Don't Mess With Taxes

Today's Tax Tip

Tax season 2012 is here. To make fulfilling your tax duty as painless as possible, you'll find a Daily Tax Tip over there in the ol' blog's right column. Each day, including weekends and federal holidays, you'll find ways to cut your 2011 tax bill, ease your filing tasks and/or make key 2012 tax year planning moves. And if you miss a day, don't worry. You can visit the complete list of 2012 tips.

Tax moves to make in February 2012

Ah, February. Such a short month, but so many tax moves to make in these 29 days.

That's right, 2012 is a Leap Year, providing us with an extra day to go along with the already extended filing deadline of April 17.

If you're prepared, you should be able to make each of February's days count toward cutting your 2011 tax bill.

There are the perennial tax tasks of making sure you get all the statements you need to complete your Form 1040.

And don't forget about adjusting your withholding if you discover you had too much or too little payroll tax taken out of your paychecks last year.

But also note the other tax considerations prompted by the many February holidays.

Valentine's Day, for example, should remind you not only to get your sweetheart a nice gift, but also to look at how you file your taxes if you're married.

Or if Cupid's holiday is not so happy in your house, don't forget about the tax implications of divorce.

Those are just a few tax tasks you can take care of this month. You can find more in in the February Tax Moves listed over in the ol' blog's left column.

Just scroll down a bit and make this shortest section of the calendar come up big for you at tax time.

You also might find these items of interest:

• Wedded tax bliss
• Tax to-do's after saying 'I do'  
• Small business tax calendar, tips and tools

Don't Mess With Taxes is now optimized for readers on the go.
You don't even need an app. Just type in dontmesswithtaxes.typepad.com
on your smartphone or other mobile device
and it will load in a format for smaller browsers.

IRS, Justice Department ID theft crackdown nets criminals nationwide

Just days after the Internal Revenue Service announced some tax refunds were delayed due to fine tuning of methods to detect tax fraud, the tax agency and the Department of Justice (DoJ) revealed the results of their joint national crackdown on tax-related identity theft.

Now some who are  more cynical than I (and yes, they do exist) might consider the timing of the nationwide ID theft sweep announcement a bit too convenient. What better way to calm down taxpayers frustrated because their refunds are being slowed than by putting that anti-fraud effort into a larger crime crackdown context?

But I'll give the feds the benefit of the doubt this time, since the IRS has long been working to upgrade its anti-fraud and tax ID theft detection programs.

Targeting ID thieves nationwide: The IRS joined forces with the DoJ's Tax Division and local U.S. Attorney offices to specifically target 105 people in 23 states.

Once the sweep was completed, the feds were looking at 939 criminal charges in 69 indictments and information-gathering actions related to identity theft.

Click on image (or here for PDF version) for larger view.

In addition, IRS auditors and investigators conducted around 150 compliance visits (a much nicer term than, "Surprise! You're busted.") to money service businesses in nine locations that were identified as high-risk: Atlanta, Birmingham, Ala., Chicago, Los Angeles, Miami, New York, Phoenix, Tampa and Washington, D.C.

Basically, the feds wanted to make sure these check-cashing operations know they are on the refund fraud and identity theft radar. The IRS also is auditing more than 250 similar businesses across the country, looking for ID theft indicators as part of that process.

Prevention efforts in place, too: The national effort, according to the IRS, is part of the agency's comprehensive identity theft strategy.

The goal is to prevent tax-related identity theft. But when it does happen, the agency want to discover the schemes and resolve the ID theft cases in the targeted taxpayers' favor as quickly as possible.

To that end, says the IRS, it has stepped up its internal reviews to spot false tax returns before tax refunds are issued. Hence, the slowdown of refunds as that system is fully implemented this filing season.

The IRS says that almost 262,000 identity theft returns were caught before processing, stopping more than $1.4 billion in fraudulent refunds from being issued.

