TaxMamas TaxQuips: IRS News

A Trip to the IRS Tax Forums, Page 2

Eva Rosenberg — Fri, 03 Sep 2010 09:17:00 -0700

Problem Resolution and Focus Groups

Problem Resolution had a facility at the Tax Forum. One of my friends brought a case file with her (and power of attorney forms, etc.). When picking up her registration packet on Monday, she was given a form to fill out with the specifics of her case (and a copy of the power of attorney – Form 2848). By the time she arrived at her appointment on Tuesday or Wednesday, the staff had pulled up relevant information about her case and researched the stumbling blocks. She sat down with them and resolved all the problems in no time at all. This is a case that has been a source of frustration for many, many months. Her clients have a refund coming soon.

Those folks who are smart enough to take advantage of the Problem Resolution services at these Tax Forums and other IRS events generally walk away really happy. This is one of the essential services I would hate to see go away, if IRS stops operating these forums and turns continuing education over to the associations and private vendors like myself.

Focus Groups are another special benefit at these Tax Forums. You get to meet with IRS and Taxpayers Advocate (TAS) staff (and perhaps other groups within IRS) to discuss issues of concern about taxpayers’ and tax professionals’ needs and how the system addresses them. Topics I attended two sessions with TAS – IRS Structure and Small Business Issues.

We ran into a little glitch on the Small Business session. Nine of the ten panelists showed up early, so they wanted to convene the session 15 minutes early. My friend Kris was booked to attend, too. She wasn’t there yet, so I called her cell phone, telling her we were starting early. She never managed to get in – and one of the coordinators was giving me nasty looks. She complained that she had been turning people away, waiting for my friend to show up. We finally started at 9:00 am without Kris. Well…it turned out that one of the people they turned away WAS Kris. Despite her telling them she had RSVPd and was expected. Oh well, it was the last day. Staff was tired.

Humor and irony aside, what did we discuss, or learn?

IRS Structure

The biggest complaint from tax professionals about the current structure of IRS is lack of consistency.
Consistency within the database, consistency of information, consistency in administering tax policy.

Now that IRS has moved away from regional operations to more centralized campuses, we would have expected that all information about a taxpayer can be consisently accessed from anywhere in the system. That’s not the case. When a taxpayer talks to the IRS customer service line, or to any of the collections or examination staff, they are meant to make notations about the contact in the client’s master file. Yet you call back a few days later, and the system doesn’t show the details of the last contact. The taxpayer or Rep has to start all over again, providing information and back-up. It’s time-consuming, frustrating and leads to frayed tempers.

Another problem is that the central exam campus loses paperwork. One person talked about a 9-inch stack of documents they sent in that never got associated with their client’s file. Another about submitting documents that take forever to get linked to the file, in the meantime, the next cycle of notices is being issued.

At present, some notices provide a fax number allowing you to submit documents. However, no one ever acknowledges receipt of those faxes. So you don’t know if your pages arrived, or something didn’t get through, or…

I suggested that IRS take advantage of the current e-services system IRS already has in place. Presently, we can look up client data. But how about allow practitioners to upload their documents related to audits and colletions directly into the client’s file? There would be a date/time stamp on the submissions – and we would know if any pages didn’t arrive.

Small Business Issues

The big surprise here was that the Taxpayers Advocate Service offers services to small businesses. Frankly, except for problems with payroll tax issues, none of us could really think of business instances of contacting TAS.

So the first recommendation was to have TAS put together a guide on what services businesses can count on from TAS.

The question came up about what one thing businesses do not use to their advantage or know enough about? Tax Credits available to small businesses. We recommended that IRS produce a publication putting all small business tax credits into one place.

Other recommendations where information is needed:

..How to properly dissolve a business – especially how to close out the books.
..Clear and usable cancellation of debt formulas, with their effect on tax attributes.

Recommendation on rules to change, clarify or make more fair?

BIG SCARY ISSUE – bookkeepers, staff and anyone dealing with payoll even remotely, can be held personally liable when the owner or officers don’t pay payroll taxes. In fact, even whistleblowers, trying to correct the situation have suddenly found themselves being financially responsible when they tried to get their boss to do the right thing and the boss used the money frivolously instead. Totally unfair and unreasonable. More payroll defaults are expected as the economy gets worse. These rules must change.

