Taxes: don't forget to report stolen money - News, Weather, Sports, Toledo, OH

Taxes: don't forget to report stolen money

(RNN) - Did you win big in that March Madness office pool last year? There's a tax for that.

Oddly enough, money gained illegally is also taxable. So for those who are inclined, it's best to report that chunk of change from an embezzlement scheme or stealing someone's identity.

But don't worry. The IRS is more interested in knowing how much money is flowing through people's hands and not so much in tattling to law enforcement.

It's not like they need to. A la Al Capone, the IRS can lodge tax evasion charges against people who dishonestly report or omit income information.

"Typically, what is on your tax return falls under section 6103 of internal revenue code, meaning the IRS, in general terms, cannot share that with anybody," said IRS spokesman Dan Boone. "There has to be some kind of law passed or some legal agreement between agencies before that information can be shared."

Whether intentionally or an honest mistake, failure to report income that is not job-related is one of the many mistakes people commonly make when filling out their tax forms.

People also don't take advantage of deductions that may benefit them, something Wolters Kluwer CCH tax analyst Mark Luscombe sees on a regular basis.

The ever-changing tax code makes things even more difficult for people who prepare their own returns.

"People commonly miss new things on the return," Luscombe said. "If you look historically, any time something new appears it causes problems for people."

CCH compiles a resource every tax season called the Whole Ball of Tax. It includes common missed deductions and other errors that can lead to overpaying or underpaying taxes.

This year's list highlighted changes include deductions for home offices, medical expenses, childcare and adoption and several other things.

For higher-income earners, Luscombe also warned there's a tax on net investment that never existed before - $200,000 for single filers and $250,000 for joint filers - due to funding regulations for the Affordable Care Act.

The bulk of errors on tax returns, however, are elementary and common enough that the IRS annually makes a checklist of things to avoid when filing.

Among them are forgetting to sign forms, including the wrong Social Security number or forgetting it completely, math mistakes and wrong bank account or PIN numbers.

People are encouraged to file electronically because, according to the IRS, it is 20 times more likely those who file their own paper forms will make errors.

Those problems are exacerbated as the April 15 filing deadline nears.

"Tax preparers are very busy," Luscombe said. "If you call now and say, 'I'd like you to help me,' and you've got a couple shoe boxes full of information, you're probably going to hear 'file for an extension, and we'll address those issues after April 15.' If they try to do it themselves, they may not have all the information together. They may have to get information from someone else that may not have it readily available."

Taxpayers should be mindful that filing for an Oct. 15 extension does not mean they have an extra six months to pay. It only prevents them from paying a late filing fee (5 percent interest on what they owe for up to five months), a rate that could be 10 times higher than the late payment fee (.5 percent of what is owed for up to 60 months).

The IRS can help people set up payment plans, or filers can guess how much they owe based on the previous year's return. If they underestimate their payment but are within $1,000 of the amount owed, the IRS usually waives the late payment fee.

"One of the things we want to make sure people understand is when you're filing and not paying the full amount, the worst thing you can do is delay filing," Boone said. "That means you get hit with a late payment penalty and late filing penalty."

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