Talking Taxes

Last week, we talked about the NEFE survey on taxes and tax refunds.

If you're due for a refund, there are several ways you can elect to receive your money. We simply got a check in the mail and stuck it in a savings account.

But there are smarter, and more strategic, ways to get your refund:

Direct deposit: You can file a request to have your refund allocated among three different accounts, such as checking, savings and a retirement account. If you file electronically, the money should reach your accounts within seven to 10 days; if you file a paper return, it takes four to five weeks.

Paper check: It can take up to six weeks to receive your refund in the mail. Half of those who prefer getting a mailed check do so because they don't want to give out their bank account information online. Waiting a while for a check to arrive also gives them time to think and plan what to do with the extra money.

Debit cards: Your tax refund money can be loaded onto a debit card within two weeks of filing your tax return. A debit card gives you fewer options, however. You generally cannot transfer the money to a savings account, so you have to spend it.
You may be charged a fee for every transaction, checking the balance, or simply a monthly fee for maintaining the card.

Refund anticipation loans: If you choose a refund anticipation loan, you will get your money right away, but it could come at a very high cost. You will be subject to a significantly high interest rate. You also may be charged a filing fee and a same-day processing fee, which can add up to hundreds of dollars. You could end up in debt and unable to pay back the loan if you do not get the refund amount you were planning on.

However you choose to receive your money, here's how to check the status of your refund:

*Call the IRS Refund Status Hotline - 800-829-1954.

*Check Where’s My Refund? on the IRS website.

We'll be going through some advice for what to do with your refund later this week. For more tax tips on filing your taxes and receiving and spending your refund right now, visit Smart Money.

Avoid Tax Time Fraud

It's tax time, and that means financial documents are being taken out of locked filing cabinets, copied and dropped into mailboxes across America. In other words, this is prime "dumpster diving season" for identity thieves.

Here are some tips to protect individuals and business owners from fraud,provided by myID.com:

*E-file. When you file your taxes electronically, there will be no paper tax return sitting in your mailbox waiting to be stolen. There are a lot of other benefits to filing your taxes electronically as well. You will get your refund sooner. The IRS can check your returns for accuracy and skipped fields. Use a secure computer when filing electronically; update your anti-virus software

*If you choose not to file electronically, take your envelope straight to the post office rather than dropping it in your mailbox. Personal information privacy means knowing where your documents are at all times.

*If you vacation during tax season, have the post office hold your mail. An overflowing mailbox full of W-2s, 1099s, and end-of-year statements is a gold mine for identity thieves.

*Use your shredder. Consult a tax professional to know what documents to keep and what documents should be shredded. It's extremely important to avoid throwing away anything containing any personally identifying information. Put everything through a shredder before throwing it into the garbage.

*It's okay to store copies of tax returns on a hard drive - this is more secure than e-mail and can be a good way to back up your previous returns. Just be sure to properly dispose of the hard drive when you throw out the computer.

*Be aware of phishing scams. Identity thieves will call or e-mail during tax season and claim they are from the IRS. If you receive a supposed IRS e-mail, it is a fraud. The IRS does not e-mail any correspondence regarding your taxes. If you receive a call from the IRS, take down an extension number and employee name and call the IRS office at 800-829-1040. If the call is genuine, they will be happy to redirect your call back to the right department.

Tax Day

I'm working on my taxes today in advance of meeting my CPA tomorrow and filling out the dreaded FAFSA college financial aid forms this weekend.

As I begin calculating what I owe to keep our country and state running, I'm horrified to learn that Dodgers' owners Frank and Jamie McCourt paid absolutely no taxes (state or federal) on $108 million in income over five years.

In fact, I'm not sure what's worse: Their tax avoidance or the news that they did not separate their business from their personal financial accounts.

Keeping separate books is Entrepreneurship 101. Even tiny, self-employed startups are strongly advised to keep their business accounts separate from their personal accounts.

These people owned The Los Angeles Dodgers, for godssakes!

We'd never know about any of it except for the fact that they are divorcing and a lot of their messy financials are coming out in L.A. Superior Court. The tricks and traps they used to avoid paying their share of taxes are laid out in Michael Hiltzik's column, which I linked above. It's worth reading, just to get an idea of how tax avoidance is possible - and even legal. (Though Massachusetts is auditing their 2006 tax return, apparently neither California nor the IRS is after them.)

What did all that tax-free money buy? Eight houses, country club memberships, flowers from the finest florists, meals in the best restaurants, travel on the Dodgers plane and $386 a month for Jamie's makeup.

Excuse me, I've got to get back to my receipts now. My deductions are clearly not up to par.

Self-Employed Success

Are you self-employed, or hope to be shortly?

If so, you need to read the tips my expert source gives in this week's Smart Answers column.

These are common-sense, practical things you can do to increase your odds of success, but many (if not most) self-employed people probably don't do them. The tax account thing, in particular, is a bummer.

After 20 years as a freelancer, however, I can certainly appreciate these ideas. And when I think about the failed entrepreneurs I know whose homes are now in foreclosure and life savings destroyed, I'm even more enthusiastic.

Estate Tax Woes

Today's Smart Answers column discusses a problem most of us will never have: The estate tax.

Turns out that a distracted and ineffectual Congress last year failed to pass a "fix" to a quirky, one-year suspension of the estate tax in 2010. Neither side wants to be the one to bring back the "death tax."

Big surprise, right?

The result of this neglect is a pretty outrageous inequality. If your rich uncle died on Dec. 31, 2009, any money he left in his estate over $3.5 million would have been taxed. The highest rate is 45%.

If, however, Uncle Moneybags hung on until Jan. 1, 2010, you and his other heirs get all that money - sans imposition of an estate tax.

To take the outrage even farther, if dear uncle languishes all this year and finally departs on Jan. 1, 2011, any money he leaves you over $1 million will again be taxed.

This crazy situation has spawned dozens of macabre "don't pull the plug on granny" and "watch your back this December" jokes, according to the financial planner I interviewed for the column. His withering criticism of Congress was unusual, but I think the gridlock frustration has frayed the last nerve of even the most magnanimous professionals.

For an interesting way to alleviate gridlock, check out Question Time, a movement to encourage regular give-and-take sessions between Congress and the White House.

Catching Up

The weather is cooling off, my holiday decorations are starting to emerge from the garage and last weekend we spotted our first Christmas commercial on TV.

All this evidence, of course, leads to the inevitable conclusion that it's almost ... year-end tax planning time! Woo-hoo!

Yes, this is the kind of thing that gets the tingles going when you live and breathe small business. In my Smart Answers column last week, I also wrote about public relations versus social media marketing.

Today's column might be a tad more controversial - truly.

My editor asked me to take a look at the business of medical marijuana now that the Obama Administration has announced it will cease raids on dispensaries operating legally. It was quite an experience interviewing many of the "legendary" cannabis activists of the past couple of decades.

And they say that business writing is dull. Tsk, tsk.

Stimulating Tax Impact

When is it possible to use "stimulating" and "tax" in the same post header? When I'm pointing to two recent columns discussing the effects of the fiscal stimulus legislation on small business taxes - that's when!

Both this week's Los Angeles Times "In Box" column and one of last month's Smart Answers columns discuss the small business provisions in the stimulus law. It's esoteric stuff, but important for entrepreneurs to understand if they file their own taxes (or ask their accountants about if they leave that complicated job to the pros).