Janell A. Israel & Associates
April 2007 Tax Newsletter
What's
New in taxes:
New $5,000 Penalty For Making "Frivolous" Tax Claims
In a March
2007 notice, the IRS specified forty tax positions that will be treated as
frivolous. Taxpayers who make these arguments in order to keep from paying
taxes will be subject to a new $5,000 penalty. Four IRS Revenue Rulings were
issued to accompany this IRS warning. The rulings targeted the major frivolous
positions taxpayers (and often unscrupulous tax preparers) take, including the
following claims:
* Wages are
not taxable income.
* Filing
returns and paying taxes are voluntary.
* The IRS
must provide taxpayers with a "summary record of assessment" before
it can collect overdue taxes.
* The government
cannot impose federal income taxes on those claiming to be a citizen of a state
rather than of the
IRS
Commissioner Mark Everson cautioned taxpayers not to fall for schemes claiming
to eliminate tax liability. He pointed out that people are "ultimately
responsible for what is on their tax return even if some unscrupulous preparer
has steered them in the wrong direction."
Stop Lending Money To The IRS
Will you be
among the thousands of taxpayers who get a big tax refund this year? While most
Americans happily accept their tax refund checks, smart taxpayers understand
that refunds actually cost them money. Here’s why:
* The
government pays no interest on refunds. Kept in your hands, those dollars could
have been productive. For example, you could have invested the money or used it
to pay off your debt during the year. If the money had been added to a 401(k)
plan, tax would have been deferred on both the investment and its earnings.
Even better, your employer might have matched all or part of your investment,
adding to your retirement savings.
* Refunded
cash is not available for use until actually received. Even
though most taxpayers get their checks promptly, circumstances or errors can
delay (or stop) a refund.
To prevent
losing money on tax refunds, consider reducing your withholding or estimated
tax payments. For most taxpayers, withholding must equal either the prior
year’s tax or 90% of the current year’s liability. If your annual
income changes little, it’s relatively easy to avoid over withholding.
You should consider filing a revised Form W-4 withholding statement with your
employer if you’re having too much withheld.
For taxpayers
with fluctuating income or multiple sources of income, the problem is more
complex. The IRS provides a worksheet with Form W-4, but many people find the
form complicated. If you’d like assistance adjusting your withholding,
contact our office.
What's
New in Finances:
Recent Scams Target Debit
Cards
According to
the Federal Reserve, debit card use has now surpassed credit card use.
Unfortunately, debit card fraud has also grown, reaching $662 million in 2005,
a 21% increase from the previous year.
Though debit
cards are convenient to use, they put consumers at greater financial risk for
two reasons: (1) the cards directly access an individual’s bank account,
so your money can be withdrawn by scam artists, and (2) debit cards don’t
provide the same legal protection against fraud that comes with credit cards.
To help
protect yourself when using a debit card, heed the
following tips:
* Check the
ATM or card-reader for signs of tampering (tape, loose connections, etc.).
* Check for
hidden cameras before entering your PIN, and shield your fingers on the keypad.
* Check your
bank and credit statements carefully.
* If you
suspect fraud, close the account immediately.
* Don’t
let your card out of your sight, especially at gas stations, restaurants, or
convenience stores where your card’s data could be copied and used by
scam artists.
* Report
errors, no matter how small, to the financial institution that issued the card.
Don’t Overlook
Renters Insurance
Do you rent
an apartment or condo? If so, do you have renters insurance to protect your
belongings and to cover you against liability claims? A surprising number of
renters don’t bother with insurance. Some assume they’re covered by
their landlord’s policy. Wrong! Usually that covers only damage to the
building and liability claims against the landlord. Others say that their
belongings aren’t worth enough to justify the cost. But add up how much
it would cost you to replace everything you might lose in a fire and
you’ll be surprised. In most cases, the cost of insurance is a small
price to pay for the protection you’ll receive.
Typical protection. Renters insurance, sometimes called a tenant policy, typically
protects against three things:
* loss or damage to your personal belongings from fire, theft,
etc.
* liability claims from someone injured in your apartment.
* the cost of temporary living expenses if your apartment is
made uninhabitable by some catastrophe.
When you buy
renters insurance, you’ll have to decide the amount and type of coverage.
Your agent can help you estimate the value of your belongings. You can either
choose "actual cash value" coverage or "replacement value
coverage." The first pays you the estimated value of items at the time of
loss, based on their age and condition. The second pays the cost of replacing
items with equivalent new items, up to the maximum value of coverage. The
second method will pay you more, but obviously the premium will be higher. Be
sure to identify anything of special value, such as expensive jewelry or
electronic equipment. You may need a policy rider to cover the full amount of
these items.
A few final tips. You may receive a discount if you buy your renters insurance
and car insurance from the same company. If you have a long-term roommate, ask
whether you can take out a joint policy instead of two separate ones. And if you have children living away at college, check whether
they’re covered under your homeowner’s policy. Once they
leave college, though, they’ll need their own insurance.
Once you have
your policy, there’s one last step to take. Make a thorough inventory of
your belongings, recording the model and serial number of any equipment. Take
plenty of photos too. This could be invaluable to support your claim if you
ever have a loss.
Take
a Break
Sharing The Wealth
Remember
reading about Warren Buffett’s $43.5 billion
donation to charity? In 2006, the rich not only got richer, they followed Buffett’s lead and donated a record amount to
charitable causes.
According to The
Chronicle of Philanthropy, there were 21 donations of $100,000,000 or more made
by individuals in 2006. The 60 most generous givers (excluding Buffett) donated $7,000,000,000 (yes, seven billion) in
2006.
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The information contained in
this newsletter is of a general nature and should not be acted upon in your
specific situation without further details and/or professional assistance. For
more information on anything in the ONLINE ADVISOR, or for assistance with any
of your tax, business, or financial strategy concerns,
contact our office.