That means you can deduct 1/30th of the points a year if it’s a 30-year mortgage. That’s $33 a year for each $1,000 of points you paid — not much, maybe, but don’t throw it away.
Even more important, in the year you pay off the loan — because you sell the house or refinance again — you get to deduct all as-yet-undeducted points.
There’s one exception to this sweet rule: If you refinance a refinanced loan with the same lender, you add the points paid on the latest deal to the leftovers from the previous refinancing — and deduct that amount gradually over the life of the new loan.
13. Jury Pay Paid to Employer
Many employers continue to pay employees’ full salary while they serve on jury duty, and some impose a quid pro quo: the employees have to turn over their jury pay to the company coffers. The only problem is that the IRS demands that you report those jury fees as taxable income. To even things out, you get to deduct the amount you give to your employer.
But how do you do it? There’s no line on the Form 1040 labeled jury fees. Instead the write-off goes on line 36, which purports to be for simply totaling up deductions that get their own lines. Add your jury fees to the total of your other write-offs and write “jury pay” on the dotted line to the left.
14. American Opportunity Credit
This tax credit is available for up to $2,500 of college tuition and related expenses paid during the year. The full credit is available to individuals whose modified adjusted gross income is $80,000 or less ($160,000 or less for married couples filing a joint return). The credit is phased out for taxpayers with incomes above those levels.
This credit is juicier than the old Hope credit – it has higher income limits and bigger tax breaks, and it covers all four years of college. And if the credit exceeds your tax liability, it can trigger a refund. (Most credits can reduce your tax to $0, but not get you a check from the IRS.)
15. Those Blasted Baggage Fees
In recent years airlines have been driving passengers batty with extra fees for baggage and for making changes in their travel plans. All together, such fees add up to billions of dollars each year. If you get burned, maybe Uncle Sam will help ease the pain. If you’re self-employed and travelling on business, be sure to add those costs to your deductible travel expenses.
16. Credit for Energy-Saving Home Improvements
Although this credit has been scaled back, it still exists and might save you some money if you made energy-saving home improvements during 2011.
The credit is worth 10% of the cost of qualifying energy savers including new windows and insulation.
The maximum credit is $500 and, if you claimed this credit in the past, you’re probably out of luck now. That $500 is the maximum credit allowed on all tax returns from 2006 to 2011.
There’s also no dollar limit on the separate credit for homeowners who install qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines. Your credit can be 30% of the total cost (including labor) of such systems installed through 2016.

17. Additional Bonus Depreciation
Business owners can write off 100% of the cost of qualified assets placed in service during 2011. This break applies only to new assets with recovery periods of 20 years or less, such as computers, machinery, equipment, land improvements and farm buildings. So don’t miss out on this big tax benefit if you placed business assets in service during 2011.

18. Break on the Sale of Demutualized Stock
Taxpayers won an important court battle with the IRS over the issue of demutualized stock. That’s stock that a life insurance policyholder receives when the insurer switches from being a mutual company owned by policyholders to a stock company owned by stockholders. The IRS’s longstanding position was that such stock had no tax basis, so that when the shares were sold, the taxpayer owed tax on 100% of the proceeds of the sale. But after a long legal struggle, a federal court ruled in 2009 that the IRS was wrong.
The court didn’t say what the basis of the stock should be, but many experts think it’s whatever the shares were worth when they were distributed to policyholders. If you sold stock in 2011 that you received in a demutualization, be sure to claim a basis to hold down your tax bill. (The Kiplinger Tax Letter)

Ever wonder why some tax returns are eyeballed by the Internal Revenue Service while most are ignored?

The IRS audits only slightly more than 1% of all individual tax returns annually. The agency doesn’t have enough personnel and resources to examine each and every tax return filed during a year. So the odds are pretty low that your return will be picked for review. And, of course, the only reason filers should worry about an audit is if they are fudging on their taxes.

However, the chances of being audited or otherwise hearing from the IRS increase depending upon various factors, including your income level, whether you omitted income, the types of deductions or losses you claimed, the business in which you’re engaged and whether you own foreign assets. Math errors may draw IRS inquiry, but they’ll rarely lead to a full-blown exam. Although there’s no sure way to avoid an IRS audit, you should be aware of red flags that could increase your chances of drawing unwanted attention from the IRS.

