According to a May 16th Bloomberg report, Saverin currently owns about 4 percent of Facebook, the company he co-founded with former Harvard classmate Mark Zuckerberg. He owns approximately 53 million shares of stock in the company, which is currently valued at nearly $1.7  billion based on market prices on 5/23/2012 market pricing. Using a range of estimates for projected Facebook share values, Bloomberg estimates that Saverin will save as much as $67 million in capital gains tax by dropping his U.S. citizenship. Saverin’s tax savings will continue to accumulate since any profit from future appreciation of his Facebook stock will be free of capital gains tax, which is not imposed in Singapore.

In his defense, Saverin claims that the move was motivated by a genuine desire to live and work exclusively in Singapore, rather than a need to minimize his tax liability. Saverin has also said that he initiated steps to renounce citizenship more than a year before the Facebook IPO was announced. In a statement provided to Forbes, Saverin said “It is unfortunate that my personal choice has led to a public debate, based not on the facts, but entirely on speculation and misinformation.” Saverin has also acknowledged that he will continue to pay any federal taxes that may be due on income he earned while still a U.S. citizen.

While Saverin will have to pay a substantial exit tax on the estimated capital gains from his stock holdings at the time of his renunciation, he may be able to defer paying this tax until he actually sells his shares. Some lawmakers, however, have argued that enforcing an exit tax against expatriates is not enough.

Following Saverin’s announcement, Senators Charles Schumer (D-N.Y.) and Bob Casey (D.-Pa.) introduced the Ex-PATRIOT Act, which is designed to target individuals who attempt to take advantage of tax loopholes by renouncing citizenship. The bill automatically presumes that any U.S. expatriate with a net worth of at least $2 million and an average income-tax bill of at least $148,000 over the last five years has renounced their citizenship specifically to avoid taxes. The legislation would require the imposition of a 30% capital gains tax and it would also ban former citizens from re-entering the country after dropping their citizenship.

While the Ex-PATRIOT Act has drawn its own share of criticism from those who say it would unfairly target individuals who renounce citizenship for non-tax reasons, it does highlight the issue of the growing number of Americans who are giving up citizenship to avoid tax pitfalls. According to the Internal Revenue Service, at least 1,788 Americans expatriated in 2011, which represent an eight-fold increase since 2008.

In addition to the debate over Saverin’s move, Facebook has also drawn criticism over reports that it plans to claim $16 billion in tax deductions, which would effectively zero out its tax liability for 2012. Federal tax law allows Facebook to deduct hundreds of millions of dollars worth of stock options issued to company executives. According to a May 18th CBS news report, the move would allow Facebook to collect a $500 million tax refund and potentially reduce its tax liability for years to come.

Reportedly, Saverin will be removed from the Forbes 400 list of wealthiest Americans. It’s expected that he will still be included in annual rankings of the world’s leading billionaires.

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Basic Requirements for Job Hunting Expenses

The first requirement for taking a tax deduction for job hunting expenses is that you’re seeking a job in the same line of work that you had previously; or that you are working in currently. If you are currently working but seeking a new job in the same line of work, you can deduct eligible job hunting expenses that exceed 2% of your income.

Eligible Expenses

You can deduct the cost of having a resume created or copied, career counseling expenses, and phone calls related to the job search. The following are examples of eligible expenses under the job hunting tax deduction, and are described in detail in IRS Publication 529:

• Employment Agencies: if you pay an agency to help you find a new job in your current line of work, you can deduct the expense. Keep in mind if your newly found employer reimburses you for the cost of the agency fees, you need to include that money as gross income up to the amount of the tax benefit you received when claiming the deduction.
• Transportation and Traveling: if you take a trip to look for a new job, you can deduct the travel expenses to get there and back. If you are taking a vacation but end up looking for work in your present career while away, you can deduct the job search expenses even if you can’t deduct the travel related expenses.
• Resume Services: if you pay a company to prepare your resume, you can deduct that expense. If you pay for copies and postage to mail to potential new employers, you can deduct those expenses as well.
• Phone Calls: if you are calling potential employers to ask about work, or calling for phone interviews, you can deduct local and long distance phone fees.