"We have seen an increase (in identity theft) and we are concerned. The rate of fraud has gone up," said Steven T. Miller, deputy IRS commissioner for Services and Enforcement, following the announcement of the IRS/DoJ actions.

The IRS also provides Identity Protection Personal Identification Numbers, or IP PINs, to taxpayers who have been victims of identity theft so that they can properly file their real returns while the IRS and investigators sort out the ID theft situations

In addition to IRS efforts to nab tax-related ID theft criminals and stop fraud sooner, Miller pointed to the agency's Identity Protection Specialized Unit, or IPSU. The IRS also has a special identity theft Web page and the DoJ Tax Division keeps track of its activities in this area at its own Web page.

If taxpayers receive notice from the IRS about possible identity theft, they should follow the instructions in that notice.

And if you think/fear you're at risk of tax-related identity theft because of lost or stolen personal information, contact the IRS immediately so the agency can take action to secure your tax account. Call IPSU at 800-908-4490 and then follow up by completing Identity Theft Affidavit, Form 14039.

You also might find these items of interest:

• $1.4 million refund stolen by ID thief
• Don't fall for tax scams
• Tax scammers never take time off

Don't Mess With Taxes is now optimized for readers on the go.
You don't even need an app. Just type in the regular dontmesswithtaxes.typepad.com URL on your smartphone or other mobile device and it will load in a format for smaller browsers.

Frequent flier miles aren't taxable...unless there were part of a Citibank promotion

Thank you, Citibank, for muddying the tax waters when it comes to frequent flier miles.

Folks who opened Citibank savings or checking accounts last year got some airline miles for doing so. Now they're getting some potential tax trouble.

The financial institution has sent them 1099-MISC forms, with copies to the IRS, letting the new customers know that the value of the miles they received is taxable income.

What the ... ?

Tax-free miles until now: For ages, recipients of these points for patronizing a specific airline have enjoyed them as a tax-free travel perk.

That's because back in 2002 the Internal Revenue Service ruled that it "will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent flier miles or other in-kind promotional benefits attributable to the taxpayer's business or official travel."

Essentially, Uncle Sam said in Announcement 2002-18 that while he might have the right to consider mileage rewards as income, he's not going to do so.

Since then, frequent flier miles have been viewed as rebates, similar to the rewards points awarded by some credit card companies. And rebates are price reductions, not income, and therefore not taxable.

The IRS underscored that tax philosophy in 2010 when it decided that individuals could donate credit card rebates to charity. In that determination via a private letter ruling the IRS specifically noted that "A rebate received by a buyer from the party to whom the buyer directly or indirectly paid the purchase price for an item is an adjustment in purchase price, not an accession to wealth, and is not includible in the buyer's gross income."

"Not includible in the buyer's gross income." That's just what the card holders wanted to hear, since it means that they don't have to worry about paying taxes on the card rewards.

A prize, not a rebate: Not so fast, says Citibank. The financial institution says it is just following the tax law.

The miles were awarded to new customers for opening accounts. As such, they were a prize.

And everyone knows that the IRS gets to tax prizes and other such winnings, even if you didn't ask for them. Remember those cars Oprah gave to her estatic then tax-enraged audience members?

Technically, says Citibank, the miles were a gift and "when a customer receives a gift for opening a bank account -- whether cash, a toaster or airline miles -- the value of that gift is generally treated as income and subject to reporting."

And an IRS spokesperson agrees with Citibank. "When frequent flyer miles are provided as a premium for opening a financial account, it can be a taxable situation subject to reporting under current law," IRS spokeswoman Michelle Eldridge in an email to Time's MoneyLand blog.

Clarification coming? Notice Eldridge said "can be" and not that "it definitely will be considered" as taxable income.

The reason she might be hedging is that (a) these affected Citibank customers apparently are as ticked off about this move as were Bank of America clients who faced potential debit card fees and (b) at least one member of Congress has gotten involved.

While public outrage at tax laws is nothing new, sometimes it does have an effect on the enforcement of such rules. The 2002 frequent flier ruling is the most apropos.

