More News from the IRS

The IRS has sent two more email blasts which contain items that are on point as all of us are feverishly trying to complete our 2008 tax returns. If you want to get a head start on preparing 2009 tax returns join us on April 13th at Northwest Alpacas for our Alpaca Taxes and Business Plan Seminar.

Issue Number: TT-2009-51

Inside This Issue

Seven Important Points about Penalties

Taxpayers who do not file their return and pay their tax by the due date may have to pay a penalty. Here are seven things you should know about failure-to-file and failure-to-pay penalties.

1. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.
2. The penalty for filing late is usually 5 percent of the unpaid taxes for each month of part of a month that a return is late. This penalty will not exceed 25 percent of the taxpayer’s unpaid taxes.
3. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
4. You will not have to pay a failure-to-file penalty if you can show that you failed to file on time because of reasonable cause and not because of willful neglect.
5. You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid.
6. If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty.
7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

Link: Avoiding Penalties and the Tax Gap

Is it Too Good To Be True? Home-Based Business Tax Avoidance Schemes

NOTE: This headliner is current through the publication date. Since changes may have occurred, no guarantees are made concerning the technical accuracy after the publication date.

Headliner Volume 263-March 1, 2009

If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. The home office deduction is available for homeowners and renters, and applies to all types of homes, from apartments to mobile homes.However, the Internet may provide a new medium for promoters to sponsor illegal tax avoidance schemes. Many of these schemes involve the use of fictitious online businesses including online retail and services, online auction sales, and bartering. Some of these tax avoidance schemes suggest the conversion of a hobby or recreational activity into a “business” in order to claim personal expenses improperly as business expenses.

Taxpayers should regard as highly suspect any investment scheme or promotion that claims to allow a person to deduct what would normally be personal expenses and not ordinary and necessary business expenses. As always, a business must truly exist prior to claiming any business expenses. Read on . . .