Expenses for Seeking Self-Employment

If you are trying to start your own business in your current line of work, expenses related with research or client acquisition could be tax deductible as job hunting expenses or they can likely be deducted as general business expenses.

Expenses You Cannot Deduct

While there are many job hunting expenses you can deduct to reduce your tax liability, there are also job hunting costs that are not eligible for a tax deduction. The following expenses cannot be deducted:

• Job hunting costs if looking for a new occupation in a new line of work
• Job hunting costs if you’re looking for your first job
• Job hunting costs if there is a substantial break between the end of your last job and when you began looking for your next job

How to Claim the Job Hunting Expenses

You need to itemize your expenses at tax time in order to deduct your job hunting expenses. You will keep careful track of all of your eligible job hunting expenses, and then include them on your IRS Form 1040, Schedule A on line 21 for miscellaneous itemized deductions.

Be sure to keep excellent records of your expenses because you will not be able to get any benefit on these until April of 2013.

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Early Years of Tobacco Tax

In 1794, Secretary of Treasury Andrew Hamilton proposed a tax on all tobacco products. After much debate in Congress, the tax was restricted to snuff manufacturers, and was repealed shortly after it went into effect. James Madison, one of the leaders of the tobacco tax opposition, wrote in the Annals of Congress on May 2, 1794, “As to the subject before the House, it was proper to choose taxes the least unequal. Tobacco excise was a burden the most unequal. It fell upon the poor, upon the sailors, day-laborers, and other people of these classes, while the rich will often escape it.”

Despite early and rigorous opposition to the idea of taxing tobacco products, the issue was far from closed. By the time of the Civil War (less than a century later), tobacco excise was examined again in earnest, as a means of managing the Union’s increasing debt during the war. On July 1, 1962, tobacco tax was included among other new excise passed by Congress, which encompasses cigars for the first time as well. After the war, many of these taxes were repealed, but the tobacco tax remained intact.

Tobacco tax was primarily a means of federal revenue until the 20th century, when states began to see the benefit of taxing these products on the state level. Iowa became the first state to implement a state tax on tobacco products in 1921, with 11 additional states following suit by 1930. By 1969, all 50 states and the District of Columbia had a tobacco excise, ranging from two cents in North Carolina to 18 cents in Pennsylvania.

Impact on Tobacco Use

Taxes were primarily established to develop revenue, but they serve a dual purpose in discouraging tobacco use, according to public health officials. According to the CDC, each year, cigarette smoking results in approximately 5.1 million years of lost life. Between 2000 and 2004, the CDC estimates that smoking was responsible for approximately $193 billion in health-related economic losses each year, and another $97 billion in lost productivity.

By raising the price of cigarettes through taxation, there is evidence that the number of smokers might actually decrease. The CDC predicts that for every 10 percent cigarette prices are increased, consumption by youth and young adults is reduced by four percent. Taxes may incent current smokers to kick the habit and encourage non-smokers to never start.

In recent years, many states have opted to raise cigarette taxes in an effort to make up lost revenue during sluggish economic times. In 2009, President Obama signed into law the biggest tobacco tax increase in history, to provide funding for the State Children’s Health Insurance Program (CHIP).

Cigarette Taxes by State from Lowest to Highest:

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Single Tax Brackets

The IRS has set the tax brackets for single filers based on their income level as follows (compare to 2011):

As a single taxpayer, it is worth looking into your average income and then seeing where it falls for the current tax year. If you find that your income is on the cusp between two different brackets, then it may be worth looking into how you can increase or decrease your wages to make up for the difference.

Married and Filing Jointly or Separately

The amount of taxes you have to pay can differ based on your marriage status. There are slight differences in the mode that you are taxed because there are at least twice as many expenses between two people, as opposed to paying the cost of living for just one person. The brackets are different if you are married but file separately from your spouse, and you lose out on any credits that you might incur if you file a joint return. It is generally more beneficial to file a joint return.

The tax brackets for married joint and separate filers are as follows:

Deductions and Credits

Other ways you can change your tax bracket is by making the most of your deductions and credits. For 2012, the standard deduction for single filers is $5,950, while it rose to $11,900 for married couples who will file jointly. Deductions are also awarded for retirement account contributions, buying a home and dependents. To figure out where you may fall on the tax brackets, you should figure out your estimated adjusted gross income (AGI) based on your average wages and anticipated deductions.