1. Making too much money

Although the overall individual audit rate is about 1.11%, the odds increase dramatically for higher-income filers. IRS statistics show that people with incomes of $200,000 or higher had an audit rate of 3.93%, or one out of slightly more than every 25 returns. Report $1 million or more of income? There’s a one-in-eight chance your return will be audited. The audit rate drops significantly for filers making less than $200,000: Only 1.02% of such returns were audited during 2011, and the vast majority of these exams were conducted by mail. We’re not saying you should try to make less money — everyone wants to be a millionaire. Just understand that the more income shown on your return, the more likely it is that you’ll be hearing from the IRS.

2. Failing to report all taxable income

The IRS gets copies of all 1099s and W-2s you receive, so make sure you report all required income on your return. IRS computers are pretty good at matching the numbers on the forms with the income shown on your return. A mismatch sends up a red flag and causes the IRS computers to spit out a bill. If you receive a 1099 showing income that isn’t yours or listing incorrect income, get the issuer to file a correct form with the IRS.

3. Taking large charitable deductions

We all know that charitable contributions are a great write-off and help you feel all warm and fuzzy inside. However, if your charitable deductions are disproportionately large compared with your income, it raises a red flag. That’s because IRS computers know what the average charitable donation is for folks at your income level. Also, if you don’t get an appraisal for donations of valuable property, or if you fail to file Form 8283 for donations over $500, the chances of audit increase. And if you’ve donated a conservation easement to a charity, chances are good that you’ll hear from the IRS. Be sure to keep all your supporting documents, including receipts for cash and property contributions made during the year, and abide by the documentation rules. And attach Form 8283 if required.

4. Claiming the home office deduction

Like Willie Sutton robbing banks (because that’s where the money is), the IRS is drawn to returns that claim home office write-offs because it has found great success knocking down the deduction and driving up the amount of tax collected for the government. If you qualify, you can deduct a percentage of your rent, real estate taxes, utilities, phone bills, insurance and other costs that are properly allocated to the home office. That’s a great deal. However, to take this write-off, you must use the space exclusively and regularly as your principal place of business. That makes it difficult to successfully claim a guest bedroom or children’s playroom as a home office, even if you also use the space to do your work. “Exclusive use” means that a specific area of the home is used only for trade or business, not also for the family to watch TV at night. Don’t be afraid to take the home office deduction if you’re entitled to it. Risk of audit should not keep you from taking legitimate deductions. If you have it and can prove it, then use it.

5. Claiming rental losses

Normally, the passive loss rules prevent the deduction of rental real estate losses. But there are two important exceptions. If you actively participate in the renting of your property, you can deduct up to $25,000 of loss against your other income. But this $25,000 allowance phases out as adjustedgross income exceeds $100,000 and disappears entirely once your AGI reaches $150,000. A second exception applies to real estate professionals who spend more than 50% of their working hours and 750 or more hours each year materially participating in real estate as developers, brokers, landlords or the like. They can write off losses without limitation. But the IRS is scrutinizing rental real estate losses, especially those written off by taxpayers claiming to be real estate pros. The agency will check to see whether they worked the necessary hours, especially in cases of landlords whose day jobs are not in the real estate business.

6. Deducting business meals, travel and entertainment

Schedule C is a treasure trove of tax deductions for self-employeds. But it’s also a gold mine for IRS agents, who know from experience that self-employeds sometimes claim excessive deductions. History shows that most underreporting of income and overstating of deductions are done by those who are self-employed. And the IRS looks at both higher-grossing sole proprietorships and smaller ones.

Big deductions for meals, travel and entertainment are always ripe for audit. A large write-off here will set off alarm bells, especially if the amount seems too high for the business. Agents are on the lookout for personal meals or claims that don’t satisfy the strict substantiation rules. To qualify for meal or entertainment deductions, you must keep detailed records that document for each expense the amount, the place, the people attending, the business purpose and the nature of the discussion or meeting. Also, you must keep receipts for expenditures over $75 or for any expense for lodging while traveling away from home. Without proper documentation, your deduction is toast.

