Dollars & Sense
HAVEN’T FILED A TAX RETURN IN YEARS?
We receive numerous calls from taxpayers who have not filed their income taxes for a year up to 10 years or more. Not filing your income tax return can get you into serious trouble. If you don’t file for one year, the odds are you are going to be afraid to file for the next year. And suddenly you haven’t filed for 3, 4, or 5 years because you are afraid to contact the IRS. Since the IRS is more interested in getting the delinquent taxpayers back in the habit of filing the returns and making up for the past filings, non-filers do not have to worry about going to jail. As long as they cooperate and file their tax returns, the IRS is not going to lock you up.
It is best to file the omitted returns prior to the IRS contacting you. The fact that you are not able to pay the back taxes should not prevent you from filing those returns. Once the return has been filed, you may discuss with the IRS your payment options. You may find them surprisingly lenient. You should also try to get the penalties waived if you have a reasonable excuse. The interest, however, cannot be waived except in rare cases.
If the IRS comes after you before you have taken the steps to file the delinquent returns, it is still not too late to work out a solution. The IRS will accept a timetable for filing the back returns.
TAX TIP #1
Because of our bad economy, interest rates have hit what we consider to be at or near rock bottom. That is a plus. You can now lower your mortgage payments considerably by refinancing. There are various programs available. It may also be possible to take cash out of your home and keep your payments the same. You might consider going to a fifteen year mortgage while interest rates are so low in order to pay off your home quicker and save thousands of dollars in interest.
With home prices also low, the combination of low interest rates and low prices can make for some attractive home purchases. It’s also possible the government may extend the new home buyers credit beyond the November 30th date. Watch for that.
TAX TIP #2
Claiming a home-office deduction can cost you tax if you sell your home at a profit even if the gain is less than the tax free exemption under the home sale rules. That is because you must recapture the depreciation taken.
The thing to do is to not claim home-office deductions for more than three of the last five years before you plan to sell your home. By so doing, the home-office portion of your home would meet the two-of-five-year personal-use requirement to qualify for the home-sale exemption.
This article has been presented by PBS Tax & Bookkeeping Services, a company that has been providing income tax and bookkeeping services to the trucking industry for over a quarter century. If you would like further information, please contact us at 800-697-5153. See our website at www.pbstax.com.
Please remember everyone’s financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or accounting professional.