IRS Gives Business Formula for Telephone Tax Refund

The IRS has announced a formula that businesses can use to determine the amount of a telephone tax refund. A while back, I discussed the fact that individual taxpayers will receive refunds of telephone taxes that were determined to have been illegally charged by the government. Individuals were given a formula based on the number of dependents that would determine their refund amount, but businesses were supposed to add up the tax from their phone bills.

Instead, the IRS has issued an easier way to calculate a refund amount. It's still a little complicated, but better than having to dig out all your old phone bills. You're supposed to figure the percentage of your bill that was made up of the tax, based on your September and April 2006 bills, then apply that percentage to your total phone bills for the refund period, March 1, 2003 to July 31, 2006.

The bottom line is that when we prepare a business's tax return, we're going to need those two months' phone bills in order to figure the refund that's due you. A business, for this purpose, is a corporation or partnership

Here Come the Dems

With the new regime about to take over Washington, tax proposals that would probably not have passed in a Republican-controlled Congress are already flying around. One idea on self-employment tax for S-corporation owners is particularly scary.

S-corporation owners are subject to payroll taxes on their wages, but not to the 15% self-employment tax on the income their company earns. One proposal would end that treatment for all S-corporations. Another more limited proposal would end it only for personal service companies: doctors, attorneys, ACCOUNTANTS, and the like.

This area is being addressed because of abuse in the S-corporation arena. Many owners will unrealistically lower their wages in order to increase company income. This saves them about 15% on the income. Handled appropriately, S-corporations have become a significant planning tool for businesses. Removing their advantage for everyone seems like a little overkill.

Welcome to life in a Democratic congress!

2007 Mileage Rates Released

Mileage rates will be back up to 48.5 cents per mile for business miles driven in 2007, according to the latest figures issued by the IRS. Medical and moving miles will be deductible at 20 cents per mile.
The increase for business miles is 4 cents over 2006. For medical miles, the increase is 2 cents, from 18 to 20.

Of course, charitable mileage rates have remained steady at 14 cents per mile.

Retirement Contribution Limits for 2007 Announced

The IRS has issued the latest limits on retirement plan contributions for 2007. While past years increased because of changes in the law, the 2007 increases are due to inflation adjustments.

Plan	Limit
401(k)	$15,500 (up $500) $20,500 if born before 1958
SIMPLE plans	$10,500 (up $500) $13,000 if born before 1958
Keoghs, profit sharing	$45,000 (up $1,000)

Another Tax Scam Sniped

Folks, we'd love to tell you you've got a $12 million refund coming to you. But when you hear things like that about your tax situation, take them with a grain pound of salt. Otherwise, you might end up indicted like Wesley Snipes!

Snipes bought into a scam that claimed only income earned outside of the United States is taxable under the Internal Revenue Code. Obviously, the scam and its purveyors were full of, well, hot air (this is a family-friendly blog!)

Snipes and his (former) CPA have been indicted on eight counts of tax evasion. With his current career status, I'm just trying to figure out how many decades it will take him to pay back the $12 million.

New Installment Payment System from the IRS

The IRS announced that they have a new, easier system for arranging payments on delinquent taxes. Taxpayers can now go online and arrange for a free 120 day extension of time to pay (interest and penalties will still apply), or for $43, can request to pay their balance on a monthly payment plan (again, with interest and penalties).

While this simplifies the process of applying for an installment payment arrangement, the fact remains that the IRS is not a low-cost lender. Between the interest and late payment penalties, you're going to pay over 13% finance charges. The best bet is always to pay the Service as quickly as you can, and let us help you avoid situations where you would have a delinquent balance in the first place.

Bottom line is, paying the IRS late is bad...almost as bad as paying your CPA late!

Check Your Credit for Free

AnnualCreditReport.com

Thinking about applying for a loan or refinancing your house? Make sure you know what the bank will see before you go. Federal legislation requires Experian, Equifax and TransUnion to allow you to get a free copy of your credit report each year.

The site is sponsored by the three companies, easy to use, and will give you your information without subjecting you to a hard sell for some kind of credit monitoring service. (You know the kind--"you can cancel in the next 30 days, but it's $40 if you don't"!)

You're eligible for a report from each agency each year, which means you can receive three free reports. If you want the FICO score, which many mortgage lenders use to evaluate you, it's a small charge.

Refunds for Everyone!

That's right, everybody's getting a refund! And they could be as much as ... (drum roll) ... sixty dollars!

Okay, maybe that's not much to get excited about.

The federal government has had its hand slapped in court over collecting a tax on telephone service since 1898. The courts decided that the Treasury Department should not have been collecting this tax on long distance service, just on local service. As a result, the IRS will refund $13 billion of the collected tax to taxpayers.

The refund will be claimed on your 2006 tax return, where it will be treated as a payment towards your tax bill. Individuals will receive a refund ranging between $20 and $60, based on the number of exemptions they claim on the return.

Businesses will also receive a refund, but right now, the IRS says businesses must prove the amount of tax paid based on phone bills since 2003. It's likely that they will come up with a method of estimating this amount instead, so you business owners don't need to go digging through your old invoices just yet.