MONEY

Tax Day Roundup: Last-Minute Fixes & Reasons for Cheating

Tax Day news from around the Web:

  • If you still haven’t filed yet, all is not lost. Here’s a list of last-minute tax tips. [Lifehacker]
  • The slew of tax breaks enacted last year has both taxpayers and the IRS scrambling to keep up. The IRS has erroneously issued millions in tax credits even as it has detected and stopped faulty refunds. [Associated Press]
  • Enjoy tax day in 2010, because taxes are only going up from here. As America ages and Social Security and Medicare costs go up, higher taxes may become unavoidable down the road. [Newsweek]
  • Cheating on your taxes is wrong, but that doesn’t mean people don’t do it. Here are five incentives people have for bamboozling the IRS. [BNet]
  • Or cheaters might have more ominous reasons to fudge the numbers. The government often uses tax laws to go after suspected criminals such as drug dealers and terrorists. It all began with Al Capone, who called his 11-year sentence for tax evasion conviction a “blow to the belt.” [The Huffington Post]

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MONEY

More Money Wednesday Roundup: Audit Avoidance & Freelancers’ Safety Net

  • Down to the wire for paying taxes? The IRS realizes it’s been a tough year. If you can’t cough it all up by April 15, here’s a step-by-step on prioritizing payments. [Boston Globe]
  • Taking the good with the bad: if the blitz of recent articles about the supposed, speedy recovery have you wondering which way is up, take stock in the facts. [The Atlantic]

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MONEY

More Money Monday Roundup: E-Filing Advice & a Hedge Fund Show Tune

  • The Fed might have led you to believe that the recession ended sometime in mid 2009, but a committee at the National Bureau of Economic Research has released a statement that we are not yet out of the woods in the economic downturn. [New York Times]
  • Nothing like a good show tune to wipe away the fat cat gloom. This American Life and Planet Money asked a Broadway composer to put together a number for their segment on the hedge fund Magnetar. Here’s the result. [The Huffington Post]
  • Sure, you gripe about the cost of gas in relation to your automobile. But what about parking? Check those garage tickets to make sure time and price match up: after all, rip-offs happen. [The Consumerist]
MONEY

More Money Thursday Roundup: Five Fees to Dump & Why Blondes Make More Dough

Personal finance from around the web:

  • Tax day is fast approaching, and if you haven’t filed yet, it’s probably making you grumble. The Washington Post debunks five myths about your taxes. [The Washington Post]
  • And would you tattle on someone you know is cheating on his taxes? The IRS hopes you will. If you have specific and credible evidence, you could score a payout. [WalletPop]
  • Maybe a dye job should be part of your investment portfolio. Not only do blondes have more fun — they have more money, too, according to a new British study. [It's Your Money]
  • FreeCreditReport.com, the site that promises a free credit report but really charges you a monthly fee for the service, is changing its tune. Slightly. With new federal guidelines requiring such sites to clearly state that the only real source of free reports is annualcreditreport.com, the company has started charging $1 for the report and donating the cash to charity. The move looks like a clever way to get around the new rules. [The New York Times]

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MONEY

More Money Wednesday Roundup: A Thrifty Trick & Big Bank Failures

Personal finance from around the Web:

  • Fearful of fraud? Of course, you are. In fact, it’s is a sign of successful messaging on the part of the IRS, which seems to make an annual push for publicizing tax fraud cases as the calendar year approaches April 15th. [Economix]
  • If you have ever been in a Southwest Airlines corral for seating, you will probably enjoy AirTran’s latest commercial, which takes the herd of cattle metaphor to a very literal level. [The Consumerist]
  • Never too big to fail: Former Federal Reserve Chairman Paul Volcker scoffs at the notion that banks should think financial reform will protect them from getting shut down. [AFP]

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MONEY

Don’t Pay for IRS Protection

“What if I get audited?” Even the most conscientious taxpayer probably asks himself that question just as he’s sending in his return. It’s a common nightmare, this possibility that you’ll be called into the office of a bloodthirsty Internal Revenue Service agent so he can rip apart your 1040 and inflict more financial pain on you: More than 60% of taxpayers recently told the IRS Oversight Board that fear of an audit helps keep them honest on their taxes.

Enter audit protection services. These are essentially insurance plans purchased from a tax preparer or lawyer at the time of filing that promise to assist you if you get audited and to pay any additional penalties or fees arising from a tax preparer’s mistake.

Audit protection, however, does not protect you from paying for mistakes or fraud committed on your end, such as forgetting to include a 1099 or faking a deductible expense.

Many tax preparers include such a policy in their standard services, but others charge an additional 5% to 10% of the cost of your return for audit protection. You can also buy the service if you do your own taxes: TurboTax, for example, allows you to buy “Audit Defense” for $40, entitling you to have a third party represent you before the IRS and help you develop a strategy for dealing with the agency. (As is the case with other tax-prep software, you don’t have to pay extra for reimbursement of penalties and interest incurred because of a program calculation error.)

If your preparer charges for audit protection and you have a pretty vanilla tax return, you can probably pass on the extra insurance. “Audit protection would be a waste of money for someone with most of their income reported on a W-2 and relatively simple expenses. I don’t even know why you would consider it,” says Robert Willens, a professor of taxation at Columbia Business School and president of a tax consulting firm.

The chances of getting audited are about 1 in 100, and many people go their entire lives without being audited, so you’re likely paying for something that you won’t actually use. And most audits are pretty straightforward requests for documentation on a specific item. Either you’ve got the documentation or you don’t, and you can probably handle the correspondence with the IRS yourself.

Audit protection services may make sense if you’ve got a more complicated tax return or a return with a greater chance of being audited. If you’ve got your own business or made an unusually large charitable contribution, for example, an audit protection policy might be a wise move. But if that’s the case, you may be better off going with a tax preparer that includes such services in their initial fee. Since they’re on the hook to stand by their work no matter what, they just might be a little more diligent in their preparations.

Bottom line: If you’re worried that the IRS might come after you for a poorly-filed return, skip the audit protection and use the cash to buy a receipt organizer instead. That way, in the unlikely event that the IRS actually does come a-knockin’, you’ll be ready.

Updated 2/25/10

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