Looking Ahead

This current tax schedule is similar to that of the previous two tax years. 2013 can bring significant changes if the schedule is not extended beyond 2012 unless legislation prevents such adjustments. The changes will ultimately cause a few brackets to merge, which will result in higher taxation for some individuals.

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Beginnings

During the mid-1960s, the Beatles were at the height of popularity, thanks in part to the lyrical geniuses of members John Lennon and Paul McCartney. At this point, the band had made it big from more pop-like songs, such as “I Want to Hold Your Hand” and “Help!”. As social controversies began to become more main-stream in both the United States and the United Kingdom, musicians followed suit with songs that related directly to the times and to the heart and minds of listeners who connected with them.

Lead Beatles guitarist, George Harrison, had yet to directly write the lyrics of any of the band’s songs. In 1966, Harrison approached Lennon to help him write his first song for the band. Entitled “Taxman,” the song stemmed from Harrison’s dissatisfaction with the British government and the resulting tax bracket he was placed in. The astounded guitarist was notified that over 90 percent of his income was designated to be paid back to the government.

Not only did Harrison achieve to let out his frustrations, but he also pointedly referred to government leaders Edward Heath and Harold Wilson. They were referred to by McCartney and Lennon in the background vocals as “Mr. Heath” and “Mr. Wilson,” respectively. Heath was the leader of the Conservative Party in Great Britain from 1965 to 1975, and he went on to serve as the United Kingdom’s Prime Minister between 1970 and 1974. Wilson was the Labour Party’s leader, and served twice as Prime Minister—once before Heath, and again after Heath’s term ended in 1974.

The Beatles recorded “Taxman” in April, 1966 and the mixed track was officially released later that summer. It was released on the band’s album “Revolver” as the opening track. Throughout the background vocals, the band members declare, “Taxman!” in the same tune as the famous 1960s Adam West show, “Batman.”

Today’s Taxman

As April 15 rolls around each year, the “Taxman” seems to make its way on the airwaves of American radio stations and televisions. Every year when the tax deadline approaches, many radio stations play the song as a way to seek out the humor in fellow taxpayers. Post offices and even some IRS employees play the song on their office radios as ways to release the tension of the season and share a laugh or two.

During a solo tour in 1991, George Harrison played a new rendition of “Taxman”, but he changed the names of the politicians he refers to from Mr. Heath and Mr. Wilson, to Mr. Bush and Mr. Clinton. Harrison continued to play the song on his solo tours because he knew that it struck a chord with virtually everyone who has to pay taxes on their hard-earned wages.

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Since the IRS has the right to audit your tax return several years after it is filed, you should keep your W-2, 1090s and all of your financial documents for a minimum of four years. This allows you to have proof of your income for the IRS statute of limitations for audits; three years from the filing deadline for your return. If you have a deduction from losses experienced due to worthless stocks, or have record for items that can depreciate, you should retain those documents for seven years. If you own property, you should keep all of your paperwork and documentation related to the property for as long as you are the owner of that property.

It is possible for the IRS to audit after these dates if certain things occur:

• For up to six years after the filing deadline, the IRS can audit you if you underreport your gross income by 25% or more
• If you file a fraudulent tax return or fail to file at all, the IRS has no limit of time for when they might decide to audit you.

Keeping and Organizing Tax Records

After you have filed your tax return it’s time to take a break from taxes for now, right? Not so fast – it is very important to ensure you keep your financial records as safe as possible. Your tax returns are likely the most complete list of your personal information. It is required by the IRS to keep your documents in an orderly fashion. These records can be kept physically or digitally. The best solution for digitally keeping records is to scan the complete document whether it is W-2s, 1099s or bank statements, into your computer as a PDF. It is also a good idea to make backup copies of your records in-case of crash of your hard drive. Be sure to store your back ups in a safe and secure location.