Pension rules for small businesses and the administration of the pensions – too complicated. Too easy to run afoul of.

Medical benefits for small businesses. Come on, is it REALLY necessary to jump through the hoops, to hire your spouse, etc. to get medical benefits in your business? Puhlleeeze. Please, make the medical benefits for small businesses easier to claim and to administer.

Gifts – limited to $25 per person per year? This number hasn’t changed since the Revolution. You can barely even cover postage for this amount. Time to update deductible gifts, don’t you think?

The new 1099 reporting requirements. CRAZY! Need I say more?

For more about the classes at the Tax Forum stay tuned. This will continue on Page 3 next week.

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A Trip to the IRS Tax Forums, Page 1

Eva Rosenberg — Fri, 03 Sep 2010 08:43:00 -0700

Last week, all my tax staff and I took our annual trip to the IRS Tax Forum.

When these forums first started out many years ago, the fee was $25 for three days of education provided by IRS staff and a variety of tax professionals from sponsor associations. It was an amazing value – especially since you could fulfill your entire annual continuing education requirement in one shot – for $25. Wow! OK, so the material was a little basic, with IRS devoting time to propagandize about their service…but still, the contacts you made were excellent. And you did get some insight into the way IRS operates.

A decade or so later, the fee has risen to $206 ($335 if registering late). Still a pretty decent value for three days of classes. Yet Walter J Matisewski, CPA from Rhode Island tells me these fees are not high enough. At a recent NATP conference, Walter heard Karen Hawkins, the Director of IRS’ Office of Profesional Responsibility indicat (or hint) that the IRS is going to be looking at the tax forums in the next couple of years to determine if they should be continued due to the excess cost and time it takes.

Hawkins is right. It’s time to re-evaluate the events. They have become bloated, out of all proportion. This year, there were over 6,000 people at the Las Vegas venue. Picture this. About 1,00 people sitting in a room, on those metal frame banquet room chairs, linked to each other in batches of 20 or 30. All these people squashed together, no room for their books or materials. Struggling to take notes, elbow poked into someone’s ribs. Nary a writing surface in sight.

Thank goodness for the two tall screens, one on either side of the podium, that show you the slides being presented. Unfortunately (since notes are so hard to take), the information on the slides is often not the same as the copies of the slides published in the conference syllabus. Some of the changes are significant – and it would be really good to be able to make note – but the presentations move pretty quickly and people miss some crucial details.

Moving between classes is like facing a stampede. Neither the conference administrators, nor the hotel (who surely must do this regularly, since they have these facilities for thousands of attendees) have worked out a way to get people smoothly into and out of the rooms. In fact, even if you get wise and stay in the same room for two or three classes, you have to fight against the tide of the stampede to get your registration card scanned so you can get continuing education credit for being present. (Has anyone thought of putting scanners in the front of the room, near the stage, instead of just at the entrance, in the back of the room?)

And the distance to conference facility! Whoowee! More people than ever rented those senior-mobiles to get around. One woman told me that she was stuck in the elevator for nearly half an hour trying to back her senior-mobile out before the doors closed. And just wait until you try to use the only two elevators in the facility – filled with two senior-mobiles side-by-side. Anyway, they solved that problem. They won’t be using the Mandalay Bay Hotel next year. They are moving to Cesear’s Palace, where the distances are not nearly as bad.

OK, enough about logistics. What about the services?

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Summer 2010 Statistics of Income Bulletin - Shows Drops in Small Business Income

Eva Rosenberg — Fri, 03 Sep 2010 07:27:00 -0700

WASHINGTON — The Internal Revenue Service announced availability of the summer 2010 issue of the Statistics of Income Bulletin, which features sole proprietorship data for tax year 2008.

About 23 million individual income tax returns reported at least one nonfarm sole proprietorship in tax year 2008, a 2 percent decrease since the prior year. Reported profits for those sole proprietorships decreased by 6 percent to $265 billion.