7. Claiming 100% business use of a vehicle

Another area ripe for IRS review is use of a business vehicle. When you depreciate a car, you have to list on Form 4562 what percentage of its use during the year was for business. Claiming 100% business use of an automobile is red meat for IRS agents. They know that it’s extremely rare for an individual to actually use a vehicle 100% of the time for business, especially if no other vehicle is available for personal use. IRS agents are trained to focus on this issue and will scrutinize your records. Make sure you keep detailed mileage logs and precise calendar entries for the purpose of every road trip. Sloppy recordkeeping makes it easy for the revenue agent to disallow your deduction. As a reminder, if you use the IRS’ standard mileage rate, you can’t also claim actual expenses for maintenance, insurance and other out-of-pocket costs. The IRS has seen such shenanigans and is on the lookout for more.

8. Writing off a loss for a hobby activity

Your chances of “winning” the audit lottery increase if you have wage income and file a Schedule C with large losses. And if the loss-generating activity sounds like a hobby — horse breeding, car racing and such — the IRS pays even more attention. Agents are specially trained to sniff out those who improperly deduct hobby losses. Large Schedule C losses are always audit bait, but reporting losses from activities in which it looks like you’re having a good time all but guarantees IRS scrutiny.

You must report any income you earn from a hobby, and you can deduct expenses up to the level of that income. But the law bans writing off losses from a hobby. For you to claim a loss, your activity must be entered into and conducted with the reasonable expectation of making a profit. If your activity generates profit three out of every five years (or two out of seven years for horse breeding), the law presumes that you’re in business to make a profit, unless IRS establishes otherwise. If you’re audited, the IRS is going to make you prove you have a legitimate business and not a hobby. So make sure you run your activity in a businesslike manner and can provide supporting documents for all expenses.

9. Running a cash business

Small business owners, especially those in cash-intensive businesses — think taxis, car washes, bars, hair salons, restaurants and the like — are a tempting target for IRS auditors. Experience shows that those who receive primarily cash are less likely to accurately report all of their taxable income. The IRS has a guide for agents to use when auditing cash-intensive businesses, telling how to interview owners and noting various indicators of unreported income.

10. Failing to report a foreign bank account

The IRS is intensely interested in people with offshore accounts, especially those in tax havens, and tax authorities have had success getting foreign banks to disclose account information. The IRS has also used voluntary compliance programs to encourage folks with undisclosed foreign accounts to come clean — in exchange for reduced penalties. The IRS has learned a lot from these programs and has collected a boatload of money ($4.4 billion so far).

Failure to report a foreign bank account can lead to severe penalties, and the IRS has made this issue a top priority. Make sure that if you have any such accounts, you properly report them when you file your return.

11. Engaging in currency transactions

The IRS gets many reports of cash transactions in excess of $10,000 involving banks, casinos, car dealers and other businesses, plus suspicious-activity reports from banks and disclosures of foreign accounts. A report by Treasury inspectors concluded that these currency transaction reports are a valuable source of audit leads for sniffing out unreported income. The IRS agrees, and it will make greater use of these forms in its audit process. So if you make large cash purchases or deposits, be prepared for IRS scrutiny. Also, be aware that banks and other institutions file reports on suspicious activities that appear to avoid the currency transaction rules (such as persons depositing $9,500 in cash one day and an additional $9,500 in cash two days later).

12. Taking higher-than-average deductions

If deductions on your return are disproportionately large compared with your income, the IRS may pull your return for review. But if you have the proper documentation for your deduction, don’t be afraid to claim it. There’s no reason to ever pay the IRS more tax than you actually owe. (By Joy Taylor | Kiplinger – Tue, Jan 31, 2012)

What other credits and deductions might you be missing? Here are some ways to save on your taxes this year:

[See 50 Ways to Improve Your Finances in 2012.]

1. Adjust your withholdings. Receiving a large tax refund check each year may seem like a benefit. However, you are merely receiving back money that could have been used throughout the year.

Instead of allowing the government to hold your hard-earned dollars until tax time, a better alternative is to adjust your withholdings on your W-2 to receive more money from your paycheck throughout the year. This way, you’ll have more cash in your pocket to pay down debt or save for retirement. To do this, you just need to complete a new W-2 form with your employer.

2. Make charitable donations. To earn tax deductions and help those in need, consider donating goods that you no longer use. From clothes and old toys, to electronics, books, and furniture, there are a multitude of donations you can deduct.

Keep an accurate list of what you donate throughout the year. Remember that any donation worth more than $250 will require a receipt, and there are limits if you donate more than 20 percent of your adjusted gross income. Consult the IRS website for a complete list of deduction limitations, as well as to check if the organization you’re donating to is approved by the IRS.

