A Melbourne, Florida man could face up to six years in federal prison and a fine of up to $200,000 after refusing to accurately report his income to the IRS. His reason for not filing, as he told IRS agents, was that he was not subject to man’s laws because he “resided in the Kingdom of Heaven.”

The man, Russell P. Gentile, was charged with obstruction of an IRS agent and filing false tax returns. According to FloridaToday.com, Investigators reported a series of letters and conversations on behalf of the IRS in which Gentile demanded to be removed from the IRS databases, questioning their authority and threatening to sue the IRS. In response, the IRS brought him into court on serious criminal charges, and he has been indicted on filing false tax returns.

Untouchable Al Capone’s Undoing, Courtesy of the IRS

It just goes to show that no matter what lengths you may go to, taxes are an inescapable fact of life – no matter where you claim to reside. Think of Al Capone, criminal mastermind and notorious gangster. Capone is infamous for his alleged involvement in countless murders, violations of prohibition, and an endless variety of other crimes. However, the crime that finally did Capone in was tax evasion. Capone discovered that tax evasion is no minor crime, as it came with a penalty of 11 years in prison!

Nothing Certain, but Death and Taxes

No matter which side of the law you may find yourself on – both man’s law and otherwise – the IRS is omnipotent in its reach, should you not adhere to their edicts of filing, reporting and paying.  The IRS imposes serious penalties for late filings. The moral of the story is, file your taxes (and try to do it on time).

The late-filing penalty is five percent per month, and additional penalties may be assessed as well. If a person fails to pay these owed taxes, the IRS can take matters into their own hands by levying wages, bank accounts, other income, or placing liens against assets of the taxpayer. As Benjamin Franklin said, “in this world nothing can be said to be certain, except death and taxes.” That adage survived through the heyday of mobsters like Capone, and seems to be alive and well today.

The terms ‘capital gains’ and ‘capital losses’ are heard especially often during an election year, with many candidates debating and proposing different tax policies and plans. You may have heard these terms and wondered what they really meant. You may not have realized it, but it is likely that these capital gains and losses directly affect your personal taxes.

So what is all this talk about Capital Gains?

Did you know that almost everything you own and use for personal pleasure or investment purposes is considered a capital asset? When you sell one of these capital assets, the difference between the amount you initially paid for it and the amount you sell it for is called a ‘capital gain’ or a ‘capital loss.’ The proper reporting of these capital assets, and their gains and losses, on your federal income tax returns can save you a bundle of money, so there are several things you should know to properly report and take full advantage of your capital gains and losses.

So how do I report Capital Gains or Capital Losses?

Here are some things to remember in determining your Capital Gain or Capital Loss:

• No Deduction for Personal-Use Property. You may deduct capital losses on investment property, but not on personal-use property.
• Long Term versus Short Term. A capital asset held for more than a year is classified as long-term, while a capital asset held for less than a year is classified as short-term.
• How to Calculate Capital Gain or Loss. To calculate the net capital gain on long-term assets (it is a capital gain if your long-term gains exceed your long-term losses), subtract any short-term losses from the net capital gain to calculate the net capital gain you must report.
• Realizing your capital gains is vital to saving you money because tax rates that apply to the net capital gain are usually lower than those that apply to other income. For the 2011 tax year, the maximum capital gain rate for most people is 15%. For lower income individuals, the rate may even be 0%; however, special categories of net capital gain may be taxed at a rate of 25% or 28%.
• Capital Losses Reduce Taxable Income. If your capital losses exceed capital gains you can deduct the excess to reduce other taxable income (such as wages) on your tax return–up to an annual limit of $3,000.00 ($1,500 if married filing separately).  If the total net capital loss exceeds this limit, the remaining deduction can be carried over to the next year.
• Capital Gains and Losses Figured on Form 8949, and Schedule D of Form 1040.Use the form, Form 8949, Sales and and Other Dispositions of Capital Assets, to calculate capital gains and losses. You should use this form to list all capital gains and losses, and the subtotals from this form should be carried over to Schedule D (Form 1040), where gain or loss will be calculated.

For more information on reporting capital gains and losses, see Schedule D Instructions, Publication 550 (Investment Income and Expenses) or Publication 17 (Your Federal Income Tax). All forms available at www.irs.gov or by calling 800-TAX-FORM.