The Statistics of Income (SOI) Division produces the SOI Bulletin on a quarterly basis. Articles included in the publication provide the most recent data available from various tax and information returns filed by U.S.taxpayers. This issue of the SOI Bulletin also includes articles on the following:

Foreign-controlled domestic corporations: Foreign-controlled domestic corporations (FCDCs) filed 64,000 U.S. income tax returns for tax year 2007, accounting for only 1 percent of all U.S. corporation income tax returns filed for the year. Almost half of FCDCs reported profits (i.e., net income) totaling $226 billion, and those companies reported $184 billion in taxable income. FCDCs reported $53 billion in U.S. tax liability for 2007.

Corporate foreign tax credit: For tax year 2006, U.S.corporations reported more than $78 billion in foreign tax credits on about $847 billion in worldwide taxable income.

International income and taxes: Real foreign-source taxable income for corporations with a foreign tax credit rose 43 percent between tax years 2002 and 2004. Likewise, real total receipts of controlled foreign corporations grew 19 percent between tax years 2004 and 2006, while total receipts for U.S.corporations increased by just over 11 percent. Several other trends toward increased foreign activity of U.S.persons, as well as increased U.S.activity of foreign persons, are examined in this article.

The Statistics of Income Bulletin is available for download at IRS.gov/taxstats. Printed copies of the Statistics of Income Bulletin are available from the Superintendent of Documents, U.S. Government Printing Office, P.O. Box 37954, Pittsburgh, PA 1520-7954. The annual subscription rate is $53 ($74.20 foreign), single issues cost $39 ($48.75 foreign).

For more information about these data, write to the Director, Statistics of Income (SOI) Division, RAS:S, Internal Revenue Service, P.O. Box 2608, Washington, DC 20013-2608.

Related Items:

SOI Bulletin: Summer 2010

Historical Tables and Appendix

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Making IRS Payments

Eva Rosenberg — Fri, 20 Aug 2010 09:32:00 -0700

Proposed Regulations Expand the Use of Electronic Payment System and Discontinue Paper Coupons Next Year

WASHINGTON — Consistent with a Financial Management Service initiative announced in April of this year, the IRS today issued proposed regulations to significantly increase the number of electronic transactions between taxpayers and the federal government.

The proposed regulations (REG 153340-09) would eliminate the rules for making federal tax deposits by paper coupon because the paper coupon system will no longer be maintained by the Treasury Department after Dec. 31, 2010. The proposed regulations generally maintain existing rules for depositing federal taxes through the Electronic Federal Tax Payment System (EFTPS).

Using EFTPS to make federal tax deposits provides substantial benefits to both taxpayers and the government. EFTPS users can make tax payments 24 hours a day, seven days a week from home or the office.

Deposits can be made online with a computer or by telephone. EFTPS also significantly reduces payment-related errors that could result in a penalty. The system helps taxpayers schedule dates to make payments even when they are out of town or on vacation when a payment is due. EFTPS business users can schedule payments up to 120 days in advance of the desired payment date.

Information on EFTPS, including how to enroll, can be found at www.eftps.gov or by calling EFTPS Customer Service at 1-800-555-4477.

Some businesses paying a minimal amount of tax may make their payments with the related tax return, instead of using EFTPS. More details regarding taxes required to be deposited using EFTPS, dollar thresholds and other specific requirements are in the proposed regulations.

[TaxMama Note” Be sure to take a look at this last-minute payment option if you have not yet set up our EFTPS account.

Additional Information:

Publication 4132, which explains the process of enrolling and paying via the Internet

Publication 966, The Secure Way to Pay Your Federal Taxes for Businesses and Individuals

Publication 4169, Tax Professional Guide to Electronic Federal Tax Payment System

Publication 4320, EFTPS Toolkit, which contains PDF and descriptions of EFTPS educational materials and their intended target audience, and is for use by tax professionals and financial institutions to assist in educating their clients on the benefits of EFTPS.

Publication 4275, Express Enrollment for New Businesses

Electronic Payment Options Home Page

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Nine Tips for Taxpayers Who Owe Money to the IRS

Eva Rosenberg — Fri, 13 Aug 2010 06:18:00 -0700

Did you end up owing taxes this year? The vast majority of Americans get a tax refund from the IRS each spring, but those who receive a bill may not know that the IRS has a number of ways for people to pay. Here are nine tips for taxpayers who owe money to the IRS.