3. Start saving for retirement. If you have nothing set aside for retirement at the moment, now is a great time to start. Contributions to an employer-based 401(k) plan are made pre-tax, and, depending on your level of income, you can write off what you contribute to a traditional IRA. If you decide to go with a Roth IRA, contributions are not tax-deductible, but will grow tax-free.

[See Take Advantage of These Tax Breaks.]

If you already have a modest portfolio in place, consider increasing your contributions. Your ultimate goal should be to contribute the maximum allowed for any of these options.

4. Go green. There are a variety of green energy tax credits available. If you install alternative energy equipment in your home, such as solar electric systems or solar hot water heaters, you can usually receive a tax credit for 30 percent of what you paid, and the $2,000 cap on this credit was recently lifted. Credits worth up to $7,500 for electric automobiles are also available.

5. Keep accurate records. If you’ve always used the 1040EZ form and taken the standard deduction, it might be time to look into itemizing your deductions. If your itemized deductions total more than the standard, you’ll receive a bigger return. However, to do this, you’ll need to keep accurate records throughout the year, which will include, among other things, receipts and documents related to non-reimbursed job-related expenses, job search expenses, charitable donations, and non-reimbursed medical expenses. pIn addition to allowing you to itemize your expenses, tracking these items throughout the year can also save you time when you prepare your return.

In addition to following these tips, be sure that you are taking advantage of every available deduction. There are plenty of lesser-known deductions and credits that many Americans miss out on, such as child care expenses, job relocation expenses, tax preparation fees, and many more for small business owners and the self-employed. Be sure to research these and any other expenditures in your life that you think you might qualify for. (By Money Crashers | U.S.News & World Report LP – Tue, Feb 28, 2012)

What other ways can you think of to save on taxes?

David Bakke writes about money, finances, and taxes on Money Crashers, an online resource for budgeting, getting out of debt, and building long-term wealth.

Contact typically starts with a letter requesting more information and can lead to in-person meetings. Perry says it’s usually triggered by a tax return that contains something unusual, such as an above-average deduction or change in income from previous years. As long as the taxpayer can defend his filings with the proper paperwork and logic, Perry says he has nothing to worry about–other than the time it takes to respond.

Before you start looking anxiously at the mailbox, wondering if the IRS will be mailing you a letter, consider whether any of these nine signs that you’re about to get audited apply:

1. You made a lot less money last year. Perry says the IRS looks out for any major changes in income, which can signify that a taxpayer is under-reporting his earnings. Since the IRS tracks historic data, people who suddenly start reporting much less income can be flagged for an audit.

2. You lose or forget to file a form. Since employers send copies of all 1099 forms and W-2 forms to the IRS as well as to you, if you lose your version or forget to file it with your taxes, the IRS can flag your return for review. If you receive a form that looks like it has an incorrect amount or inaccurate information on it, Perry suggests talking to your employer before filing your taxes. You want to make sure the information you provide to the IRS matches up with any other information they are receiving about you.

3. You work for yourself. It might not seem fair, but being self-employed can raise red flags for the IRS, especially if you claim your home office and other costs as business expenses but don’t earn much income. “The IRS questions those type of businesses,” says Perry. His advice is to keep careful track of all paperwork so you can defend any deductions and credits you take.

4. You claim losses from a hobby. While writing off business expenses can be legitimate, it’s illegal to pretend a hobby is a business and then write off the related expenses. For example, if you enjoy woodworking, you might practice the craft on the weekends for fun. Doing so does not enable you to write off the cost of wood and tools. (If you were selling those creations online, that would be a different story.) The difference between a small business and a hobby, says Perry, is that a business “must be entered into and conducted with the reasonable expectation of making a profit.”

5. Deducing home office (or car) expenses. While plenty of people can legitimately claim home office expenses on their taxes, some people do so incorrectly. Merely checking email from home after work, for example, does not justify a home office deduction, says Perry. In order to qualify, the home office must be used for work only. Likewise, claiming a car as a business expense can also raise red flags; Perry urges taxpayers doing this to keep careful track of how much they use the car for business versus personal use.

6. You included expensive meals and entertainment costs among your deductions.The IRS often double-checks these types of claims to make sure they are legitimate business expenses, says Perry.

7. You were particularly generous this year. Perry says the IRS is on the lookout for people who inflate their charitable donations, and that the agency takes a close look at taxpayers who say they donated $500 or just under, since anyone who donates more than that amount must file form 8283. (And if you do donate more than $500, be sure to file that form.)