All Social Security recipients should receive a Form SSA-1099 from the Social Security Administration which shows the total amount of their benefits. You can use this information in addition to the following to determine if your benefits are taxable:

Did you receive other income?

• If Social Security benefits were your only income for 2011, your benefits are not taxable and you probably do not need to file a federal income tax return.

• If you DID received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status (calculated on a worksheet in the Form 1040A or Form 1040 Instruction booklet – but must tax software will calculate this for you).

Here’s quick computation to determine whether some of your benefits may be taxable:

1. Add one-half of the total Social Security benefits you received to all your other income, including any tax-exempt interest and other exclusions from income.
2. Compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.

The 2011 base amounts are:

$32,000 for married couples filing jointly.
$25,000 for single, head of household, qualifying widow/widower with a dependent child.
$0 for married persons filing separately who lived together during the year.

For additional information on the taxability of Social Security benefits, see IRS Publication 915.

With football season winding down, another season is just starting – Tax Season.  Although watching the college bowl games and NFL playoffs is clearly much more exciting than watching the IRS’s youtube video above, you can stay on top of your “tax game” by following these tips:

1. GATHER YOUR DOCUMENTS you’ll need when filing your taxes: receipts, canceled checks and other documents that support income or deductions you’re claiming on your return.  Keep a lookout for your W-2s and 1099s which you should receive soon – you’ll need these to file your tax return.

2. USE THE Interactive Tax Assistant available on the IRS website to find answers to your tax questions about credits, deductions, general filing questions and more.

3. LET Free File do the hard work for you with brand-name tax software or online fillable forms. It’s available exclusively at www.irs.gov. Everyone can find an option to prepare their tax return and e-file it for free. If you made $57,000 or less, you qualify to use free tax software offered through a private-public partnership with manufacturers.　If you made more or are comfortable preparing your own tax return, there’s Free File Fillable Forms, the electronic versions of IRS paper forms.

4. CHECK OUT IRS e-file – a safe and easy way to file a tax return.　Last year, 79 percent of taxpayers – 106 million people – used IRS e-file. Many tax preparers are now required to use e-file.

5. CONSIDER OTHER FILING OPTIONS. If you have a more complex tax situation, it may be advisable to retain a tax professional to prepare your return.  Alternatively, you may be eligible for free face-to-face help at a volunteer site (VITA).  Check to see if there’s a VITA location near you.

6. DO THE DIRECT DEPOSIT. The IRS issues refunds to 98 percent of electronic filers by direct deposit within 14 days, if there are no problems, and some may be issued in as few as 10 days.

9. CHECK OUT IRS PUBLICATION 17 – Your Federal Income Tax, on the IRS website. It’s a comprehensive resource for taxpayers, highlighting everything you’ll need to know when filing your return.

10. REVIEW! Don’t rush. Mistakes slow down the processing of your return. Be sure to double check all the Social Security numbers and math calculations on your return as these are the most common errors.

Ronnie Deutch, the infamous “Tax Lady” is a great example of why you should think twice before hiring a large, out of state Tax Law Firm to handle your IRS Problems.  Ronnie Deutch ran the largest tax resolution firm or “Tax Mill” in the country.  Spending $12 Million+ in advertising over the last four years, her constant tv commercials, the Tax Lady was hard to miss.

Unfortunately, the Tax Lady Tax Mill empire recently came crashing down.  In May, “Roni Deutch, A Professional Tax Corporation” closed after having assets seized when Deutch was found in contempt of court pertaining to the  $34 million lawsuit filed by the California Attorney General.  The Attorney General charged Deutch in August of 2010 with fraudulent and misleading business practices.  Her successful Tax Law Firm operated in a call center like manner, transferring potential clients to sales agents (with no legal or tax background) for a free tax consultation.  The sales pitch involved false promises of significantly reducing the client’s IRS tax liability.

In reality, the Deutch Tax Firm swindled clients out of Millions of dollars while rarely taking care of their IRS Tax issues.  According to the California Attorney General, each year about 3/4ths of Deutch’s clients canceled the law firm’s services or were terminated as clients for failure to pay

As irony would have it, the IRS subsequently filed a tax lien against Deutch for $183,000.