TaxMama Note: For tax professionals who want to learn to resolve these kinds of problems, The IRS Practice Series classes are starting at CPE Link in September.

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If you get a bill this summer for late taxes, you are expected to promptly pay the tax owed including any penalties and interest. If you are unable to pay the amount due, it is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS.

You can also pay the bill with your credit card. The interest rate on a credit card or bank loan may be lower than the combination of interest and penalties imposed by the Internal Revenue Code. To pay by credit card contact one of the following processing companies: Official Payments Corporation at 888-UPAY-TAX (also www.officialpayments.com/fed) or Link2Gov at 888-PAY-1040 (also www.pay1040.com) or RBS WorldPay, Inc at 888-9PAY-TAX (also www.payUSAtax.com).

You can pay the balance owed by electronic funds transfer, check, money order, cashier’s check or cash. To pay using electronic funds transfer you can take advantage of the Electronic Federal Tax Payment System by calling 800-555-4477 or online at www.eftps.gov.

An installment agreement may be requested if you cannot pay the liability in full. This is an agreement between you and the IRS to pay the amount due in monthly installment payments. You must first file all returns that are required and be current with estimated tax payments.

If you owe $25,000 or less in combined tax, penalties and interest, you can request an installment agreement using the Online Payment Agreement application at IRS.gov.

You can also complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill in the envelope that you have received from the IRS. The IRS will inform you usually within 30 days whether your request is approved, denied, or if additional information is needed. If the amount you owe is $25,000 or less, provide the highest monthly amount you can pay with your request.

You may still qualify for an installment agreement if you owe more than $25,000, but a Form 433F, Collection Information Statement, is required to be completed before an installment agreement can be considered. If your balance is over $25,000, consider your financial situation and propose the highest amount possible, as that is how the IRS will arrive at your payment amount based upon your financial information.

If an agreement is approved, a one-time user fee will be charged. The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account. For eligible individuals with incomes at or below certain levels, a reduced fee of $43 will be charged.

Taxpayers who have a balance due, may want to consider changing their W-4, Employee’s Withholding Allowance Certificate, with their employer. There is a withholding calculator available on IRS.gov to help taxpayers determine the amount that should be withheld.

For more information about installment agreements and other payment options visit IRS.gov. IRS Publications 594, The IRS Collection Process and 966, Electronic Choices to Pay All Your Federal Taxes also provide additional information regarding your payment options. These publications and Form 9465 can be obtained from IRS.gov or by calling 800-TAX-FORM (800-829-3676).

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IRS Removes Debt Indicator for 2011 Tax Filing Season

Eva Rosenberg — Fri, 06 Aug 2010 10:02:00 -0700

WASHINGTON — The Internal Revenue Service today announced that starting with next year’s tax filing season it will no longer provide tax preparers and associated financial institutions with the “debt indicator,” which is used to facilitate refund anticipation loans (RALs).

[TaxMama note: please see the related story.]

“As we prepare for tax season every year, we look at past practices and consider whether they still make sense. We no longer see a need for the debt indicator in a world where we can process a tax return and deliver a refund in 10 days,” IRS Commissioner Doug Shulman said. “We encourage taxpayers to use e-file with direct deposit so they can get their refunds in just a few days.”

So far this year, more than 95 million tax returns have been e-filed, representing more than 70 percent of tax returns.

“Refund Anticipation Loans are often targeted at lower-income taxpayers,” Shulman said. “With e-file and direct deposit, these taxpayers now have other ways to quickly access their cash.”

The IRS has been reviewing refund settlement products, such as RALs and Refund Anticipation Checks (RACs), as part of the Return Preparer Review released in January. Specifically, the IRS announced that it would study refund settlement products.

RALs are loans secured by a taxpayer’s anticipated tax refund. Currently, tax preparers who electronically submit a client’s tax return receive in the acknowledgment file an indication of whether an individual taxpayer will have any portion of the refund offset for delinquent tax or other debts, such as unpaid child support or delinquent federally funded student loans. This acknowledgment is known as the debt indicator, and is used as an underwriting tool for RALs.

The IRS announcement would remove the debt indicator starting with the upcoming 2011 tax filing season. The IRS noted that taxpayers will continue to have access to information about their tax refunds and any offsets through the “Where’s My Refund?” service on IRS.gov.

