Tax Presentation – February Meeting

The presentation for this meeting was “Your Computer Against the IRS Computer”.  Our presenter was Thomas Taibe, who is a 25-year former employee with the IRS working in the Compliance and Special Enforcement areas and now has his own business working from home.

Tom first discussed electronic filing of tax returns.  He directed us to go the IRS website where there are a number of companies that would file a person’s tax return for free.  He referred to the 2007 Free File IRS and Free File Alliance partnership.  This is a group of companies that will file your taxes for free under certain conditions, such as a requirement of an adjusted gross income of $52,000 or less in 2006.  Other conditions also applied.

By clicking on the “Browse All Companies” area, a list the companies and the requirements to use their free services will appear.

By clicking on “Guide me to a Company”, it will prompt you for your situation and will guide you to a company/program that will fit your needs.

Be sure to click to see if there is a fee to do your state income tax.  And check to see if there is a fee to pay by credit card.  A charge may be applied directly to your credit card in addition to any taxes you might owe.

There may be a fee of $15.95 to file your Federal income tax electronically and also a $15.95 fee to file your state income tax electronically using your own credit cards.  Don’t e-file if you don’t need the refund money right away.  A question may be asked when you are filing if you would like to deduct the filing fee from your refund.  Doing this could incur an additional charge of $24.95, over and above the $15.95 electronic filing fee.  There may also be a fee to get the refund earlier than the normal IRS response time if that is what you wish.

If you have an income tax preparer do the electronic filing for you, there may be an additional fee of $50.

A cost is still incurred if you purchased the TurboTax or Tax Cut software to prepare your tax return.  You would be paying the cost up front when you purchased the software.

Tom wanted the club members to be aware of a new tax credit that has been passed for this year only for excise taxes that have been charged on your telephone bill.  This federal tax has been in effect since the Korean War.  There was a class action suit that resulted in everyone getting a credit on his or her taxes in 2006.  There are two options to determine the amount of the tax credit.  The first option is to take all your telephone bills from 2003 to 2006 and add up the excise tax on those bills and take that amount as the credit.  However, since most people do not have those old bills available, the law allows the use of an amount from $40 to $60 to be used as the credit based on the number of people in your family and your income. This credit can be obtained by using form TR40.

Tom also reminded the members that the taxes paid to the State of New Jersey in 2005 are a deduction on Schedule A of your Federal taxes in 2006.  However, any refund of taxes that you received from the State of NJ must be reported as income.

A question was asked about fraud.  Tom said the worst kind of fraud was not reporting income.  This could be considered criminal fraud.  Exaggerating expenses most likely would be considered civil fraud.  Penalties would be applied if the problem occurred over and over and was determined to be deliberate and not negligent.

Another question was asked as to when to use tax software and when to use a tax preparer.  Tom said using tax software is fine.  But the purpose of using a preparer is to help you take all the deductions you are entitled to since you possibly would not know all the tax laws and credits that would apply.

Make sure you keep track of any energy saving home improvements which might result in an energy related tax credit for 2006.

In response to a question, Tom confirmed that in general the IRS selects candidates for audits from the returnes filed in the first half of the year.  You always need to pay your estimated taxes by April 15 in order to avoid a penalty, but you can file your return as late as October without penalty. Late filing results in less chance of an audit.

The meeting concluded with a comment by Tom that he would continue to answer specific questions after the meeting broke up.

Thank you, Tom, for an entertaining discussion and for providing us with this valuable information