Answer:  As a condition of your agreement, any refund due you in a future year will be applied against the amount you owe.

·         Continue making your installment agreement payments as scheduled because your refund is not considered as a substitute for your regular payment due.

·         You may not get all of your refund if you owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support.

·         IRS will automatically apply the refund to the taxes owed.

Closing the Benefits Loophole (excerpts from The Wall Street Journal)

A bipartisan group of legislators is pressing the Treasury Department to close a loophole that has allowed banks to seize Social Security and disability benefits from customers’ accounts despite federal rules intended to protect these benefits from creditors.

The loophole also has enabled some banks to seize from customers their recent $250 Economic Recovery Payments, payments to disabled veterans, and supplemental benefits to impoverished individual from the Social Security Administration.

Federal law says creditors can’t take Social Security, disability, veterans’ and children’s survivor benefits to pay a debt.  But the federal law doesn’t say how money deposited directly into bank accounts is to be protected –a gap that has given banks the ability to seize such funds.

A U.S. Bancorp spokeswoman says the bank is legally required to honor garnishment orders; it’s up to the customer to work it out with the creditor and the court.

Under the proposed Treasury regulations, banks would be forbidden from freezing accounts that contain direct deposits of exempt funds, and couldn’t take fees from exempt funds if the fees are a result of a garnishment.  If the funds are commingled with nonexempt funds, the banks would have to apply a formula to exclude the protected amounts.  The rules would protect banks from lawsuits from debt collectors and account holders.

But the Treasury hasn’t released the proposals.  Now, legal-aid lawyers say Social Security recipients are bailing out of the direct-deposit program to protect their benefits from the banks.

Steps to protect your Social Security, disability, veteran’s or pension benefits:

·         Don’t commingle Social Security and exempt benefits with nonexempt funds.

·         Don’t get a loan or credit card from the bank where your Social Security or pension is deposited.

·         If sued, go to court and demand proof of the debt.

·         If your bank account is frozen, file an exemption claim within 10 days.

Seven Things to Know About the Taxpayer Advocate Service (from IRS website)

If you’re experiencing problems with the Internal Revenue Service, you may be able to get help from the Taxpayer Advocate Service.  Here’s what every taxpayer should know about this independent organization within the IRS.

1.  The Taxpayer Advocate Service is your voice at the IRS.

2.  You may be eligible for TAS help if you’ve tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you think an IRS procedure just isn’t working as it should.

3.  TAS helps taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation.

4.  TAS employees know the IRS and how to navigate it.

5.  TAS will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved.

6.  TAS has at least one local taxpayer advocate in each state, the District of Columbia, and Puerto Rico.

7.  To contact TAS you can call your local advocate, whose number is in your phone book, or call the toll-free case intake line at 1-877-ASK-TAS1.  You can also visit TAS online at www.IRS.gov/advocate.

Personal Expenses or Business Expenses (from IRS website)

Most taxpayers with home-based businesses accurately report their income and expenses, while still enjoying the benefits that a home-based business can offer.

However, some unscrupulous promoters advise taxpayers incorrectly that they can operate any type of unprofitable “business” out of their home and claim personal expenses as business expenses.  Taxpayers cannot transform nondeductible personal living expenses into deductible business expenses, regardless of how convincing the information in the promoter’s marketing materials may seem.

These are generally not deductible as business expenses:

·     Deducting all or most of the cost and operation of a personal residence.  For example, placing a calendar, desk, file cabinet, telephone or other business item in each room does not increase the amount that can be deducted.

·     Paying children a salary for answering telephones or washing cars.

·     Deducting education expenses from salaries paid to children wrongfully claimed as employees.

·     Deducting excessive car and truck expenses when the vehicle was used for both personal and business use.

·     Deducting personal furniture, home entertainment equipment or children’s toys.

·     Deducting personal travel, meals and entertainment under the guise that everyone you encounter is a potential client.

Taxpayers should also be aware of depreciation recapture rules when assets are later sold.

Seven Facts about the New Sales Tax Deduction for Vehicle Purchases (from IRS Website)

Taxpayers who buy a new car or several other types of motor vehicles this year may be entitled to a special tax deduction when they file their 2009 federal tax returns next year. The tax break is part of the American Recovery and Reinvestment Act of 2009.

Here are seven things you should know about this new deduction:

1. State and local sales taxes paid on up to $49,500 of the purchase price of qualifying vehicles are deductible.
2. Qualified motor vehicles generally include new (not used) cars, light trucks, motor homes and motorcycles.
3. Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.
4. This deduction can be taken regardless of whether or not you itemize other deductions on your tax return.
5. Taxpayers will claim this deduction when filing their 2009 federal income tax return next year.
6. The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.
7. The deduction may not be taken on 2008 tax returns.

Consumers who are considering buying a new car may find that this tax incentive means there may have never been a better time to buy.

The so-called “kiddie tax” has been expanded for 2008, and young adults may now be ensnared in its trap. The kiddie tax basically treats the investment income of children as if it were received by their parents. So instead of a child paying tax on the investment income at a low tax rate, the tax is computed in the parents’ higher bracket. In 2007, the kiddie tax applied only to taxpayers under age 18. For 2008, it applies to taxpayers who are either (1) under age 19 or (2) age 19 through age 23 and are full-time students.

Starting in 2008, the capital gains tax from the sale of stocks, real estate and the like will be eliminated for taxpayers in the bottom tax brackets. Tax law changes had reduced this tax rate to 5% by 2007, but in 2008 the tax rate is 0%. However, this freebie may not be around forever. Unless Congress takes action, the capital gains tax will increase starting 2011.  If you are eligible, you may want to strike while the iron is hot!

Starting in 2008, you may be able to get more tax savings from your personal exemption and itemized deductions (Schedule A). Tax rules limit your tax savings if your income is too high ($239,950 for Married Filing Jointly and $159,950 for Single). The good news is that this limit is being gradually relaxed. Tax savings you lose in 2008 will only be one-half of what you lost in 2007, and in 2009, you lose nothing on these deductions.