RACs are temporary bank accounts established on behalf of a taxpayer into which a direct deposit refund can be received and out of which a bank typically issues a payment to the taxpayer.

With both RALs and RACs, tax preparation and product fees are subtracted directly from the refund, and the taxpayer does not make any “out-of-pocket” payments. They are frequently marketed to taxpayers who do not have cash to pay for professional tax preparation services.

In a related effort, the IRS plans to explore the possibility of providing a new tool for the 2012 tax filing season to give taxpayers a mechanism to use an appropriate portion of their tax refund to pay for the services of a professional tax return preparer. The IRS plans to engage with taxpayers, consumer advocates and the tax return preparer community to consider whether providing this option would be a cost-effective way for consumers to pay for tax return preparation services.

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The End of RALs

Eva Rosenberg — Fri, 06 Aug 2010 09:22:00 -0700

This morning TaxMama received a press release from Harry W. Buckley, president and chief executive officer of Jackson Hewitt Tax Service Inc. in response to IRS’s announcement yesterday about removing the debt indicator from the electronically filed tax returns at the time of filing.

Mr. Buckley has strong concerns regarding the recent IRS announcement that it will eliminate the debt indicator for the 2011 tax season. In his opinion, this move has significant implications for taxpayers:

“The IRS decision to not provide debt indicator data to taxpayers through the electronic tax filing process will make it difficult for the millions of taxpayers who desire to receive cash quickly in connection with the electronic filing of their annual tax return. This form of credit, especially important to middle and low income, often unbanked, taxpayers, may well continue to be available in our industry.”

And the release goes on.

I am not surprised to get such a statement from a storefront-type operation like Jackson Hewitt whose target customer is the lower income taxpayer. They, and chains like them who push the Refund Anticipation Loans (RALs) will lose millions of dollars in income as clients are no longer able to get instant refunds.

In fact, if there is no incentive to come to a refund mill, they just might lose those clients altogether as they learn about no-charge tax preparation serices at VITA sites around their community, in their houses of religion, schools, libraries, etc.

For years, I have been speaking out strongly against the practice of pushing low-income taxpayers to get these quickie refunds. In fact, in my annual online filing article for MarketWatch.com, I have eliminated all the tax preparation sites who make the RALs a prominent feature – to the chagrin of certain major companies.

The problem is, most of the clients who get RALs don’t understand that they don’t have to pay for such a service. Their refunds will arrive in about 2 weeks anyway even if they don’t pay an extra $40 – $60 or more the ‘instant’ refund. They are often encouraged to believe this is the only way to get their refund. The National Taxpayers Advocate, Nina Olson, has been railing against this practice for years. IRS Commissioner Doug Shulman has actively discouraged the practice, to the point of excluding companies that push RALs from the FreeFile Alliance program.

I applaud IRS Commissioner Doug Shulman for taking this bold step to pull the rug out from under the entire RAL program.

Yes, some people who really need the money within a day or two to keep from getting evicted will be harmed. But, honestly, don’t you think it’s time that working people whose finances are that close to the vest learned more about how to get the refunds in advance?

Yes, you can get a substantial part of your Earned Income Credit refund in advance using Form W-5 to have some of that money added to your paycheck.
www.irs.gov/pub/irs-pdf/fw5.pdf

Perhaps the refund mills will earn some extra fees by helping these folks prepare those W-5s so they can get the money they desperately need to pay their monthly rent and groceries – so they face fewer financial emergencies requiring them to pay high fees to get their own money.

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Top 10 Things Every Taxpayer Should Know about Identity Theft

Eva Rosenberg — Fri, 30 Jul 2010 08:32:00 -0700

Taxpayers need to be careful to protect their personal information. Identity thieves use many methods to steal personal information and then they use the information to file a tax return and get a refund. Here are 10 things the IRS wants you to know about identity theft so you can avoid becoming the victim of an identity thief.

1. The IRS does not initiate contact with a taxpayer by e-mail.

2. If you receive a scam e-mail claiming to be from the IRS, forward it to the IRS at phishing@irs.gov.

3. Identity thieves get your personal information by many different means, including:

Stealing your wallet or purse

Posing as someone who needs information about you through a phone call or e-mail

Looking through your trash for personal information

Accessing information you provide to an unsecured Internet site.