Unfortunately, the Tax Lady is just one of the many companies swindling financially troubled people by making fraudulent promises of IRS Tax Settlements.   Just to name a few, Tax Masters, American Tax Relief, Progressive Tax Group, Innovative Tax Relief , Guardian Tax Resolutions, Urgent Tax Care, Tax Group Center, Blue Tax, Associated Tax Relief, ratings of “F” with the Better Business Bureau (bbb.org) and have dealt with a slew of charges relating to their fraudulent business practices.

Most taxpayers that fall victim to a Tax Mill operation are left in a worse position than they were in prior to seeking the companies’ services. Not only are many – if not most – of them still liable for the original amount of IRS debt, but they also are out-of-pocket substantial sums of money paid for the services of these companies. So before dialing that toll-free number because an animated promise you relief of your tax debt, beware of getting “more than you bargained for.”Don’t let this happen to you. If you are having IRS tax problems, keep this in mind:  You as a taxpayer are ultimately responsible for your tax liability and ONLY the IRS has the ability to reduce that tax liability.  Although it is wise to seek the counsel of a tax attorney when dealing with the IRS, beware of anyone that makes particular claims or guarantees as to what they can do and claims to be able to “quickly” resolve the matter.

Lebron James Takes some Heat to Save Millions in Taxes

On July 8, 2010, much to the chagrin of Cleveland Cavaliers owner Dan Gilbert, the city of Cleveland, and millions of NBA fans, free agent Lebron James announced his decision to play for the Miami Heat.  The controversial move became a media obsession with James agreeing to a less lucrative contract to boost Miami’s ability to sign other key free agents—particularly Dwayne Wade and Chris Bosh—in an attempt to build a juggernaut and win championships.

Undoubtedly, the Miami move was fueled by an opportunity to win a NBA championship and secure his legacy alongside All Stars such as Michael Jordan and Larry Bird.

While James’s legacy is yet to be determined, the move proves financially advantageous.  In fact, it will save him millions of dollars in state income taxes over the duration of his Miami contract.

Unlike most states, Florida does not impose state or local income taxes on individuals.  Forty-three out of fifty states and even a few local jurisdictions impose taxes on the income of individuals.  That tax burden is in addition to Federal income taxes.

Aside from Miami, as a free agent James was pursued by the Cleveland Cavaliers, New York Knicks, New Jersey Nets, Chicago Bulls, and the Los Angeles Clippers.  For comparison sake, let’s look at the impact of these other options:

* New York City imposes a local income tax of 3.876% on top of New York’s 8.97% state income tax.

The other teams would need to offer James a significantly higher compensation package to offset the income tax savings offered by a move to Florida.  Due to the NBA’s salary cap, however, the other teams couldn’t overcome the Florida income tax savings by simply offering him more millions.

James’s tax savings will compound once you factor in his non-NBA gigs.  James has secured some high dollar global marketing campaigns, providing him tens of millions of dollars of auxiliary compensation each year (which greatly exceeds his yearly NBA salary). While sipping a margarita on South Beach, James can sit back and watch the millions he’s saving in state income tax stack up—courtesy of the Sunshine State.

James is just one of the many wealthy individuals, celebrities, and sports figures that have made to the move to Florida, undoubtedly factoring in the significant income tax savings.  This opportunity for income tax savings, however, is available to every Florida citizen—not just the rich and famous.

Further, this benefit can also provide a significant tax savings to businesses willing to start or relocate in Florida.   If a business is structured as a partnership for Federal tax purposes (LLCs, Partnerships, S Corporations), it will avoid any additional state or local income tax in Florida.  Considering the outstanding climate, tourist attractions, sports, beaches, in addition to the income tax savings provided to residents and businesses, James definitely made the right decision to sign with Miami!

Using the bankruptcy route to discharge tax debt might not take you to your "debt free" destination

After the “fallout” from 2008, we all probably know someone who has filed Bankruptcy – Many of whom wiped out a majority of their debt, including some or all of their IRS tax liability.  Unfortunately, you may have a hard time keeping up with “the Joneses” down the street who are still bragging about kicking the IRS to the curb by filing bankruptcy.

In order to file for bankruptcy, you must have filed, or present with your petition for bankruptcy, your tax returns – tax returns showing you are current in filing your taxes. So even if you haven’t filed those returns yet and are considering filing for bankruptcy, you must file the past due returns and include them as part of your bankruptcy petition.