But there's also the case of cell phones provided for business use.

Back in 2009, the IRS essentially threw in the towel when it came to rules requiring substantiating an employee's business use of employer-provided cell phones or other "similar telecommunications equipment."

The IRS had been fighting a losing battle in enforcing a tax law that was complicated, misunderstood and generally ignored by employers and employees. So IRS Commissioner Doug Shulman asked Congress to erase the tax on personal phone calls made on company-provided equipment.

Congressional interest: As for these arguably taxable frequent flier miles gift or prize, U.S. Sen. Sherrod Brown (D-Ohio) shot off a letter to Citibank CEO Vikram Pandit, citing the IRS' 2002 ruling on the tax-free status of such miles and urging the Citibank chief to "end this gratuitous practice."

"During these challenging economic times, middle-class families are pinching pennies to help pay for the cost of a flight to fly home from college, visit an ailing relative, or see friends. To some, signing up for a bank account in exchange for frequent-flier miles to help make a trip more affordable is an offer that is too good to resist," wrote Brown. "However, your actions are leaving working families with the seemingly incorrect impression that when they rack up miles, they are hiking up their taxes, too."

Will Congress take time to codify the tax-free status of frequent flier miles regardless of how they are received?

Will the airlines, who also might catch some backlash here, chime in on the side of their reward program customers?

Will folks who got 1099s ignore them, potentially inviting an audit because the amount they report on tax returns differs from the third-party data given by Citibank to the IRS?

Will the IRS issue a ruling to clear up this situation before the 1099 recipients file their returns?

Yep, I've got to say it again. Thank you, Citibank, for muddying these previously placid tax waters.

Airplane photo by Sean MacEntee/Flickr

You also might find these items of interest:

• Some credit card fees are now deductible
• No good tax break goes unpunished
• Ticket tax refunds axed thanks to retroactive FAA legislation

Don't Mess With Taxes is now optimized for readers on the go.
You don't even need an app. Just type in the regular dontmesswithtaxes.typepad.com URL on your smartphone or other mobile device and it will load in a format for smaller browsers.

Tax Carnival #96: Dealing With Tax Dragons

The 2012 Chinese New Year officially arrived on Jan. 23, but many locales celebrated the Year of the Dragon his past weekend.

So we're following that belated lead with Tax Carnival #96: Dealing With Tax Dragons.

Chinese New Year's parade dragon by Paolo Camera via Flickr

The dragon is a powerful sign. In Chinese culture, the legendary creature -- the only not-real New Year designation -- is the symbol of power from heaven. Dragons are doers. They don't sit around waiting for things to happen, you make things happen.

Today's Tax Carnival should help you make some good tax things happen. And like the parades that celebrated the Chinese New Year, the tax "floats" presented today are in no particular order.

And it's a long tax parade, so let's get to slaying some tax dragons.

Trish offers some advice for taxpayers still waiting for all their tax forms to arrive: What to do with one of those Education Credits and Deductions documents. You'll find details on Form 1098T, the tuition statement from colleges and universities, at Our Taxing Times.

Politics and taxes have been on lots of folks minds recently. Several of our contributors look at some specifics.

Joe Kristan asks What do Newt and John Edwards have in common? We're talking taxes here, so hold the wisecracks. And get the answer at Tax Update Blog.

Robert Moore examines Romney Has Investments Funds In Cayman Islands. Details on the candidate's money in the infamous tax refuge are posted at 2011 Tax.

Jackson also looks at "troublesome material in the candidate’s most recent tax returns" in A Candidate's Offshore Tax Havens. Details posted at 2009 Tax.

Robert discusses Employee or Independent Contractor and the tax issues for each at Entrepreneurship Life.

Everything Finance looks at How to Claim the Adoption Tax Credit, a great help in offsetting some of the many adoption costs. Details are at Everything Finance.

