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Abusive Home-Based Business Tax Schemes - Introduction

 

The IRS is providing information about abusive Home-Based Business schemes to help taxpayers avoid the pitfalls of these schemes:

  • These schemes are abusive because they manipulate and misinterpret tax laws.
  • The public should not be fooled by home-based business schemes that claim taxpayers can deduct most, or all, of their personal expenses as business expenses.
  • Taxpayers should be wary of promoters who claim otherwise.
  • The IRS and other federal agencies are aggressively pursuing and successfully prosecuting promoters of schemes and scams, including abusive home-based business schemes.
  • Participating in these schemes can result in repayment of taxes owed with interest and penalties, and possibly imprisonment and fines.
  • Even innocent taxpayers involved in these schemes can face a staggering amount of back interest and penalties.
  • Taxpayers involved in one of these schemes should correct any improper tax return filings.

 

 

 

 

 

Five Important Tax Credits 

You might be eligible for a valuable tax credit. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are even refundable, which means you might receive a refund rather than owe any taxes at all. Here are five popular tax credits you should consider before filing your 2009 Federal Income Tax Return:

  1. The Earned Income Tax Credit is a refundable credit for certain people who work and have earned income from wages, self-employment or farming. Income, age and the number of qualifying children determine the amount of the credit. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.
  2. The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
  3. The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
  4. The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).
  5. The Health Coverage Tax Credit pays up to 80% of the health insurance premiums for eligible Trade Adjustment Assistance recipients and Pension Benefit Guaranty Corporation payees. You can complete IRS Form 8885, Health Coverage Tax Credit to claim the credit on your tax return. To determine if you’re qualified, or to find out how to receive the HCTC each month, visit IRS.gov and search for “HCTC.”

There are other credits available to eligible taxpayers. Since many qualifications and limitations apply to the various tax credits, taxpayers should carefully check their tax form instructions, the listed publications and additional information available at IRS.gov. IRS forms and publications are also available by calling 800-TAX-FORM (800-829-3676).

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What to Do When a Customer Won't Pay?
 
by on 02-23-2010 11:37 AM - last edited on 02-27-2010 05:58 PM by

During tough economic times, many businesses experience difficulty in collecting outstanding invoices from customers on time.  Aging account receivables cause critical cash flow issues and can easily put your business at risk.  To protect your business you need to establish good credit practices.  After all, the survival of your business depends on getting paid. 

 

Before you agree to extend credit to a customer, establish the credit terms.  Determine when the payment will be due and what, if any, late fees or penalties will be assessed.  You may want to consider a discount for early payment or require a certain percentage of the total amount to be paid in advance.  

 

Make sure you document every aspect of the transaction.  And this may sound simplistic, but don’t forget to get your customer’s signature on all pertinent paperwork such as sales agreements, contracts, and delivery receipts.  Unfortunately, I’ve seen companies lose significant amounts of money because they trusted a customer and failed to get it in writing. 

 

Once you’ve invoiced your customer, don’t stop there.  Send a payment reminder prior to the due date.  Ted Shalek, CFO of SmartOnline*, a company specializing in software applications to help small and medium-sized businesses operate and run all aspects of their business says, “Don’t send them a reminder immediately after you send your invoice.  About seven days prior to the due date is good practice.”

 

Shalek also advises to request a read receipt if you send the payment reminder via email.  “In the email, let your customer know that you had an agreement, you provided the service or product on a timely basis and it is the customer’s obligation to provide you with payment,” he adds. 

 

If payment isn’t received in a timely fashion, then you can follow up by sending a certified letter with a return receipt requested to your customer.  Shalek says certified mail makes a point and lets your customer know you mean business. 

 

A phone call to a past-due customer or a face-to-face meeting may be necessary.  In either case, it is important to remain professional.  “You’re dealing with somebody you’ve provided a service to and you’ve made an effort to create that customer who you hope will pay you and who you hope will do business with you in the future,” Shalek  explains.  “We are dealing with difficult economic times and those customers have in many cases difficulty in making payments and if you understand the issues with the customer and you are able to deal with those issues you hopefully will do business again in the future.” 

 

Finally, if you aren’t successful in collecting outstanding invoices, you may have to resort to more drastic measures.  A collection agency or a law firm specializing in collections are options, but make sure the firm has a good reputation.  Remember, they will be representing your business and unprofessional tactics can impact your reputation.  Check with a professional advisor such as your lawyer or CPA or the Better Business Bureau before choosing a firm.  Also familiarize yourself with the Fair Debt Collection Practices Act*.