Furthermore, in order to discharge tax debt from late filed returns, the late return typically must have been filed two years prior to the date of filing the bankruptcy petition.  If this caveat makes bankruptcy look much less enticing,  you might consider holding off filing your bankruptcy petition.

Bottom Line: If you want to discharge tax debt, you must timely file your tax returns.

If you haven’t filed – FILE YOUR TAX RETURNS – and wait out the two year period before filing for bankruptcy!

1. stocks and bonds held as investments;

2. personal residence owned and occupied by you and your family;

3. personal automobile used for pleasure or commuting;

4. personal jewelry and gems;

5. gold, silver and other metals;

6. timber grown on your home property or investment property; and

7. coin or stamp collections.

When a capital asset is sold or otherwise disposed of, it results in either a capital gain or a capital loss. If you sell a capital asset for more than the basis in the asset – usually the purchase price – you have a capital gain. If you sell a capital asset for less than the basis in the asset – usually the purchase price – then you have a capital loss. While personal-use capital losses are generally NOT deductible in contrast to business-use capital losses, personal-use capital gains are generally taxed at lower capital gains rates, which are laid out below.

Capital gains and losses must be reported on Form 1040, Schedule D. The disposition of capital assets held for more than one year are considered long-term capital gains (or losses). The disposition of capital assets held for one year or less are considered short-term capital gains (or losses).

The tax rates that apply to capital gains are generally lower than the tax rates that apply to other income. The lower rates are called the maximum capital gains rates. For Tax Year 2010, the maximum tax rates for individuals are 0%, 15%, 25% and 28%. To figure the capital gains tax rate that will apply to your personal-use capital gains, use the Form 1040, Schedule and its accompanying worksheets and instructions.

For more information regarding capital gains and losses, see IRS Publication 544: Sales and Other Dispositions of Assets.

PENALTIES AND INTEREST.  For every day your tax return is late, filing penalties, payment penalties, and interest will incur on any tax you owe.

THE IRS WILL FILL OUT YOUR RETURN FOR YOU.  If the IRS receives your tax information from a third party (employers, banks, investment accounts, etc.), the IRS will then fill out your return for you, while assessing tax, penalties, and interest.  THIS IS BAD!  The IRS does NOT consider personal exemptions, deductions, credits, etc. when completing your return.  Accordingly, this often results in an overestimate of taxes, penalties, and interest due because the IRS is using incomplete and/or incorrect information!

Once the IRS fills out a substitute return, you become subject to the IRS collection procedures for outstanding balance – according  to their calculations. This procedure can include a levy on wages or bank accounts, and filing a federal tax lien against your property and assets! This is NOT a process that you want the IRS to start, especially if owe a relatively small amount of tax.

YOU ARE DUE A TAX REFUND.  Even if you think you are due a refund, you still need to file.  The IRS only gives you three years from the tax return due date to subsequently file and receive a refund from that tax year – otherwise the government keeps your refund!

OPTIONS IF YOU CAN’T PAY THE TAX NOW.  If you did not file because you can’t afford to pay the tax, consider filing an extension or setting up a payment plan with the IRS.  Even if your failure to file is due to financial hardship, you nonetheless are on the hook for getting your return filed. The Taxpayer Advocate Service or a Low Income Tax Clinic may be able to assist you if you are unable to file due to financial hardship. You can find a Low Income Tax Clinic near you at http://www.irs.gov/pub/irs-utl/pub._4134-04.pdf

MOST IMPORTANTLY:  If you missed the Tax Return filing deadline, FILE A RETURN OR EXTENSION IMMEDIATELY. As long as you file something, the IRS is more likely to work with you on a feasible payment plan. However, the IRS becomes much more difficult to work with once they begin sending you Assessment Notices.  When dealing with the IRS, a couple of old adages hold true:

Since “nothing is certain but death and taxes,” it really is “better late than never” to file your Tax Return.

The IRS now has FREE e-file for all taxpayers (including all forms and schedules).  Beware of the companies like Turbo Tax that advertises “free e-filing.”  If you have a very simple tax return, you can likely qualify for the free filing with one of those companies; however, if you itemize your deductions, have a rental property, or have any situation out of the norm, you will have to pay to “upgrade” the free e-filing package.

Since this is one of the most dreaded days of the year, a bit of IRS humor is in order!