I’m letting everyone know right now! I’m cheating on my income tax this tax season – and you know why? I need the money.

The IRS won’t know that I’m cheating.  I’ll report more charitable contributions than I really did. I’ll claim deductions for the 10 new suits I bought, deduct the mileage for the 100,000 miles I drove, and claim depreciation on my home office equipment, all related to my fake home business.  Heck, I plan on claiming old Aunt Julie as a dependent too!

Just think, the additional few hundred bucks I get will come in handy when I have to pay a tax attorney to keep me out of jail.

That’s if I get caught?

Of course I am only kidding about cheating the IRS.  I would never consider defrauding them in any way. It’s just not worth it!  And I strongly suggest to all you taxpayers, don’t even think about cheating on your taxes.  Here’s why…

The Internal Revenue Service has stepped up it’s compliance with state of the art computer software, and they aren’t targeting the wealthiest taxpayers anymore.  Not only that, as more and more tax returns are filed electronically, the IRS has more time to poke around and review tax returns that deviate from normal computer tax models.  Another great reason not to cheat on your taxes is that the IRS has experienced significant revenue shortfalls over the last few years.  They are putting an emphasis on recovering past due tax debts and squeezing every penny out of taxpayers.

So avoid inflating tax deductions even a little bit, the last thing you want is a tax audit.  If the IRS accuses you of tax fraud, the consequences could be extreme.  If you are found guilty you will have to pay the amount, plus penalties, plus possible interest charges too.  In serious cases, you can be put in jail.  If you’re smart, you’ll want a tax attorney to represent you. You don’t want to know how much that will cost you.

Do yourself a favor, and avoid the temptation to cheat on your tax return.  Better yet, pay for a reputable tax preparer to calculate your tax return for you.  It’s best if the IRS doesn’t know your name!

The bad economic times are not only effecting U.S. citizens, it  is effecting IRS interest rates. Starting on January 1, 2009 the IRS will drop interest rates for underpayments and overpayments by one full point.

The new rates will be:
Five (5) percent for overpayments [four (4) percent in the case of a corporation];
Five (5) percent for underpayments;
Seven (7) percent for large corporate underpayments; and
Two and one-half (2.5) percent for the portion of a corporate overpayment exceeding $10,000.

The Internal Revenue Code interest rate is recalculated quarterly.  That rate is calculated using the federal short-term rate plus 3 percentage points for overpayments and underpayments for everyone except corporations.

For corporations the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. 

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points.  The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The 2009 IRS interest rates are calculated from the federal short-term rate during October 2008 to take effect Nov. 1, 2008, based on daily compounding.

Revenue Ruling 2008-54, announcing the new rates of interest, is attached and will appear in Internal Revenue Bulletin No. 2008-52, dated Dec. 29, 2008.

The impact of this measure means less the IRS will recoup less money as it means less for the American citizen.

For more info log onto www.irs.gov

Let’s face it, times are tough and they will probably get tougher before they get better.  It’s certainly not the time to make charitable contributions … or is it?

Making charitable contributions could help to reduce your 2008 income tax obligations.  Here are a few recommendations and the rules for each, from non other than the IRS:

1. Special Charitable Contributions for Certain IRA Owners
An IRA owner, age 70 ½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charitable organization. This option, created in 2006 and recently extended through 2009, is available to eligible IRA owners, regardless of whether they itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the amount given to the charity.

Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Transferred amounts are counted in determining whether the owner has met the IRA’s required minimum distribution rules. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.

2. Rules for Clothing and Household Items
To be deductible, clothing and household items donated to charity must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to be in good used condition or better if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances, and linens.

3. Guidelines for Monetary Donations
To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card, and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for monetary donations do not change or alter the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet the requirements of both provisions.

To help taxpayers plan their holiday-season and year-end giving, the IRS offers additional reminders at http://www.irs.gov/newsroom.