8. You maintain an overseas bank account. The IRS has added more reporting requirements this year for people with money in foreign accounts. Failing to report one could trigger an audit.

9. Your numbers don’t match. If numbers on various forms don’t match or add up correctly, the IRS is likely to notice and look into any disparities. So treat your taxes like a final exam in algebra and check over all the numbers before submitting.

As long as you know you filed your paperwork properly, you can sit back and enjoy any refunds coming your way. (By Kimberly Palmer | U.S.News & World Report LP – Wed, Mar 7, 2012)

Twitter: @alphaconsumer

WASHINGTON  – President Barack Obama says the currentcorporate tax system is outdated, unfair and inefficient. He is calling for an end to dozens of subsidies and loopholes that he says offer tax breaks to companies that move jobs and profits overseas.

Obama says the current system is “not right and it needs to change.”

The Obama administration is proposing cutting corporate tax ratesfrom 35 percent to 28 percent. That is still higher than the 25 percent rate sought by congressional Republicans.

Obama said in a statement Wednesday that his framework lowers the corporate tax rate and broadens the tax base and will increase competitiveness for companies across the U.S.

source: yahoo.com/ap (http://news.yahoo.com/geithner-obama-seeks-28-percent-165554272.html)

Tax season is here again! While the filing deadline might be a couple of months away, this month you will receive all required third-party reporting documents: W2s, 1099s for interest and dividends, 1099s for nonemployee compensation if you are an independent contractor, 1099-Bs from your broker reporting proceeds from the sale of stocks and bonds, 1098s from your mortgage holder, K-1s from partnerships, S Corps, estates, and trusts. Hopefully, you’ve set up a file to store all these documents to make data gathering for tax preparation a snap. If not, now’s the time to create one.

Note that the due date for filing this year is April 17. If a tax due date falls on a weekend or a holiday, the next business day becomes the due date. This year April 15 is a Sunday and Monday, April 16 is a federal holiday so the due date falls on Tuesday, April 17. If you are unable to file by the deadline, you may obtain an extension to Oct. 15. Bear in mind that the extension is for filing, not paying. All taxes must be paid by April 17 otherwise you may suffer penalties and interest.

If you pay estimated tax payments throughout the year, the due date for your next quarterly installment for prepayment of 2011 income taxes is Tuesday, Jan. 17. Estimated tax payments for 2012 will be due on April 17, June 15, Sept. 17 and Jan. 15, 2013.

Beginning in 2011, brokerage firms are required to report to the IRS not only proceeds from sales of stocks and mutual funds, but also the cost basis of the investments that are sold. The IRS has designed a new Form 8949 for reporting capital gains and losses. A summary of the information listed on this form is carried over Schedule D. A couple of new columns are added to Form 8949 reporting – one for adjustments to basis (in case your broker has an incorrect figure) and one for coding the transaction to identify the type of sale.

Business mileage rates for 2011 were changed mid-year, so when calculating your mileage for 2011 use the rate of 51 cents per mile for miles driven up to June 30, 2011 and 55 ½ cents per mile from July 1 to Dec. 31.

Mileage rates for 2012 are as follows: 55 ½ cents per mile for business, 23 cents per mile for moving and medical, and 14 cents per mile for charitable purposes.

The temporary payroll tax cut has been extended to Feb. 29; employees will enjoy a continued savings of 2% of wages withheld for Social Security – from 6.2% to 4.2%. The Social Security wage base for 2012 is $110,100 up from $106,800 in 2011. Once your wages exceed this amount, Social Security will not be withheld but Medicare will continue to be withheld.

The self-employment health insurance deduction no longer offsets the self-employment tax. In 2010 only, self-employed workers were able to reduce the amount subject to self-employment tax on Schedule SE by the amounts paid for health insurance premiums. You can still take the deduction on Form 1040 as an adjustment to income.

Foreign financial assets are reported on a new Form 8938. The foreign asset disclosure form is separate and different from the foreign bank account report. Taxpayers with foreign assets may need to file both documents.

The first-time home buyer’s credit is now only available to members of the military or Foreign Service. If you are repaying the first-time home buyer’s credit, you may not need to complete and attach Form 5405.

Also gone for 2011 is the Making Work Pay Credit. For the past few years we enjoyed $400 per year single and $800 married filing joint credit against our tax liabilities.

