If your pay from work involves compensation through tips, then the IRS would like you to be aware of a few facts about tip income. Here are four key points to keep in mind: 

1. Tips are taxable Tips are subject to federal income, Social Security and Medicare taxes.  The value of non-cash tips, such as tickets, passes or other items of value, is also considered income and subject to tax.

2. Include tips on your tax return You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip-splitting arrangement with fellow employees.

3. Report tips to your employer If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes. 

4. Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee’s Daily Record of Tips and Report to Employer, to record your tip income.

For more information see IRS Publication 531, Reporting Tip Income, and Publication 1244 which are available at www.irs.gov. Both can be ordered by calling 800-TAX-FORM (800-829-3676).

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After reviewing the 2010 federal tax return Gingrich released last week, the tax experts said he may have left himself open to an IRS challenge.

“That could be the type of return that would be flagged for an audit,” said one of the experts, Robert McKenzie, a tax attorney at the Arnstein & Lehr law firm in Chicago.

The experts, who also included Bryan Skarlatos, of Kostelanetz & Fink in New York, and Martin Press, of the Gunster law firm in Fort Lauderdale, said it would be difficult to pinpoint the amount of Medicare tax that went unpaid without additional financial detail. But they estimated it could amount to tens of thousands of dollars.

In a written response to questions on Monday, Gingrich’s campaign spokesman Joe DeSantis said “the salary and distribution were handled properly and legally.”

He declined to allow an interview with Gingrich’s tax preparer.

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Tax time is here, and State Treasurer John Kennedy reminds taxpayers to check to see if the IRS owes them old federal income tax refunds. “Over $1.3 million is owed to 1,362 Louisiana taxpayers whose federal income tax refund checks were undeliverable,” said Treasurer Kennedy.

The Louisiana Department of the Treasury has posted the IRS undelivered refund list on its Facebook page located at http://www.facebook.com/LouisianaTreasury. Anyone who sees his or her name should then proceed to the “Where’s My Refund” online service of the IRS at www.IRS.gov or by calling 1-800-829-1954.

“One of the main reasons a federal income tax refund can’t be delivered is because of an old address,” says Treasurer Kennedy. “When a taxpayer moves without notifying the IRS or the post office, the refund check that was sent to the individual’s old address is returned to the IRS.”

The “Where’s My Refund” tool on www.IRS.gov will provide taxpayers with the status of their refunds and will provide information on how to resolve delivery problems. To use the tool, a taxpayer must submit a Social Security Number, filing status and amount of the refund showed on his or her return. Taxpayers can claim their refund checks as soon as they update their addresses with the IRS.

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A Broward County couple was charged Monday with cashing millions of dollars of income-tax refund checks issued by the U.S. government to people under investigation for stealing others’ identities to file alleged fake tax returns.

Wilson Lau and Kate Yuee Lau of Coral Springs were charged with bilking the government in the first of a series of tax-fraud cases expected to be filed in federal court. The husband was also charged with aggravated identity theft.

The Laus, who operated American Quick Cash Depot in Oakland Park, are accused of conspiring to “enrich themselves by charging a fee for fraudulently obtained …tax-refund checks’’ bearing forged endorsements, according to the charges. The 75-year-old husband and his 54-year-old wife will be arraigned in Fort Lauderdale federal court Tuesday.

Investigators, led by the Internal Revenue Service and Secret Service, cited two instances last year when the Laus cashed checks — one for $5,415 and another for $9,391 — that “were stolen and bore falsely made and forged endorsements and signatures.”

The forfeiture filed by the U.S. Attorney’s Office revealed the magnitude of the couple’s alleged crime: The Laus processed a total of $5.26 million in fraudulently obtained tax-refund checks, according to court documents. It was unclear how much they pocketed in commissions for processing them.

The couple’s attorney, Robert Buschel, could not be reached for comment.

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Citibank is sending tax forms to customers who received thousands of airline miles as a reward for opening a checking or savings account. Those forms value each mile at about 2.5 cents and list the total dollar amount as miscellaneous income. (Timothy A. Clary, AFP/Getty Images / January 23, 2012)

Frequent-flier miles clearly have value — why else would people want them? But do they also represent taxable income?

Citibank seems to think so. It’s sending tax forms to people who received thousands of miles as a reward for opening a checking or savings account. Those forms value each mile at about 2.5 cents and list the total dollar amount as miscellaneous income.

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Earned Income (EIC) Tax Calculator

Earned Income Credit (EIC) is a tax credit available to low income earners. In some cases the EIC can be greater than your total income tax bill, providing an income tax refund to families that may have little or no income tax withheld from their paychecks. Use this calculator see if you qualify for the Earned Income Credit, and if so, how much it might be worth to you and your family. This calculator creates estimated values for tax year 2011.

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Some people may qualify for more than one filing status. Here are eight facts about filing status that the IRS wants you to know so you can choose the best option for your situation.