Some financial institutions will keep your records if you have them file your tax return. If you choose to have one of these companies file for you, it is helpful to use that service year after year so that all of your records are in the same place. Even if these companies keep your records, you should keep your own for reliability and convenience. Some financial companies may only hold your records for eighteen months or require a fee to view older records.

Planning for Next Year’s Taxes

No one wants to think of next year’s taxes, but if you want to be sure you get all of your deductions and credits, this is a great time to be sure you are keeping good records of your required documents.

Taxes are something that should be thought of each month of the year. Organization is key to making tax time a whole lot easier. The time you spend keeping your records organized throughout the year will likely save you time when it comes to tax time for 2012 taxes. Even consider using financial software to better track expenses such as quicken or quickbooks (especially if you are a contactor or own your own small business). Also, setup organized folders to keep hard copies of important financial documents as early as you can in the year to store documents that will be needed the following tax year. You should set these folders up to be by tax year and at the turn of each year, make new folders. Keep consistent with your labeling and storing of folders so eat becomes second nature to you from year to year.

Keeping good financial records helps ensure you get all of the tax deductions and credits you are entitled to. If you make any charitable donations, keep in mind that not all charities will send acknowledgements, so you’ll want to retain these records so you can claim the deduction at tax time. It is much easier to organize your paperwork throughout the year in preparation for next year’s taxes, rather than try to do it all in April of next year!

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Penalties and Consequences of Missing Tax Deadlines

Your personal situation contributes to the extent of consequences and penalties you face for missing the tax filing deadline. For some, the consequences are minimal or even nothing at all, while others end up paying high interest and penalties. Here’s a list of all potential penalties and consequences involved with missing a tax deadline:

• No Penalties or Refund Loss Within 3 Years: If you are owed a refund from the IRS and you file your taxes within three years, you won’t incur penalties or loss of refund. File beyond the three years however, and you’ll forfeit the refund you would have gotten.
• Failure to File Penalty: A .5% monthly penalty up to 25% of the total amount owed is incurred when you owe the IRS and have not paid or filed your tax return.
• Failure to Pay Penalty: A penalty incurred by individuals who file their taxes but do not pay the amount owed. The penalty starts at .5% a month and can reach up to 25% of the original amount owed to the IRS.
• Combined Penalty: This penalty is a combination of the Failure to File and Failure to Pay penalties. The maximum penalty is up to 47.5% of the original amount owed to the IRS.
• IRS Tax Collection: If you don’t resolve the money you owe or make arrangements to file back taxes, the IRS will have no choice but to enter the tax collection process. Your tax return will be processed by the IRS for you, and they will not take the time to find deductions or credits that you are entitled to which means you will be paying more taxes than you would have if you filed them on your own. You will receive letters from the IRS instructing you to take action or tax liens and levies will be made. You may face wage garnishments or assets being taken from you in order to pay the IRS.
• Tax Fraud Penalties: If it’s determined you skipped filing your income taxes because you wanted to avoid paying taxes you owe, you could face tax fraud penalties up to 75% of the total original taxes you owe.
• Jail: In some severe and rare cases, people who don’t file tax returns can be put in jail for a year and fined $25,000 for every year a tax return wasn’t filed.

Reduce the Consequences and Penalties for Missing a Tax Deadline

The sooner you take action after missing a tax deadline, the better off you will be. While everyone has a different reason for missing the deadline, there are a number of common situations and tips for reducing the consequences or penalties:

• Forgot to file or loss track of time: Many people just get busy and forget their taxes are due or the date is here before they know it! Take time out and get your taxes completed as soon as you realize you missed the deadline.
• Don’t have cash to pay taxes owed: Don’t ever avoid filing your taxes because you can’t afford to pay – you’ll only make the amount you owe bigger. File your taxes on time (or as soon as you can) and then make arrangements to pay for them. You can often set up a payment plan or other arrangement with the IRS which will be less costly than waiting until you can come up with the money to pay it. Keep in mind that the penalties for not filing and not paying your taxes are 10x greater than the penalties if you file but don’t pay.
• Hoping not to pay taxes you owe: You can’t pretend you don’t owe taxes just to get out of paying them! The IRS will find out if you didn’t file just because you didn’t want to pay taxes. If they discover you didn’t file because you were hoping to avoid taxes, the penalties are increased to tax fraud, and you’ll end up paying a LOT more.