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WASHINGTON — Tax-exempt organizations with January and February filing due dates will have until March 30, 2012, to file their annual returns, the Internal Revenue Service announced today.

The IRS is granting this extension of time to file because the part of the e-file system that processes electronically filed returns of tax-exempt organizations will be off-line during January and February. The agency stressed that the rest of the e-file system will continue to operate normally and urged all individuals and businesses to choose the accuracy, speed and convenience of electronic filing.

In general, the extension applies to tax-exempt organizations whose normal filing deadline is either Jan. 17 or Feb. 15, 2012. Ordinarily, these deadlines would apply to organizations with a fiscal year that ended on Aug. 31 or Sept. 30, 2011, respectively. The extension also applies to organizations that already obtained an initial three-month filing extension and now have an extended filing deadline that falls on Jan. 17 or Feb. 15, 2012. The majority of tax-exempt organizations will be unaffected by this extension because they operate on a calendar-year basis and have a May 15 filing deadline.

The extension applies to affected organizations filing Forms 990, 990-EZ, 990-PF, or 1120-POL. Form 990-N filers will not be affected. No form needs to be filed to get the March 30 extension.

In order to avoid receiving a late filing penalty notice, a reasonable cause statement should be attached to the tax return. If organizations receive late-filing penalty notices, they should contact the IRS so that these penalties can be abated. The IRS encouraged these organizations to consider either e-filing early — before the end of December — or waiting until March to file electronically.

Further details are in Notice 2012-4, posted today on IRS.gov.

source: www.irs.gov

WASHINGTON — The Internal Revenue Service today reminded tax return preparers to renew their Preparer Tax Identification Numbers (PTINs) before year’s end. All 2011 PTINs will expire on Dec. 31 and must be renewed annually.

The IRS urged preparers to start their renewal process now to avoid missing the deadline.

To renew, go to www.irs.gov/ptin and log into your existing PTIN account. After selecting PTIN Renewal, you simply review the information you previously provided for any updates, answer two new questions and pay your renewal fee of $63.

If you are a Certified Public Account, an attorney, an Enrolled Agent, or have other professional credentials, you must also add the expiration date of your credentials.

Here are some tips for making your online application process go smoothly:

Can’t remember your User ID for you PTIN account?

• If you are unable to remember your User ID, go to the PTIN account sign-in screen. Click the “Forgot User ID” link on the right-hand side of the screen.
• Once you enter the email address and answer the secret question you chose when you first registered last year, an email will be sent containing your User ID.
• If you do not receive your email within 24 hours, check the “Junk” or “Spam” folder of your email account.

Can’t remember your Password to your PTIN account?

• Follow these instructions to create a new PTIN account password:
• Go to the PTIN account sign-in screen and click the “Forgot Password” link on the right-hand side of the screen.
• Enter the User ID of your PTIN account. If you are unsure of your user ID or if you get the message stating “User ID Not Found” click the ”Forgot User ID” link on the same screen to retrieve your User ID.
• Once you enter the User ID and answer the secret question you chose when you first created your PTIN account, an email will be sent to you that contains a temporary password.
• If you do not receive your email within 24 hours, check the “Junk” or “Spam” folder of your email account.
• Once you receive your temporary password, log into your PTIN account with your user ID and temporary password.
• Follow the steps on the screens to reset your password.
• Carefully note your username and password for future reference.

Don’t have access to your email address?

• Select “Forgot or Cannot Access Email?” from the PTIN homepage.
• Enter your Last Name, Date of Birth, and PTIN and select Next.
• Enter your Social Security Number and the answer to your Secret Question.
• Enter a new email address to associate with your account. NOTE: Use only an email address that you will have access to throughout the calendar year. You will receive all PTIN correspondence at this email address.
• You will receive your user ID at the new email address you provided. If you need to change that user ID, log into your PTIN account and select “View/Edit Login Information” from the Main Menu.

Paper applications

Preparers who applied for PTINs using a paper Form W-12 last year are encouraged to renew online. An activation code and instructions were mailed to each paper applicant for this purpose.

Individuals who prefer to renew their PTIN on paper must mail a Form W-12, IRS Paid Preparer Tax Identification Number Application and Renewal.  The response time is 4 to 6 weeks.

These and other “Get Help” tips are available on the PTIN page at www.irs.gov/ptin.