Madison presents How to Lower Your Taxes on Savings Bond Interest. Usually you get a savings bond, hold it for multiple years, then redeem it and report it on your taxes in the year of redemption, says Madison. But there’s another way to report the savings bonds interest and it could potentially save you some tax money. Details posted at My Dollar Plan.

We're going beyond our China-inspired theme today and making it a truly international Tax Carnival #96 with tax info for our outside-the-U.S. readers.

Ray reminds Canadian taxpayers of the RRSP Deadline 2012. Every bank, every branch and every teller will remind you to contribute to your RRSP before the deadline, says Ray, who looks at what to consider at posted at Financial Highway.

Echo reminds Canadians of the estate planning advantages of Using Tax Free Savings Accounts In Retirement, posted at Boomer & Echo.

Gregory Stokes warns U.K. taxpayers Don't Miss The Tax Credits Income Deadline. "The deadline for income tax credits is Jan. 31," says Gregory. "If you don’t provide your actual income figure by this time you could get the wrong amount of tax credits and have to pay a penalty." Read about it at ,  posted at Tax Credit Calculator.

Al Peters reminds readers that the Self Assessment Tax Return 2011 Deadline Approaching. Take note, says Al, if you have earned income or had taxable gains in the United Kingdom. Get the details at TaxFix Feed Update.

Jessica Bird discusses three important documents that U.K. auto owners need in Taxing Your Car, posted at CarTaxBands.org.

DeWitt Dudley has some advice for American taxpayers on Reporting Your Japanese or Foreign Inheritance, posted at Los Angeles Tax Law Blog.

Thanks, guys and gal, for the international tax flavor. Now back to U.S. taxes.

Sandy says if you're one of the many relying on a tax refund to boost a savings account or an emergency fund, then make sure you don't miss out on the tax breaks in Applying All the Right Deductions to Increase That Return. It's posted at Yes, I Am Cheap.

Glen Craig has the same idea in 10 Common Overlooked Tax Deductions. These tips, says Glen, can help make sure you don't pay more taxes than you have to. Get details at Free From Broke.

More of us each year file online. That statistic is behind several contributions this week.

Forest Parks notes that online filing can make taxes a little less painful and offers suggestions in How To File Income Taxes Electronically, posted at Frugal Zeitgeist.

Debbie Dragon (thanks for lending your name to the Tax Carnival!) reminds us that IRS e-file for 2011 Income Tax Filing Now Available. Details at BackTaxesHelp.com.

A couple of Tax Carnivalistas look at one of the most popular programs when it comes to online filing.

FIRE Finance presents TurboTax Discount Codes 2011, 2012, noting that there are some good deals on the tax preparation software. Details are posted at Fire Finance.

Michael offers his Turbo Tax 2012 Review, posted at PT Money Personal Finance.

SB presents a wide-ranging look at 2011 Tax Rates, Tax Brackets and Top Tips for Filing Tax Return in 2012, posted One Cent at a Time.

Jon the Saver asks a common question: Roth 401k Vs. 401k: What Is Right for Me? The Roth 401k is a great choice for almost everyone, says Jon, and provides details at Free Money Wisdom.

Miranda Marquit says that as health care costs continue to rise, there are some ways to recoup medical expenses. Details are in Tax Deductions: Health Care Expenses, posted at Best Rates In.

Neal Frankle says there's a way to make your tax bill payment by credit card free of charge and avoid IRS trouble. Details are in How to Pay the IRS with a Credit Card for Free,  posted at Wealth Pilgrim.

Thomas F. Scanlon says there are 5 Reasons Donors Should Give Appreciated Property, posted at Borgida & Company, P.C.

Mark Roberts presents an important tax filing basic: How To Choose The Right Filing Status, posted at Tax Brackets.

Tim says if you don't have all your tax forms yet, but want to estimate what your federal income tax return will look like, check out Income Tax Calculator: 3 Federal Income Tax Estimators. You'll find the post at Faith and Finance.

Control your Cash presents an intriguing piece of tax idea in Don't Play Fair. Hint: It's about the tax advantages of incorporating and is posted at Betty Kincaid.