Can Tax Penalties Be Eliminated?

In some situations you can have IRS penalties eliminated if you show you should not be liable for them. If you have a reasonable explanation for missing the tax deadline or not paying the taxes you owe on time, the IRS will sometimes cancel penalties under a process called “Penalty Abatement”. Here are common situations in when penalties may be eliminated (many more situations apply as well):

• Death: If a family member dies, the IRS will often eliminate penalties associated with missing a tax deadline.
• Natural Disaster: If your documents or home are ruined in a natural disaster or created extreme hardships, the IRS will sometimes eliminate penalties associated with missing the tax deadline.
• Stranded or Absent: In some situations, you won’t be able to access your records to file a tax return – such as being in prison, hospital, rehab, or stranded in another country.

Each penalty abatement request is evaluated on a case by case basis. If the IRS feels you had a good reason for missing the deadline, they can remove penalties.

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1. Filing late can help you avoid an audit

While many tax professionals claim that filing an extension is one of the best ways to avoid IRS scrutiny, there is no evidence that submitting your return late has any impact on whether or not you’ll be targeted for an audit. Generally, speaking, the screening process for audit selection doesn’t even begin until several months after the April filing deadline. The IRS then has a three-year window after you file in which to initiate an audit (some stipulations apply). Typically, it takes anywhere from 18 months to two years for taxpayers to receive their initial audit notification.

2. Hiring a tax professional guarantees you won’t be audited

While hiring a qualified tax attorney or professional accountant to complete your taxes may provide with you peace of mind, it doesn’t necessarily guarantee that you won’t be audited. When determining which taxpayers to audit, the IRS uses a specific formula which calculates the probability of a particular return yielding additional taxes, interest and penalties. Hiring someone to do your taxes may actually put you at greater risk for an audit if they don’t know what they’re doing or if you fall victim to a fraudulent tax preparation scheme.

3. Claiming certain deductions or credits will trigger an audit

Claiming tax deductions or credits that you’re entitled to does not in itself make you a target for an audit. As long as you have the documentation to support your claim, there is no reason why you should avoid getting the full amount of tax benefits you’re entitled to. The potential for problems only arises when you claim credits or deductions you’re not entitled to or your deductions are substantially higher than what is considered “normal” for your income and filing status. For example, if you make $30,000 a year and claim $10,000 in charitable deductions, the IRS may be more likely to raise an eyebrow.

4. Filing an amended return will lead to an audit

If you uncover an error after filing your taxes or you receive additional W-2s, 1099s or other tax forms, filing an amended return can help you to correct any issues with your return. While amending your return may increase your tax liability, in some cases, it can also generate a larger refund. Many taxpayers, however, are afraid to amend a return even if the error is in their favor for fear of triggering an audit. While amending your return may cause the IRS to take a second look at your paperwork, it doesn’t necessarily increase your chances of an audit.

5. An audit automatically means you’ll have to pay

Just because you received a letter from the IRS doesn’t mean you’ll end up owing thousands of dollars in back taxes. Typically, the IRS reaches out to taxpayers to clarify information on their return or to request supporting documentation. In some cases, having the IRS take a closer look at your return can actually even generate a larger refund.

While there’s no way to guarantee that you won’t be targeted for a tax audit, learning more about the process can make the prospect less intimidating. Filing accurate returns and maintaining your paperwork are the best way to ensure that you’re prepared if you’re selected for an audit by the IRS.

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Here are 10 interesting tax facts you may not know:

1. US Tax Timeline: The first income tax in the United States was created to help finance the cost of the Civil War in July 1861 and was 3% of all income earned over $800. In 1862, the income tax was replaced by tiered income tax rates. Our current tax system was created right before World War I, in 1913.
2. Taxes Discriminate: While employers and schools are not allowed to discriminate, the U.S. government can and does discriminate when it comes to tax laws. If you are a straight, married couple you are treated differently than a gay couple. If you rent a home instead of becoming a homeowner, you are treated differently regarding taxes. Some of the tax laws benefit people who qualify for them; while others create additional expenses for those who don’t qualify.
3. Top Income Earners Used to Pay More Taxes: Before 1981, the top income bracket of tax payers had paid as much as 94% in taxes. In 1981, The Economic Recovery Tax Act lowered the top tax bracket down to 50%.
4. Taxpayers Fund Presidential Campaigns: During the 1970’s, a checkbox on income tax forms allowed taxpayers to contribute to the Presidential Campaign Fund. More than $1 billion has been provided to primary election candidates for the presidency with almost 90% of presidential candidates using the money during their campaigns. Governor George Bush did not use the public funds in 2000, and Barack Obama was the only major party nominee to decline public funds in the general election.
5. Tax Law and Regulations Described in over 5.5 million words: Not even the Declaration of Independence, the Gettysburg Address or the Holy Bible compare to the number of words in the United States tax law and regulations. In fact, even if you add all of the words in each of these documents, it doesn’t equal the number of words used to describe the tax law and regulations.
6. The so called easy tax form, 1040EZ, contains 43 Pages of Instruction: The 1040EZ, designed as the easiest income tax form to fill out.
7. Millions of People Overpay Taxes Annually: Many Americans are overpaying significant amounts to the IRS because they don’t claim all of the tax deductions and credits they’re entitled to. For the most part, it is believed this is a result of people not understanding the tax laws and forms they have to fill out as they are overly complicated.
8. A Growing Number of American Households Don’t Pay Federal Income Taxes: about 1/3 of American households pay only state income taxes. The number of people avoiding federal income taxes is growing each year.
9. History of e-File: The first income tax return to be e-filed was in January 1986. Three years later, 36 states had e-file capability, and by 1990 – everyone had the option to e-file their taxes.
10. Over 1.2 Million Tax Accountants – The United States has more tax accountants than soldiers. Americans need to hire tax professionals to help them understand the forms and file their income taxes annually, creating the need for millions of tax accountants.

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When You Need To File A 1040X Form

If you now realize that you made a mistake when you filed your 2011 tax return, you may need to file a 1040X or you may need to do nothing. If you just made an addition or subtraction error, don’t fret. The IRS will automatically correct those mistakes and adjust your return for you. Also, if you receive a notice from the IRS that they need additional information to complete your return like a missing schedule, you do not need to fill out the 1040X form. You will just need to send the data they have requested.

You will need to file a 1040X if you realize that you made other errors on your return that will alter your tax responsibility. These errors might include filing under the wrong status, forgetting to include a W-2 or other income that needed to be reported, you received a corrected 1099 that will change your return, you missed an exemption or credit you were entitled to or you need to claim an additional dependent or remove a dependent you were not entitled to claim.

Filling Out the Form and What to Include

If you have determined that you will need to file a correction then print Form 1040X from the IRS website. When filling out the form make sure you include your name, social security number, check the box for what year you are amending and carefully read and answer the remainder of the questions. According to the IRS site you should include a copy of your original return when filing and make sure you have included any additional documentation necessary for them to process your correction. This might include a missing W-2 or an updated 1099. It is important to note that you must now mail in you form as a 1040X cannot be submitted electronically.

Tips for Filing Your 1040X Form

Here are some tips to follow when filing a 1040X IRS form.

• If you need to correct more than one year you will need to fill out a form for each year you are making a correction to and mail the forms separately.
• Make sure you check the box for what year you are amending at the top of the form. The IRS will not be able to process your correction if the right box is not checked.
• If you were due a refund on your original return, wait until you have received it before mailing in your 1040X form.
• If you owe additional money to the IRS fill out and return a 1040X form as soon as you can and be sure to include payment. The sooner the IRS receives payment the less likely you are to owe large penalty fees.
• Know it can take up to three months for the IRS to process your correction.

Tips to Help You Avoid Having to File a Correction

While there are some errors that really are not preventable, a good number of tax filing mistakes can be avoided. Make sure you take the time to thoroughly proof your tax return, checking for errors like a misspelled name, incorrect social security number or checking the wrong filing status. Finally, make sure you carefully check to ensure you have taken all deductions and credits you are entitled to and that you have received all of your supporting tax documentation like W-2’s before filing.

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