1. Your marital status on the last day of the year determines your marital status for the entire year.
2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
4. A married couple may file a joint return together. The couple’s filing status would beMarried Filing Jointly.
5. If your spouse died during the year and you did not remarry during 2011, usually you may still file a joint return with that spouse for the year of death.
6. A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.
7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2009 or 2010, you have a dependent child, have not remarried and you meet certain other conditions.

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Federal banking and tax law requires people to disclose foreign accounts they own or have signature authority over. Because United States citizens and residents are taxed on worldwide income they must also report the income derived from these accounts. For various reasons, many people have not provided the necessary account information and have not reported the income.

The IRS recently announced its third program whereby people can voluntarily report previously undisclosed foreign account information and pay tax on foreign account income. I suspect the IRS is hoping the level of participation will turn into a stampede based on its success with the two previous programs and the increased reporting of account/asset information by foreign financial institutions. Over $4.4 billion has already been collected under the previous programs.

Under the new program, a penalty as high as 27.5% of the highest aggregate foreign account/asset value during the eight full tax years prior to disclosure may be assessed. In limited situations the penalty may be as low as 12.5% or 5%.  In addition, participants will be required to file or amend tax returns for up to eight years and pay income tax, interest and certain tax penalties related to the previously unreported income.

Why would anyone want to voluntarily participate in a program with penalties and costs so severe? Well the short answer is if you are caught the result may be substantial fines and free housing in a federal prison for up to 10 years because you may be charged criminally. Also, the statutory penalty can quickly exceed 100% of the aggregate foreign account/asset value consuming domestic assets as well, and you are still liable for taxes, interest and tax related penalties. In this context the program looks like a good deal.

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Many celebrities work on projects that give them million-dollar paychecks, so why can’t they all hire good accountants? That’s what many people were wondering this week when they learned Lindsay Lohan is the latest celebrity to run into some IRS trouble.

Lohan reportedly received notice from the IRS that she owes almost $94,000 in unpaid income taxes from 2009. According to TMZ, the actress was unaware of the issue until recently.

Hopefully Lohan will take some of her recent Playboy paycheck to make things right with Uncle Sam and remember to file her taxes properly this year by the April 15 deadline. But let’s remember that the often-beleaguered actress doesn’t exactly have too many role models to look up to these days; her father, Michael Lohan, owed the government over $12,000 in unpaid taxes in 2010.

Of course, Lohan is also not the only celebrity scofflaw out there. In fact, stories about famous folk avoiding their taxes and getting into trouble seem to hit the news all too often.

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“The income tax has made more liars out of the American people than golf has.” – Will Rogers

But what if it were easier? And what if the IRS made it nearly impossible to lie? What then?

Last year, IRS Commissioner Doug Shulman hinted that one way to reduce the potential for tax fraud was to have IRS prepare returns for taxpayers. That’s right, you wouldn’t have to prepare returns come tax time: the IRS would do it for you.

The idea is commonly referred to as a “simple return” or “ready return” (yes, it sounds like a snack you might buy at a Wawa). Under the plan, the IRS would send out tax returns that had already been completed with taxpayer identification and wage information. Taxpayers would merely review the returns for accuracy and sign at the bottom… kind of a “check the box if you agree” system. Taxpayers would have the opportunity to correct any mistakes prior to submitting the returns to the IRS.

Why not? The IRS already has a good chunk of taxpayer information on file. Add to that the obligations of employers, financial institutions and other third parties to provide wage and other income information to the IRS and there’s already a nice little database at the IRS’ disposal.

But putting those returns together is not cheap. Right now, the IRS simply doesn’t have the manpower to prepare returns for taxpayers and pursuant enforcement and collections activities and adding to the rosters (and thus, the budget) would be a major endeavor. Shulman, however, seems to believe that it might be worth considering.

A limited version of the plan is already in place in California. The plan, called (of course), ReadyReturn, is free to taxpayers who qualify in the Golden State. The state uses information from the prior year’s return along with information from the form W-2 to pre-fill a California state tax return. The return only needs to be reviewed by the taxpayer and signed. Brilliant, right? Then how come no one is signing on?

For one, the number of taxpayers who qualify is limited. To qualify, taxpayers must have filed a 2010 California resident return as single or head of household and no more than five dependents. Taxpayers must only have income from wages from a single employer and must claim the standard deduction with no credits other than the renter’s credit. Depending on who you are, the program was either wildly successful or a terrible failure. The pilot program, sent out to 50,000 taxpayers, had a 27% participation rate. That works out to about 13,500 taxpayers. The state has about 20 million taxpayers, making the overall participation rate less than 1/2%. In 2009, the number of participants in the program grew to 60,000 taxpayers, or about 3%. Hardly statistically significant. But the folks who are using the system appear to like it.

The program has also seen success outside of the U.S. Programs in Sweden and Denmark claim participation rates of over 75% (downloads as a pdf). Could the IRS duplicate those kinds of results?

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