John looks at an issue that leaves a lot of folks confused and angry: Paying Taxes on Debt? You Have Got to Be Kidding Me. John's look at the relationship between debt settlement and taxes is posted at Wallet Blog.

Roger White says if you are thinking about making a 401(k) withdrawal, consider the choice very carefully. There are risks, detailed in Making 401k Withdrawals, posted at 401k Calculator.

Tax Debt Help lays out the 1099 MISC Reporting Requirements and Deadlines for 2011, posted at Tax Debt Help Blog.

And we close with what some might find counter-intuitive tax advice.

Robert D Flach offers this caution: DON'T BE IN SUCH A HURRY! "I certainly don't think you should wait till the last minute to prepare your tax return," says RDF, but "I also don’t think you should rush to be among the first taxpayers of the year to have your taxes done." His thoughts on his filing timing philosophy is posted at THE WANDERING TAX PRO.

And with that take-it-easy advice, we wrap up Tax Carnival #96: Dealing With Tax Dragons.

Thanks to all this month's contributors and to all y'all for reading.

Here's hoping that your filing tasks are off to a good start. If you're putting off taxes for a bit, no worries. The Tax Carnival will be back every other week through the April 17 filing deadline.

The 97th Tax Carnival is scheduled for Monday, Feb. 13.

Join us then as a reader or as part of the tax fun by sending your tax post (and tax-only items please; check the guidelines for details) to the Blog Carnival page.

You also can send your tax item's link via Twitter (I'm @taxtweet; please hashtag it #TC97), post it on Don't Mess With Taxes' Facebook page, or email it to me at taxcarnival@gmail.com.

Don't Mess With Taxes is now optimized for readers on the go. You don't even need an app. Just type in the regular dontmesswithtaxes.typepad.com URL on your smartphone or other mobile device and it will load in a format for those browsers.

Taxes low on the wealthy's worry list

"Let me tell you about the very rich.
They are different from you and me."
From the short story "The Rich Boy" by F. Scott Fitzgerald

One of those differences is how the wealthy handle their vast sums of money. Most have financial advisers and they want specific things from those money experts.

And despite all the recent clamor about politicians' tax returns and the historically low tax rates set to expire in 11 months, tax advice apparently is not a big concern of the uber rich.

Cerulli Associates/Phoenix Market International conducted a survey last year of high net worth individuals to find out what they wanted from their financial gurus.

Advice on how to minimize income and capital gains taxes came in seventh out of the nine financial wishes and needs listed by the rich folks who participated in the survey.

Yeah, I couldn't believe taxes didn't top the list either. But it seems that it's just you and me who are worried about our tax bills.

The most important piece of information for wealthy individuals is how they can keep living the good life once they retire.

OK, that's not a bad goal. I admit that I'd like to retire to a life of leisure sooner rather than later.

Here's the full list:

1. Maintain lifestyle in retirement -– 31.4 percent
2. College education funding –- 19.6 percent
3. Protect current level of wealth –- 14.6 percent
4. Aggressively grow wealth –- 14 percent
5. Leave an estate for heirs –- 9.8 percent
6. Charitable giving –- 4.2 percent
7. Minimize income and capital gains taxes -– 2.4 percent
8. Improve household cash flow –- 1.9 percent
9. Better manage market risk –- 1.9 percent

Which of these is the most important to you? Have you gone to a professional for help in reaching a financial goal?

You also might find these items of interest:

• Those wacky rich folk and their taxes
• Handy retirement plan rollover chart
• Romney's earnings prompt renewed attention
  to carried interest taxation

Don't Mess With Taxes is now optimized for readers on the go.
You don't even need an app. Just type in the regular dontmesswithtaxes.typepad.com URL on your smartphone or other mobile device and it will load in a format for smaller browsers.

Wyoming has best business tax climate

Even in today's global economy, the stiffest and most direct competition that states face often comes from other states.