4. If you discover a website that claims to be the IRS but does not begin with ‘www.irs.gov’, forward that link to the IRS at phishing@irs.gov.

5. To learn how to identify a secure website, visit the Federal Trade Commission at www.onguardonline.gov/tools/recognize-secure-site-using-ssl.aspx

6. If your Social Security number is stolen, another individual may use it to get a job. That person’s employer may report income earned by them to the IRS using your Social Security number, thus making it appear that you did not report all of your income on your tax return.

7. Your identity may have been stolen if a letter from the IRS indicates more than one tax return was filed for you or the letter states you received wages from an employer you don’t know. If you receive such a letter from the IRS, leading you to believe your identity has been stolen, respond immediately to the name, address or phone number on the IRS notice.

8. If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost wallet, questionable credit card activity, or credit report, you need to provide the IRS with proof of your identity. You should submit a copy of your valid government-issued identification – such as a Social Security card, driver’s license, or passport – along with a copy of a police report and/or a completed Form 14039, Identity Theft Affidavit. As an option, you can also contact the IRS Identity Protection Specialized Unit, toll-free at 800-908-4490. You should also follow FTC guidance for reporting identity theft at www.ftc.gov/idtheft.

9. Show your Social Security card to your employer when you start a job or to your financial institution for tax reporting purposes. Do not routinely carry your card or other documents that display your Social Security number.

10. For more information about identity theft – including information about how to report identity theft, phishing and related fraudulent activity – visit the IRS Identity Theft and Your Tax Records Page, which you can find by searching “Identity Theft” on the IRS.gov home page.

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Seven Tax Tips for New Business Owners

Eva Rosenberg — Mon, 19 Jul 2010 06:11:00 -0700

As you know, TaxMama is the author of Small Business Taxes Made Easy, which some people use as their business bible. Each of IRS’s tips is expanded, in detail, in Small Business Taxes Made Easy, – I’ll add the chapter references to IRS’s tips for you.

A new edition of the book is due out this winter. But, if you’re starting a business now, don’t wait for the new book. Use the current version – and these IRS tips. Note: These tips can be useful even if you’re already in business. Many people who’ve been in business for a dozen years or more have told me how helpful and eye-opening the information has been for them.

Are you opening a new business this summer? The IRS has many resources available for individuals that are opening a new business. Here are six tax tips the IRS wants new business owners to know – and one from TaxMama.

First, you must decide what type of business entity you are going to establish. The type of business entity will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation. (Chapter 3 – Small Business Taxes Made Easy )

The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax. (Chapter 1 Small Business Taxes Made Easy)

An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov. (Chapter 1 Small Business Taxes Made Easy )

Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes. (Chapter 4 Small Business Taxes Made Easy )

Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used. (Chapter 4 Small Business Taxes Made Easy )

Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them. (Chapter 4 Small Business Taxes Made Easy )

TaxMama tip – Every business needs a business plan. That’s the road map your business will follow to success. It also helps you know just what goals and target you need to reach each week or month or year. (Chapter 2 Small Business Taxes Made Easy)

IRS Publication 583, Starting a Business and Keeping Records, provides basic federal tax information for people who are starting a business. This publication is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676). Visit the Business section of IRS.gov for resources to assist entrepreneurs with starting and operating a new business.

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Six Tax Benefits for Job Seekers

Eva Rosenberg — Fri, 16 Jul 2010 09:24:00 -0700

Did you know that you may be able to deduct some of your job search expenses on your tax return?

Many taxpayers spend time during the summer months updating their résumé and attending career fairs. If you are searching for a job this summer, you may be able to deduct some of your expenses on your tax return. Here are six things the IRS wants you to know about deducting costs related to your job search.

To qualify for a deduction, the expenses must be spent on a job search in your current occupation. You may not deduct expenses incurred while looking for a job in a new occupation.

You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.

You can deduct amounts you spend for preparing and mailing copies of your résumé to prospective employers as long as you are looking for a new job in your present occupation.

If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.

You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.

You cannot deduct job search expenses if you are looking for a job for the first time.

For more information about job search expenses, see IRS Publication 529, Miscellaneous Deductions. This publication is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

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