With that in mind, the Tax Foundation last week issued its eighth annual State Business Tax Climate Index. In calculating the rankings, the Washington, D.C., nonprofit takes into account dozens of state tax provisions to come up with each state's score against the tax climates of every other state.

"Tax competition is an unpleasant reality for state revenue and budget officials, but it is an effective restraint on state and local taxes," notes Mark Robyn, an economist with the Tax Foundation and author of the background paper on the Index.

State lawmakers nowadays need to be more concerned with companies moving from Detroit, Mich., to Dayton, Ohio, rather than from Detroit to New Delhi, says Robyn. Paying attention to other states' tax policies, he says, will help them more efficiently allocate resources because businesses can locate in the states where they receive the services they need at the lowest cost.

"When a state imposes higher taxes than a neighboring state, businesses will cross the border to some extent," says Robyn. "Therefore states with more competitive tax systems score well in the Index because they are best suited to generate economic growth."

So which state should the other 49 be looking to as a tax policy model and looking out for as a competitor? Wyoming.

The Equality State earned a 7.67 ranking in the Tax Foundation's latest business tax climate comparison.

In addition to putting it atop that list, that number is this week's By the Numbers figure.

It's no secret that a big part of Wyoming's top rank is because the state has no personal income or corporate tax.

That's a tax trend found in many of the nine other states that join Wyoming on the 2012 best tax business climate top 10 list: South Dakota, Nevada, Alaska, Florida, New Hampshire, Washington, Montana, Texas and Utah.

Just like Wyoming, Nevada and South Dakota have no corporate or individual income taxes. Alaska has no individual income or state-level sales tax. Florida has no individual income tax. New Hampshire and Montana have no sales tax.

At the other end of the list is New Jersey.

Leading up (down?) to the Garden State are Iowa, Maryland, Wisconsin, North Carolina, Minnesota, Rhode Island, Vermont, California and New York.

And the state that made the biggest move in the rankings? Illinois.

Unfortunately for the Prairie State, it wasn't in a positive direction. Illinois fell 12 places, from 16th place in 2011 to 28th place in 2012.

The map below provides a snapshot of each state's 2012 business tax climate rank.

Click map for larger view.

You also might find these items of interest:

• State and local tax breaks are not necessarily
  the best business lure
• Corporate taxes: time to cut the tax rate
  or to make sure companies pay at all?
• Small business tax calendar, tips and tools

Santorum takes campaign break to finish filing his taxes

UPDATE: Santorum's tax preparation comments to the media blogged below were made before it was announced the candidate's daughter is ill. That is the primary reason he returned to his Pennsylvania home. Thanks to readers for alerting me and good thoughts for the youngster's quick and full recovery

UPDATE 2 (Jan. 30, 2012): Santorum's daughter is better and he's back on the campaign trail, although not in Florida. But true to the original post below, he's decrying the "gutter politics" of the GOP race.

You know things have gotten politically toxic in the race for the Republican presidential nomination when one of the candidates ranks doing taxes ahead of campaigning.

Rick Santorum headed back home to West Chester, Pa., this weekend, leaving Mitt Romney and New Gingrich to duke it out in Florida ahead of that's state's primary on Tuesday.

Santorum said he would rather spend his Saturday sitting at his kitchen table doing his taxes than campaigning in the Sunshine State.

Let's get real. Santorum doesn't have a shot at winning Florida's 50 GOP delegates. That's the real reason for the retreat, which he insists is just temporary.

But by making tax filing seem even mildly preferable by comparison, Santorum underscores the anger that this election season is producing, among candidates as well as voters.

It's not going to be a pretty 2012.

At least Santorum's weekend campaign break means we'll soon get a look at his tax returns. Oh joy.

You also might find these items of interest:

• Comparing presidential -- and presidential wannabe -- 1040s
• Romney releases 2010, 2011 tax returns
• Marginal tax rates vs. effective tax rates,
  or what Mitt's and Newt's taxes tell us